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Monday, August 15, 2016

Bulls Run Down Another Record

Charles Schwab: On the Market
Posted: 8/15/2016 4:15 PM ET

Bulls Run Down Another Record

U.S. stocks finished the trading session with solid gains, leading to another round of record-setting closes for the Dow, S&P 500 and Nasdaq as crude oil prices continued to climb and a report on domestic homebuilder sentiment showed improvement. Treasuries and the U.S. dollar were lower and gold inched higher, while a read on regional manufacturing activity unexpectedly fell back into contraction territory. In M&A news, Mid-America Apartment Communities agreed to acquire Post Properties for approximately $3.9 billion.

The Dow Jones Industrial Average (DJIA) increased 59 points (0.3%) to 18,635, the S&P 500 Index added 6 points (0.3%) to 2,190 and the Nasdaq Composite gained 29 points (0.6%) to 5,262. In moderate volume, 728 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil was $1.25 higher at $45.74 per barrel, wholesale gasoline added $0.03 to $1.40 per gallon and the Bloomberg gold spot price ticked $3.64 higher to $1,339.61 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.1% lower to 95.61.

Sysco Corp. (SYY $52) reported fiscal 4Q earnings-per-share (EPS) ex-items of $0.64, above the $0.61 FactSet estimate, as revenues rose 2.2% year-over-year (y/y) to $13.6 billion, compared to the expected $13.7 billion. Shares gave up early gains and finished modestly lower.

Mid-America Apartment Communities Inc. (MAA $96) announced an agreement to acquire rival apartment real estate investment trust (REIT), Post Properties Inc. (PPS $68), for about $3.9 billion. Under the terms of the deal, each share of PPS will be converted into 0.71 shares of newly issued MAA common stock. MAA traded solidly lower, while PPS closed nicely higher.

Homebuilder sentiment improves modestly

The August National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month ticked higher to 60 from July's downwardly revised 58 figure, matching the Bloomberg estimate. Builder confidence remains above the key 50 mark, which separates good and poor conditions. The NAHB said builder confidence remains solid in the aftermath of weak GDP reports that were offset by positive job growth in July.

Today's report kicked off some key housing data for the week as it will be followed by tomorrow's look at construction activity in the form of housing starts and building permits. As noted in the , Schwab Market Perspective: Is the Recent Rally for Real?, the housing market is continuing to look healthy, helping us remain relatively optimistic the current bull market will continue for the foreseeable future. Read the whole perspective at www.schwab.com/marketinsight.

The Empire Manufacturing Index showed output from the New York region unexpectedly fell into contraction territory (a reading below zero) for August. The index dropped to -4.2 from July's unrevised 0.6 level, with forecasts calling for an improvement to 2.0.

Treasuries were lower, with the yield on the 2-year note increasing 2 basis points (bps) to 0.73%, the yield on the 10-year note gaining 4 bps to 1.56%, and the 30-year bond rate rising 5 bps to 2.28%. For analysis on the fixed income markets see the video from Schwab's Managing Director of Trading and Derivatives, Randy Frederick and Fixed Income Director Collin Martin, CFA, titled Tempered Expectations for Bond Returns: Why Hold Bonds?, at www.schwab.com/insights. Follow Randy on Twitter: @randyafrederick. Also, Schwab's Chief Fixed Income Strategist, Kathy Jones addresses in her latest article, What Does Strong Job Growth Mean for Bond Investors?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

This week's U.S. economic calendar will likely be headlined by Wednesday's release of the minutes from the Federal Reserve's July meeting. Schwab's Chief Investment Strategist, Liz Ann Sonders communicates in her recent article A Hopeful Transmission: Fed Holds Rates Steady, But…, that it’s clear the FOMC would like to continue to normalize rates, albeit gradually. Although no specific timing was mentioned, the FOMC repeated that it expects “economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” Read the whole article at www.schwab.com/marketinsight and be sure to follow Liz Ann on Twitter: @lizannsonders.

Additional notable releases expected tomorrow include the Consumer Price Index (CPI) and the Fed's industrial production and capacity utilization report.

Europe ticks higher to begin week, Asia mixed following Japan GDP report

European equities gained modest ground, with oil & gas issues leading the way amid the continued rebound in crude oil prices and automakers also advanced to lend some support. However, global growth concerns continued to fester to dampen conviction, following a disappointing GDP report out of Japan, which followed last week's mostly softer-than-expected Chinese economic data. Amid this backdrop, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversificationat www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop. The euro gained ground and the British pound was lower versus the U.S. dollar, while bond yields in the region moved mostly higher. Markets in Italy were closed for a holiday. 

Stocks in Asia finished mixed in lighter-than-usual volume with markets in South Korea and India closed for holidays, while investors digested a disappointing Japanese 2Q GDP report. Equities in Japan declined with the yen showing some strength despite the nation reporting a 0.2% quarter-over-quarter annualized rate of expansion, versus the projected 0.7% growth and the 2.0% expansion posted in 1Q. Mainland Chinese stocks rallied and securities in Hong Kong advanced amid continued optimism that the start date for the exchange link between Hong Kong and Shenzhen could be announced soon, while M&A optimism toward the real estate market lingered and stimulus expectations remained in the wake of last week's plethora of mixed economic data. Following the Japanese GDP report and last week's China data, Schwab's Jeffrey Kleintop discussesFive ways investors can make the most of slower growth at www.schwab.com/oninternational. Finally, stocks in Australia ticked higher, buoyed by strength in financials that more than offset a drop in the basic materials sector.

The international economic docket for tomorrow will yield wholesale prices from India and the Wage Price Index from Australia. Releases from across the pond will include the CPI and PPI from the U.K., the trade balance for the Eurozone and the Zew Economic Sentiment Survey from Germany

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