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Thursday, August 11, 2016

Major U.S. Indexes Give Record Setting Performances

Charles Schwab: On the Market
Posted: 8/11/2016 4:15 PM ET

Major U.S. Indexes Give Record Setting Performances

U.S. stocks finished trading broadly higher as the Dow, S&P 500 and the Nasdaq Composite all registered record-high closes. Gains formed amid some upbeat earnings reports from the retail industry and as energy issues rallied with crude oil prices recovering from a two-day slide. Treasuries were lower, while domestic jobless claims and import prices both topped forecasts. The U.S. dollar was higher and gold was lower.

The Dow Jones Industrial Average (DJIA) increased 118 points (0.6%) to 18,613, the S&P 500 Index gained 10 points (0.5%) to 2,186 and the Nasdaq Composite added 24 points (0.5%) to 5,228. In moderate volume, 763 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil gained $1.78 to $43.49 per barrel, wholesale gasoline was $0.06 higher at $1.36 per gallon and the Bloomberg gold spot price lost $9.45 to $1,337.16 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 95.89.

Macy's Inc. (M $40) reported 2Q earnings-per-share (EPS) ex-items of $0.54, above the $0.48 FactSet estimate, as revenues decreased 3.9% year-over-year (y/y) to $5.9 billion, north of the projected $5.8 billion. 2Q same-store sales decreased 2.0% y/y, versus the expected decline of 4.7%. M reaffirmed its full-year EPS and sales guidance, while also announcing a series of initiatives to "drive profitable growth" and enhance shareholder value. Shares finished sharply higher.

Kohl's Corp. (KSS $44) posted 2Q EPS ex-items of $1.22, above the forecasted $1.03, with revenues declining 2.0% y/y to $4.2 billion, roughly in line with expectations. 2Q same-store sales decreased 1.8% y/y, mostly in line with estimates. KSS lowered its full-year profit outlook but shares rallied.

Alibaba Group Holding Ltd. (BABA $92) traded decisively higher after China's largest e-commerce company topped the Street's quarterly earnings and revenue forecasts, bolstered by its cloud computing services.

Valeant Pharmaceuticals International Inc. (VRX $$24) fell following a report from the Wall Street Journal that stated the company is under criminal investigation for allegedly defrauding insurers over its ties to mail-order pharmacy, Philidor RX Services LLC. VRX commented by pointing out that it previously disclosed in October 2015 that the United States Attorney's Office for the Southern District of New York commenced an investigation involving the company and it has been fully cooperating with authorities throughout the investigation. The company added that, "We do not comment on rumors about investigations, and cannot comment on or speculate about the possible course of any ongoing investigation."

Jobless claims dip, import prices unexpectedly ticked higher

Weekly initial jobless claims (chart) dipped 1,000 to 266,000 last week, versus the Bloomberg estimate of a decline to 265,000, with the prior week's figure revised lower by 2,000 to 267,000. The four-week moving average rose by 3,000 to 262,750, while continuing claims increased 14,000 to 2,155,000, north of the estimated level of 2,133,000.

The Import Price Index (chart) ticked 0.1% higher month-over-month (m/m) for July, compared to projections of a 0.4% decrease and June's upwardly revised 0.6% gain. Compared to last year, prices were lower by 3.7%, versus the 4.3% forecasted drop, and following June's positively revised 4.7% fall.

Treasuries were lower with the yield on the 2-year note rising 6 basis points (bps) to 0.74%, the yield on the 10-year note gaining 7 bps to 1.56% and the 30-year bond rate increasing 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 and Schwab on Twitter: @randyafrederick and @schwabresearch.

Tomorrow's U.S. economic calendar will culminate with a couple key reads on the all-important domestic consumer in the wake of today's upbeat earnings reports from the retail sector. Total July retail sales are expected to rise 0.4% m/m, capping off the fourth-straight monthly gain, while excluding autos, sales are forecasted to tick 0.1% higher after June's 0.7% jump. Stripping out autos and gas, sales are anticipated to grow 0.3% following the prior month's 0.7% increase. Also, the August preliminary University of Michigan Consumer Sentiment Index is projected to show consumer confidence improved to 91.5 from July's 90.0 level.

As noted in the recent Schwab Market Perspective: Is the Recent Rally for Real?, the healthy job market, which has helped move wages higher after years of stagnation, appears to be feeding into consumer confidence and retail sales. Read the whole perspective at www.schwab.com/marketinsight. Other U.S. reports slated for tomorrow include: the producer price index and business inventories.

Europe higher following earnings, Asia mixed ahead of China data

European equities traded to the upside, with earnings reports on both sides of the pond buoying sentiment, while energy stocks rebounded as crude oil prices regained some of the past two-day slide. For more on the global earnings landscape, see Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, article, Earnings estimates are rebounding: what it means for stocks, at www.schwab.com/marketinsight, and be sure to follow Jeff on Twitter: @jeffreykleintop. The Stoxx Europe 600 Index erased the sharp drop that ensued following the late-June vote in the U.K. to leave the European Union (EU), known as a Brexit. Pledges by central banks, notably the Bank of England, which last week cut its benchmark interest rate and surprisingly boosted its asset purchases, along with some relatively upbeat global economic data have helped ease concerns about the impact of the Brexit vote. For more, read Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Brexit's Impact on Sectors, Part Two  at www.schwab.com/marketinsight. However, U.K. stocks lagged behind, led by property-related issues following a report from the Royal Institution of Chartered Surveyors that suggested Brexit is hurting housing market activity. The euro battled back to unchanged territory and the British pound was lower versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mixed, though volume was lighter than usual, with markets in Japan closed for a holiday and a host of Chinese economic data slated to be released overnight. Also, central bank action was in focus, with New Zealand cutting its benchmark interest rate by 25 bps to 2.00%, while South Korea left its monetary policy unchanged. The actions were expected and stocks trading in both countries ticked higher. Australian securities declined as the two-day losing streak for crude oil prices weighed on oil & gas issues and as financials also fell amid flared-up concerns about stressed assets of some of the nation's banks. Indian equities rose, possibly aided by the recent weakness in the U.S. dollar and eased Fed rate hike expectations, which have buoyed emerging markets.

Mainland Chinese stocks declined ahead of tonight's reads on industrial production, retail sales and fixed asset investment for July, while equities in Hong Kong gained ground, bolstered by optimism that the start date of the exchange link between Hong Kong and Shenzhen could soon be announced, per Bloomberg. Ahead of tonight's Chinese economic data, Schwab's Jeffrey Kleintop, CFA, offers in his article, Trust but Verify: Five Independent Indicators of China's Economy. Also, Schwab's Director of International Research, Michelle Gibley, CFA, discusses 5 Reasons China Won't Crash the Global Economy in 2016. Read both articles at www.schwab.com/oninternational.

In addition to the aforementioned Chinese data, tomorrow's international economic docket will include the Wholesale Price Index, CPI and preliminary 2Q GDP from Germany, preliminary 2Q non-farm payrolls from France, industrial production and preliminary 2Q GDP for the Eurozone and construction output from the U.K.

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