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Monday, August 08, 2016

Muted Action Amid Light News

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

Muted Action Amid Light News

Despite a jump in crude oil prices giving the energy sector a boost, U.S. equities finished lower, led by declines in healthcare stocks. Meanwhile, a dormant economic calendar was unable to provide any spark, and a lackluster trade report in China also dampened sentiment. M&A activity dominated the equity front, headlined by Dow member Wal-Mart Stores' acquisition of Jet.com for roughly $3.0 billion. Treasuries were little changed and the U.S. dollar was higher, while gold was modestly lower.

The Dow Jones Industrial Average (DJIA) lost 14 points (0.1%) to 18,529, the S&P 500 Index fell 2 points (0.1%) to 2,181 and the Nasdaq Composite declined 8 points (0.2%) to 5,213. In moderate volume, 775 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil rose by $1.22 to $43.02 per barrel, wholesale gasoline lost $0.02 to $1.36 per gallon and the Bloomberg gold spot price ticked $0.60 lower to $1,335.40 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.2% to 96.38.

Dow member Wal-Mart Stores Inc. (WMT $73) announced an agreement to acquire e-Commerce company Jet.com Inc for about $3.0 billion in cash, with an additional $300 million of Walmart shares being paid to the company over time as part of the transaction. WMT finished lower.

Tyson Foods Inc. (TSN $74) reported fiscal 3Q earnings-per-share (EPS) ex-items of $1.21, above the $1.06 FactSet estimate, with revenues declining 6.6% year-over-year (y/y) to $9.4 billion, compared to the expected $9.3 billion. TSN raised its full-year EPS outlook and shares gained modest ground.

Steinhoff International Holdings NV announced an agreement to acquire Mattress Firm Holding Corp. (MFRM $64) for $64.00 per share in cash, with a total equity value of about $2.4 billion. MFRM surged over 114%.

Economic calendar dormant

Treasuries finished nearly unchanged, with the economic docket void of any major reports today. The yields on the 2-year and the 10-year note were flat at 0.73% and 1.59%, respectively, while the 30-year bond rate was 1 basis point lower at 2.30%. For more on the bond markets, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, With a Whimper Instead of a Bang: Is the Great Bond Bull Market Over?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

Tomorrow, the week's domestic economic calendar will heat back up, with the releases of preliminary 2Q nonfarm productivity and unit labor costs, forecasted to show production rose 0.5% month-over-month (m/m) and labor costs gained 1.8% m/m, as well as the NFIB Small Business Optimism Index for July, with economists anticipating a level of 94.5, matching that seen in June, while wholesale inventories will round out the day, expected to remain at June's flat reading.

However, the week will be headlined by some key reads on the consumer in the form of July retail sales and the preliminary University of Michigan Consumer Sentiment Index for August. In the recent Schwab Market Perspective: Is the Recent Rally for Real?, our experts note that consumer confidence remains relatively healthy according to the Conference Board, likely due at least in part to a continued healthy job market. This has helped to move wages higher after years of largely tepid or nonexistent gains according to the Atlanta Fed Wage Tracker, which could have aided the recent move up in the retail sales estimates for 2016 by the National Retail Federation. Read more at www.schwab.com/marketinsight, and be sure to follow Schwab on Twitter: @schwabresearch.

Europe and Asia higher in wake of U.S. employment report

European equities finished modestly higher, with financials leading the way on the heels of Friday's upbeat U.S. labor report, an analyst upgrade in the sector and as Italian banking concerns remained in check. Basic materials stocks gained ground despite some lackluster Chinese trade data. Stronger-than-expected reads on German industrial production, French business sentiment and eurozone investor confidence may have also provided some support, while U.K. stocks modestly added to a rally that began Thursday following the Bank of England's decision to cut its benchmark interest rate and surprisingly boost its asset purchases in the wake of the late-June Brexit vote. For more on the potential impact of the Brexit vote, 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. The euro dipped and the British pound was lower versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished higher, with Friday's stronger-than-expected U.S. July nonfarm payroll report boosting global sentiment and overshadowing a lackluster trade report out of China. Japanese equities rallied, bolstered by the yen extending its decline after the U.S. dollar gained ground on Friday's U.S. jobs data. Mainland Chinese stocks and those traded in Hong Kong advanced, even as the nation reported larger-than-expected drops in July exports and imports when reported in dollar terms. Australia's markets moved higher, led by the heavyweight oil & gas, financials and basic materials sectors, while some upbeat earnings reports helped push Indian securities higher, while South Korean stocks also gained ground. For analysis on how the recent Zika pandemic may or may not affect the markets, see the latest article from Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, titled Does Zika pose an Olympic-sized threat to stocks?, at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop.

Tomorrow's international economic calendar will be fairly heavy, with reports scheduled for release to include: CPI and PPI from China, business confidence from Australia, trade data from Germany, industrial and manufacturing production and trade figures from the U.K., and retail sales from Brazil. In central bank action, the Reserve Bank of India will meet, with no change to its monetary policy stance expected.

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