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Tuesday, August 09, 2016

Stocks Finish Nearly Flat in Choppy Session

Charles Schwab: On the Market
Posted: 8/9/2016 4:15 PM ET

Stocks Finish Nearly Flat in Choppy Session

U.S. equities finished near the unchanged mark in a session that saw a marked swing in and out of negative territory, as investors weighed some lackluster earnings reports, fairly upbeat domestic economic data, and uninspiring inflation reports out of China. Meanwhile, Treasuries and gold were higher, but crude oil prices and the U.S. dollar were lower.

The Dow Jones Industrial Average (DJIA) gained 4 points to 18,533, the S&P 500 Index inched nearly 1 point higher to 2,182 and the Nasdaq Composite rose 12 points (0.2%) to 5,225. In moderate volume, 775 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.25 to $42.77 per barrel, wholesale gasoline was $0.01 lower at $1.35 per gallon and the Bloomberg gold spot price rose $5.11 to $1,340.42 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 96.13.

Gap Inc. (GPS $27) reported a 4.0% year-over-year (y/y) drop in July same-store sales, versus the FactSet estimate of a 1.0% decline, as sales at its Gap and Banana Republic segments fell, while its Old Navy unit posted flat sales. GPS were solidly lower.

Valeant Pharmaceuticals International Inc. (VRX $28) achieved 2Q earnings-per-share (EPS) ex-items of $1.40, versus the expected $1.47, as revenues declined 11.0% y/y to $2.4 billion, compared to the projected $2.5 billion. However, shares were sharply higher as the company reaffirmed its full-year guidance and announced plans to divest assets.

Coach Inc. (COH $41) posted fiscal 4Q EPS ex-items of $0.45, above the projected $0.41, as revenues rose 15.0% y/y to $1.2 billion, roughly in line with forecasts. North American retail same-store sales rose 2.0% y/y, slightly above estimates and the first increase in in over 12 quarters. COH traded lower as the company's 4Q revenue growth and full-year EPS guidance are garnering some scrutiny among analysts.

Hertz Global Holdings Inc. (HTZ $45) announced 2Q profits ex-items of $0.41 per share, including unanticipated net charges making it unclear if the figure was comparable to the projected $0.29. Revenues declined 2.0% y/y to $2.3 billion, in line with expectations. HTZ issued full-year EPS guidance that was below estimates and shares were solidly lower.

Wayfair Inc. (W $39) fell sharply after the home furnishing retailer posted a 2Q loss of $0.43 per share, compared to the forecasted loss of $0.40 per share, and issued 3Q revenue guidance that missed expectations.

Small business optimism ticks higher

The National Federation of Independent Business (NFIB) Small Business Optimism Index for July ticked higher to 94.6 from June's 94.5 level, where the Bloomberg forecast had called for it to remain.

Preliminary 2Q nonfarm productivity (chart) declined 0.5% on an annualized basis, versus expectations of a 0.4% gain, following the unrevised 0.6% fall seen in the 1Q. However, unit labor costs rose 2.0%, versus the forecast calling for a 1.8% increase. Unit labor costs were revised lower to a decrease of 0.2% in 1Q.

Wholesale inventories (chart) rose 0.3% month-over-month (m/m) in June, compared to forecasts calling for a flat reading and May's upwardly revised 0.2% gain. Sales were up 1.9% m/m, and the inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—fell to a 1.33 months level from the 1.35 posted in May.

Treasuries were higher, as the yield on the 2-year note was 2 basis points (bps) lower at 0.71%, while the yields on the 10-year note and the 30-year bond fell 5 bps to 1.54% and 2.26%, respectively. 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's economic calendar will be fairly light, with the only scheduled reports being the Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, expected to show 5.5 million jobs were available to be filled in June, matching that in May, as well as MBA Mortgage Applications.

Europe higher following earnings, Asia mixed following Chinese inflation data

European equities finished higher, with a plethora of earnings reports that were mostly positive bolstering positive sentiment, while basic materials led a broad-based advance across the major sectors. Focus on the impact of the late-June vote in the U.K. to leave the European Union (EU) on economic data continued, with U.K. industrial production ticking higher in June, while manufacturing output declined slightly more than expected. The British pound came under some pressure versus the U.S. dollar, briefly falling below the $1.30 mark for the first time since early July amid the Brexit vote fallout. 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. And for commentary 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, Does Zika pose an Olympic-sized threat to stocks?, at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop. German exports rose by a smaller amount than anticipated in June, and the euro ticked higher versus the U.S. dollar, while bond yields in the region were mostly lower.

Stocks in Asia finished mixed, with yesterday's rebound in crude oil prices lending support, along with maintained losses in the yen, while traders digested some Chinese inflation data and monetary policy decision in India. Japanese securities advanced, with the yen holding onto yesterday's weakness, while those listed in Australia gained modest ground, led by strength in oil & gas issues, and South Korean stocks also moved higher. Mainland Chinese equities rose, while Hong Kong's market dipped slightly, following data that showed the nation's consumer price inflation rose by 1.8% y/y in July, matching forecasts, but a deceleration from the prior month's 1.9% rise, while producer price inflation declined 1.7%, after falling 2.6% in June, compared to the projected 2.0% drop. The data comes ahead of this week's plethora of reads on industrial production and retail sales, along with lending figures for last month. Schwab's Jeffrey Kleintop discusses China data in his article, Trust but Verify: Five Independent Indicators of China's Economy. Also, Schwab's Director of International Research, Michelle Gibley, CFA, offers 5 Reasons China Won't Crash the Global Economy in 2016. Read both articles at www.schwab.com/oninternational. Finally, stocks in India declined on the heels of the monetary policy decision from the Reserve Bank of India, where it kept its benchmark interest rates unchanged, as expected.

For tomorrow, the international economic calendar will offer machine orders, the Tertiary Index and inflation data from Japan, South Korea's unemployment rate, and industrial production from France.

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