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Wednesday, August 10, 2016

Stocks Slide on Crude Pressure

Charles Schwab: On the Market
Posted: 8/10/2016 4:15 PM ET

Stocks Slide on Crude Pressure

Domestic stocks closed the regular trading session lower amid some mixed earnings results and as crude prices declined, despite a pullback for the U.S. dollar, on the heels of a report that showed a surprising rise in oil inventories. Treasuries managed gains, while domestic data revealed slightly fewer-than-expected job openings for June and a rise in weekly mortgage applications. Gold managed a mild move higher.

The Dow Jones Industrial Average (DJIA) declined 37 points (0.2%) to 18,496, the S&P 500 Index lost 6 points (0.3%) to 2,176 and the Nasdaq Composite fell 21 points (0.4%) to 5,205. In moderate volume, 749 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil lost $1.06 to $41.71 per barrel, wholesale gasoline was $0.05 lower at $1.30 per gallon and the Bloomberg gold spot price rose $5.72 to $1,346.45 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 95.63.

Dow member Walt Disney Co. (DIS $98) reported fiscal 3Q earnings-per-share (EPS) of $1.62, one penny above the FactSet estimate, as revenues rose 9.0% year-over-year (y/y) to $14.3 billion, compared to the expected $14.2 billion. Revenues at the company's parks and resorts and studio segments topped forecasts, while its media and networks division sales came in just shy of forecasts. DIS announced that it is acquiring a 33% stake in technology services and video streaming company, BAMTech, for $1.0 billion, while also reporting that it will launch a new ESPN-branded multi-sport direct-to-consumer service. Shares finished higher.

Michael Kors Holdings Ltd. (KORS $49) posted fiscal 1Q EPS ex-items of $0.88, topping the expected $0.74, as revenues increased 0.2% y/y to $988 million, versus the forecasted $952 million. 1Q same-store sales fell 7.4% y/y, compared to the projected 4.8% drop. KORS issued softer-than-expected 2Q guidance, while reaffirming its full-year earnings outlook. Shares closed lower.

Ralph Lauren Corp. (RL $103) announced fiscal 1Q profits ex-items of $1.06 per share, north of the estimated $0.89, as revenues declined 4.0% y/y to $1.6 billion, versus the forecasted $1.5 billion. 1Q same-store sales dropped 6.0% y/y, compared to the expected 4.8% decrease. RL maintained its full-year guidance and shares rallied.

Yelp Inc. (YELP $37) jumped after reporting 2Q EPS of $0.01, versus the $0.07 per share loss that was expected, as revenues rose 30.0% y/y to $173 million, versus the forecasted $170 million. YELP raised its full-year guidance.

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.

Job openings and mortgage applications rise

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, showed 5.62 million jobs were available to be filled in June, up from May's 5.51 million level, and versus the Bloomberg forecast of 5.68 million. The hiring rate ricked higher to 3.6% from 3.5%, while the separation rate dipped to 3.4% from May's 3.5% pace.

The MBA Mortgage Application Index gained 7.1% last week, after falling 3.5% in the previous week. The increase came as a 9.6% rise for the Refinance Index was accompanied by a 2.6% gain for the Purchase Index. The average 30-year mortgage rate dipped 2 basis points (bps) to 3.65%.

Treasuries were higher, with the yield on the 2-year note declining 3 bps to 0.68%, while the yields on the 10-year note and the 30-year bond decreased 4 bps to 1.51% and 2.23%, 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. Also, for analysis of portfolio management in volatile times in the market, see our latest article, Does Your Risk Tolerance Change Over Time?, at www.schwab.com/insights and follow Schwab on Twitter: @schwabresearch.

Tomorrow, the U.S. economic calendar will bring the release of the Import Price Index, forecasted to have declined 0.4% m/m during July, after registering a 0.2% increase in June. We will also receive weekly initial jobless claims, expected to have decreased to a level of 265,000 from the previous report's 269,000.

Europe lower on oil, earnings and BoE hiccup, Asia mixed

European equities finished mostly lower amid the backdrop of global monetary policy divergence and uncertainty, with oil & gas issues seeing some pressure as crude oil prices lost ground for a second session. Moreover, a plethora of earnings data weighed on the markets, along with some strength in the euro. The British pound gave up early gains and finished little changed versus the U.S. dollar. The pound saw a brief bounce on the heels of yesterday's failed bond buying operation by the Bank of England (BoE), which came up short of hitting its target for bond purchases. The BoE surprisingly boosted its asset purchases and cut its benchmark interest rate following its monetary policy meeting last week aimed at bolstering the economy in the wake of the late-June vote by the U.K. to leave the European Union (EU), known as a Brexit. 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 Jeffrey Kleintop, CFA, Does Zika pose an Olympic-sized threat to stocks?, at www.schwab.com/oninternational. French industrial and manufacturing production figures showed unexpected month-over-month declines in June. Bond yields in the region lost ground.

Stocks in Asia finished mixed ahead of tomorrow's national holiday in Japan and as traders await a plethora of Chinese economic reports. Japanese equities declined in light trading ahead of the holiday and as the yen showed some strength to offset a stronger-than-expected increase in the nation's key machine orders for June, which is used as a gauge of capital spending. Mainland Chinese issues were lower, while stocks trading in Hong Kong were higher ahead of this week's flood of economic data, including tomorrow night's releases of industrial production and retail sales reports, which will be followed by lending figures for last month. Schwab's Jeffrey Kleintop, CFA, 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. Securities in India fell and South Korean listings finished flat, while weakness in oil & gas issues on yesterday's dip in crude oil prices outweighed some strength in the healthcare sector to drag Australian equities lower.

The international economic docket for tomorrow will be light, offering inflation expectations from Australia and the CPI from France and Italy, while Italy will also report trade data.

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