Charles Schwab: On the MarketPosted: 10/19/2016 4:15 PM ET
Stocks Manage Decent Gains
With the Nasdaq able to hold positive territory, U.S. stocks finished the regular trading session higher amid some upbeat earnings reports and as Fed rate hike expectations remained elevated. Financials and energy issues were among the top performers and crude oil prices rallied following a bullish government oil inventory report. Treasuries and the U.S. dollar were little changed and gold moved higher. In other developments, domestic housing construction data was mixed and the Fed's Beige Book report showed economic activity continued to expand at a moderate to modest pace.
The Dow Jones Industrial Average (DJIA) rose 41 points (0.2%) to 18,203, the S&P 500 Index added 5 points (0.2%) to 2,144 and the Nasdaq Composite ticked 3 points higher to 5,246. In moderate volume, 781 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil increased $1.20 to $51.82 per barrel, wholesale gasoline was unchanged at $1.51 per gallon and the Bloomberg gold spot price gained $6.97 to $1,269.47 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 97.92.
Dow member Intel Corp. (INTC $36) reported 3Q earnings-per-share (EPS) ex-items of $0.80, above the $0.73 FactSet estimate, as revenues rose 9.0% year-over-year (y/y) to $15.8 billion, compared to the expected $15.6 billion. INTC issued 4Q revenue guidance that came in a bit shy of estimates. Shares finished solidly lower.
Morgan Stanley(MS $33) posted 3Q profits of $0.81 per share, north of the $0.63 expectation, as revenues grew 14.1% y/y to $8.9 billion, topping the forecasted $8.1 billion. MS said it saw record revenue in its wealth management segment and a strong performance in its sales and trading business. Shares closed higher.
Yahoo Inc. (YHOO $43) announced 3Q EPS ex-items of $0.20, exceeding the estimated $0.14, with revenues excluding traffic acquisition costs (TAC) declining 14.6% y/y to $857 million, below the projected $861 million. The company noted that in addition to its continued efforts to strengthen its business, it is busy preparing for integration with Verizon. YHOO gained solid ground.
For analysis of earnings and the stock markets, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Three Reasons Stocks May Avoid Another Lost Decade, at www.schwab.com/marketinsight, and follow Jeff on Twitter: @jeffreykleintop.
Housing construction activity mixed
Housing starts (chart) for September fell 9.0% month-over-month (m/m) to an annual pace of 1,047,000 units, below the Bloomberg forecast of a 1,175,000 unit rate. August starts were upwardly revised to an annual pace of 1,150,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, rose 6.3% m/m in September to an annual rate of 1,225,000 units, after August's unrevised 1,139,000 rate, and well above the expected annual pace of 1,165,000 units.
Housing data will continue to dominate the economic front tomorrow in the form of the key release of existing home sales, with contract closings expected to rise 0.4% m/m to an annual rate of 5.35 million units in September. For analysis of investing in real estate, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, article Real Estate Sector: Marketperformat www.schwab.com/marketinsight.
At 2:00 p.m. ET, the Federal Reserve released its Beige Book report—an anecdotal report on national economic activity used by the Central Bank to prepare for the next two-day monetary policy meeting which concludes on November 2. The report showed that U.S. economic activity continued to expand at a modest or moderate pace in most reporting districts from late August to early October and outlooks were mostly positive. Employment and wage growth were modest and labor market conditions remained tight in most areas. Consumer spending was mixed for the period, while demand for nonfinancial services generally expanded compared to the previous report. Manufacturing activity widely diverged amid the regional landscapes and the strong U.S. dollar continued to weigh on exports according to a few districts.
As noted in the recent Schwab Market Perspective: Spinning Our Wheels, after a temporary soft patch in August, economic data has improved. The next couple of weeks will be data heavy and we'll be watching closely to gauge likely Fed policy. Read more at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.
The MBA Mortgage Application Index rose 0.6% last week, after dropping 6.0% in the previous week. The increase came as a 0.8% decline for the Refinance Index was more than offset by a 3.0% rise for the Purchase Index. The average 30-year mortgage rate rose 5 basis points (bps) to 3.73%.
Treasuries were little changed, with the yields on the 2-year and 10-year notes flat at 0.80% and 1.74%, respectively and the 30-year bond rate ticked nearly 1 bp lower to 2.50%. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the interest rate environment in her latest article, Are Bond Yields About to Rise?, at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.
Ahead of tomorrow's existing home sales release, the U.S. economic calendar will also deliver the Philly Fed Manufacturing Index, forecasted to have declined to 5.0 for October from 12.8 in September, along with the weekly initial jobless claims report, expected to show an increase to 250,000 from last week's 246,000 level. Finally, we will also receive the Leading Index, with economists expecting a 0.2% m/m increase for September after the 0.2% decline experienced in August.
The markets continue to grapple with the uncertain U.S. political landscape as the November election looms and ahead of tonight's third and final Presidential debate. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Where Do the Candidates Stand? Key Issues for Investors, as part of our election 2016 commentary at www.schwab.com/insights/category/election-2016, where you can also find timely analysis of The Stock Market and Election Cycles. Also, for a look at the election and the potential impact on sectors, see Schwab's Brad Sorensen's, CFA, latest Schwab Sector Views: Election Specialat www.schwab.com/marketinsight.
Europe ticks higher, Asia mixed following China data
European equities turned modestly higher, though caution likely persisted ahead of tomorrow's monetary policy decision from the European Central Bank (ECB), which will be preceded by tonight's final U.S. Presidential debate. Also, the global markets digested a plethora of mixed Chinese economic data, as an in line 3Q GDP report was met with a disappointing read on industrial production. Crude oil prices rose to lift the energy sector on the heels of a bullish U.S. oil inventory report, while financials modestly extended a recent rally that has come from upbeat earnings from the sector in the U.S. and a reprieve from elevated concerns toward European banks. For analysis of the potential impacts of flare-up in the European banking sector uneasiness, see Schwab's Fixed Income Director Collin Martin's, CFA, article titled, European Bank Stress: What Does It Mean for the Preferred Securities Market? at www.schwab.com/marketinsight. In economic news in the region, eurozone construction output declined m/m in August, while the U.K. August employment change rose more than expected. The euro dipped and the British pound ticked higher versus the U.S. dollar, while bond yields in the region finished mixed.
With the global markets choppy amid a plethora of uncertainty/volatility, Schwab's Jeffrey Kleintop, CFA, reminds investors, Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think. Read these articles, at www.schwab.com/oninternational.
Stocks in Asia finished mixed as the markets digested a divergent bag of Chinese economic data, while the yen gained some ground and attention remains on earnings, politics and Fed rate hike expectations in the U.S. China's 3Q GDP grew 6.7% y/y, matching forecasts and 2Q's expansion, helping ease concerns about slowing growth in the world's second largest economy. However, some of the enthusiasm may have been tempered by a separate release showing the nation's industrial production rose at a smaller-than-expected amount in September. China also showed September retail sales and fixed asset investment both rose in line with forecasts. The data follows yesterday's stronger-than-expected lending figures for last month. Mainland Chinese equities finished flat and those traded in Hong Kong declined. For more on China, see Schwab's Director of International Research Michelle Gibley's, CFA, article, 5 Big Risks Posed by China (And Why They Shouldn't Crash Global Markets in 2017) at www.schwab.com/oninternational.
Japanese stocks rose amid the slight gain in the yen, and Australian securities advanced with weakness in oil & gas issues being more than offset by strength in basic materials issues. South Korean equities finished flat and Indian stocks gave back some of yesterday's rally.
In addition to the aforementioned ECB monetary policy meeting, tomorrow's international economic docket will yield machine tool orders from Japan, business confidence and employment data from Australia, retail sales from the U.K., PPI from Germany and the current account for the Eurozone.