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Thursday, November 10, 2016

Dow Sets Record Close, Nasdaq Finishes Well Below

Charles Schwab: On the Market
Posted: 11/10/2016 4:15 PM ET

Dow Sets Record Close, Nasdaq Finishes Well Below

U.S. stocks finished the regular trading session mixed with the Dow closing at a record high. Technology stocks underperformed to weigh on the Nasdaq, while the financials and industrials sectors registered solid gains. Treasury yields continued to rise with the longer end of the curve seeing the largest moves. In equity news, Macy's, Kohl's and Ralph Lauren moved higher following the release of their earnings reports. Gold and crude oil prices were lower and the U.S. dollar advanced.

The Dow Jones Industrial Average (DJIA) rallied 218 points (1.2%) to 18,808, the S&P 500 Index gained 4 points (0.2%) to 2,167 and the Nasdaq Composite dropped 42 points (0.8%) to 5,209. In heavy volume, 1.4 billion shares were traded on the NYSE and 2.9 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.61 to $44.66 per barrel, wholesale gasoline was $0.02 lower at $1.34 per gallon and the Bloomberg gold spot price was $21.41 lower at $1,256.57 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 98.84.

Macy's Inc. (M $41) reported adjusted 3Q earnings-per-share (EPS) of $0.17, below the $0.41 FactSet estimate, with revenues decreasing 4.2% year-over-year (y/y) to $5.6 billion, roughly in line with projections. 3Q same-store sales decreased 2.7% y/y, compared to the expected 2.8% decline. M raised its full-year same-store sales outlook and reaffirmed its EPS guidance, while noting that the trends it saw in 3Q give it confidence it can deliver on its expectations for 4Q. Separately, the company announced a strategic alliance with Brookfield Asset Management Inc. (BAM $34) to create increased value in its real estate portfolio. Shares or M rallied, while BAM traded lower.

Kohl's Corp. (KSS $51) posted 3Q profits ex-items of $0.80 per share, above the expected $0.70, as revenues decreased 2.3% y/y to $4.3 billion, roughly in line with estimates. Quarterly same-store sales declined 1.7% y/y, matching forecasts. KSS reaffirmed its full-year EPS outlook. KSS jumped.

Ralph Lauren Corp. (RL $106) announced fiscal 2Q EPS ex-items of $1.90, north of the forecasted $1.71, with revenues decreasing 8.0% y/y to $1.8 billion, roughly in line with projections. 2Q same-store sales fell 8.0% y/y, versus the estimated 6.1% decline. RL maintained its full year revenue guidance. RL gained solid ground.

Jobless claims decline more than expected

Weekly initial jobless claims (chart) fell by 11,000 to 254,000 last week, compared to the Bloomberg forecast of a decrease to 260,000, as the prior week figure was unrevised at 265,000. The four-week moving average increased by 1,750 to 259,750, while continuing claims gained 18,000 to 2,041,000, north of the estimated level of 2,025,000. For our latest look at employment, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Welcome to the Working Week: An Update on Jobs, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Treasuries were lower, with yields on the longer end of the curve continuing to rally in the wake of the results from Tuesday's election, with Donald Trump being elected the 45th U.S. President and the Republicans maintaining control of the House and Senate. The yield on the 2-year note increased 3 basis points (bps) to 0.92%, the yield on the 10-year note rose 9 bps to 2.14% and the 30-year bond rate advanced 11 bps to 2.96%.

For our latest analysis of the bond markets following the surprise election results, see Schwab's Chief Fixed Income Strategist, Kathy Jones' latest article, Change Is in the Air: A Post-Election Look at Bonds. Kathy notes that bond yields rose on news of Donald Trump's election win, in expectation of increased government spending. We believe higher inflation and interest rates are likely over the longer term, but the potential for protectionist trade policies and a stronger dollar could offset the effects of increased growth and inflation. We believe the likelihood of a Federal Reserve rate hike in December has diminished due to heightened market volatility, but market indicators suggest that a rate hike is expected. We suggest investors continue to maintain a short-to-intermediate duration portfolio with a focus on high credit-quality bonds. Read more at www.schwab.com/onbonds, and follow Kathy on Twitter: @kathyjones.

For more analysis of the election, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest article, Trump Pulls Off an Upset, as part of our election 2016 commentary at www.schwab.com/insights/category/election-2016. Michael also joins Schwab's Liz Ann Sonders in the video titled, Election 2016: The Votes Are In, so Now What?, at www.schwab.com/insights. Follow Schwab on Twitter: @schwabresearch.

Tomorrow, the U.S. economic calendar will culminate for the week with the release of November's preliminary University of Michigan Consumer Sentiment Index, projected to tick higher to 87.9 from the 87.2 registered for October's final read. The expectations and current conditions components are forecasted to come in slightly lower and higher, respectively, compared to October.

Europe dips, while Asia joins post-election rally

European equities gave up early gains and finished lower amid a failed follow through of yesterday's jump that came courtesy of positive reactions in the global markets from Tuesday's surprise Presidential election victory by Donald Trump in the U.S. Financials continued to run, with bond yields remaining in rally mode, while industrials and basic materials gained ground. However, the healthcare sector gave back some of yesterday's jump, technology stocks fell, and pressure on utilities issues persisted. The euro declined and the British pound jumped versus the U.S. dollar. In economic news, French 3Q wages rose by a smaller amount than expected, though job growth topped forecasts. Also, France's industrial and manufacturing production fell more than anticipated in September. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the global economic landscape in his article, Recession Odds Pass Key Threshold, at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished broadly higher following the rallies in Europe and the U.S. yesterday as the global market appeared to warm up to Tuesday's surprising victory by President-elect Donald Trump. Japanese equities surged, more than gaining back yesterday's drop, with the yen giving back Wednesday's rally to overshadow a larger-than-expected decline in the nation's machine orders—a gauge of capital spending—for September. Stocks in mainland China and Hong Kong advanced , while South Korean listings rallied and Indian equities also traded higher. Australian securities jumped, with technology and basic materials issues leading a broad-based rally. Amid the heightened global market 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 at www.schwab.com/oninternational.

The international economic docket for tomorrow will include the Tertiary Industry Index and PPI from Japan and industrial production from India. Reports from Europe will be limited to CPI and the Wholesale Price Index from Germany and construction output from the U.K.

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