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Wednesday, November 09, 2016

Unexpected Rally Ensues after Election Ends

Charles Schwab: On the Market
Posted: 11/9/2016 4:15 PM ET

Unexpected Rally Ensues after Election Ends

Despite a dramatic decline in capital markets across the globe on the heels of the U.S. Presidential election victory for Donald Trump, U.S. stocks shrugged off morning weakness and rallied, with the Dow nearing record-high levels. Financials and healthcare stocks added the most to gains, while consumer staples underperformed and Treasury yields surged on the mid-to-long end of the curve. The U.S. dollar and crude oil prices were higher, while gold ticked lower.

The Dow Jones Industrial Average (DJIA) rallied 257 points (1.4%) to 18,590, the S&P 500 Index jumped 24 points (1.1%) to 2,163 and the Nasdaq Composite added 58 points (1.1%) to 5,251. In heavy volume, 1.4 billion shares were traded on the NYSE and 2.8 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.29 to $45.27 per barrel, wholesale gasoline was $0.01 lower at $1.36 per gallon and the Bloomberg gold spot price ticked $0.31 lower to $1,275.37 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.7% higher at 98.58.

Dish Network Corp. (DISH $58) reported 3Q earnings-per-share (EPS) of $0.64, below the $0.67 FactSet estimate, as revenues ticked 0.5% higher year-over-year (y/y) to $3.8 billion, compared to the projected $3.7 billion. Net Pay-TV subscribers declined by a smaller-than-expected amount, while its broadband net subscribers unexpectedly decreased. Shares traded higher.

Viacom Inc. (VIAB $38) posted 3Q profits ex-items of $0.69 per share, above the projected $0.66, as revenues fell 15.0% y/y to $3.2 billion, below the expected $3.3 billion. The company said its ratings stabilized at several of its key networks and Paramount has begun to rebuild a full, dynamic slate of films. Shares overcame early losses and finished higher.

Wholesale inventories tick higher, mortgage applications decline

Wholesale inventories (chart) rose 0.1% month-over-month (m/m) in September, following the 0.1% dip in August, and compared to the Bloomberg forecast calling for a 0.2% increase. Sales were up 0.2% m/m, versus the expected 0.5% increase and the inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—remained at August's 1.33 months level.

The MBA Mortgage Application Index decreased 1.2% last week, matching the previous week's decline. The drop came as the Refinance Index fell 2.7%, more than offsetting a 1.4% gain for the Purchase Index. The average 30-year mortgage rate increased 2 basis points (bps) to 3.77%.

Treasuries were sharply lower, as yields on the mid-to-long end of the curve rallied in the wake of the results from yesterday'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 gained 5 bps to 0.90%, the yield on the 10-year note jumped 22 bps to 2.07% and the 30-year bond rate surged 25 bps to 2.87%.

For analysis of the election results, 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 notes that market volatility is likely to remain highly elevated amid uncertainty about Trump's presidency. Moreover, he points out that many of Trump's policy proposals will take considerable time to work their way through Congress once he takes office in January. For example, while Trump and Republicans on Capitol Hill have championed tax cuts, the details of tax reform legislation will be complex and are unlikely to be resolved quickly.

Amid the backdrop of heightened global market volatility and uncertainty, Schwab's Chief Global Investment Strategist 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, and follow Jeff on Twitter: @jeffreykleintop.

Tomorrow, the U.S. economic calendar will be light, offering weekly initial jobless claims, which are expected to have declined to a level of 260,000 from the previous week's 265,000.

Europe turns mostly higher, Asia falls

European equities overcame early pressure and finished mostly higher, with the global markets appearing to come to grips with last night's upset victory for Donald Trump in the U.S. Presidential Election. Healthcare issues rallied to boost U.K. and Swiss stock markets and financials gained ground as bond yields moved higher, though utilities and consumer-related stocks saw pressure. The euro was lower and the British pound traded to the upside versus the U.S. dollar, while the European Central Bank suggested vigilance in its policy in the wake of the surprising U.S. election results. In economic news, French business sentiment was unchanged in October from September's upwardly revised level to match forecasts, while the U.K. trade deficit widened in September. Schwab's Jeffrey Kleintop, CFA, discusses central bank decisions and the recent movement in the global yield curve in his latest article, Recession Odds Pass Key Threshold at www.schwab.com/oninternational. Jeff notes that the yield spread rose for many countries in October, a key indicator that the risk of global recession and an accompanying bear market in the coming year diminished during the month.

Stocks in Asia fell broadly, led by a drop in Japan as the yen jumped amid a rise in risk aversion as the global markets reacted to Donald Trump's upset victory in the U.S. Presidential election, which sparked uncertainty. Equities trading in mainland China and Hong Kong fell, while Indian and South Korean stocks also finished lower. Australian securities dropped with technology and oil & gas issues leading a broad-based decline. In economic news, Japan's September trade surplus widened, and China's consumer price inflation rose in line with forecasts and the nation's producer price inflation came in hotter than expected for October. Schwab's Jeffrey Kleintop, CFA, offers a World Tour: An Around The World Look At the Economic Landscape, at www.schwab.com/oninternational.

The international economic docket for tomorrow will yield the release of machine and machine tool orders from Japan, local car sales from India and consumer inflation expectations, home loans and investment lending from Australia. European reports are expected to include non-farm payrolls, industrial and manufacturing production from France and industrial production from Italy.

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