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Thursday, December 29, 2016

Stocks Finish Lower, One Session Left for 2016

Charles Schwab: On the Market
Posted: 12/29/2016 4:15 PM ET

Stocks Finish Lower, One Session Left for 2016

U.S. stocks closed with mild losses as crude oil prices slipped lower in the wake of an unexpected rise in oil inventories reported by the government. Treasuries and gold were higher and the U.S. dollar dipped. In economic news, weekly jobless claims fell in line with expectations and a preliminary read for the U.S. goods trade deficit unexpectedly widened.

The Dow Jones Industrial Average (DJIA) decreased 14 points (0.1%) to 19,820, the S&P 500 Index lost nearly 1 point to 2,249 and the Nasdaq Composite declined 6 points (0.1%) to 5,432. In moderately-light volume, 572 million shares were traded on the NYSE and 1.3 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.29 lower to $53.77 per barrel and wholesale gasoline was unchanged at $1.68 per gallon. Elsewhere, the Bloomberg gold spot price added $15.93 to $1,157.60 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 102.65.

Sears Holdings Corp. (SHLD $9) gained ground after announcing that it has obtained a secured standby letter of credit facility, which provides the company with additional liquidity to fund its operations.

Jobless claims drop as expected

Weekly initial jobless claims (chart) fell 10,000 to 265,000 last week, matching the Bloomberg forecast, as the prior week figure was unrevised at 275,000. The four-week moving average dipped by 750 to 263,000, while continuing claims jumped 63,000 to 2,102,000, north of the estimated level of 2,027,000.

The advance goods trade deficit widened unexpectedly to $65.3 billion in November, from the favorably revised $61.9 billion in October, versus projections calling for the deficit to narrow to $61.6 billion.

Treasuries were higher, with the yield on the 2-year note declining 4 basis points (bps) to 1.22%, the yield on the 10-year note dropping 3 bps to 2.48%, and the 30-year bond rate dipping 2 bps to 3.08%.

Despite today's dip, bond yields remain elevated in the wake of upbeat economic data, which has accompanied high expectations for fiscal stimulus, tax reform and regulatory rollbacks following the surprise November Presidential election. Also, the rally in rates was bolstered in early December as the Fed's highly expected 25 bp increase to its target for the fed funds rate included a forecast for more rate hikes in 2017 than it had previously projected. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the bond markets in a video with Schwab's Vice President of Trading and Derivatives, Randy Frederick titled, How Should Bond Investors Prepare in Light of Fed Outlook for 2017? at www.schwab.com/insights, where you can also find her latest, Changing Conditions: A Bond Market FAQ. Follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Signs of rising inflation have also pressured bond prices and Schwab's Fixed Income Director, Collin Martin, CFA, discusses in his article, Inflation Is Rising: Time to Consider Treasury-Inflation Protected Securities? at www.schwab.com/onbonds.

Tomorrow, the U.S. economic calendar will yield the Chicago Purchasing Mangers Index, expected to decline slightly to 56.8 for December from the 57.6 level in November, but still solidly in expansion territory (above 50).

Europe dips, Asia mixed

European equities dipped following the decline in the U.S. yesterday, while volume remained subdued amid a lack of catalysts as the New Year approaches. Financials continued to be hampered as the markets grapple with the expected bailout of struggling Italian lender Banca Monte dei Paschi di Siena SpA (BMDPD $7). Oil & gas issues modestly added to recent gains in the wake of the strength in crude oil prices as of late, while basic materials slightly gave back a recent jump. In economic news, U.K. home prices rose much more than expected in December. The euro gained ground and the British pound ticked higher versus the U.S. dollar, while bond yields in the region were mostly lower.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, 5 Reasons International Stocks May Underperform In 2017, at www.schwab.com/oninternational, as well as his video with Senior Derivatives Analyst Nathan Peterson titled, Brexit, Germany, China: How the Global Economy Could Fare in the New Year at www.schwab.com/insights. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed following the drop in the U.S. yesterday, with global volume, data and conviction remaining hamstrung in the final trading sessions of 2016. Japanese equities dropped with the yen gaining noticeable ground. Mainland Chinese shares dipped and those in Hong Kong rose, with the markets in the world's second largest economy continuing to grapple with festering currency/liquidity concerns in the wake of the U.S. dollar's recent jump, uncertainty following government crackdowns—notably on the real estate and insurance sectors—and lingering uneasiness regarding trade relations with the U.S. For analysis of the impact on the global markets of the U.S. election, see Schwab's Jeffrey Kleintop's, CFA, latest article, President Trump and Global Trade: How Will Campaign Promises Play Out?.

Australian securities gained ground as basic materials extended yesterday's rally. A rise in South Korean stocks was supported by an upbeat read on the nation's November industrial production, which was partially offset by the government's downwardly revised 2017 GDP forecast. Indian equities continued to rebound from a recent selloff to a five-week low, courtesy of festering earnings and economic concerns, along with government reform uncertainty and monetary policy divergence. Schwab's Director of International Research, Michelle Gibley, CFA, offers timely analysis of emerging markets in her latest article, Emerging Markets: Why They Deserve a Place in Your Portfolio, Read both articles at www.schwab.com/oninternational, and be sure to check out our latest article, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

The international economic docket for tomorrow will be light, offering CPI from South Korea and PPI from Italy.

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