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Wednesday, January 25, 2017

Dow Tops 20,000

Charles Schwab: On the Market
Posted: 1/25/2017 4:15 PM ET

Dow Tops 20,000

U.S. stocks closed nicely higher as the Dow was able to hold and close above the elusive 20,000 mark for the first time, while the Nasdaq and S&P 500 also notched new highs. A renewed attention to possible fiscal spending increases, some upbeat earnings reports and a recent string of favorable economic data from abroad aided in buoying sentiment. Treasury yields advanced, while gold, the U.S. dollar and crude oil prices were lower.

The Dow Jones Industrial Average (DJIA) rose 156 points (0.8%) to 20,069, the S&P 500 Index was 18 points (0.8%) higher at 2,298 and the Nasdaq Composite jumped 55 points (1.0%) to 5,656. In moderate volume, 880 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.43 to $52.75 per barrel and wholesale gasoline declined $0.05 to $1.55 per gallon. Elsewhere, the Bloomberg gold spot price fell $9.06 to $1,199.88 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.4% lower to 99.95.

Dow member Boeing Co. (BA $167) reported 4Q earnings-per-share (EPS) ex-items of $2.47, above the $2.34 FactSet estimate, with revenues declining 1.0% year-over-year (y/y) to $23.3 billion, north of the forecasted $23.1 billion. BA's 2017 earnings and revenue outlooks came in slightly below expectations. Shares finished solidly higher.

Dow component United Technologies Corp. (UTX $111) posted 4Q EPS ex-items of $1.56, matching estimates, as revenues rose 3.0% y/y to $14.7 billion, roughly in line with projections. UTX reaffirmed its 2017 guidance. Shares traded to the downside.

Dow member Cisco Systems Inc. (CSCO $31) announced its intent to acquire privately-held application intelligence software company, AppDynamics, for about $3.7 billion in cash and assumed equity awards. CSCO closed higher.

Texas Instruments Inc. (TXN $79) reported 4Q earnings ex-items of $0.88 per share, above the projected $0.81, with revenues growing 7.0% y/y to $3.4 billion, topping the expected $3.3 billion. TXN issued 1Q EPS guidance that exceeded forecasts. Shares gained ground.

Seagate Technology PLC. (STX $43) posted fiscal 2Q EPS ex-items of $1.38, well above the estimated $1.08, with revenues declining 3.1% y/y to $2.9 billion, compared to the expected $2.8 billion. Gross and operating profit margins came in above forecasts, and the company issued 2017 EPS that topped forecasts. Shares surged.

Mortgage applications rise

The MBA Mortgage Application Index increased 4.0% last week, following the previous week's 0.8% gain. The rise came as the Refinance Index ticked 0.2% higher, while the Purchase Index gained 6.0%. The average 30-year mortgage rate jumped 8 basis points (bps) to 4.35%.

Treasuries were lower, with the yield on the 2-year note rising 2 bps to 1.24%, while the yields on the 10-year note and the 30-year bond advanced 5 bps to 2.52% and 3.10%, respectively.

The U.S. dollar has slipped since the start of the year, though Treasury yields have regained some upward momentum in choppy action in the wake of the plethora of policy actions following Friday's inauguration of President Donald Trump, which has been accompanied by continued relatively favorable economic data. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend and Vice President of Trading and Derivatives, Randy Frederick offer their latest video, How Could the Items on the Republican Agenda Impact Investors?, at www.schwab.com/insights, where you can also find Michael's article, New Congress Plans Ambitious Agenda. Follow Schwab on Twitter: @schwabresearch.

Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the bond markets and the greenback in her articles, Anatomy of a Bond Bear Market: What to Look For When Yields Rise and Will the U.S. Dollar Bull Market Continue in 2017?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

Amid the backdrop of the upbeat economic data and optimism of pro-business policies from the Trump Administration, Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, Not Fade Away: Will High Consumer/Business Confidence Fade or Persist?, measures of both consumer and business confidence have recently surged, with the former resting on fairly strong pillars, but the latter may be on weaker pillars and subject to post-inauguration volatility. Read more at www.schwab.com/marketinsight and be sure to check out our article, The Trump Effect: Can the Post-Election Rally Continue at www.schwab.com/insights for analysis of the late-2016 rally to record highs. Follow Liz Ann on Twitter: @lizannsonders.

Tomorrow, a loaded U.S. economic calendar will bring additional housing data with the release of new home sales, expected to have declined 0.7% m/m, while additional releases are expected to include the advance goods trade deficit, wholesale inventories, weekly jobless claims, Markit's preliminary Services PMI Index, the Leading Index and the Kansas City Fed Manufacturing Activity Index.

Europe and Asia higher

European equities moved higher, with financials leading the way, bolstered by upbeat earnings results from Spain's Banco Santander SA (SAN $6). Global economic optimism and commodity-related issues got a lift from a much stronger-than-expected rise in Japanese exports, which were boosted by demand in China.  Logitech International SA (LOGI $29) surged after the company posted stronger-than-expected results, while Novartis AG (NVS $72) gained ground despite its lackluster guidance, as it said it is assessing options for its Alcon unit. Stocks shrugged off a surprising decline in German business sentiment, as well as heightened political uncertainty in the U.S. as President Trump takes a host of actions to make good on his campaign promises. With the global markets remaining jittery to begin 2017, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Five Reasons to Stay Invested Despite Heightened Uncertainty. Also, Jeff delivers his articles, The CURE for a calm Market: Four risks for 2017, and 5 Reasons International Stocks May Underperform In 2017. Read all these articles at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop. The euro ticked higher and the British pound rose versus the U.S. dollar, while bond yields in the region traded to the upside.

Stocks in Asia finished higher, with a plethora of relatively upbeat earnings and economic data helping offset global uncertainty regarding the flood of policy actions from U.S. President Donald Trump in the first week of office that has exacerbated trade concerns. For more on Trump's trade policies, see Schwab's Jeffrey Kleintop's, CFA, article, President Trump and Global Trade: How Will Campaign Promises Play Out?. Japan's Nikkei 225 Index led the way, rallying 1.4%, with the yen giving back some of its recent strength, while a report showed the nation's exports grew much more than expected in December, snapping a string of 14-straight monthly declines. The jump in Japanese exports was highlighted by shipments to China setting a record, per Bloomberg. With the currency markets volatile and in focus, Schwab's Director of International Research, Michelle Gibley, CFA, offers her latest article, Currency Hedging: 5 Things You Need to Know. Read both articles at www.schwab.com/oninternational.

Australian securities advanced, with basic materials issues getting a boost from the Japanese data, while Indian equities were also higher, bolstered by some favorable earnings reports from the banking sector. South Korean stocks ticked higher in the wake of its stronger-than-expected 4Q GDP report, which showed growth slowed by a smaller amount than expected. Finally, stocks trading in mainland China and those in Hong Kong increased, with the markets continuing to coast into the long Lunar New Year holiday break beginning on Friday.

The international economic docket for tomorrow will include industrial profits from China, consumer confidence from Germany, retail sales from Italy and an advance read on 4Q GDP from the U.K.

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