Politics in Focus in Today's Session

Charles Schwab: On the Market

Posted: 1/30/2017 4:15 PM ET

Politics in Focus in Today's Session

U.S. equities finished solidly lower in the midst of ramped-up political uncertainty after President Donald Trump issued an order over the weekend to temporarily ban refugees from seven Muslim-majority countries. Treasuries were mixed amid economic reports showing that personal income and spending rose mostly in line with forecasts, pending home sales topped forecasts and regional manufacturing activity jumped. Meanwhile, crude oil and the U.S. dollar were lower, while gold finished higher.

The Dow Jones Industrial Average (DJIA) declined 123 points (0.6%) to 19,971, the S&P 500 Index fell 14 points (0.6%) to 2,281, and the Nasdaq Composite tumbled 47 points (0.8%) to 5,614. In moderate volume, 873 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil decreased $0.54 to $52.63 per barrel and wholesale gasoline lost $0.02 to $1.53 per gallon. Elsewhere, the Bloomberg gold spot price rose $5.17 to $1,196.37 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 100.40.

Lowe's Companies Inc. (LOW $74) announced a new $5.0 billion share repurchase program, reflecting its "commitment to return excess cash to shareholders." Shares of LOW were modestly higher.

Citigroup Inc's (C $57) CitiMortgage unit announced that it will exit its mortgage servicing operations by the end of 2018 to focus on mortgage originations. Shares were lower.

Rite Aid Corp. (RAD $6) came under heavy pressure after its merger agreement with Walgreens Boots Alliance Inc. (WBA $81) was amended, resulting in WBA's purchase price to acquire RAD being reduced to between $6.50-7.00 per share, from $9.00 per share, cutting the deal value to $6.8-7.4 billion, from $9.4 billion. Also, WBA will be required to divest up to 1,200 RAD stores and certain additional related assets if required to obtain regulatory approval. Shares of WBA dipped after the announcement, and as the company lowered the high end of its full-year earnings outlook.

Personal income and spending rise

Personal income (chart) was up 0.3% month-over-month (m/m) in December, versus the Bloomberg forecast of a 0.4% rise, and compared to November's upwardly revised 0.1% gain. Personal spending increased 0.5% last month, matching expectations and versus November's unrevised 0.2% rise. The December savings rate as a percentage of disposable income was 5.4%. The PCE Deflator was up 0.2%, in line with expectations. Compared to last year, the deflator was 1.6% higher, versus of estimates of a 1.7% gain. Excluding food and energy, the PCE Core Index was up 0.1% m/m, matching expectations, and the index was 1.7% higher y/y, in line with estimates. November's y/y figure was upwardly revised to a 1.7% increase.

Pending home sales increased 1.6% m/m in December, versus projections of a 1.0% gain, and following the unrevised 2.5% drop registered in November. Compared to last year, sales were 2.0% lower. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which slipped in December but posted the highest annual gain since 2006.

The Dallas Fed Manufacturing Activity Index jumped further into a level depicting expansion (a reading above zero), rising to 22.1 in January—the highest since April 2010—from 15.5 in December and compared to the expected dip to 15.0.

Treasuries finished mixed, with the yield on the 2-year note 1 basis point (bp) lower at 1.21%, the yield on the 10-year note unchanged at 2.49%, while the 30-year bond rate rose 2 bps to 3.08%.

Treasury yields and the U.S. dollar remained in focus with the global markets continuing to grapple with the latest policy moves from President Donald Trump, notably on trade and immigration, and Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, 5 Themes to Watch as the Trump Era Begins, at www.schwab.com/insights. Follow Schwab on Twitter: @schwabresearch. Also, with the markets remaining near record highs, Schwab's Vice President of Trading and Derivatives, Randy Frederick and Chief Global Investment Strategist Jeffrey Kleintop, CFA, offer their latest video, Dow Jones Tops 20,000 Points: What Does This New Milestone Mean?, at www.schwab.com/insights. Follow Jeff on Twitter: @jeffreykleintop.

Tomorrow, 4Q earnings season will remain robust, while the domestic economic calendar will also be busy, with reports slated for release to include the 4Q Employment Cost Index, forecasted to match the 3Q's 0.6% quarter-over-quarter increase, and the Chicago Purchasing Managers’ Index, with economists expecting a slight uptick to 55.0 for January. Some housing data will also be in focus, with the S&P CoreLogic/Case-Shiller Home Price Index expected, anticipated to show prices in the 20-city composite increased 5.00% y/y in November, and 0.65% m/m on a seasonally-adjusted basis, while the calendar will round out with the release of Consumer Confidence, with forecasts calling for a slight decline to 112.8 for January.

Europe and Asia lower as U.S. political concerns remain

European equities finished lower, with the global markets grappling with U.S. President Donald Trump's decision to temporarily ban entry into the U.S. for refugees from seven predominantly Muslim countries. Meanwhile, the markets awaited monetary policy decisions this week from the Fed, Bank of England and Bank of Japan. Financials came under pressure amid lingering banking sector concerns, while energy issues dropped, exacerbated by a downside move in crude oil prices. In economic news, Spain's 4Q GDP matched 3Q's 0.7% quarter-over-quarter growth, while German consumer price inflation came in just shy of estimates for January and eurozone economic and consumer confidence improved for this month. The euro dipped and the British pound declined versus the U.S. dollar, while bond yields in the region finished mixed. For more on the global markets, see Schwab's Jeffrey Kleintop's, CFA, 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.

Stocks in Asia finished mostly lower on the heels of last week's softer-than-expected 4Q GDP report in the U.S., while the global markets grappled with heightened U.S. political uncertainty as President Trump announced a temporary ban on entry into the U.S. for refugees from seven predominantly Muslim countries. 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? at www.schwab.com/oninternational, where you can also find Schwab's Director of International Research, Michelle Gibley's, CFA, latest article, Currency Hedging: 5 Things You Need to Know. Japanese equities declined, with the yen choppy ahead of tomorrow's monetary policy decision from the Bank of Japan, while the nation's retail sales rose by a smaller amount than had been expected for December. Australian listings fell, with technology issues dropping sharply, while stocks in India also dipped. Schwab's Michelle Gibley, CFA, offers timely analysis of emerging markets in her latest article, Emerging Markets: Why They Deserve a Place in Your Portfolio at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights. Volume was lighter than usual, with markets in China, Hong Kong and South Korea closed for holidays.

Tomorrow's international economic calendar will hold household spending, industrial production, and employment data from Japan, as well as the Bank of Japan's monetary policy decision, confidence figures from Australia, GDP and CPI from France and the Eurozone, retail sales and labor statistics from Germany, as well as CPI from Spain and Italy.