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Wednesday, January 11, 2017

Stocks Manage to Finish with Gains

Charles Schwab: On the Market
Posted: 1/11/2017 4:15 PM ET

Stocks Manage to Finish with Gains

U.S. stocks managed to finish with gains despite healthcare issues coming under some pressure following comments from President-elect Donald Trump at his first post-election news conference. A jump in crude oil prices aided in powering gains for the energy sector, while Treasury yields and gold were lower and the U.S. dollar pared a solid advance. In equity news, Merck received upbeat news regarding its experimental lung cancer treatment.

The Dow Jones Industrial Average (DJIA) increased 99 points (0.5%) to 19,954, the S&P 500 Index was 6 points (0.3%) higher at 2,275 and the Nasdaq Composite advanced 12 points (0.2%) to 5,564. In moderate-to-heavy volume, 879 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil gained $1.43 to $52.25 per barrel and wholesale gasoline added $0.04 to $1.59 per gallon. Elsewhere, the Bloomberg gold spot price rose $3.32 to $1,191.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 101.81.

Dow member Merck & Co. Inc. (MRK $62) traded higher after it received U.S. Food & Drug Administration (FDA) acceptance for review of its treatment, plus chemotherapy, for patients with advanced lung cancer.

MRK has pared a solid gain, with pharmaceutical stocks weighing on the healthcare sector in the wake of Donald Trump's first news conference since being elected President, where he vowed to crack down on drug pricing. Also, Lockheed Martin Corp. (LMT $255) saw some pressure after Trump further scrutinized the cost of the company's F-35 fighter jet program.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers analysis of the changes coming to Capitol Hill when Trump takes the oath of office on January 20th in his latest article, New Congress Plans Ambitious Agenda, at www.schwab.com/insights. Follow Schwab on Twitter: @schwabresearch.

Ford Motor Co. (F $13) announced in addition to its 1Q regular dividend of $0.15 per share, it declared a $200 million, or $0.05 per share, supplemental cash dividend. The automaker also reaffirmed its profit outlook for 2017, which is estimated to be lower than 2016. Shares closed lower.

Supervalu Inc. (SVU $4) reported fiscal 3Q earnings-per-share (EPS) ex-items of $0.05, below the FactSet estimate of $0.13, with revenues decreasing 1.4% year-over-year (y/y) to $3.0 billion, well south of the projected $4.0 billion. Shares finished solidly lower.

Mortgage applications rise

The MBA Mortgage Application Index increased 5.8% last week, following the previous week's 0.1% gain. The increase came as the Refinance Index rose 4.4%, while the Purchase Index advanced 6.1%. The average 30-year mortgage rate fell 7 basis points (bps) to 4.32%.

Treasuries ticked higher with the yield on the 2-year nearly unchanged at 1.17%, the yield on the 10-year note decreasing 1 basis point (bp) to 2.36% and the 30-year bond rate declining 2 bps to 2.95%.

Bond yields and the U.S. dollar have been choppy and in focus amid post-election optimism, a string of upbeat economic data, and the Fed's December rate hike and a faster-than-previously-forecasted pace of rate increases for 2017. 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. Kathy also addresses the potential changes facing the fixed income market and the jump in the greenback in her articles, Changing Conditions: A Bond Market FAQ and Will the U.S. Dollar Bull Market Continue in 2017?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

For a look at investing amid the backdrop of record highs for stocks to begin 2017, see Senior Vice President of the Schwab Center for Financial Research, Mark Riepe's, CFA, latest podcast, 7 Principles for Investing Success, at www.schwab.com/insights.

Tomorrow, the U.S. economic calendar will yield the Import Price Index, expected to have increased 0.7% month-over-month (m/m) for December after decreasing 0.3% the month prior. Additionally, weekly initial jobless claims will be reported, forecasted to have increased to a level of 255,000 from the previous week's 235,000.

Europe mixed, Asia mostly higher

European equities finished mixed with basic materials issues leading the way as the mining sector extended a rally on a jump in metals prices that has been bolstered by recent favorable global economic data, notably in China. Healthcare issues added to losses in the wake of the highly-anticipated first news conference by U.S. President-elect Donald Trump since winning the election, where he vowed to crack down on drug prices. U.K. manufacturing and industrial production reports for November both easily topped forecasts, while the nation also reported a wider-than-expected trade deficit. The British pound extended a weekly decline that has come from flared-up "hard" Brexit uncertainty that was fostered by comments from U.K. Prime Minister May over the weekend. For commentary on the Brexit vote fallout, see Schwab's Director of International Research, Michelle Gibley's, CFA, article, Keep Calm and Carry On: The Brexit Shock That Wasn't. The euro also lost ground versus the U.S. dollar and bond yields in the region moved mostly lower.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his latest article, The CURE for a calm Market: Four risks for 2017, that after a calm post-election climb, developments in China, United Kingdom, Russia, and Europe may bring a return of stock market volatility. However, Jeff points out that better and broader global economic growth should help offset these risks and result in stock market gains for 2017. Read these articles at www.schwab.com/oninternational, where you can also find Jeff's commentary, 5 Reasons International Stocks May Underperform In 2017. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mostly higher, with the global markets highly anticipating U.S. President-elect Donald Trump's first news conference since being elected, while the extended rally in the mining sector boosted the markets. Japanese equities rose, with the yen giving back yesterday's advance, while South Korean stocks rallied. Mining issues helped support Australian securities gain ground and Indian listings also advanced. Stocks trading in mainland China fell and those trading in Hong Kong rose, with materials issues leading to the upside on the heels of a recent string of upbeat economic data, though liquidity/currency concerns continued to fester. 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. Read more 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.

The international economic docket for tomorrow will yield trade data and bank lending from Japan, CPI from France, GDP from Germany and industrial production from Italy and the Eurozone.

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