Charles Schwab: On the MarketPosted: 2/23/2017 4:15 PM ET
Investors Remain Uncertain
U.S. equities finished mixed for a second-straight day, with the Dow continuing to add to its record run, as investors weighed lingering political risks in the U.S and Europe, March Fed rate hike uncertainty and continued signs of solid economic activity. Treasury yields and the U.S. dollar were lower, and gold gained ground, while crude oil prices were higher, courtesy of bullish oil inventory reports. Earnings again dominated the equity front, with mixed results.
The Dow Jones Industrial Average (DJIA) increased 35 points (0.2%) to 20,810, the S&P 500 Index inched 1 point higher to 2,364, and the Nasdaq Composite fell 25 points (0.4%) to 5,826. In moderately-heavy volume, 927 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil gained $1.06 to $54.45 per barrel and wholesale gasoline added $0.02 to $1.75 per gallon. Elsewhere, the Bloomberg gold spot price increased $11.44 to $1,248.88 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 101.01.
Tesla Inc. (TSLA $256) reported a 4Q loss of $0.78 per share, or $0.69 per share ex-items, versus the FactSet estimate of a $0.53 per share shortfall, with revenues rising 88.0% y/y to $2.3 billion, above the projected $2.2 billion. Separately, the company announced that its Chief Financial Officer will leave the company and its previous CFO will return. Shares of TSLA fell.
HP Inc. (HPQ $18) posted fiscal 1Q earnings-per-share (EPS) of $0.36, or $0.38 ex-items, compared to the expected $0.37, with revenues rising 4.0% y/y to $12.7 billion, north of the estimated $11.8 billion. HPQ issued 2Q EPS guidance that bracketed analysts' forecasts. Shares were nicely higher.
L Brands Inc. (LB $49) announced 4Q profits of $2.18 per share, or $2.03 ex-items, compared to the forecasted $1.90, on previously reported revenues of $4.5 billion. The company issued 1Q and full-year EPS guidance that severely missed the Street's expectations. Shares were sharply lower.
Shares of Boston Scientific Corp. (BSX $24) declined after the heart device maker voluntarily removed all of its Lotus Valve products from global commercial and clinical sites due to reports of premature release of a pin connecting the device to the delivery system. BSX said it expects to bring the device back to market in Europe and other regions in 4Q 2017 and plans a U.S. launch for mid-2018.
Schwab’s Chief Investment Strategist Liz Ann Sonders offers a look at the earnings front in her latest article, Better Days: Earnings Growth Picks Up Sharply in 2017, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.
Jobless claims rise
Weekly initial jobless claims (chart) rose by 6,000 to 244,000 last week, above forecasts of 240,000, with the prior week’s figure being revised lower to 238,000. The four-week moving average fell by 4,000 to 241,000, while continuing claims declined by 17,000 to 2,060,000, south of estimates of 2,068,000.
The Kansas City Fed Manufacturing Activity Index for February rose to 14, from January's 9 reading, where it was forecasted to remain, with a level north of zero depicting expansion.
Treasuries were higher, as the yields on the 2-year and 10-year notes dropped 4 basis points (bps) to 1.18% and 2.38%, respectively, while the 30-year bond rate dipped 2 bp to 3.02%. For a look at the bond markets, see Schwab's Director of Income Planning, Rob Williams', CFP, and Senior Research Analyst, Cooper Howard's, CFA, latest article, Short-Term Bonds: Why They Could Outperform As Interest Rates Rise, at www.schwab.com/marketinsight.
Stocks remain near all-time highs, while the U.S. dollar has rallied and Treasury yields are holding strong post-election gains, courtesy of continued upbeat economic data and optimism of a mix of fiscal stimulus being delivered by President Donald Trump. However, these markets have cooled modestly as of late amid domestic and European political risk, along with Fed Chair Janet Yellen's Congressional testimony last week and yesterday's minutes from the Fed's recent meeting that have kept a March rate hike on the table.
As noted in the latest Schwab Market Perspective: Not So Fast!, elevated earnings and economic expectations could lead to a pullback or more sideways action but we believe the bull market in U.S. stocks will continue. If economic data continues to surprise on the upside, a March rate hike is likely to be on the table; while there is an additional risk that the Fed may be forced to speed up the tightening process should inflation accelerate from here. Read more at www.schwab.com/marketinsight, and for more on the Fed see our article, Changes at the Fed: What Does the Coming Personnel Shake-up Mean?, at www.schwab.com/insights. Follow Schwab on Twitter: @schwabresearch. Finally, for a look at the U.S. political front, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest article, Washington's Way: Why Trump's Policy Changes Could Take Time, at www.schwab.com/insights.
The week’s economic calendar will culminate tomorrow with the releases of new home sales, with economists expecting a 7.5% month-over-month (m/m) increase during January to a level of 576,000 units, as well as the final February University of Michigan Consumer Sentiment Index, forecasted to tick higher to a level of 95.8 from the preliminary figure of 95.7, but below the 98.5 posted in January.
Europe dips on data and political uncertainty, Asia mixed
European equities finished mostly lower, with the markets digesting diverging earnings and economic data, along with late-yesterday's release of the U.S. Fed meeting minutes that suggested a March rate hike remains on the table. Also, political risk in the U.S. and Europe remained, with traders grappling with the former's uncertainty regarding potential reflationary policy pledges and the latter's looming key election in France. For more on the global markets and the European political risk, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, The stock market sees nothing to worry about—that may be about to change. Jeff notes that Europe's economy is performing the best in many years on many key measures and stock markets are currently behaving as if there is nothing to worry about, but that may be about to change now that we are within 45 trading days of the French Presidential election. He concludes that savvy investors should be prepared for a rise in volatility in global stock markets in the coming months. Read more at www.schwab.com/oninternational, and be sure to check out Jeff's article, Five Reasons to Stay Invested Despite Heightened Uncertainty. Follow Jeff on Twitter: @jeffreykleintop.
In economic news, German 4Q GDP growth matched forecasts, French manufacturing confidence topped expectations, U.K. retail sales bested forecasts, and Italian retail sales unexpectedly fell. The euro and British pound moved higher versus the U.S. dollar, while bond yields in the region finished mixed.
Stocks in Asia finished mixed, with the global market rally pausing yesterday as traders assess the recent run, political uncertainty in the U.S. and Europe, and the preserved possibility of a March rate hike in the U.S. Japanese equities finished flat, with the yen holding yesterday's gain, while stocks in China and Hong Kong slipped from a recent advance. Australian securities moved lower on the heels of a larger-than-expected drop in 4Q capital expenditures and following yesterday's hawkish commentary from Reserve Bank of Australia Governor Lowe. Meanwhile, markets in South Korea ticked higher after the Bank of Korea kept its monetary policy unchanged, and India's bourse extended its winning streak to six sessions. Schwab's Director of International Research, Michelle Gibley, CFA, provides some timely analysis of global investing in her articles, Currency Hedging: 5 Things You Need to Know and 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.
Another light economic calendar is in store for tomorrow overseas, with reports slated for release to include consumer confidence in South Korea, PPI from Spain, and industrial orders and sales from Italy.