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Monday, February 06, 2017

Markets Remain Mired in Political Uncertainty

Charles Schwab: On the Market
Posted: 2/6/2017 4:15 PM ET

Markets Remain Mired in Political Uncertainty

U.S. equities finished lower, as a mixed earnings front and continued political uncertainty on both sides of the pond sapped sentiment. Treasury yields were lower amid a dormant economic calendar, as were crude oil prices, while gold was higher and the U.S. dollar was flat.

The Dow Jones Industrial Average (DJIA) decreased 19 points (0.1%) to 20,052, the S&P 500 Index was 5 points (0.2%) lower at 2,293, and the Nasdaq Composite shed 3 points (0.1%) to 5,664. In moderate volume, 769 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.82 to $53.01 per barrel and wholesale gasoline lost $0.04 to $1.51 per gallon. Elsewhere, the Bloomberg gold spot price rose $15.24 to $1,235.54 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 99.85.

Hasbro Inc. (HAS $94) reported 4Q earnings-per-share (EPS) ex-items of $1.64, above the $1.27 FactSet estimate, as revenues rose 11.2% year-over-year (y/y) to $1.6 billion, topping the projected $1.5 billion. Separately, the toy maker increased its quarterly dividend by 12.0% to $0.57 per share. Shares rallied over 14%.

Tyson Foods Inc. (TSN $63) posted fiscal 1Q EPS of $1.59, exceeding the expected $1.27, as revenues ticked 0.3% higher y/y to $9.2 billion, above the forecasted $9.0 billion. TSN raised its full-year earnings guidance and announced that it has received a subpoena from the U.S. Securities and Exchange Commission (SEC) likely related to a probe into allegations of industry manipulation of chicken prices. TSN said it has limited information and is cooperating with the investigation, which is at an early stage. Shares finished lower.

Sysco Corp. (SYY $51) announced fiscal 2Q profits ex-items of $0.58 per share, above the expected $0.54, with revenues increasing 10.7% y/y to $13.5 billion, roughly in line with forecasts. Shares were solidly lower.

Tiffany & Co. (TIF $78) announced that its Chief Executive Officer (CEO) Frederic Cumenal has stepped down, effective immediately. Chairman and previous CEO, Michael Kowalski will serve as Interim CEO. Shares finished noticeably lower.

Newell Brands Inc. (NWL $44) reported 4Q EPS of $0.80, matching estimates, on revenues of $4.1 billion, below the forecasted $4.3 billion. NWL narrowed its 2017 EPS outlook and issued revenue guidance that missed projections. Shares of NWL dropped.

Treasury yields seeing pressure as economic calendar quiet

Treasuries were higher amid an economic calendar void of any major reports today, as the yield on the 2-year note fell 6 basis points (bps) to 1.15%, the yield on the 10-year note decreased 5 bps to 2.42%, while the 30-year bond rate declined 4 bps to 3.05%. 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, and follow Schwab on Twitter: @schwabresearch.

Treasury yields, the U.S. dollar and the stock markets have been mixed after recent record highs for the latter, while focus continues on the plethora of policy moves from President Donald Trump and last week's unchanged monetary policy decision from the Fed. 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. Also, Schwab’s Chief Investment Strategist Liz Ann Sonders offers analysis of the Fed's monetary policy decision in her latest article, Fed Leaves Rates Unchanged, while noting in Rise Up: Dow 20k Fails to Thrill Individual Investors, that individual sentiment has become less bullish, while other measures show highly elevated optimism. She adds that extremely low volatility isn't likely to persist, but the bull market is. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

As noted in the latest Schwab Market Perspective: A New World, the recent sideways movement of U.S. stocks was a healthy pause in the sharp post-election rally. Continued solid economic data and a decent earnings reporting season bolster our confidence in the continuation of the bull market in stocks. However, rising inflation, possibly forcing the Fed to be more aggressive, could lead to bouts of volatility and more pullbacks. Issuing executive orders to roll back previous executive orders is relatively easy in a lot of cases; but getting tax reform and new health care legislation written and passed will prove to be more difficult for President Trump. Investor and corporate confidence may have gotten a bit ahead of the pace at which many of the administration’s policy priorities can get enacted, and the balance between those which are growth-friendly and those which could retard growth and confidence. Read more at www.schwab.com/marketinsight.

Tomorrow's economic calendar will hold the December trade balance, with economists expecting the deficit to have narrowed slightly to $45.0 billion from the $45.2 billion posted in November, as well as the Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, forecasted to show 5.58 million jobs were available to be filled in December, mostly matching that seen the month prior. In the final hour of trading, Consumer Credit will be reported, with consumer borrowing expected to have shrunk to $20.0 billion in December from the $24.5 billion registered in November.

European equities decline on mixed data, Asia mostly higher to begin week

European equities traded to the downside, amid lingering political uncertainty on continued concerns toward U.S. President Donald Trump's recent flood of policy moves and comments, while some key elections loom on this side of the pond. An unexpected jump in German factory orders for December did little to boost stocks. European Central Bank President Mario Draghi highlighted in a parliamentary speech growing confidence in eurozone economic prospects, but added that there is a lack of a clear sign of sustained convergence of inflation rates toward the desired level. The euro and British pound were lower versus the U.S. dollar, while bond yields in the region came in mixed. For more on global market investing, 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.

Stocks in Asia finished mostly higher on the heels of Friday's mixed U.S. labor report, while U.S. political uncertainty remains. Japanese equities advanced, with the yen pulling back from recent strength and financials moving higher. For more on the U.S. political front, 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. Mainland Chinese stocks and those traded in Hong Kong increased on the heels of a report that showed growth in the nation's services sector output decelerated but remained in expansion territory, while insurance stocks rallied amid speculation the country's pension funds are set to enter the stock markets, per Bloomberg. Markets in South Korea and India rose, with emerging markets continuing to rally. For a look at investing in emerging markets, see Michelle Gibley's, CFA, 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. However, weakness in oil & gas and technology issues pressured stocks in Australia, along with an unexpected decline in the nation's retail sales for December.

Tomorrow's international economic calendar will offer investors a look at the Leading Index from Japan and industrial production from Germany. In central bank action, the Reserve Bank of Australia will meet, with no change to its stance expected.

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