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Thursday, February 09, 2017

Stocks Close with Solid Gains

Charles Schwab: On the Market
Posted: 2/9/2017 4:15 PM ET

Stocks Close with Solid Gains

U.S. stocks traded nicely higher on the heels of a positive session in Europe and as President Trump said he would have an announcement regarding taxes within the next three weeks. Financials led the domestic ascent as Treasury yields gained solid ground. An extended rebound in crude oil prices powered gains for energy stocks, while the Street shrugged off some mixed earnings reports from Dow member Coca-Cola, Twitter, YUM Brands and Whole Foods. The U.S. dollar was higher and gold was lower.

The Dow Jones Industrial Average (DJIA) advanced 118 points (0.6%) to 20,172, the S&P 500 Index gained 13 points (0.6%) to 2,308, and the Nasdaq Composite added 33 points (0.6%) to 5,715. In moderate volume, 844 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.66 higher to $53.00 per barrel and wholesale gasoline rose $0.02 to $1.57 per gallon. Elsewhere, the Bloomberg gold spot price decreased $9.77 to $1,231.76 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 100.60.

Dow member Coca-Cola Co. (KO $41) reported 4Q earnings-per-share (EPS) of $0.37, matching the FactSet estimate, as revenues declined 6.0% year-over-year (y/y) to $9.4 billion, above the projected $9.1 billion. The company's volume of its key sparkling-beverage unit declined, despite a rise in North America, with it noting "persistent macroeconomic pressures in our emerging and developing markets." KO issued 2017 EPS guidance that missed expectations. Shares traded solidly lower.

Twitter Inc. (TWTR $16) posted 4Q EPS ex-items of $0.16, versus the expected $0.12, with revenues increasing 1.0% y/y to $717 million, below the estimated $740 million. Although the social media company's new users grew y/y, advertising revenues declined and missed forecasts. The company's 1Q operating earnings outlook came in well short of forecasts. Shares fell sharply.

YUM Brands Inc. (YUM $67) announced 4Q earnings ex-items of $0.79 per share, above the forecasted $0.73, as revenues rose 2.0% y/y to $2.0 billion, roughly in line with expectations. 4Q worldwide same-store sales rose 1.0%, below the 2.9% gain that was expected, due to the continued slump at its Pizza Hut unit. However, same-store sales at its Taco Bell and KFC businesses both posted solid gains. Shares moved higher.

Whole Foods Market Inc. (WFM $30) reported fiscal 1Q EPS ex-items of $0.39, matching estimates, with revenues growing 1.8% y/y to $4.9 billion, compared to the expectation of $5.0 billion. 1Q same-store sales declined 2.4% y/y, versus the projected 1.8% decrease. The company said it plans to reduce its cost structure, including store closures and scaling back on its growth plans, a move that appeared to receive a positive reaction on the Street and shares finished nicely higher.

Jobless claims drop

Weekly initial jobless claims (chart) fell 12,000 to 234,000 last week, below the Bloomberg forecast of 249,000, with the prior week’s figure unrevised at 246,000. The four-week moving average declined by 3,750 to 244,250, while continuing claims rose by 15,000 to 2,078,000, north of estimates of 2,058,000.

Wholesale inventories (chart) rose 1.0% month-over-month (m/m) in December, matching November's gain and expectations. Sales grew 2.6% m/m and the inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—fell to 1.29 months from November's 1.31 months level.

Treasuries finished lower, with the yield on the 2-year note rising 4 basis points (bps) to 1.18%, the yield on the 10-year note advancing 8 bps to 2.40% and the 30-year bond rate gaining 6 bps to 3.01%. 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.

Tomorrow, the U.S. economic calendar will begin with the release of the Import Price Index, forecasted to increase 0.3% m/m for January after rising 0.4% in December, and will be followed by February's preliminary University of Michigan Consumer Confidence Index, expected to decline slightly to 98.0 from January's final read of 98.5, the highest level for the Index since January 2004.

The markets have grappled with heightened global political uncertainty, the Fed's apparent dovish tone as it left monetary policy unchanged last week, and continued upbeat economic data. These have fostered some choppiness in the U.S. dollar, which has rebounded recently from a multi-month low, a pullback in Treasury yields, and returns to record highs for the major domestic stock markets.

For a look at this backdrop, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's 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 notes in her article, 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. Also, Liz Ann and Schwab's Vice President of Trading and Derivatives, Randy Frederick discuss in their latest video, What Can Investors Make of Latest Fed Meeting and January Labor Report?, at www.schwab.com/insights and follow Schwab on Twitter: @schwabresearch.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Simple Indicators In A Complex World, noting that while markets may exhibit increasing volatility, we believe the bull market is being supported by tangible and effective indicators of global growth. For more useful indicators see Jeff's article, Five Reasons to Stay Invested Despite Heightened Uncertainty. Read these articles at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.

Europe and Asia mostly higher 

European equities finished higher, with ramped up earnings season in the region relatively positive. The focus on earnings helped take some attention off of the festering political concerns in the U.S. and Europe. Schwab's Jeffrey Kleintop, CFA, offers his article, Schwab's Jeffrey Kleintop, CFA, offers his article, President Trump and Global Trade: How Will Campaign Promises Play Out? while Director of International Research, Michelle Gibley CFA, delivers her article, Europe Votes: Could More Countries Reject the EU? at www.schwab.com/oninternational. German exports fell more than expected in December and the euro lost modest ground versus the U.S. dollar. The British pound was little changed compared to the greenback, while bond yields in the region were mixed.

For global market investing analysis, see Schwab's Jeffrey Kleintop's, CFA, articles, The CURE for a calm Market: Four risks for 2017, and 5 Reasons International Stocks May Underperform In 2017. Read these articles at www.schwab.com/oninternational.

Stocks in Asia finished mostly higher, showing some resiliency in the face of festering political uncertainty in the U.S. and Europe, skepticism toward the Bank of Japan's monetary policy and bond purchases, and lingering Chinese liquidity uncertainty. Japanese equities fell, even as the yen retreated late in the session from a recent rise, with caution setting ahead of Prime Minister Abe's meeting with U.S. President Donald Trump tomorrow. Japanese markets also grappled with a much stronger-than-expected gain in the nation's December machine orders. Mainland Chinese shares rose and those traded in Hong Kong also gained ground, while South Korean stocks finished mostly flat. Australian securities increased and Indian listings ticked higher. For our analysis of the global markets, see Schwab's Director of International Research, Michelle Gibley's, CFA, 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.

A relatively busy international economic docket tomorrow will include PPI and the Tertiary Industry Index from Japan and industrial production from India, the U.K., France and Italy, while the U.K. and France will also report manufacturing production.

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