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Friday, February 10, 2017

Stocks Finish Friday with Gains

Charles Schwab: On the Market
Posted: 2/10/2017 4:15 PM ET

Stocks Finish Friday with Gains

U.S. stocks continued to trade in record-high territory, staging another solid advance as yesterday's comments from President Trump regarding his soon-to-be-announced tax plan continued to fuel gains. Crude oil extended its recent rally, the U.S. dollar increased, Treasuries were lower and gold ticked slightly higher. In economic news, consumer sentiment dropped from a 13-year high and short-term inflation expectations rose.

The Dow Jones Industrial Average (DJIA) advanced 97 points (0.5%) to 20,269, the S&P 500 Index gained 8 points (0.4%) to 2,316, and the Nasdaq Composite added 19 points (0.3%) to 5,734. In moderate volume, 789 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.86 to $53.86 per barrel and wholesale gasoline rose $0.02 to $1.59 per gallon. Elsewhere, the Bloomberg gold spot price ticked $3.14 higher to $1,233.51 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 100.76. Markets were higher for the week, as the DJIA increased 1.0%, the S&P 500 Index advanced 0.8% and the Nasdaq Composite gained 1.2%.

Activision Blizzard Inc. (ATVI $47) announced 4Q earnings-per-share (EPS) ex-items of $0.92 per share, well above the expected $0.73, with revenues growing 15.8% year-over-year (y/y) to $2.5 billion, compared to the anticipated $2.4 billion. Separately, the gaming company announced a new share repurchase program of up to $1.0 billion and a 15% increase of its dividend to $0.30 per share. Shares surged.

NVIDIA Corp. (NVDA $114) posted 4Q EPS of $0.99, above the $0.83 FactSet estimate, as revenues jumped 55.0% y/y to $2.2 billion, versus the projected $2.1 billion. The chipmaker issued 1Q revenue guidance with a midpoint that was slightly above forecasts. Shares gave up an early gain and traded lower as the Street scrutinized its quarterly performance and guidance after 3Q's blowout results that took the stock on a more than 70% rally.

Expedia Inc. (EXPE $123) reported adjusted 4Q EPS of $1.17, below the forecasted $1.36, with revenues rising 23.0% y/y to $2.1 billion, roughly in line with expectations. Gross bookings increased 8.0% y/y. Shares finished lower.

Sears Holdings Corp. (SHLD $7) jumped over 25% after unveiling its next phase of its restructuring plan, projected to deliver at least $1.0 billion in annualized cost savings in 2017 from the previously announced closure of 108 Kmart and 42 Sears stores, and reduce debt. The company also announced preliminary 4Q guidance that was above forecasts.

Consumer sentiment falls from 13-year high, import prices top forecasts

The preliminary University of Michigan Consumer Sentiment Index (chart) declined this month to 95.7, from the prior month's 98.5 level—which was the highest since January 2004—and compared to expectations of a dip to 98.0. The current economic conditions component held steady m/m, while the outlook portion deteriorated. The 1-year inflation estimate rose from 2.6% to 2.8%, and 5-10 year inflation outlook dipped to 2.5% from 2.6%.

The Import Price Index (chart) increased 0.4% month-over-month (m/m) for January, compared to the Bloomberg projection of a 0.3% increase and December's upwardly revised 0.5% gain. Compared to last year, prices were higher by 3.7%, north of forecasts calling for a 3.4% jump, and following December's upwardly revised 2.0% increase.

Treasuries were lower, with the yields on the 2-year and 10-year notes along with the 30-year bond, ticking 1 basis point higher to 1.19%, 2.41% and 3.01%, respectively. 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.

The stock markets are back in record territory, while the U.S. dollar and Treasury yields ticked higher, bolstered by U.S. President Donald Trump saying yesterday that "something phenomenal" will likely be announced regarding his tax plan in 2-3 weeks. This is overshadowing the recent flare-up in concerns about global trade relations and immigration on the heels of Trump's actions and comments. Also, last week's relatively dovish takeaway of the Fed's unchanged monetary policy decision and continued upbeat economic data have aided the markets. Crude oil prices are extending a rally to lend further support, in the wake of a report that suggested OPEC had achieved initial compliance of 90% with their recent production cut agreement. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, discusses President Trump and oil in his latest Schwab Sector Views: Trump Plus OPEC Equals ...What for Energy? at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

For further analysis of the markets recent rallies, see Schwab’s Chief Investment Strategist Liz Ann Sonders' and Schwab's Vice President of Trading and Derivatives, Randy Frederick's latest video, What Can Investors Make of Latest Fed Meeting and January Labor Report?, at  www.schwab.com/insights.

Finally, 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 mixed, Asia mostly higher 

European equities finished mixed, with lingering political uncertainty ahead of some key elections in the region being met with renewed optimism regarding U.S. President Donald Trump's promise of a "phenomenal" tax plan in the coming weeks. For analysis of these issues, see Schwab's Jeffrey Kleintop's, CFA, article, President Trump and Global Trade: How Will Campaign Promises Play Out? and Director of International Research, Michelle Gibley's CFA, release, Europe Votes: Could More Countries Reject the EU? at www.schwab.com/oninternational. Also, the markets digested a stronger-than-expected read on China's trade activity and crude oil's continued rally on reports of OPEC's compliance with its production cuts that boosted the energy sector. In economic news, French industrial and manufacturing production reports both missed estimates, while the U.K. trade deficit narrowed more than expected and the nation's manufacturing and industrial production both easily bested forecasts. The euro dipped and the British pound was little changed versus the U.S. dollar, while bond yields in the region finished mostly higher.

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 higher following the gains seen in the U.S. and European markets yesterday, bolstered by the continued rebound in crude oil prices and as U.S. President Donald Trump made a promise to expect his tax plan soon. The renewed U.S. tax optimism overshadowed heightened global trade and immigration concerns. Also, China reported a favorable read on its trade activity, headlined by stronger-than-expected January export growth. Japanese equities rallied with the yen giving back a jump as of late amid a strong advance in the U.S. dollar, while traders awaited today's meeting between Prime Minister Abe and U.S. President Donald Trump. Mainland Chinese shares advanced and those traded in Hong Kong also rose, while Australian securities gained ground and South Korean stocks traded higher. Indian equities finished flat. 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.

Stocks ride late-week rally back to record highs

Conviction remained contained to begin the week amid exacerbated global market uneasiness toward the political risks in the U.S. and Europe, with the former exacerbating trade and immigration concerns and the latter facing key elections. However, the major U.S. equity markets staged a late-week rally into positive territory and back to record highs as reflation optimism resurfaced as President Trump pledged that a "phenomenal" tax plan was in the offing. The U.S. Dollar Index posted the first weekly gain of 2017 and Treasury yields pared early losses. Crude oil prices battled back to near the flatline as reports of OPEC production cut compliance countered oversupply concerns in the wake of a couple bearish oil inventory reports. Gold extended its recent jump in choppy trading.

The economic calendar was relatively light, though earnings season continued to roll on and continued to paint a relatively positive picture against elevated expectations. Hasbro Inc. (HAS $98) and Activision Blizzard were standout winners, while Michael Kors Holdings Ltd. (KORS $38) and Twitter Inc. (TWTR $16) were hammered by their guidance. Per Bloomberg, with earnings season past the apex, of the 357 companies in the S&P 500 Index that have reported, about 51% have topped sales estimates and approximately 75% have exceeded earnings forecasts, with technology issues leading the way adding credence to Schwab's Brad Sorensen's, CFA, outperform rating on the sector in his latest Schwab Sector Views at www.schwab.com/marketinsight.

Next week, the domestic economic front will heat back up, with the Producer Price Index (PPI), Consumer Price Index (CPI), retail sales, industrial production, the Leading Index and housing starts and building permits, providing a good read on many key contributors to economic output. Also, the NFIB Small Business Optimism Index and regional manufacturing reports out of New York and Philadelphia are poised to also garner attention, along with festering political uncertainty on both sides of the Atlantic and the continued dissemination of earnings reports. Finally, Federal Reserve Chairwoman Janet Yellen will deliver her semi-annual testimony before Congress.

As noted in the latest Schwab Market Perspective: Not So Fast!, investor caution is rising, which contrarily should help the bull market continue. Economic data has continued to beat expectations, but the number of upside surprises may start to level off, and investor enthusiasm toward potential new policies from Washington could wane as political realities set in. International growth appears stable, but acceleration doesn't seem to be on the horizon, while trade tensions pose a risk to global economies and markets. Read more at www.schwab.com/marketinsight.

International reports to look out for include: Australia—consumer confidence and employment change. China—lending statistics, CPI and PPI. India—trade balance, CPI and PPI. Japan—4Q GDP and industrial production. Eurozone—4Q GDP, trade balance and ECB policy meeting minutes. U.K.—CPI, employment change and retail sales.

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