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Thursday, March 09, 2017

Stocks Able to Avoid 4-day Losing Streak

Charles Schwab: On the Market
Posted: 3/9/2017 4:15 PM ET

Stocks Able to Avoid 4-day Losing Streak

After a brief dip into negative territory, the U.S. equity markets were able to notch slim gains and avoid a fourth-straight session of losses, as investors await tomorrow's jobs report, and as political uncertainty on both sides of the pond persisted. Meanwhile, Treasury yields inched higher, following a rise in jobless claims, but crude oil, gold and the U.S. dollar lost ground.

The Dow Jones Industrial Average (DJIA) ticked 2 points higher to 20,858, the S&P 500 Index gained 2 points (0.1%) to 2,365, and the Nasdaq Composite added a shade over a point to 5,839. In moderate volume, 881 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.00 lower to $49.28 per barrel and wholesale gasoline lost $0.03 to $1.62 per gallon. Elsewhere, the Bloomberg gold spot price declined $6.67 to $1,201.64 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 101.89.

Staples Inc. (SPLS $8) reported a 4Q loss of $0.94 per share, or earnings-per-share (EPS) of $0.25 ex-items, versus the FactSet estimate calling for a profit of $0.26, as revenues declined 2.9% year-over-year (y/y) to $4.6 billion, below the projected $5.0 billion. 4Q same-store sales decreased 0.9% y/y, compared to the estimated 2.6% drop. SPLS issued 1Q EPS guidance that bracketed analysts' expectations. Shares were lower.

American International Group Inc. (AIG $63) announced that its President and Chief Executive Officer (CEO) Peter Hancock has notified the Board of his intention to resign. He will remain as CEO until a successor has been named, which the Board will conduct a comprehensive search for. AIG gave up an early advance and finished lower.

Shares of Tailored Brands Inc. (TLRD $16) tumbled over 30% after posting a 4Q net loss of $0.62 per share, or $0.19 ex-items, missing the projected shortfall of $0.12 per share, as revenues decreased 3.9% y/y to $793 million, south of the forecasted $811 million. 4Q same-store sales at Men's Wearhouse and K&G declined, while sales at Jos. A. Bank dropped sharply. The company said the challenging retail environment resulted in soft traffic, which drove lower-than-forecasted 4Q net sales and gross margins. TLRD issued current year EPS guidance that missed estimates.

Jobless claims jump ahead of February labor report

Weekly initial jobless claims (chart) jumped by 20,000 to 243,000 last week, above the Bloomberg forecast of 238,000, with the prior week’s figure being unrevised at 223,000. The four-week moving average rose by 2,250 to 236,500, while continuing claims declined by 6,000 to 2,058,000, south of estimates of 2,062,000.

The larger-than-expected rise in jobless claims doesn’t appear to be causing too much concern, given that they hit a 44-year low in the prior week, per Bloomberg, and as data has shown the labor market remains solid. This sets the stage for tomorrow's key February nonfarm payroll report, expected to show an increase of 200,000 jobs and a rise of 210,000 jobs to private sector payrolls (economic calendar). The unemployment rate is forecasted to dip to 4.7% from 4.8%, and average hourly earnings are projected to rise 0.3% month-over-month (m/m). The report likely will have little impact on Fed rate hike expectations for next week that have surged to almost a certainty, but the data, notably the wage growth figure, could cause some volatility as the markets grapple with what it means for the frequency of rate hikes for the rest of the year.

As noted in the latest Schwab Market Perspective: "Phenomenal" Expectations, the bar is now set higher for policy action to support the rhetoric, setting up the possibility for a market pullback and/or a pickup in volatility. The economic picture continues to look good, but inflation is heating up, which has put a March rate hike by the Federal Reserve firmly on the table. An earnings growth recovery has helped fuel a global rally, but there are risks that expectations and valuations have gotten a bit extended. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

The Import Price Index (chart) increased 0.2% m/m for February, compared to projections of a 0.1% increase and January's upwardly revised 0.6% gain. Compared to last year, prices were higher by 4.6%, above forecasts calling for a 4.4% jump, and following January's upwardly revised 3.8% increase.

Treasuries were lower, as the yield on the 2-year note ticked 1 basis point (bp) higher to 1.36%, while the yields on the 10-year note and the 30-year bond increased 3 bps to 2.59% and 3.18%, respectively.

Stocks avoided posting a fourth-straight session of losses that has pulled them back from record highs, while Treasury yields regained some upward momentum, amid festering global political uncertainty and boosted expectations of a Fed rate hike next week. Amid this backdrop, see our article, End of an Era: Why Volatility May Return to the Stock Market and video from Schwab’s Chief Investment Strategist Liz Ann Sonders and Vice President of Trading and Derivatives, Randy Frederick titled, Stock Rally Continues, but Is It Time for Markets to Take a Breather?, at www.schwab.com/insights. Follow Liz Ann and Randy on Twitter: @lizannsonders and @randyafrederick.

For analysis of the Fed and President Trump's highly-anticipated reflationary policies, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, What would a shake-up at the Fed mean for bond investors? at www.schwab.com/onbonds, and Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Presidential Reset: What Does Trump's Speech Mean for His Agenda?, at www.schwab.com/insights. Follow Kathy on Twitter: @kathyjones.

Europe turns higher after ECB's Draghi offers upbeat tone, Asia mixed on China data

European equities overcame early losses and finished mostly higher, despite oil & gas issues falling as crude oil prices extended yesterday's drop that ensued after some bearish oil inventory reports. The markets digested the expected unchanged monetary policy decision from the European Central Bank (ECB). Stocks got a boost from ECB President Mario Draghi's relatively upbeat tone about the economy, noting that the cyclical recovery may be gaining momentum, though he reiterated the need to continue its stimulus measures as underlying inflation pressures remain subdued. Political uncertainty continued to linger, as the key French Presidential election continues to nudge closer as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Randy Frederick in the video, Why Should the French Presidential Election Be Important to Investors? at www.schwab.com/insights. Also, be sure to check out Jeff's articles, Five Reasons to Stay Invested Despite Heightened Uncertainty and The future of Europe: EU 2.0 and its impact on the markets at www.schwab.com/oninternational. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. In other economic news, Spanish house transactions jumped in January, French business sentiment unexpectedly rose last month, and Irish 4Q GDP growth easily topped forecasts. The euro gained ground and the British pound dipped versus the U.S. dollar, while bond yields in the region turned to the upside to boost the financial sector.

Stocks in Asia finished mixed as traders digested some mixed February Chinese inflation data and crude oil's drop yesterday, while appearing to tread cautiously ahead of today's monetary policy decision from the European Central Bank and tomorrow's key U.S. labor report. Moreover, political uncertainty lingered and the markets continued to brace for the impact of a potential rate hike in the U.S. next week, which expectations of have jumped. Mainland Chinese stocks and those listed in Hong Kong dropped, following reports that showed the nation's consumer price index rose by a much smaller rate than expected, but producer price inflation accelerated more than anticipated. After the closing bell, China reported that its new yuan loans topped forecasts, while its aggregate financing—a gauge of total credit issued—was below estimates and its money supply figures were mixed for last month. Australian equities declined, bogged down by weakness in oil & gas and basic materials issues, while South Korea's markets also lost ground.

However, stocks in Japan bucked the trend, finishing higher, aided by some weakness in the yen, while Indian securities ticked higher, led by strength in auto stocks though gains were held in check as the markets awaited exit polls from five state elections, per Bloomberg. For insight on global investing, 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.

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