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Thursday, March 02, 2017

Stocks Exhale after Breathing Fresh Gains Yesterday

Charles Schwab; On the Market
Posted: 3/2/2017 4:15 PM ET

Stocks Exhale after Breathing Fresh Gains Yesterday

U.S. stocks gave back a sizable chunk of yesterday's rally to fresh all-time highs despite a better-than-expected read on weekly jobless claims. In equity news, Dow member Caterpillar fell after confirming that it is cooperating with Federal agents who searched three of the company's facilities and Kroger posted disappointing quarterly same-store sales results. Treasury yields and the U.S. dollar extended rallies, while gold and crude oil prices were lower.

The Dow Jones Industrial Average (DJIA) declined 113 points (0.5%) to 21,003, the S&P 500 Index lost 14 points (0.6%) to 2,382, and the Nasdaq Composite decreased 43 points (0.7%) to 5,861. In moderately-heavy volume, 911 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil ticked $1.22 lower to $52.61 per barrel and wholesale gasoline lost $0.04 to $1.64 per gallon. Elsewhere, the Bloomberg gold spot price ticked $14.48 lower to $1,235.21 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 102.15.

Dow member Caterpillar Inc. (CAT $94) saw solid pressure after confirming that it is cooperating with Federal agents who are executing a search warrant at 3 of its facilities in the Peoria Illinois Tri-County area, including the corporate headquarters.

Kroger Co. (KR $31) reported 4Q earnings-per-share (EPS) of $0.53, one penny above the FactSet estimate, as revenues increased 5.5% year-over-year (y/y) to $27.6 billion, above the forecasted $27.3 billion. The supermarket company said its 4Q same-store sales, excluding fuel, declined 0.7% y/y, versus the expected 0.1% gain. KR issued full-year EPS guidance that bracketed the Street's expectations, while issuing a same-store sales outlook that came in slightly below forecasts. Shares finished solidly lower. 

Broadcom Limited (AVGO $218) announced fiscal 1Q EPS of $0.57, or $3.63 ex-items, compared to the estimated $3.48, on revenues of $4.1 billion, roughly in line with expectations. The chipmaker issued 2Q revenue guidance that exceeded forecasts. Shares were higher.

Juno Therapeutics Inc. (JUNO $24) posted a 4Q loss of $0.51 per share, or $0.65 ex-items, versus the projected shortfall of $0.62 per share, on revenues of $21.2 million, above the projected $14.6 million. Also, the company announced that it has ended the development of an experimental leukemia drug. JUNO traded noticeably to the downside.

Jobless claims fall

Weekly initial jobless claims (chart) dropped by 19,000 to 223,000 last week, below the Bloomberg forecast of 245,000, with the prior week’s figure being revised lower to 242,000. The four-week moving average fell by 6,250 to 234,250, while continuing claims rose by 3,000 to 2,066,000, north of estimates of 2,060,000.

Treasuries were lower, with the yields on the 2-year and 10-year notes gaining 3 basis points (bps) to 1.31% and 2.48%, respectively, while the yield on the 30-year bond advanced 2 bps to 3.08%.

The U.S. dollar and Treasury yields extended yesterday's rally and the stock markets dipped from all-time highs amid continued upbeat global economic data, which has fostered heightened probability of a Fed rate hike this month. Moreover, the markets appeared to react positively to President Donald Trump's first address to Congress Tuesday night.

For a look at the bond markets, see our article, Should You Hold Bonds or Bond Funds When Interest Rates Rise?, at www.schwab.com/insights, where you can also find 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. Follow Schwab on Twitter: @schwabresearch. Also, for analysis of the Fed, check out 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 follow Kathy on Twitter: @kathyjones.

In light of the rally to all-time highs for stocks, Schwab’s Chief Investment Strategist Liz Ann Sonders offers a look at investing strategies in the current bull market in her latest article, Radioactive: Is Passive's Dominance Over Active Set to Wane?, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

The week's economic calendar will conclude with a couple key February reads on the all-important U.S. services sector, courtesy of the ISM non-Manufacturing Index and the final Markit Services PMI Index. ISM's index is projected to remain at January's 56.5 level and Markit's index is expected to be revised slightly higher to 54.0 from the preliminary estimate of 53.9, but down from January's 55.6 mark. Readings above 50 for both gauges denote expansion.

As noted in the latest Schwab Market Perspective: Not So Fast!, economic data has continued to beat expectations, but the number of upside surprises may start to level off. That doesn't mean things are getting worse, just that expectations are catching up with the improvements in the data, which could have a dampening impact on investor enthusiasm in the near term. However, ultimately, we believe fiscal stimulus is coming—although perhaps later than anticipated—and the bull market in U.S. stocks will continue. Read more at www.schwab.com/marketinsight.

Europe and Asia mixed after yesterday's global rally

European equities finished mixed, taking a breather from yesterday's global rally that was fueled by some upbeat manufacturing reports out of the region and the U.S. and China, as well as cooled political concerns in the U.S. on the heels of President Trump's Congressional speech. Earnings reports in the region diverged, and political risk on this side of the Atlantic continued to fester as a key French Presidential election looms. For more on the European political risk, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Why Should the French Presidential Election Be Important to Investors? at www.schwab.com/insights. Also, be sure to check out Jeff's article, Five Reasons to Stay Invested Despite Heightened Uncertainty at www.schwab.com/oninternational. Follow Jeff on Twitter: @jeffreykleintop. The eurozone's consumer price inflation estimate accelerated month-over-month in February, matching expectations and the eurozone unemployment rate remained at 9.6% for January, in line with projections. The euro and British pound declined versus the U.S. dollar, while bond yields in the region gained ground.

Stocks in Asia finished mixed on the heels of the global rally yesterday that took the U.S. equity markets back to all-time highs. Global manufacturing data, headlined by upbeat reads in the U.S., China and Europe boosted economic sentiment, while Tuesday night's Congressional speech by Donald Trump appeared to calm political concerns in the world's largest economy. Japanese equities extended yesterday's rally as the yen added to recent weakness. Basic materials rallied in the wake of the global economic optimism, boosting Australian securities, which were further aided by an upbeat read on the nation's building approvals, though its trade surplus narrowed unexpectedly. South Korean stocks advanced in a return to action from yesterday's holiday break. However, property-related issued weighed on markets in mainland China and Hong Kong. Indian equities traded lower in a late-day slide as the market retreated from its recent run.

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.

Tomorrow, the international economic docket will include CPI and consumer confidence from Japan and services PMI reads for China and India. Across the pond, releases will include retail sales from Germany, GDP from Italy, retail sales from the Eurozone and Markit Services PMI Indexes for the U.K., Germany, Italy, France and the Eurozone.

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