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Thursday, March 16, 2017

Stocks Give Back Some Post Fed Gains

Charles Schwab; On the Market
Posted: 3/16/2017 4:15 PM ET

Stocks Give Back Some Post Fed Gains

U.S. equities finished the regular trading session mostly lower with health care stocks lagging on the heels of President Trump's budget proposal. Global equities advanced following yesterday's decision by the Federal Reserve and today's central bank decisions that included Japan, the U.K. and Switzerland announcing no changes to their respective monetary policy stances and China increasing its short-term interest rate. Treasuries, the U.S. dollar and crude oil prices were lower and gold gained ground. In equity news, Oracle topped earnings estimates and increased its dividend.

The Dow Jones Industrial Average (DJIA) decreased 17 points (0.1%) to 20,933 and the S&P 500 Index shed 4 points (0.2%) to 2,381, while the Nasdaq Composite ticked 1 point higher to 5,901. In moderate volume, 803 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.11 to $48.75 per barrel and wholesale gasoline ticked $0.01 higher to $1.59 per gallon. Elsewhere, the Bloomberg gold spot price gained $6.65 to $1,226.52 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.5% to 100.27.

Oracle Corp. (ORCL $46) reported fiscal 3Q earnings-per-share (EPS) of $0.53, or $0.69 ex-items, compared to the $0.62 FactSet estimate, as revenues rose 3.0% year-over-year (y/y) to $9.3 billion, roughly in line with expectations. The company said the "hyper-growth" it continues to experience in the cloud has "rapidly" driven both its cloud software as a service (SaaS) and platform as a service (PaaS) businesses to scale. ORCL also issued 4Q EPS and revenue guidance that was mostly above estimates and increased its quarterly dividend by 27% to $0.19 per share. Shares rallied.

Schwab’s Chief Investment Strategist Liz Ann Sonders offers her latest article, Big Machine: Why Large Caps Are Likely to Outperform at www.schwab.com/marketinsight, and follow Liz Ann on Twitter: @lizannsonders.

Williams-Sonoma Inc. (WSM $49) posted 4Q profits of $1.63 per share, or $1.55 ex-items, versus the forecasted $1.51, as revenues dipped 0.3% y/y to $1.6 billion, roughly in line with expectations. 4Q same-store sales declined 0.9% y/y, compared to the 0.4% increase that was expected. Gross margin for the period topped projections. WSM issued 1Q and full-year guidance that was a bit shy of the Street's estimates. WSM increased its quarterly dividend by 5% to $0.39 per share. Shares were nicely higher.

Dollar General Corp. (DG $73) achieved 4Q EPS of $1.49, north of the estimated $1.41, as revenues grew 13.7% y/y to $6.0 billion, mostly matching expectations. Same-store sales rose 1.0% y/y, above the forecasted 0.2% gain. The company's current year profit outlook was below projections but included several one-time items that may be impacting comparability to the Street, while announcing an increase to its quarterly dividend of 4% to $0.26 per share. Shares gained ground.

Tesla Inc. (TSLA $262) announced offerings of common stock and convertible senior notes totaling about $1.15 billion, including options granted to the underwriters. The electric car maker said it intends to use the proceeds to strengthen its balance sheet and further reduce any risks associated with the rapid scaling of its business due to the launch of its Model 3, as well as for general corporate purposes. TSLA moved to the upside.

Housing construction activity mixed, jobless claims dip

Housing starts (chart) for February rose 3.0% month-over-month (m/m) to an annual pace of 1,288,000 units, above the Bloomberg forecast of a 1,264,000 unit rate. January starts were upwardly revised to an annual pace of 1,251,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, fell 6.2% m/m in February to an annual rate of 1,213,000, after January's favorably revised 1,293,000 rate, and south of the expected annual pace of 1,268,000 units. Starts and permits for single-family units rose, but multi-family activity declined m/m.

Weekly initial jobless claims (chart) dipped by 2,000 to 241,000 last week, slightly above forecasts of 240,000, with the prior week’s figure being unrevised at 243,000. The four-week moving average rose by 750 to 237,250, while continuing claims dropped by 30,000 to 2,030,000, south of estimates of 2,050,000.

The Philly Fed Manufacturing Index (chart) in March decreased but remained solidly at a level depicting expansion (a reading above zero) after decreasing to 32.8 from 43.3 in February, and compared to estimates of a decline to 30.0.

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, rose to a level of 5.63 million jobs available to be filled in January, from December's upwardly revised 5.54 million level, and above forecasts of 5.56 million. The hiring rate moved higher to 3.7% from December's 3.6% rate and the separation rate increased to 3.6% from 3.5%.

Treasuries were lower, with the yields on the 2-year note and the 30-year bond rising 3 basis points (bps) to 1.33% and 3.14%, respectively, and the yield on the 10-year note advancing 4 bps to 2.53%.

Treasury yields and the U.S. dollar fell yesterday despite the Fed's highly-expected rate hike, as its apparent dovish tone and forecast of further rate hikes for the rest of the year seemed to ease concerns that an upbeat economic outlook would accelerate the pace of further increases. For analysis of the Fed's decision, see our article, Fed Rate Hike: What Does It Mean for Your Portfolio?, and Senior Fixed Income Research Analyst, Collin Martin's, CFA, commentary, Fed Raises Rates, Signals Additional Hikes in 2017, at www.schwab.com/insights. Follow Schwab on Twitter: @schwabresearch.

In the latest Schwab Sector Views: How Should Investors Look at Health Care Now?, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, informs us that the health care sector has outperformed the S&P 500 on average during rate-hiking periods going back to 1970 (BCA Research), although just because it’s happened in the past doesn’t necessarily mean it will occur in the future. Read the whole article, as well as Brad's views on other sectors at www.schwab.com/marketinsight.

Finally, for a look at the stock markets and potential increased volatility, along with the festering political uncertainty, see our article, End of an Era: Why Volatility May Return to the Stock Market and Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's commentary, Return of the Debt Ceiling: What It Means for Investors, at www.schwab.com/insights.

Tomorrow, the U.S. economic calendar will lead-off with the Federal Reserve's industrial production and capacity utilization report for February, with economists expecting a 0.2% m/m increase in production, rebounding from the 0.3% m/m decline and for utilization to have ticked higher to 75.5% from January's 75.3% level. The docket will round out the day with the release of the preliminary University of Michigan Consumer Confidence Index and the Leading Index.

Europe and Asia higher following plethora of central bank decisions

European equities gained ground, with basic materials and oil & gas issues extending yesterday's rebounds, while the global markets digested unchanged monetary policy decisions out of the U.K., Japan and Switzerland and rate increases in China. Also, the markets reacted favorably to the highly anticipated rate hike in the U.S., which was accompanied by an apparent dovish tone and forecast for future rate hikes this year that seemed to calm concerns of an accelerated pace of increases. Moreover, the results from the Dutch election look to have eased concerns about a populist threat in Europe. This sets the stage for the upcoming key French Presidential election in France next month 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. Follow Jeff on Twitter: @jeffreykleintop. 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, where you can also find Director of International Research, Michelle Gibley's CFA, article, Europe Votes: Could More Countries Reject the EU?. In economic news, eurozone consumer price inflation rose in line with forecasts for February. The euro ticked higher and the British pound rose versus the U.S. dollar, while bond yields in the region were mostly higher.

Stocks in Asia finished higher in the wake of the expected rate hike and apparent dovish tone in the U.S., which also eased concerns about the pace of future rate increases for the year. Also, the Bank of Japan held its monetary policy steady as expected and the People's Bank of China raised its short-term interest rate for a third-straight month. Japanese equities ticked higher, with the rally in the yen as the U.S. dollar fell capping the upward move. Mainland Chinese stocks and those trading in Hong Kong gained solid ground. Australian securities managed to advance following an unexpected decline in the nation's employment change in February, which likely limited gains. South Korean equities rose and Indian listings finished higher. Schwab's Michelle Gibley, CFA, provides 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.

The international economic calendar for tomorrow will be light, offering wage data from France and trade data from Italy and the Eurozone, while the Eurozone will also report construction output.

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