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Monday, March 06, 2017

Stocks off Lows, but Still Red on Close

Charles Schwab: On the Market
Posted: 3/6/2017 4:15 PM ET

Stocks off Lows, but Still Red on Close

U.S. equities finished the regular trading session off the day's lows, but in the red as investors seemingly focused on geopolitical concerns and the possibility that the Federal Reserve may move to raise its target rate as early as next week. Treasuries, crude oil prices and gold were lower, while the U.S. dollar advanced. In light economic news, factory orders exceeded estimates and durable goods orders for January were favorably revised.

The Dow Jones Industrial Average (DJIA) lost 51 points (0.2%) to 20,954, the S&P 500 Index lost 8 points (0.3%) to 2,375, and the Nasdaq Composite decreased 22 points (0.4%) to 5,849. In moderately-heavy volume, 796 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.13 lower to $53.33 per barrel and wholesale gasoline added $0.02 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price ticked $8.84 lower to $1,225.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 101.67.

General Motors Co. (GM $38) announced an agreement with French automaker PSA Group Ltd. to sell its European operations, Opel and Vauxhall, to the parent of Peugeot SA(PUGOY $21) for about $2.2 billion. GM lost ground, though PUGOY advanced. 

TG Therapeutics Inc. (TGTX $10)surged to close over 90% higher after announcing positive results from a study of its leukemia treatment.

Factory orders report tops forecasts to kick off economic week

Factory orders (chart) rose 1.2% month-over-month (m/m) in January, versus the Bloomberg expectation of a 1.0% increase, while December's figure was unadjusted at a 1.3% gain. January durable goods orders—preliminarily reported a week ago—were adjusted higher to a 2.0% increase, from the preliminary reading of a 1.8% gain, and versus expectations of a downwardly revised 1.0% rise. Orders of nondefense capital goods excluding aircraft—a proxy for business spending—were revised slightly higher to a 0.1% dip from the first estimate of a 0.4% decline.

Treasuries were mostly lower, with the yield on the 2-year note flat at 1.30%, while the yield on the 10-year note rose 1 basis point (bp) to 2.49% and the 30-year bond rate gained 3 bps to 3.10%.

Tomorrow, the domestic docket will include the release of the trade balance, expected to have widened to a $48.5 billion shortfall in January after the prior month's $44.3 billion deficit. In the final hour of trading we will receive the January consumer credit report, forecasted to show consumer borrowing advanced $17.8 billion after increasing $14.2 billion in December.

With earnings season all but in the books and Fedspeak going quiet ahead of the March 14-15 meeting, all eyes will likely focus on this week's U.S. economic calendar, which will also deliver reads on the trade balance and 4Q nonfarm productivity and unit labor costs. However, the docket will be headlined by Friday's key nonfarm payroll report for February.

As noted in the latest Schwab Market Perspective: "Phenomenal" Expectations, U.S. stock indexes broke to the upside, on better economic data but also heightened expectations of tax and regulatory reform. 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.

With last week's speech by Federal Reserve Chairwoman Janet Yellen solidifying March rate hike expectations and the markets highly-anticipating details of President Donald Trump's plans for tax, healthcare and regulatory reforms, along with infrastructure spending, 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 follow Kathy on Twitter: @kathyjones. In the wake of President Trump's first speech in front of Congress last week, Schwab's 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.

Finally, as the stock markets remain near all-time highs, Schwab’s Chief Investment Strategist Liz Ann Sonders delivers 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.

Europe dips, Asia mostly higher

European equities finished mostly lower in late-day action, with global caution setting in amid heightened geopolitical risks as U.S. political uncertainty remains and North Korea fired ballistic missiles off its east coast, while a key French Presidential election draws near. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick discuss the French political front 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 article, Five Reasons to Stay Invested Despite Heightened Uncertaintyat www.schwab.com/oninternational. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. M&A news ramped up, with Standard Life PLC. (SLFPY $19) and Aberdeen Asset Management PLC. In economic news, eurozone investor confidence improved much more than expected for March. The euro and British pound saw pressure versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mostly to the upside, shrugging off festering political risk in the U.S. and Europe, which was met with news that North Korea fired multiple ballistic missiles off its east coast, as well as heightened expectations of a rate hike in the U.S. later this month. However, a rise in the yen weighed on Japanese markets, while stocks trading in mainland China and Hong Kong advanced as the markets digested a cautious economic outlook by the government amid its annual legislative meeting. Australian securities rose and South Korean equities ticked higher. Indian listings advanced, extending its run as of late to a two-year high. 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 Knowand Emerging Markets: Why They Deserve a Place in Your Portfolioat 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 yield the release of house prices from the U.K., factory orders from Germany, PPI from Italy and GDP from the Eurozone. Meanwhile, in central bank action, the Royal Bank of Australia will announce its monetary policy decision, with no changes to its current stance expected.

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