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Wednesday, March 01, 2017

Stocks Touch New All-Time Highs

Charles Schwab: On the Market
Posted: 3/1/2017 4:15 PM ET

Stocks Touch New All-Time Highs

U.S. stocks rallied to fresh all-time highs and international equities were also mostly higher, courtesy of some upbeat manufacturing reports from across the globe which aided an ascent that was seemingly influenced by last night's Presidential address that was delivered to a joint session of Congress. Treasury yields and the U.S. dollar were solidly higher amid heightened expectations of a possible Fed rate hike this month. Crude oil prices dipped and gold was slightly to the upside, while in equity news, Lowe's highlighted the earnings front.

The Dow Jones Industrial Average (DJIA) surged 303 points (1.5%) to 21,115, the S&P 500 Index jumped 32 points (1.4%) to 2,396, and the Nasdaq Composite rallied 79 points (1.3%) to 5,904. In heavy volume, 1.0 billion shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.18 lower to $53.83 per barrel and wholesale gasoline lost $0.05 to $1.68 per gallon. Elsewhere, the Bloomberg gold spot price ticked $1.30 higher to $1,249.75 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 101.71.

Lowe's Companies Inc. (LOW $82) reported 4Q earnings-per-share (EPS) of $0.74, or $0.86 ex-items, versus the FactSet estimate of $0.79, as revenues gained 19.2% year-over-year (y/y) to $15.8 billion, topping the projected $15.4 billion. 4Q same-store sales grew 5.1% y/y, north of the estimated 2.4% increase. LOW issued stronger-than-expected current year EPS and revenue guidance. Shares rallied.

Best Buy Co. Inc. (BBY $42) posted 4Q profits of $1.91 per share, or $1.95 ex-items, compared to the expected $1.67, as revenues decreased 1.0% y/y to $13.5 billion, below the forecasted $13.6 billion. Quarterly same-store sales declined 0.7% y/y, versus the estimated 0.7% rise. BBY delivered 1Q guidance that missed the Street's projections. Separately, the company increased its dividend by 21.4% to $0.34 per share and announced a new $3 billion share repurchase program. BBY saw solid pressure.

Dow member McDonald's Corp. (MCD $129) got an afternoon boost after the company announced its new global growth plan during its investor day, including enhancing digital capabilities, establishing new financial targets and initiating a new 3-year plan to return cash to shareholders.

Dollar Tree Inc. (DLTR $77) announced 4Q EPS of $1.36, or $1.39 ex-items, versus the expected $1.32, as revenues increased 5.0% y/y to $5.6 billion, roughly in line with forecasts. 4Q same-store sales rose 1.2% y/y, versus the anticipated 1.8% gain. DLTR issued 1Q and full-year EPS guidance that missed estimates, while its revenue forecasts for the periods bracketed expectations. Shares were higher.

Salesforce.com Inc. (CRM $84) reported a 4Q loss of $0.07 per share, or a profit of $0.28 ex-items, compared to the forecasted $0.25, with revenues rising 27% y/y to $2.3 billion, roughly in line with expectations. CRM issued 1Q guidance that missed forecasts, while its full-year EPS outlook matched estimates and it raised its revenue projection for the year. Shares gained ground.

The big three U.S. automakers reported February sales today, with General Motors Co's (GM $38) sales rising 4.2% y/y, compared to the projected 2.2% increase. Fiat Chrysler Automobiles NV's (FCAU $11) sales fell 10.1%, compared to the expected 8.4% drop. Ford Motor Co (F $13) reported a 4.0% decline in sales, versus the expected 4.7% decrease. Shares of all three companies traded higher.

For a look at investing strategies in the current bull market, see Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive: Is Passive's Dominance Over Active Set to Wane?, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

ISM manufacturing joins string of upbeat global data

The Institute for Supply Management (ISM) Manufacturing Index (chart) for February jumped further into expansion territory (above 50) after rising to 57.7—the highest level since August 2014—from January's 56.0 level and compared to the Bloomberg forecast of a modest rise to 56.2. New orders and production moved further north of 60, though employment dipped but remained above 50. On the heels of the post-election surge in the U.S. dollar, new export orders ticked higher to 55.0. The ISM said comments from the survey largely indicated strong sales and demand, and reflect a positive view of business conditions with a watchful eye on commodities and the potential for inflation.

The report joins a host of upbeat manufacturing data, adding credence to the latest Schwab Market Perspective: Not So Fast!, which notes that the growth outlook for the rest of the world is stable, while the U.S. economy has accelerated thus far in 2017, bolstering our view that the bull market in domestic stocks will continue. Read more at www.schwab.com/marketinsight.

The final Markit U.S. Manufacturing PMI Index was revised slightly lower to 54.2 for February from the 54.3 preliminary level, compared to estimates calling for an adjustment to 54.5. The index is down from the 55.0 level posted in January. A reading above 50 denotes expansion. The release is independent and differs from ISM's manufacturing report, as it has less historic value and Markit weights its index components differently.

Personal income (chart) was up 0.4% month-over-month (m/m) in January, versus the Bloomberg forecast to match December's unrevised 0.3% gain. Personal spending increased 0.2% last month, missing expectations of a 0.3% rise and versus December's unrevised 0.5% gain. The January savings rate as a percentage of disposable income was 5.5%. The PCE Deflator was up 0.4%, below expectations of a 0.5% increase. Compared to last year, it was 1.9% higher, versus of estimates of a 2.0% gain. Excluding food and energy, the PCE Core Index was up 0.3% m/m, matching expectations, and the index was 1.7% higher y/y, in line with estimates to match December's unrevised increase.

Construction spending (chart) fell 1.0% m/m in January, versus projections of a 0.6% advance, and following December's upwardly revised 0.1% increase from a 0.2% decline. Residential spending was 0.3% higher, while non-residential spending fell 1.9%.

The MBA Mortgage Application Index rose 5.8% last week, following the previous week's 2.0% drop. The increase came as a 5.1% gain for the Refinance Index was met with a 6.5% rise for the Purchase Index. The average 30-year mortgage rate dropped 6 basis points (bps) to 4.30%.

At about 2:00 p.m. ET, the Federal Reserve released its Beige Book—an anecdotal look at national economic activity—used as a tool by the Federal Open Market Committee (FOMC) to prepare for its next two-day monetary policy meeting scheduled to end March 15. The report indicated that growth continued at a modest to moderate pace across all twelve districts from early January through mid-February. In regard to jobs the report revealed that labor markets remained tight, but employment grew moderately in most of the nation and pricing pressures were little changed from the prior release.

Treasuries were lower, with the yield on the 2-year note rising 2 bps to 1.28%, and the yields on the 10-year note and the 30-year bond gaining 6 bps to 2.45% and 3.06%, respectively.

Treasury yields and the U.S. dollar rebounded from recent stalls amid heightened expectations regarding the possibility of a Fed rate hike this month. The U.S. stock markets are getting back into rally mode, hitting all-time highs again, bolstered by last night's dialed-down tone in the first Congressional address by President Donald Trump, which although lacked policy plan details, appears to be getting a positive reaction.

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.

Tomorrow, the U.S. economic calendar will be light, offering weekly initial jobless claims, expected to have ticked slightly higher to a level of 245,000 after registering 244,000 the week prior.

Europe and Asia mostly higher following data and U.S. Presidential address

European equities moved nicely higher, despite heightened expectations of a potential March rate hike in the U.S., with the euro and British pound seeing some pressure and bond yields in the region rising to aid the financial sector. Political concerns cooled in the wake of last night's speech to Congress by U.S. President Donald Trump, though French elections loom to keep political uncertainty intact on this side of the Atlantic. 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. Upbeat February global manufacturing reports aided sentiment, with China's stronger-than-expected data being followed by eurozone activity growing solidly and U.S. output hitting a multi-year high.

Stocks in Asia finished mostly higher following some upbeat economic data and as the markets digested last night's Congressional speech from U.S. President Donald Trump without exacerbated concerns. Japanese equities advanced as the yen giving back some recent gains, while a read on the nation's capital spending rose much more than expected in 4Q. Also, the Japan PMI Manufacturing Index for February showed expansion. Stocks trading in mainland China and in Hong Kong increased on the heels of reports showing the nation's manufacturing and services sector growth continued, with the former topping expectations. Australian securities dipped as telecommunications issues fell solidly and despite a stronger-than-expected 4Q GDP report. Indian equities advanced, with banks leading the way, on the heels of late-yesterday's 4Q GDP report that topped estimates. Markets in South Korea were closed for a holiday.

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.

The international economic docket for tomorrow will be relatively light, offering the Import Price Index from Germany and the unemployment rate from Italy and the eurozone, while the latter will also report CPI and PPI.

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