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Thursday, April 06, 2017

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

Stocks Manage Small Advance

U.S. stocks closed the regular trading session mildly higher with financials leading the advance as Treasury yields ticked to the upside. Energy issues extended gains as crude oil prices continued to rise, while the U.S. dollar was higher and gold experienced a minor decline. In equity news, Bed Bath & Beyond, Constellation Brands and Costco Wholesale announced upbeat results that aided in lifting the consumer discretionary sector. Additionally, traders may have been exercising a bit of caution as some focus is being given to a two-day meeting between President Trump and Chinese President Xi.

The Dow Jones Industrial Average (DJIA) gained 15 points (0.1%) to 20,663, the S&P 500 Index moved 5 points (0.2%) higher to 2,357, and the Nasdaq Composite increased 14 points (0.2%) to 5,879. In moderate volume, 806 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.55 to $51.70 per barrel and wholesale gasoline was $0.01 higher at $1.73 per gallon. Elsewhere, the Bloomberg gold spot price decreased $3.71 to $1,252.05 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 100.69.

Bed Bath & Beyond Inc. (BBBY $39) reported 4Q earnings-per-share (EPS) of $1.84, versus the $1.77 FactSet estimate, as revenues rose 3.4% year-over-year (y/y) to $3.5 billion, roughly in line with forecasts. 4Q same-store sales rose 0.4% y/y, slightly above the expected 0.3% gain. BBBY issued current year earnings guidance that was roughly in line with the Street's estimates. Separately, the company announced a 20.0% increase of its quarterly dividend to $0.15 per share. Shares were solidly higher.

CarMax Inc. (KMX $58) announced 4Q EPS of $0.81, above the projected $0.79, with revenues increasing 9.3% y/y to $4.1 billion, north of the forecasted $3.9 billion. Same-store sales growth for used cars came in well above the Street's forecasts. Shares overcame early pressure that developed as analysts scrutinized the company's auto finance segment, and finished higher.

Constellation Brands Inc. (STZ $172) posted 4Q profits of $2.26 per share, or $1.48 ex-items, versus the projected $1.36, as revenues rose 5.0% y/y to $1.6 billion, roughly in line with estimates. STZ issued current year EPS guidance that exceeded expectations. Separately, the alcoholic beverage company raised its quarterly dividend by 30.0%. STZ rallied.

Costco Wholesale Corp. (COST $170) reported same-store sales growth of 6.0% y/y, topping the projected 4.2% gain. COST moved nicely to the upside.

Jobless claims drop

Weekly initial jobless claims (chart) fell by 25,000 to 234,000 last week, below the Bloomberg forecast of 250,000, with the prior week’s figure being revised slightly higher to 259,000. The four-week moving average declined by 4,500 to 250,000, while continuing claims decreased by 24,000 to 2,028,000, south of estimates of 2,030,000.

Today's jobless claims data adds to yesterday's second-straight blowout number on employment growth from ADP and comes ahead of tomorrow's key March nonfarm payroll report (economic calendar). Job growth is projected at 180,000 after February's rise of 235,000, while private sector employment is expected to rise by 170,000 jobs after the prior month's 227,000 gain. The unemployment rate is forecasted to remain at 4.7% and average hourly earnings are anticipated to match February's 0.2% increase month-over-month and be up 2.7% y/y, down slightly from the 2.8% rise posted in February.

Employment has been solid and Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: Financials—Opportunity or End of the Run?, that a stronger labor market is helping lead to a more confident consumer and could push up willingness to increase borrowing. Brad concludes that for now, we continue to believe the future is brightening for the financials sector and the recent pullback represents an opportunity for investors that need, or want, to add to their financial position. Read more at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

Treasuries dipped, with the yields on the 2-year and 10-year notes ticking 1 basis point (bp) higher to 1.24% and 2.34%, respectively, while the yield on the 30-year bond was nearly unchanged at 2.99%.

The U.S. dollar and Treasury yields remained in focus as a two-day summit between China and the U.S. began. Also, these markets remain choppy following yesterday's reversals amid a flare up in tax reform uncertainty and the Fed's minutes from its March meeting that suggested the Central Bank was aiming to begin to normalize its balance sheet this year in addition to rate hikes.

Amid this backdrop, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, Top Five Trade Issues Investors Should Be Watching at www.schwab.com/oninternational and follow Jeff on Twitter: @jeffreykleintop. Also check out our videos by Schwab's Vice President of Trading and Derivatives, Randy Frederick and Senior Fixed Income Research Analyst, Collin Martin, CFA, titled, Fed Hiked Interest Rates, So Why Are Bond Yields Still So Low?, and Randy's and Schwab's Chief Fixed Income Strategist, Kathy Jones' discussion, Three Fed Hikes Seen in 2017: How Should Bond Investors Respond, at www.schwab.com/insights. Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones. Finally, for our recent commentary on the political front, see Schwab’s Chief Investment Strategist Liz Ann Sonders' and Randy Frederick's video, Is Tax Reform Still On the Table? at www.schwab.com/insights.

In addition to the aforementioned labor report, tomorrow's U.S. economic calendar will yield wholesale inventories, with economists expecting a 0.4% month-over-month increase in February, and the final hour of trading will bring the release of consumer credit, forecasted to show consumer borrowing advanced by $15.0 billion in February.

Europe up on oil, data, central banks and politics

European equities finished mostly higher, as energy issues extended recent gains on the continued upward momentum in crude oil prices, though the markets awaited today's meeting between the U.S. and China, which will likely garner heightened scrutiny. Traders also grappled with dovish commentary from European Central Bank President Mario Draghi and yesterday's Fed meeting minutes, which caused some volatility as it showed policymakers are discussing starting to normalize its bloated balance sheet this year. Moreover, political uncertainty remained as Brexit negotiations have started and the markets digested polls ahead of this month's key French Presidential election. For analysis of the European political front, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's videos, "Brexit" Underway: How Can Investors Prep Now That Article 50 Has Been Triggered? and Why Should the French Presidential Election Be Important to Investors? at www.schwab.com/insights. Also, check out our article, Brexit Begins: What's Next for the U.K., at www.schwab.com/insights, while Director of International Research, Michelle Gibley CFA, offers her article, Europe Votes: Could More Countries Reject the EU? at www.schwab.com/oninternational. The euro dipped and the British pound was little changed versus the U.S. dollar, while bond yields in the region finished mixed. In economic news, German factory orders rose by a smaller amount than expected for February.

Stocks in Asia finished mostly lower as the markets treaded cautiously ahead of today's highly-anticipated meeting between the U.S. and China, while yesterday's Fed meeting minutes that showed the Central Bank aims to begin to normalize its balance sheet this year and caused some downward pressure. The yen rallied after the Fed's report to weigh on Japanese equities. Australian securities declined with commodity and financial stocks seeing some pressure, while South Korean shares also decreased. Chinese markets were mixed, with stocks trading lower in Hong Kong on the aforementioned Fed report and data showing growth in the nation's key services sector slowed, while mainland Chinese listings advanced, finding support from continued optimism from yesterday's announced plans for a new economic zone near Beijing. Indian equities retreated modestly from record highs as the Reserve Bank of India unexpectedly decided to raise one of its interest rates. Emerging markets have enjoyed strong returns in 2017, led by Indian stocks, which have rebounded sharply after a brief post U.S. election slide. For more on emerging markets read Schwab's Michelle Gibley's, CFA, article, Emerging Markets: Why They Deserve a Place in Your Portfolio. Read all these commentaries at www.schwab.com/oninternational.

The international economic docket for tomorrow will include the Leading Index from Japan, industrial production and trade data from Germany and France, retail sales from Italy and industrial and manufacturing production, construction output and trade data from the U.K.

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