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Monday, April 10, 2017

Rangebound to Start the Week

Charles Schwab: On the Market
Posted: 4/10/2017 4:15 PM ET

Rangebound to Start the Week

U.S. stocks finished the first trading day of the holiday-shortened week nearly where they began, as news was sparse amid a dormant economic calendar and little in the way of political events. Treasury yields continued their slide, having little effect on financials, ahead of a host of earnings reports from major players in the space later this week. Energy stocks got a slight lift from the continued run in crude oil prices, while gold and the U.S. dollar were nearly unchanged.

The Dow Jones Industrial Average (DJIA) moved 2 points to the upside to 20,658, the S&P 500 Index added 2 points (0.1%) to 2,357, and the Nasdaq Composite ticked 3 points (0.1%) higher to 5,881. In moderate volume, 661 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.84 to $53.08 per barrel and wholesale gasoline was $0.01 higher at $1.76 per gallon. Elsewhere, the Bloomberg gold spot price inched $0.14 higher to $1,254.67 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was just a shade over 0.1% lower at 100.98.

AT&T Inc. (T $40) announced an agreement to acquire Straight Path Communications Inc. (STRP $92) for $95.63 per share in stock, in a transaction valued at $1.6 billion. Shares of T dipped, while STRP surged over 150%.

Lennar Corp. (LEN $52) warned that its 1Q earnings-per-share (EPS) will be lower than expected due to recent events which have translated in litigation from 2008 that will result in the company taking a one-time charge of $140 million. Shares traded higher despite the announcement.

Swift Transportation Co. (SWFT $25) and Knight Transportation Inc. (KNX $35) announced a merger agreement in an all-stock transaction with a combined enterprise value of $6.0 billion. Separately, KNX lowered its 1Q EPS outlook. Shares of both companies were nicely higher.

Data and earnings season set for the week

Treasuries finished higher, as the U.S. economic calendar was void of any major releases today, as the yield on the 2-year note declined 1 basis point (bp) to 1.28%, while the yields on the 10-year note and the 30-year bond are fell 2 bps to 2.36% and 2.99%, respectively.

The bond and currency markets have been choppy amid the flare-up in geopolitical concerns in the wake of last week's U.S. missile strikes in Syria, joining festering domestic and European political uncertainty. The markets are also continue to grapple with Friday's much softer-than-expected U.S. jobs report that followed minutes from the Fed's March meeting showing the Central Bank is discussing beginning to normalize its balance sheet this year in addition to rate hikes. Meanwhile, Federal Reserve Chairwoman Janet Yellen is expected to deliver a speech at the University of Michigan later today.

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.

This week's economic docket will likely foster a delayed reaction as key data points, retail sales and the Consumer Price Index (CPI), will fall on Good Friday when the U.S. markets will be closed. Tomorrow, the calendar will deliver the NFIB Small Business Optimism Index, with economists forecasting a slight decline to a level of 104.7 for March from the 105.3 posted in February. Coming later in the week will be JOLTS Job Openings, the Producer Price Index (PPI) and the preliminary University of Michigan Consumer Sentiment Index. Finally, 1Q earnings season will begin with a heavy focus on the financial sector, likely garnering attention amid elevated expectations of earnings growth. Financials have been one of the best performing sectors amid the post-election rally and Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers analysis in his latest Schwab Sector Views: Financials—Opportunity or End of the Run?, at www.schwab.com/marketinsight. Follow Schwab on Twitter: @schwabresearch.

As noted in the latest Schwab Market Perspective: Working off the Froth, the recent pullback in stocks and failure of healthcare reform appears to have helped take some of the froth out of the market and correct some overly optimistic sentiment conditions. We believe this will prove to be healthy for the continuation of the bull market, with an improving economy and a still business-friendly administration supporting further gains. But potential political-induced volatility isn't limited to the United States, as the official Brexit process started. A UK recession doesn't appear to be in the cards at this point, but risks have risen; while U.S. recession risk remains quite low. Read more at www.schwab.com/marketinsight.

Europe lower amid lingering geopolitical uneasiness

European equities finished lower, with the global markets remaining on edge due to heightened geopolitical concerns, exacerbated by last week U.S. missile strikes in Syria, while uneasiness toward North Korea lingers. Oil & gas issues dipped despite the continued run in crude oil prices, while basic materials issues trimmed a recent jump. Also, political uncertainty in the region remained as discussed by Schwab's Jeffrey Kleintop, CFA, and Randy Frederick in the 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 ticked higher and the British pound advanced versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mixed following the resiliency in the face of Friday's much softer-than-expected U.S. employment report and ramped-up geopolitical concerns after last week's missile strikes in Syria by the U.S. and lingering concerns toward North Korea. As such, see Schwab's Jeffrey Kleintop's, CFA, article, Five Reasons to Stay Invested Despite Heightened Uncertainty at www.schwab.com/oninternational. Japanese equities gained ground, with the yen showing some weakness, while those traded in South Korea fell. Mainland Chinese stocks declined, while securities in Hong Kong finished flat. A rally in basic materials issues helped boost Australia's markets higher, and Indian listings decreased, as the nation's markets have trimmed a recent record run as of late that has led emerging markets higher, and Schwab's Michelle Gibley, CFA, offers her commentary, Emerging Markets: Why They Deserve a Place in Your Portfolio, while Schwab's Kathy Jones addresses the question, Emerging Market Bonds: Can the Hot Start In 2017 Continue?. Read all these commentaries at www.schwab.com/oninternational and www.schwab.com/marketinsight.

International reports set for release tomorrow include business confidence from Australia, CPI, PPI, the Retail Price Index and retail sales from the U.K., the Zew Economic Sentiment Survey from Germany, and industrial production from the Eurozone.

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