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Tuesday, May 09, 2017

Market Mixed Amid Continued Low Volatility

Charles Schwab: On the Market
Posted: 5/9/2017 4:15 PM ET

Market Mixed Amid Continued Low Volatility

U.S. equities finished mixed in another session amid low volatility, with little in the way of seismic news to shape sentiment. Second-tier earnings news dominated a quiet equity front, while economic news showed small business optimism topped forecasts and wholesale inventories were revised higher. Meanwhile, Treasuries, gold, crude oil prices and the U.S. dollar were all modestly lower.

The Dow Jones Industrial Average (DJIA) fell 37 points (0.2%) to 20,976, the S&P 500 Index ticked 2 point (0.1%) lower to 2,397, while the Nasdaq Composite rose 18 points (0.3%) to 6,121. In moderate volume, 862 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.55 to $45.88 per barrel and wholesale gasoline lost $0.03 to $1.49 per gallon. Elsewhere, the Bloomberg gold spot price moved $5.89 lower to $1,220.34 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 99.58.

Marriott International Inc. (U.S. equities finished mixed in another session amid low volatility, with little in the way of seismic news to shape sentiment. Second-tier earnings news dominated a quiet equity front, while economic news showed small business optimism topped forecasts and wholesale inventories were revised higher. Meanwhile, Treasuries, gold, crude oil prices and the U.S. dollar were all modestly lower.

Valeant Pharmaceuticals International Inc. (VRX $12) rallied nearly 25% after raising its full-year operating earnings outlook after posting mixed Q1 earnings and revenue figures.

Hertz Global Holdings Inc. (HTZ $13) announced a Q1 loss of $2.69 per share, or a loss of $1.61 ex-items, versus the shortfall of $1.16 per that had been projected, as revenues declined 3.4% y/y to $1.9 billion, in line with forecasts. Shares were sharply lower.

Small business optimism declines by smaller amount than expected

The National Federation of Independent Business (NFIB) Small Business Optimism Index for April dipped to 104.5 from March's 104.7 level, above the Bloomberg estimate of a decline to 104.0.

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, rose to a level of 5.74 million jobs available to be filled in March, from February's downwardly revised 5.68 million level, and slightly above forecasts of 5.73 million. The hiring rate remained at February's 3.6% pace, while the separation rate ticked higher to 3.5% from 3.4%.

Wholesale inventories (chart) were revised higher to a 0.2% month-over-month (m/m) gain for March, versus expectations of an unrevised preliminary 0.1% dip, and following February's upwardly revised 0.3% rise. Sales were flat m/m, after February's upwardly revised 0.7% gain. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—remained at February's 1.28 months level.

Treasuries were lower, as the yields on the 2-year and 10-year notes, along with the 30-year bond, all rose by 1 basis point to 1.34%, 2.40%, and 3.03%, respectively.

For analysis of the interest rate environment, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, where you can also find our commentary, Cash: What to Consider in the New Rate Environment. Follow Schwab on Twitter: @schwabresearch.

Schwab's Chief Investment Strategist Liz Ann Sonders offers a look at the recent subdued market action in her article, Strange Brew: Heightened Uncertainties, Yet Plunging Volatility…What Gives? on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders. Liz Ann notes that volatility has been plumbing historical depths, but it may not be reflecting investor complacency, while the Fed's plans for its balance sheet, more than rate hikes, could bring on spikes in volatility.

Finally, with the political front remaining in focus, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses What the Coming Tax Cuts Mean for the Stock Market on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop. Moreover, see the video from Schwab's Vice President of Trading and Derivatives, Randy Frederick and Vice President of Legislative and Regulatory Affairs, Michael T. Townsend titled, Washington Overview: Budget Deals, Tax Reform, and Trump's 100-Day Mark, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick.

Tomorrow's economic calendar will lighten up a bit, with the only reports on the schedule being the Import Price Index, which is forecasted to increase 0.1% higher last month, as well as MBA Mortgage Applications.

Europe mostly higher, Asia mixed

European equities moved mostly higher, with basic materials rebounding amid some signs of stabilization in key metals prices, while relatively upbeat German economic and earnings data likely helped sentiment. The nation's industrial production declined by a smaller amount than expected and exports rose at a faster pace than projected for March, posting a third-straight monthly gain. Financials came under pressure and were the lone major sector kept out of the green, with weakness in Spanish banks hamstringing sentiment. In the wake of last weekend's highly-expected outcome of the French Presidential election, political uncertainty appeared to cool, though U.K. Brexit negotiations continue ahead of a June election, while Germany and Italy face votes later this year. For analysis of the political front, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. The euro lost ground and the British pound was flat versus the U.S. dollar, while bond yields in the region were mostly higher.

Stocks in Asia finished mixed following some data and amid some political uncertainties in the region, with South Korean markets closed as the nation votes for a new President after the recent impeachment of former President Park for bribery charges. South Korean markets had rallied leading up to the election. Japanese equities declined, paring yesterday's rally despite some continued weakness in the yen versus the U.S. dollar on heightened expectations of a Fed rate hike next month. Japan reported an unexpected decline in wages for March, which was the first decrease in 10 months. Australia's markets dropped, led by banks following some disappointing earnings, and on reports suggesting the release later today of the country's government budget may impose a tax on lenders. Securities trading in India finished flat.

However, mainland Chinese stocks snapped a string of losses that came amid some softer-than-expected economic data, exacerbated by yesterday's trade report, and festering uneasiness about government regulatory crackdowns, while those traded in Hong Kong rallied, as major power companies jumped on reports the country is planning to create three power giants through mergers of eight coal-fired nuclear generators, per Bloomberg. For analysis of China and the global markets, see Schwab's Jeffrey Kleintop's, CFA, articles, The Fed has China in a Tough Spot and Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com.

A number of economic reports out of China will dominate the international calendar tomorrow, with the Asian nation set to release CPI, PPI and lending figures, while South Korea will report its unemployment rate, and Japan will post trade data and its Leading Index. Reports from across the pond include industrial production from France and Italy.

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