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Monday, May 22, 2017

Market Rebound Continues

Charles Schwab: On the Market
Posted: 5/22/2017 4:15 PM ET

Market Rebound Continues

U.S. equities continued their rebound from last week's malaise that came amid a flare-up in domestic political uncertainty and volatility. Defense stocks got a boost from President Trump's deals with Saudi Arabia on his first overseas trip, and Ford announced a new CEO. Treasury yields and gold are moved higher, and the U.S. dollar was little changed, with the economic calendar empty today. Meanwhile, crude oil prices extended a run as of late amid continued production cut optimism.

The Dow Jones Industrial Average (DJIA) increased 90 points (0.4%) to 20,895, the S&P 500 Index added 12 points (0.5%) to 2,394, and the Nasdaq Composite gained 49 points (0.8%) to 6,134. In moderate volume, 792 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.46 to $51.13 per barrel and wholesale gasoline was $0.01 higher at $1.66 per gallon. Elsewhere, the Bloomberg gold spot price increased $5.06 to $1,260.99 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 96.98.

Ford Motor Co. (F $11) announced that President and Chief Executive Officer (CEO) Mark Fields will retire and be replaced by Jim Hackett, who has led Ford Smart Mobility LLC since March 2016. Executive Chairman Bill Ford said Jim Hackett is the right CEO to lead Ford during a transformation period for the auto industry and the broader mobility space. Shares gained ground.

Huntsman Corp. (HUN $26) and Clariant AG (CLZNY $22) announced an agreement to combine in a merger of equals through an all-stock transaction, creating a global specialty chemical company with approximate annual sales of $13.2 billion. The merged company will be named HuntsmanClariant. Under the terms of the deal, Huntsman shareholders will receive 1.2196 shares of the new company for each share owned and each share of Clariant will remain outstanding as a share of the new company. Clariant shareholders will own about 52% of the company and Huntsman shareholders will own approximately 48%. HUN lost modest ground, while CLZNY moved nicely higher.

Amgen Inc. (AMGN $153) saw some pressure after a study of its osteoporosis treatment showed a newly observed cardiovascular safety signal that will have to be assessed, likely delaying approval in the U.S. Shares of AMGN's Belgian partner for the treatment, UCB SA (UCBJY $35), fell sharply.

Dow member Boeing Co. (BA $184) and Lockheed Martin Corp. (LMT $277), along with other aerospace and defense companies, moved higher after several defense and commercial agreements were announced yesterday amid President Donald Trump's visit to Saudi Arabia as part of his first trip overseas.

Fed, housing and business activity reports set to join political focus this week

Treasuries dipped as the U.S. economic docket was void of any major releases today. The yields on the 2-year and 10-year notes, along with the 30-year bond, all ticked 1 basis point (bp) higher to 1.28%, 2.25% and 2.91%, respectively. For analysis of the bond markets, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

Along with continued focus on the political front, this week's economic calendar will bring looks at the housing sector, beginning with tomorrow's new home sales report, with economists expecting a 1.8% month-over-month (m/m) decline during April to a rate of 610,000 units, as well as Markit's preliminary Manufacturing and Services PMIs for May with both indexes forecasted to inch higher to 53.0 and 53.3, respectively, while the Richmond Fed Manufacturing Index will round out the day, forecasted to move lower to a level of 15 for May. More housing data, manufacturing and business activity reports will come later in the in the form of existing home sales, the second read on Q1 GDP and preliminary durable goods orders. Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her article, ½ Full: Seeing Through a Weak Q1 leading indicators say a lot more about the economy prospectively than backward-looking measures like GDP, and they remain quite healthy. Liz Ann concludes that we are likely just experiencing yet another "soft patch" in an ongoing expansion; so for now, "I am seeing the glass as half full." Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Moreover, the release of the Fed's May meeting minutes could command attention as the markets grapple with the path of future rate hikes and the expected beginning of the paring of the Central Bank's bloated balance sheet. For analysis, see Schwab's Vice President of Trading and Derivatives, Randy Frederick's and Chief Fixed Income Strategist, Kathy Jones' video, Fed Rate-Hike Cycle: How Can Bond Investors Prepare? on the Insights & Ideas page at www.schwab.com, where Randy and Liz Ann Sonders also offer the video, June Rate-Hike Highly Likely? Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones.

Finally, following last week's brief spike in volatility, see the latest articles, Is The Stock Market Just Quiet Or Is It Too Quiet? from Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Liz Ann Sonders', Strange Brew: Heightened Uncertainties, Yet Plunging Volatility…What Gives? on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop.

Europe mixed on M&A, politics and euro strength, Asia mostly higher

European equities finished mixed, with the markets continuing the grapple with political uncertainty on both sides of the pond. The euro continued to climb versus the U.S. dollar, which has been pressured by ramped-up U.S. political uneasiness. The euro got a further boost from comments from German Chancellor Angela Merkel regarding the currency being "too weak," leading to Germany's trade surplus, per Bloomberg. However, the British pound dipped versus the greenback, as ongoing U.K. Brexit negotiations fostered uncertainty. Adding to the political risk, Germany, Italy and the U.K. face elections later this year. For analysis of the political uncertainty 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?. Bond yields in the region were mixed. Telecommunications issues led to the upside to extend a recent rally, while oil & gas issues moved modestly to the upside as crude oil prices extended a run as of late on optimism the extension of production cuts will be announced.

Stocks in Asia finished mostly to the upside as the U.S. markets continued to recover on Friday from a midweek selloff that came as volatility spiked amid flared-up U.S. political uncertainty, which appeared to call President Trump's ability to pass pro-growth policies into question. The global markets are shrugging off lingering geopolitical uncertainty as North Korea conducted another missile test over the weekend, while paying attention to U.S. President Trump's first foreign trip. Japanese equities gained ground, with the yen stabilizing after last week's rally, while the nation's trade report showed exports grew at a smaller pace than expected and imports topped forecasts. Australian securities rose, with basic materials recovering and oil & gas issues gaining ground as crude oil prices extend a recent run on optimism of extended production cuts. South Korean listings showed some resiliency in the face of the North Korean missile tests and a deceleration in that nation's export growth, advancing 0.7%, and markets in India moved higher, back to near record territory as the markets cheered the finalization of rates for the national sales tax, per Bloomberg.

Chinese stocks finished mixed, with mainland stocks declining, amid festering regulatory crackdown concerns and economic uncertainty in the wake of recent soft data, but those traded in Hong Kong increased, with insurers getting a boost from some analyst optimism toward the group. For analysis of the global front amid the backdrop of trade and geopolitical uncertainty, see Schwab's Jeffrey Kleintop's, CFA, articles, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, as well as, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com.

The Markit Manufacturing and Services PMIs from around the globe will dominate tomorrow's international economic calendar, while other reports will include the All-Industry Index from Japan, the Ifo Business Climate survey, GDP and trade data from Germany, as well as Spain's trade balance.

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