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Tuesday, May 23, 2017

Stocks Looking to Extend Winning Streak

Charles Schwab: On the Market
Posted: 5/22/2017 9:00 AM ET

Stocks Looking to Extend Winning Streak

U.S. stocks are higher in early action for a third-session, continuing to rebound from last Wednesday's selloff that came amid a spike in volatility as domestic political uncertainty flared up. Treasury yields are ticking higher and the U.S. dollar remains under pressure, while gold is gaining ground. Crude oil prices are adding to a recent run on optimism of extended production cuts. Ford announced that it replaced its CEO, while Huntsman and Clariant agreed to merge. Asia finished mostly higher, though Europe is mixed.

As of 8:49 a.m. ET, the June S&P 500 Index future is 4 points above fair value, the DJIA future is 37 points above fair value, and the Nasdaq 100 Index future is 6 points north of fair value. WTI crude oil is increasing $0.59 to $51.26 per barrel and Brent crude oil is gaining $0.53 to $54.14 per barrel. The Bloomberg gold spot price is trading $2.49 higher at $1,258.41 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is down 0.2% at 96.90.

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. The company is set to hold a press conference after the opening bell.

Huntsman Corp. (HUN $27) and Clariant AG (CLZNY $21) 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%.

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

Treasuries are dipping as the U.S. economic calendar is void of any major releases today. The yields on the 2-year and 10-year notes, along with the 30-year bond, are ticking 1 basis point higher to 1.28%, 2.25% and 2.90%, 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 likely continued focus on the political front, this week's economic docket will bring looks at the housing sector with the releases of new and existing home sales. Moreover, manufacturing and business activity will likely be scrutinized, with Markit's preliminary Manufacturing and Services PMIs, along with 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.

Finally, 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

European equities are mixed in afternoon action, with the markets continuing the grapple with political uncertainty on both sides of the pond, while shares Switzerland's chemical company Clariant is rallying on today's announced merger agreement with the U.S.-based Huntsman. The euro is extending a recent rally versus the U.S. dollar, which has been pressured by ramped-up U.S. political uneasiness. The euro is getting 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 is dipping versus the greenback, as ongoing U.K. Brexit negotiations are fostering 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 are mixed. Oil & gas issues are moving to the upside as crude oil prices are extending a recent rally on optimism the extension of production cuts will be announced.

The U.K. FTSE 100 Index and Switzerland's Swiss Market Index are up 0.5%, Germany's DAX Index and Spain's IBEX 35 Index are declining 0.3%, France's CAC-40 Index is ticking 0.1% higher, and Italy's FTSE MIB Index is falling 1.2%.

Asia mostly higher to begin the week

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. Japan's Nikkei 225 Index gained 0.5%, 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. Australia's S&P/ASX 200 Index rose 0.8%, 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 Korea's Kospi Index showed some resiliency in the face of the North Korean missile tests and a deceleration in that nation's export growth, advancing 0.7%. India's S&P BSE Sensex 30 Index moved 0.4% 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 the Shanghai Composite Index declining 0.5%, amid festering regulatory crackdown concerns and economic uncertainty in the wake of recent soft data. However, the Hong Kong Hang Seng Index increased 0.9%, 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.

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