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Tuesday, May 16, 2017

Stocks Mixed in Lackluster Session

Charles Schwab: On the Market
Posted: 5/16/2017 4:15 PM ET

Stocks Mixed in Lackluster Session

U.S. stocks finished mixed amid a sundry of earnings and economic data. New housing construction unexpectedly declined, but industrial production posted the highest gain in more than three years. Earnings and guidance from the embattled retail sector varied as well, as Dow member Home Depot posted upbeat quarterly results, but TJX Companies and Dick's Sporting Goods disappointed. Meanwhile, Treasury yields dipped and the U.S. dollar fell, gold was higher, and crude oil's recent run tempered a bit.

The Dow Jones Industrial Average (DJIA) declined 2 points to 20,980, the S&P 500 Index lost 2 points (0.1%) to 2,400, and the Nasdaq Composite increased 20 points (0.3%) to 6,170. In moderate volume, 792 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.19 lower to $48.66 per barrel and wholesale gasoline was unchanged at $1.60 per gallon. Elsewhere, the Bloomberg gold spot price moved $6.31 higher to $1,237.13 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% lower at 98.14.

Dow member Home Depot Inc. (HD $159) reported Q1 earnings-per-share (EPS) of $1.67, above the $1.61 FactSet estimate, with revenues growing 4.9% year-over-year (y/y) to $23.9 billion, compared to the projected $23.7 billion. Q1 same-store sales rose 5.5% y/y, topping the expected 4.4% increase. HD raised its full-year EPS outlook, while reaffirming its sales forecast. Shares were higher.

TJX Companies Inc. (TJX $74) posted Q1 profits of $0.82 per share, versus the forecasted $0.79, as revenues increased 3.0% y/y to $7.8 billion, below the estimated $7.9 billion. Quarterly same-store sales grew 1.0% y/y, compared to the expected 1.6% gain. TJX issued Q2 earnings guidance that missed forecasts. Shares moved lower.

Dick's Sporting Goods Inc. (DKS $41) announced Q1 EPS of $0.52, or $0.54 ex-items, compared to the projected $0.54, as revenues increased 9.9% y/y to $1.8 billion, roughly in line with forecasts. Q1 same-store sales increased 2.4% y/y, below the expected 3.5% rise. DKS issued mixed Q2 guidance, while its full-year EPS outlook had a midpoint below expectations and it lowered its same-store sales forecast for the year. Shares fell sharply.

Housing construction activity misses estimates, industrial production jumps

Housing starts (chart) for April declined 2.6% month-over-month (m/m) to an annual pace of 1,172,000 units, below the Bloomberg forecast of a 1,260,000 unit rate. March starts were downwardly revised to an annual pace of 1,203,000. However, starts on single-family homes ticked higher, while construction on multi-family structures fell. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, decreased 2.5% m/m in April to an annual rate of 1,229,000, after March's unrevised 1,260,000 rate, and south of the expected annual pace of 1,270,000 units. Permits fell for single-family homes, while authorization for multi-family structures gained ground.

This was the lowest level of housing starts since November, suggesting that the shortage of lots and labor that continued to be noted in yesterday's NAHB's homebuilder sentiment report may be starting to hamper construction activity. However, the rise in the heavily-weighted single family homes was a silver lining and the latest Schwab Market Perspective: Sell in May…or Settle In?, points out that after a long downturn, we're starting to see an encouraging uptick in both home ownership and household formations. This suggests that consumer confidence is starting to translate into some economy-boosting action. Read more on the Markets & Economy page at www.schwab.com.

Industrial production (chart) was up 1.0% month-over-month (m/m) in April, posting a third-straight monthly gain and the largest rise since February 2014, above estimates and March's downwardly revised 0.4% increase. Manufacturing and mining production both rose solidly, while utilities output also gained noticeable ground. Capacity utilization increased to 76.7%, compared to March's unrevised 76.1%, and above forecasts of 76.3%. Capacity utilization is 3.2 percentage points below its long-run average.

Treasuries were mostly higher, as the yield on the 2-year note was 1 basis point (bp) lower at 1.29%, while the yields on the 10-year note and the 30-year bond declined 2 basis points (bps) to 2.33% and 2.99%, 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. Follow Schwab on Twitter: @schwabresearch. Also, Schwab's Vice President of Trading and Derivatives, Randy Frederick and Chief Fixed Income Strategist, Kathy Jones offer the video, Fed Rate-Hike Cycle: How Can Bond Investors Prepare? on the Insights & Ideas page at www.schwab.com. Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones.

For a look at the action in the stock markets, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, Is The Stock Market Just Quiet Or Is It Too Quiet? on the Markets & Economy page at www.schwab.com, where you can also find Schwab's Chief Investment Strategist Liz Ann Sonders' article, Strange Brew: Heightened Uncertainties, Yet Plunging Volatility…What Gives? Follow Jeff and Liz Ann on Twitter: @jeffreykleintop and @lizannsonders.

The domestic economic calendar will be very light tomorrow, with the only item of note being weekly MBA Mortgage Applications.

Europe mixed, Asia higher as plethora of data eyed

European equities finished mostly to the upside, with the markets digesting some mixed earnings and economic data. Oil & gas issues extended yesterday's gains even as crude oil prices paused from Monday's rally that came courtesy of optimism regarding extended production cuts. However, the euro rallied versus the U.S. dollar, while the preliminary estimate of Q1 eurozone GDP showed growth of 0.5% quarter-over-quarter, matching estimates and Q4's pace of expansion. In other economic news, Europe's new car registrations fell in April and German investor confidence topped forecasts this month but the expectations component missed, while U.K. inflation figures came in mostly hotter than expected and the eurozone trade surplus widened unexpectedly. Political uncertainty continued to fester ahead of elections in Germany and Italy, while U.K. Brexit negotiations continue as the nation heads for a June snap election. 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?, while Director of International Research, Michelle Gibley CFA, offers her article, Europe Votes: Could More Countries Reject the EU? on the International Investing page at www.schwab.com. The British pound rose modestly versus the greenback, while bond yields in the region were narrowly mixed.

Stocks in Asia finished higher with markets in Japan and India gaining ground on optimism about earnings growth and yesterday's rally in oil prices after Russia and Saudi Arabia said they would back a longer-than-expected production cut extension. Markets shrugged off global political and trade uncertainty, as well as the recent string of softer-than-expected Chinese economic data and flared-up geopolitical concerns toward North Korea. 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. Japanese equities rose, though gains were pared as the yen showed some late-day strength, while markets in India also advanced. Stocks in mainland China increased, as lingering concerns about regulatory crackdowns and economic activity were overshadowed by reports that the government was intervening to stabilize the markets, per Bloomberg, but those traded in Hong Kong dipped slightly. Finally, Australian securities rose, with commodity-related issues advancing to more than offset some sluggishness in the financial sector, while listings in South Korea were also higher.

Reports slated for release on tomorrow's international economic calendar include jobs data from Australia, industrial production from Japan, Italy's trade balance, employment figures from the U.K., and CPI from the Eurozone.

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