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Monday, May 01, 2017

Stocks Mixed to Begin the Week

Charles Schwab; On the Market
Posted: 5/1/2017 4:15 PM ET

Stocks Mixed to Begin the Week

Technology issues did the heavy-lifting in today's session, giving the Nasdaq a solid boost and helping the S&P 500 to post a modest gain, but the Dow lost ground in the final minutes. The upward momentum was somewhat tempered by softer-than-expected reads on manufacturing and personal income and spending. As well, caution may have come into play ahead of this week's upcoming Fed decision and April labor report. Elsewhere, Treasury yields continued to recover, gold and crude oil fell, while the U.S. dollar was flat.

The Dow Jones Industrial Average (DJIA) fell 27 points (0.1%) to 20,913, the S&P 500 Index rose 4 points (0.2%) to 2,388, and the Nasdaq Composite jumped 44 points (0.7%) to 6,092. In moderate volume, 754 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.49 to $48.84 per barrel and wholesale gasoline was $0.02 lower at $1.53 per gallon. Elsewhere, the Bloomberg gold spot price fell $11.27 to $1,257.01 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 99.11.

Dish Network Corp. (DISH $63) reported Q1 earnings-per-share (EPS) of $0.76, above the $0.70 FactSet estimate, as revenues declined 3.9% year-over-year (y/y) to $3.7 billion, versus the projected $3.8 billion. The satellite TV company's net subscriber additions declined more than expected for the quarter. Shares of DISH finished lower.

Shares of Intra-Cellular Therapies Inc. (ITCI $10) tumbled after the U.S. Food & Drug Administration raised questions regarding the company's experimental schizophrenia treatment and is requesting additional information.

Twitter Inc. (TWTR $18) was nicely higher after Chief Executive Officer (CEO) Jack Dorsey disclosed the purchase of 574,002 shares of the social media company, and as the company announced a streaming video channel partnership with Bloomberg.

Manufacturing growth decelerates, personal income and spending miss

The Institute for Supply Management (ISM) Manufacturing Index (chart) for April slowed but remained in expansion territory (above 50) after declining to 54.8 from 57.2 in March, and versus the Bloomberg forecast of a dip to 56.5. New orders declined but remained solidly in expansion territory and employment growth slowed, while expansion in production and new export orders both accelerated. The ISM said comments from the survey generally reflected stable to growing business conditions.

The final Markit U.S. Manufacturing PMI Index was unrevised at 52.8 for April from the preliminary level, matching estimates, but was down from the 53.3 level posted in March. A reading above 50 denotes expansion. The release is independent and differs from ISM's manufacturing report, as it has less historic value and Markit weights its index components differently.

Personal income (chart) was up 0.2% month-over-month (m/m) in March, below forecasts of a 0.3% gain, and compared to February's downwardly revised 0.3% increase. Personal spending came in flat last month, south of expectations of a 0.2% rise and February's unfavorably revised flat reading. The March savings rate as a percentage of disposable income was 5.9%. The PCE Deflator was down 0.2%, in line with expectations. Compared to last year, the deflator was 1.8% higher, below estimates of a 1.9% gain. Excluding food and energy, the PCE Core Index was down 0.1% m/m, matching expectations, and the index was 1.6% higher y/y, in line with estimates. February's y/y figure was unrevised at a 1.8% increase.

Construction spending (chart) declined 0.2% m/m in March, versus projections of a 0.4% advance, and following February's favorably revised 1.8% jump. Residential spending grew 1.2%, while non-residential spending declined 1.2%.

While the economic calendar will take a breather tomorrow, the rest of the week will bring looks at activity on the heels of the sluggish Q1, including April reads on domestic auto sales and Friday's key nonfarm payroll report. The headlining event will likely be Wednesday's Federal Open Market Committee's (FOMC) monetary policy decision, expected not to deliver another rate hike and be sans updated economic projections and press conference by Chairwoman Janet Yellen. However, the statement could be highly scrutinized for clues to the timing of future rate hikes. Also, earnings will continue to pour in, likely garnering attention.

As noted in the latest Schwab Market Perspective: Should Sharp Sentiment Shifts Mean a Change in Strategy?, we have started to see a modest retreat in "soft" data which may indicate more realism entering the market. We believe this taming of optimism is both healthy and a bit more realistic. We don't believe that trend growth is as low as the 0.7% real gross domestic product (GDP) print posted for this year's first quarter, but neither do we believe the economy has accelerated markedly. We continue to believe that fuel for the bull market will also come from improving earnings. Read more on the Markets & Economy page at www.schwab.com.

Treasuries were lower, as the yield on the 2-year note rose 2 basis points (bps) to 1.28%, the yield on the 10-year note gained 5 bps to 2.33%, and the 30-year bond rate increased 6 bps to 3.01%. Bond yields have shown some signs of recovery on eased European political risk concerns and as earnings season has remained favorable. For analysis of the bond markets, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, Three Reasons to Own Bonds When the Fed is Raising Interest Rates on the Markets & Economy page at www.schwab.com. Follow Kathy on Twitter: @kathyjones. Also, Schwab's Vice President of Trading and Derivatives, Randy Frederick and Senior Fixed Income Research Analyst, Collin Martin, CFA, offer the video What's Driving the Ongoing Drop in Long-Term Bond Yields? on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick.

Finally, the markets are digesting last week's rough framework of President Trump's tax-reform plan, while political uncertainty remains elevated. For a look at the political front, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend and Randy Frederick offer the article, Trump's First 100 Days: Key Observations, on the Insights & Ideas page at www.schwab.com, where you can also find Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Randy's video, Political Risk: How Should Investors Respond?. Follow Jeff on Twitter: @jeffreykleintop.

International markets mostly higher though several are closed

Stocks in Japan rose with the yen losing ground on the U.S. dollar to boost the Nikkei 225 Index 0.6% higher, while Australia's S&P/ASX 200 Index gained 0.6%, ahead of tomorrow's monetary policy decision from the Reserve Bank of Australia. However, volume was lighter than usual, with markets in Europe, China, India and South Korea remaining closed for holidays. The markets also digested data showing China's manufacturing and services sector growth slowed in April, while continuing to grapple with lingering geopolitical and political uncertainty. For more on this, see Schwab's Jeffrey Kleintop's, CFA, commentary in his article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, while he also delivers a look at the global landscape in his article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com.

International markets mostly higher though several are closed

Stocks in Japan rose with the yen losing ground on the U.S. dollar, while securities in Australia also gained ground ahead of tomorrow's monetary policy decision from the Reserve Bank of Australia. However, volume was lighter than usual, with markets in Europe, China, India and South Korea remaining closed for holidays. The markets also digested data showing China's manufacturing and services sector growth slowed in April, while continuing to grapple with lingering geopolitical and political uncertainty. For more on this, see Schwab's Jeffrey Kleintop's, CFA, commentary in his article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, while he also delivers a look at the global landscape in his article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com.

Manufacturing PMI reports from around the globe will dominate tomorrow's international calendar, while other items scheduled for release include CPI from South Korea, trade data from Japan, and employment figures from Germany and the Eurozone.

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