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Monday, May 08, 2017

Thirsty for Direction

Charles Schwab: On the Market
Posted: 5/8/2017 4:15 PM ET

Thirsty for Direction

U.S. equities finished the first trading day of the week nearly where they began in the continued search for any sort of catalyst to move in one direction or the other amid sustained low volatility. The markets shrugged off the results to the highly-anticipated French Presidential election, softer-than-expected Chinese trade data and some large M&A deals. Meanwhile, Treasury yields were higher, while gold, crude oil prices and the U.S. dollar were little changed.

The Dow Jones Industrial Average (DJIA) rose 5 points to 21,012, the S&P 500 Index was unchanged at 2,399, and the Nasdaq Composite edged 2 points higher to 6,103. In moderate volume, 836 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.21 higher to $46.43 per barrel and wholesale gasoline increased $0.02 to $1.52 per gallon. Elsewhere, the Bloomberg gold spot price ticked $0.24 lower to $1,227.77 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 99.09.

Tyson Foods Inc. (TSN $60) reported fiscal Q2 earnings-per-share (EPS) of $0.92, or $1.01 ex-items, versus the $1.02 FactSet estimate, as revenues declined 0.9% year-over-year (y/y) to $9.1 billion, roughly in line with forecasts. TSN reaffirmed its full-year profit outlook. Shares were solidly lower.

Coach Inc. (COH $45) announced an agreement to acquire Kate Spade & Co. (KATE $18) for $18.50 per share in cash for a total transaction value of $2.4 billion. COH said the deal is expected to be accretive in earnings in fiscal 2018 and reach double-digit accretion by fiscal 2019. Shares of both companies were nicely higher.

Newell Brands Inc. (NWL $52) posted Q1 EPS of $1.31, or $0.34 ex-items, versus the expected $0.29, as core sales—excluding acquisitions and divestitures—grew 2.5% y/y and total revenues came in at $3.3 billion, topping the forecasted $3.2 billion. The consumer goods company raised its full-year earnings outlook and reaffirmed its revenue guidance. NWL rallied over 10%.

Sysco Corp. (SYY $55) reported fiscal Q3 EPS of $0.44, or $0.50 excluding the impact of its Brakes Group acquisition, compared to the expected $0.51, as revenues excluding the Brakes acquisition rose 2.3% y/y to $12.3 billion, but may be incomparable to the forecasted $13.1 billion. Shares finished lower.

Comcast Corp. (CMCSA $39) and Charter Communications Inc. (CHTR $323) announced an agreement for a wireless partnership. CMCSA was little changed, while CHTR was lower.

Sinclair Broadcast Group Inc. (SBGI $36) announced an agreement to acquire Tribune Media Co. (TRCO $42) for $43.50 per share in cash and stock, or about $3.9 billion, plus the assumption of approximately $2.7 billion in debt. SBGI was lower, while TRCO gained ground.

Consumer comes into focus this week

Treasuries fell amid a U.S. economic calendar that was void of any major releases today. The yield on the 2-year note gained 2 basis points (bps) to 1.33%, while the yield on the 10-year note rose 3 bps to 2.38%, and the 30-year bond rate advanced 4 bps to 3.02%.

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 latest commentary, Cash: What to Consider in the New Rate Environment. Follow Schwab on Twitter: @schwabresearch.

With earnings season well past the apex, the economic front will likely garner more attention this week, delivering April inflations readings such as the Import Price Index, Producer Price Index (PPI) and Consumer Price Index (CPI). However, the focus this week will likely be on the all-important U.S. consumer, courtesy of the releases of April retail sales and the preliminary May University of Michigan Consumer Sentiment Index.

However, the domestic economic calendar will get moving tomorrow with the release of the National Federation of Independent Business (NFIB) Small Business Optimism Index, forecasted to tick lower during April to a level of 104.0 from March's 104.7 level, followed by the Job Openings and Labor Turnover Survey (JOLTS), with economists expecting the measure of unmet demand for labor to show 5.74 million jobs were available to be filled in March, matching the prior month's reading.

Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, view in his latest Schwab Sector Views: Is Retail Really Dead?, that in our view, the status of the U.S. consumer looks to us to be quite solid and is showing signs of improving, with increasing wages, low unemployment and high confidence. There is no doubt that the retail landscape is changing, but that doesn't mean traditional retailers are dead. There will be winners and losers, as we've already seen, but the idea that retail is dying seems a bit far-fetched to us. Read more on the Markets & Economy page at www.schwab.com.

Finally, the political front remains in focus in the wake of last week's passage in the House of an Affordable Care Act replacement bill, which now faces the Senate. For commentary on the political front, 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.

Europe mostly lower following French election results, Asia mostly higher to begin week 

European equities finished mostly lower, with the markets reacting to the expected results from the final round of the French Presidential election over the weekend that delivered a victory for pro-Europe, mainstream candidate Emmanuel Macron over anti-EU Marine Le Pen. However, political uncertainty remained as U.K. Brexit negotiations continue and a vote looms in June for the nation, while Germany is slated to hold an election later this year, along with Italy. 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. Oil & gas issues rebounded, despite choppy action for crude oil prices, while basic materials issues led to the downside following some relatively soft Chinese trade data. The markets shrugged off upbeat reports on German factory orders and eurozone consumer sentiment. The euro and British pound traded lower versus the U.S. dollar, while bond yields in the region were mixed.

Stocks in Asia finished higher to kick off the week, aided by Friday's stronger-than-expected U.S. labor report and final French Presidential election vote that offered no surprise to keep concerns cooled about the status of the eurozone. Basic materials and oil & gas issues rebounded from recent pressure, despite some softer-than-expected Chinese trade data. Stocks in both Japan and South Korea rallied in their return to action following holiday breaks, with continued weakness in the yen giving the former an additional push. Meanwhile, markets in China were mixed amid lingering concerns about regulatory crackdowns and following trade figures showing April exports and imports rose at smaller-than-expected y/y rates. Shares in mainland China declined and those trading in Hong Kong advanced. The strength in commodity issues gave Australia's markets a boost, while Indian equities posted a modest increase. 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.

Tomorrow's international economic calendar will hold business confidence and retail sales from Australia, industrial production and trade data from Germany, and retail sales from Italy.

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