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Friday, June 16, 2017

Markets Mixed to Finish the Week

Charles Schwab: On the Market
Posted: 6/16/2017 4:15 PM ET

Markets Mixed to Finish the Week

U.S. equities finished a choppy session and week mixed amid some disappointing economic data and continued pressure from technology stocks. Treasuries were higher following an economic calendar that showed housing starts and building permits surprisingly fell and a preliminary read on consumer sentiment cooled. Meanwhile, crude oil prices were modestly higher, as was gold and the U.S. dollar lost ground. In equity news, Amazon.com inked a deal to acquire Whole Foods Market for roughly $13.7 billion.

The Dow Jones Industrial Average (DJIA) rose 24 points (0.1%) to 21,384, the S&P 500 Index inched nearly a point higher to 2,433, while the Nasdaq Composite lost 14 points (0.2%) to 6,152. In very heavy volume due to quadruple-witching, the simultaneous expiration of the futures and options contracts for stocks and indexes, 2.2 billion shares were traded on the NYSE and 3.0 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.28 to $44.74 per barrel and wholesale gasoline was $0.01 higher at $1.45 per gallon. Elsewhere, the Bloomberg gold spot price increased $0.77 to $1,254.75 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 97.12. Markets were mixed for the week, as the DJIA advanced 0.5%, the S&P 500 Index ticked 0.1% higher, and the Nasdaq Composite fell 0.9%.

In M&A activity, Amazon.com Inc. (AMZN $989) inked a deal to acquire Whole Foods Market Inc. (WFM $43) for $42 per share in an all-cash transaction valued at approximately $13.7 billion. It was announced that WFM will continue to operate stores under the Whole Foods Market brand, John Mackey will remain as CEO and the headquarters will remain in Austin, TX. Shares of AMZN were higher, while WFM rallied nearly 30%.

After the closing bell on Thursday, Finisar Corp. (FNSR $28) announced Q4 GAAP earnings of $1.13 per share and non-GAAP earnings of $0.50, matching the FactSet consensus estimate of $0.50, while revenues for the quarter rose 12.1% year-over-year (y/y) to $357.5 million. The company announced that revenues for fiscal-year 2017 rose 14.7% from 2016 levels to a record of approximately $1.5 billion. FNSR traded nicely higher.

The Nasdaq continued its move downward with the tech sector again trading in the red, exacerbating the losses accumulated this week as the index lagged the Dow and S&P 500 due to the persistent pressure that left the benchmark lower for four of the last five days. As a spotlight remains on tech, Schwab's Director of Market and Sector Analysis Brad Sorensen, CFA, addresses the situation in his recent Schwab Sector Views: Technology—Too Far or Room to Run?. Brad informs us that the technology sector has been on a remarkable run. It was the best-performing sector over the past three- and 12-month periods. After a run like that, it makes sense that investors are asking if tech may have gone too far. Could a retrenchment be in store? Read the whole article on the Markets & Economy page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

Housing starts and building permits surprisingly miss expectations

Housing starts (chart) for May dropped 5.5% month-over-month (m/m) to an annual pace of 1,092,000 units, below the Bloomberg forecast of a 1,220,000 unit rate. April starts were downwardly revised to an annual pace of 1,156,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, decreased 4.9% m/m in May to an annual rate of 1,168,000, after April's downwardly revised 1,228,000 rate, and south of the expected annual pace of 1,249,000 units.

The preliminary University of Michigan Consumer Sentiment Index (chart) declined more than forecasted, dropping to 94.5 from the prior month's 97.1 level, and compared to expectations for it to dip to 97.0. The current economic conditions component unexpectedly declined m/m, while the expectations measure decreased to its lowest level since October. The 1-year inflation forecast remained at 2.6%, while the 5-10 year inflation outlook increased to 2.6% from 2.4%.

Treasuries were higher following the data, as the yield on the 2-year note decreased 4 basis points (bps) to 1.31%, while the yields on the 10-year note and the 30-year bond declined 1 bp at 2.15% and 2.78%, respectively. On Wednesday, the Fed raised its target range for the federal funds rate and Schwab's Chief Fixed Income Strategist, Kathy Jones addresses this latest decision in her recent article Fed Raises Rates, Sticks With Plans for One More Hike This Year. Read the whole piece to find out what Kathy found surprising as well as detailed analysis on the Fixed Income page at www.schwab.com and follow Kathy on Twitter: @kathyjones.

European equities traded nicely higher, Asia mixed following BoJ decision

European equities traded higher as the markets took the latest of a string of central bank decisions in stride, as the Bank of Japan announced no changes to its current monetary policy. New loan agreements were extended to Greece by its creditors, ending speculation over whether the country would be able to meet large bond payments coming due in July. The International Monetary Fund has also joined the bailout program with a standby agreement that will likely not allow for the dispersion of funds until next year when the eurozone details debt relief measures. The latest developments in the Brexit situation seem to detail a change in the U.K.'s strategy as it is reportedly meeting European demands that the initial stage of talks be focused on settling elements of the split prior to arranging any future trade relationships, with the negotiations expected to begin in Brussels on Monday, per Bloomberg. In economic news in the region, European car sales bounced back in the month of May, jumping 7.7% after falling 6.8% the month prior, eurozone consumer price inflation matched forecasts of a 1.4% rise and Italy's trade balance narrowed in April.

The euro and British pound moved higher versus the U.S. dollar. Bond yields in the region were mostly higher, though sovereign yields in Greece plummeted. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses the recent action in the global bond markets and what it may be signaling in his latest article, Are bonds signaling a major stock market peak? on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed following the declines in the U.S. yesterday and as the Bank of Japan (BoJ) concluded its two-day monetary policy meeting. Japanese equities traded higher with banks and electronic makers leading the advance as the yen lost ground versus its main counterparts following the BoJ's decision to keep its current monetary stance unchanged. Mainland Chinese stocks were lower, and markets in Hong Kong ticked slightly higher, the Hang Seng was lower on the week after registering gains for the previous five straight. Additionally, the People's Bank of China has injected approximately 160 billion yuan through open market operations and a net 410 billion yuan through reverse-repurchase agreements this week, per Bloomberg. Meanwhile, Australian securities gained modest ground, South Korean stocks finished flat and those traded in India ticked lower.

Schwab's Jeffrey Kelintop, CFA, informs us in his article The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over, a diversified asset allocation that includes emerging market stocks has felt the impact as they underperformed developed markets in recent years. Despite the risks, emerging market stocks may benefit portfolios in the years ahead if the trends in these underlying drivers continue to unfold. And for a more detailed picture of our current global economic landscape, see Jeff's latest video, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com.

Equities mixed for the week after tech troubles

U.S. equity markets closed out the week in mixed fashion with the Nasdaq underperforming its peers courtesy of extended pressure on the technology sector. A string of central bank decisions throughout the week created a leery landscape loaded with mostly lackluster economic reports. Of course, a few bright spots appeared in the form of some upbeat regional manufacturing activity and a decline in weekly jobless claims.

As noted in the latest Schwab Market Perspective: Goldilocks…or the Three Bears?, modest growth, low inflation and a cautious Fed are combining to make things "just right" for investors. But, as always, there are clouds on the horizon and pullbacks are possible at any time so it's important for investors to remain vigilant in keeping a diversified portfolio with appropriate risk exposure. Our experts point out three potential pitfalls, or bears, worth watching. To find out what they are, read the whole article on the Markets & Economy page at www.schwab.com.

Next week, the U.S. economic calendar will lighten up considerably, but will bring us more housing data with the releases of new and existing home sales. Manufacturing and business activity will also likely see discussion with the release of Markit's preliminary Manufacturing and Services PMIs.

International reports due out next week include: Australia—new vehicle sales, housing prices and the minutes from the Reserve Bank of Australia's June meeting. China—property prices and leading indicators. Japan—All Industry Activity Index, machine tool orders, house prices, trade balance and department store sales. Eurozone—construction output, current account, consumer confidence, preliminary Markit Manufacturing and Services PMIs, German import prices and PPI, French GDP and business confidence and Italian industrial orders. U.K.—house prices and public finances.

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