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Thursday, June 08, 2017

Stocks Close with Minor Gains

Charles Schwab: On the Market
Posted: 6/8/2017 4:15 PM ET

Stocks Close with Minor Gains

U.S. stocks fluctuated between gains and losses before ultimately closing to the upside as the European Central Bank's monetary policy decision, testimony from former FBI Director Comey and today's election in the U.K. had seemingly little impact on the markets. Treasury yields continued to rebound to lend some support to financial shares, while crude oil prices recovered modestly after tumbling yesterday, the U.S. dollar rose and gold was lower.

The Dow Jones Industrial Average (DJIA) increased 9 points to 21,183, the S&P 500 Index gained 1 point to 2,434, and the Nasdaq Composite added 24 points (0.4%) to 6,322. In moderately-heavy volume, 910 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil decreased $0.08 to $45.64 per barrel and wholesale gasoline was unchanged at $1.49 per gallon. Elsewhere, the Bloomberg gold spot price decreased $6.23 to $1,280.80 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 97.01.

Alibaba Group Holding Ltd. (BABA $142) traded solidly higher after the Chinese-based e-commerce company projected a sharp 45-49% year-over-year (y/y) increase in revenue for the current year, easily topping analysts' expectations.

J.M. Smucker Co. (SJM $129) reported fiscal Q4 earnings-per-share (EPS) of $0.96, or $1.80 ex-items, versus the FactSet estimate of $1.72, as revenues declined 1.0% y/y to $1.8 billion, roughly in line with expectations. SJM issued current year EPS guidance with a midpoint that exceeded the Street's estimates. The company also announced an increase to its cost management program. Shares finished lower.

Nordstrom Inc. (JWN $45) rallied sharply after the company announced that members of the Nordstrom family are exploring the possibility of pursuing a going private transaction.

Jobless claims decline but top expectations

Weekly initial jobless claims (chart) declined by 10,000 to 245,000 last week, above the Bloomberg forecast of 240,000, with the prior week’s figure being revised higher by 7,000 to 255,000. The four-week moving average increased by 2,250 to 242,000, while continuing claims dipped by 2,000 to 1,917,000, south of estimates of 1,920,000.

For more on the employment picture, see Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, Turn Down For What: Why is Job Growth Slowing?, in which she discusses last Friday’s weak jobs report that raised alarm bells about slowing job growth, but notes that perhaps it's natural at this stage in the cycle. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Treasuries were lower, with the yield on the 2-year note rising 1 basis point (bp) to 1.32%, while the yields on the 10-year note and the 30-year bond gained 2 bps to 2.19% and 2.85%, respectively.

Treasury yields have rebounded somewhat from recent pressure that has come amid heightened political uncertainty on both sides of the Atlantic, mixed economic data, and the market grappling with the Fed's highly expected rate hike next week and the likelihood that the Fed could begin the process of shrinking its large balance sheet later this year. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the Fed's potential changes to its bloated balance sheet and the impact on the bond markets in her article, Will the Fed Reduce Its Balance Sheet? What Bond Investors Should Know on the Fixed Income page at www.schwab.com. Follow Kathy on Twitter: @kathyjones. Also, Liz Ann Sonders addresses this in her commentary, Gimme Three Steps … and a Stumble? on the Markets & Economy page, pointing out that reducing the gargantuan balance sheet is a form of tightening and the transition from quantitative easing (QE) to quantitative tightening (QT) begs the question whether we are heading into another period of heightened volatility.

However, the stock markets have taken this in stride, recently revisiting record high territory, and we discuss this in our article, Stocks and Bonds Rally: Can Both Be Right?. The two major asset classes appear to be pitted against one another in a tug-of-war over where the economy is headed. Many investors can't reconcile the diverging market action with a common view of the economy, and the situation could raise concerns about the fallout from a potentially messy divorce. Read more on the Insights & Ideas page at www.schwab.com.

Tomorrow, the U.S. economic calendar will be light, with the lone major release expected to be wholesale inventories, forecasted to have declined 0.3% m/m in April, matching the dip seen in the month prior.

European stocks mixed, Asia mostly higher

European equities finished mixed, with the markets digesting the expected unchanged monetary policy decision by the European Central Bank (ECB). The results from today's U.K. election were also anticipated, with recent polls showing the race has narrowed as the nation continues Brexit negotiations. Italian stocks got a boost from eased early election concerns as a new election law failed in parliament. For commentary on the political front check out Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, 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?. The ECB offered mixed guidance, dropping its reference to the possibility of further declines in interest rates, but maintaining that it could increase the size or duration of its bond-buying operations if needed. The markets paid close attention to ECB President Mario Draghi's customary press conference that followed the decision, with the focus on the central bank's tweak to its language about the risks to economic growth. The ECB upgraded its economic outlook to risks being broadly balanced, from tilted to the downside, while noting that growth is estimated to proceed at a somewhat faster pace than previously expected. Draghi pointed out that economic expansion has yet to translate into stronger inflation dynamics and noted that the central bank did not discuss tapering its asset purchase program at the meeting. The euro and British pound were lower versus the U.S. dollar, and bond yields in the region mostly moved to the downside.

Financials were higher following eased Spanish banking sector concerns yesterday, while Reuters reported that Italian banks are assessing a rescue plan for a troubled bank. Basic materials got a boost from some upbeat Chinese trade data, while oil & gas issues were sluggish in the wake of yesterday's tumble on bearish U.S. oil inventory data and telecommunications lagged behind. In other economic news, German industrial production rose more than expected in April, eurozone Q1 capital spending topped forecasts, and France's trade deficit widened by a smaller amount than expected in April.

Stocks in Asia finished mostly to the upside following the gains seen in the U.S. and some mixed data in the region. The markets also awaited results from today's U.K. election, the ECB's monetary policy decision, and testimony from fired FBI Director Comey in the U.S. Stocks appeared to shrug off lingering geopolitical concerns amid tensions in the Middle East toward Qatar and continued missile tests from North Korea. As such, Schwab's Jeffrey Kleintop, CFA, offers his 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. Chinese stocks advanced, aided by a favorable report on the nation's trade activity, with exports growing more than expected in May. Australian securities rose following the data and despite yesterday's tumble in crude oil prices that weighed on oil & gas issues on some bearish U.S. oil inventory data, while South Korean shares also moved to the upside.

Japanese equities declined on some choppiness in the yen as reports suggested the Bank of Japan is mulling how to communicate its eventual exit from monetary policy stimulus, without giving the impression that this in on the agenda anytime soon, per Bloomberg. Stocks in Japan came under pressure following a downward revision to the nation's Q1 GDP growth, which was adjusted to a 1.0% annualized quarter-over-quarter pace of expansion, from the preliminary estimate of a 2.2% increase and compared to the projected revision to a 2.4% gain. The unfavorable adjustment came as oil inventories dropped and private consumption was revised lower. For a look at the global economic front, see Jeffrey Kleintop's video, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com. Finally, Indian stocks declined following late-yesterday's expected unchanged monetary policy decision.

The international economic calendar for tomorrow will include the Tertiary Industry Index from Japan, PPI and CPI from China, trade data and labor costs from Germany and construction output, trade balance, manufacturing production and industrial production from the U.K.

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