Charles Schwab: On the MarketPosted: 7/24/2017 4:15 PM ET
Stocks Close Monday Mixed
U.S. stocks finished the trading session mixed as the busiest week for earnings season is now underway and the markets await Wednesday's Fed monetary policy decision. Existing home sales declined a bit more than expected, but business activity reports from Markit suggested continued growth. Tech shares led advancers, followed by financial stocks as Treasury yields rebounded from a recent bout of weakness. The U.S. dollar and crude oil prices were higher and gold was little changed.
The Dow Jones Industrial Average (DJIA) lost 67 points (0.3%) to 21,513, the S&P 500 Index was 3 points (0.1%) lower at 2,470, and the Nasdaq Composite advanced 23 points (0.4%) to 6,411. In moderate volume, 821 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.57 to $46.34 per barrel and wholesale gasoline was unchanged at $1.53 per gallon. Elsewhere, the Bloomberg gold spot price increased $0.38 to $1,255.36 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.96.
Hasbro Inc. (HAS $105) reported Q2 earnings-per-share (EPS) of $0.53, or $0.52 ex-items, versus the $0.45 FactSet estimate, as revenues grew 11.0% year-over-year (y/y) to $973 million, compared to the expected $974 million. Gross margin came in a bit shy of forecasts. The company noted solid revenue growth in the U.S. and Canada but some softness in economic conditions in Brazil and the U.K. Shares saw heavy pressure.
V.F. Corp. (VFC $59) posted Q2 EPS of $0.29, one penny above forecasts, as revenues rose 2.0% y/y to $2.4 billion, topping the estimated $2.3 billion. VFC raised its full-year guidance. Separately, VFC announced that its Chairman Eric Wiseman announced his retirement. Shares overcame early losses and finished higher.
WebMD Health Corp. (WBMD $66) announced an agreement to be acquired by KKR's Internet Brands for $66.50 per share in cash, in a transaction valued at about $2.8 billion. WBMD rallied sharply.
Existing home sales dip slightly more than expected, business activity continues to grow
Existing-home sales in June decreased 1.8% month-over-month (m/m) to a 5.52 million annual rate compared to the Bloomberg forecast of a decline to a 5.57 million pace, and versus May's unrevised 5.62 million rate. Sales of single-family homes declined 2.0% m/m and purchases of multi-family structures were little changed, and both were up y/y. The median existing-home price was up 6.5% y/y at $263,800, a new all-time high. Unsold inventory came in at a 4.3-month pace at the current sales rate, down from the 4.6 months rate a year ago. Inventory of homes for sale was down 0.5% m/m, and down 7.1% y/y and has fallen for 25 consecutive months. Sales declined in all regions except for the Midwest. Existing home sales are based on contract closings instead of signings and account for the majority of the housing sales market.
National Association of Realtors (NAR) Chief Economist Lawrence Yun said the previous three-month lull in contract activity translated to a pullback in existing sales in June. Yun added that demand for buying a home is as strong as it has been since before the Great Recession, though interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that's straining their budget.
The preliminary Markit U.S. Manufacturing PMI Index rose more than expected to 53.2 in July, from June's 52.0 level and compared to the expected increase to 52.3. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector this month held steady at June's 54.2 level, matching forecasts. Readings above 50 for both reports denotes expansion in activity.
Today's data kicked off a heavy week, which shares the stage with ratcheted-up earnings season and Wednesday's Fed monetary policy decision. With no updated economic projections and press conference, coupled with the recently perceived change in tone, the Central Bank is not expected to make any policy tweaks.
As noted in the latest Schwab Market Perspective: Are Danger Signs Rising…or Will the Bull Run Continue?, economic uncertainty has confounded the Fed, which may raise the risk of a policy mistake and/or bouts of market volatility, while putting the potential for another rate hike this year into greater doubt. We're sticking with our forecast for one more hike this year along with the start of a gradual reduction in their balance sheet, believing the latter could come before the former. The long running bull market continues to show remarkable resiliency and we expect that to continue. However, risks have risen and a pullback is likely but solid earnings growth should continue to support stocks. Read more on the Markets & Economy page at www.schwab.com and be sure to follow us on Twitter: @schwabresearch.
Treasuries dipped with the yields on the 2-year and 10-year notes rising 2 basis points (bps) to 1.36% and 2.26%, respectively, while the yield on the 30-year bond ticked 3 bps higher to 2.84%.
Bond yields and the U.S. dollar rebounded modestly from pressure as of late on heightened political uncertainty and mixed economic data, while the markets grapple with global monetary policy uncertainty.
Schwab's Chief Fixed Income Strategist Kathy Jones notes in her Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer'in the second half of 2017, we expect 10-year Treasury yields to remain in a 2% to 2.5% range, consistent with the eight-year "lower for longer" theme in the bond market. Read more on the Fixed Income page at www.schwab.com, where Kathy also discusses, Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page. Follow Kathy on Twitter: @kathyjones.
Tomorrow's economic calendar will begin with the S&P/Case-Schiller Home Price Index, forecasted to show the 20-city composite rose 5.8% year-over-year and 0.3% on a seasonally-adjusted basis month-over-month in May, as well as the Consumer Confidence Index, with economists expecting a slight downtick to a level of 116.5 for July from the 118.9 posted in June, and the Richmond Fed Manufacturing Index will round out the day.
Europe and Asia mixed
European equities finished mixed, with the euro retreating somewhat from a recent rally that came in the wake of last week's unchanged monetary policy decision by the European Central Bank (ECB) with President Mario Draghi noting that talks of tapering its stimulus measures will begin in the fall. The British pound gained ground to weigh on the U.K. markets, along with the IMF's downwardly revised 2017 growth forecast for the nation, while Brexit negotiations continue to roll on and U.S. political uncertainty festers. Bond yields in the region diverged. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers a look at what the global bond markets are signaling in his article, Are bonds signaling a major stock market peak? on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop. Jeff and Schwab's Vice President of Trading and Derivatives Randy Frederick offer the video, Political Risk: How Should Investors Respond?, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick. In economic news, Markit's Eurozone Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—declined to 55.8 in July, from 56.3 in June and compared to the projected dip to 56.2. However, a reading above 50 denotes expansion. Automakers led to the downside on reports that the European Commission is investigating potential collusion between German automakers on technology amid the lingering diesel emissions scandal.
Stocks in Asia also finished mixed as traders await the ramped up earnings season this week, which will also bring a monetary policy decision in the U.S. Political uncertainty in the U.S. continued to hamper conviction. Japanese equities declined, but came off the worst levels of the day as the yen gave back some early gains. Shares trading in both mainland China and Hong Kong advanced on the heels of recent upbeat economic data, which helped overshadow lingering concerns about regulatory crackdowns. Weakness in oil & gas and financials weighed on Australian stocks, while equities in India and South Korea ticked higher, with securities in both countries remaining at or near record highs. Amid this backdrop, see Schwab's Jeffrey Kleintop's CFA, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page at www.schwab.com, where you can also find his 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks.
A relatively light international economic docket for tomorrow will include consumer confidence from Australia, the Import Price Index and Ifo business climate survey from Germany and business confidence and PPI from France.