Stocks Manage a Mildly Mixed Monday Finish

Charles Schwab: On the Market

Posted: 7/10/2017 4:15 PM ET

Stocks Manage a Mildly Mixed Monday Finish

U.S. stocks began the week mixed as tech listings outperformed on light data following Friday's upbeat employment report, while the markets await a heavy week of events, notably the unofficial start of Q2 earnings season and Fed Chair Yellen's Congressional testimony. Treasuries advanced as the lone report from the domestic docket showed consumer credit expanded more than expected. Gold and crude oil prices were higher and the U.S. dollar was nearly flat. In light equity news, ClubCorp agreed to be acquired by Apollo Management and Abercrombie & Fitch announced that it terminated takeover talks

The Dow Jones Industrial Average (DJIA) dipped 6 points to 21,409, the S&P 500 Index increased 2 points (0.1%) to 2,427, and the Nasdaq Composite increased 23 points (0.4%) to 6,176. In moderate volume, 798 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.17 to $44.40 per barrel and wholesale gasoline was flat at $1.50 per gallon. Elsewhere, the Bloomberg gold spot price gained $1.57 to $1,214.03 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was mostly flat at 96.06.

Apollo Global Management LLC. (APO $27) announced an agreement to acquire ClubCorp Holdings Inc. (MYCC $17), owner-operator of golf and country clubs, for $17.12 per share in cash, or about $1.1 billion. APO rose, while MYCC rallied sharply.

Abercrombie & Fitch Co. (ANF $10) fell after the company announced that it has terminated discussions regarding a potential transaction and has determined that the best path to enhance value for stockholders is the rigorous execution of its business plan.

Economic and earnings data set to heat up this week

Consumer credit, released in the final hour of trading, showed consumer borrowing advanced by $18.4 billion during May, well above the $13.5 billion forecast of economists polled by Bloomberg, while April's figure was adjusted higher to an increase of $12.9 billion from the originally reported $8.2 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, climbed by $11.0 billion, while revolving debt, which includes credit cards, increased by $7.4 billion.

Treasuries ticked higher as the yield on the 2-year note dipped 2 basis points (bps) to 1.38% and the yield on the 10-year note declined 1 bp to 2.37%, while the 30-year bond rate was flat at 2.93%.

Although the economic front began slowly, this week's calendar will heat up and is poised to garner heavy attention as the markets grapple with what path the Fed's monetary policy normalization will take. Bond yields have rebounded from depressed levels hit in mid-June and the U.S. dollar has stabilized from lows hit to close out the first half of 2017. 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. We believe the Federal Reserve to continue to tighten monetary policy and reduce its balance sheet gradually, assuming inflation doesn't slip further. Read more, including how we feel investors should position themselves in this environment on the Fixed Income page at www.schwab.com and follow Kathy on Twitter: @kathyjones.

Inflation will come into focus, with the releases of the Producer Price Index (PPI) and Consumer Price Index (CPI), while key hard data will come in the form of retail sales, as well as industrial production and capacity utilization. Sentiment and business activity indicators will also be released, courtesy of the Fed's Beige Book, along with tomorrow's NFIB Small Business Optimism Index and Friday's preliminary July University of Michigan's Consumer Sentiment Index. However, this week's two-day Congressional monetary policy testimony by Fed Chairwoman Janet Yellen will likely headline the docket. Also, earnings season is set to kick off with some major companies out of the financial sector delivering results. For our latest look at financials and the other major stock market sectors, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Christmas in July! (Status of the Consumer).

Additional reports expected on tomorrow's domestic docket include the Labor Department's Job Openings and Labor Turnover Survey (JOLTS), with economists forecasting that the measure of unmet demand for labor showed 5.95 million jobs were available to be filled during May, down slightly from the 6.04 million posted the month prior and wholesale inventories, forecasted to have increased 0.3% m/m in May, matching the rise seen in April.

As noted in the latest Schwab Market Perspective: Smooth Sailing for Stocks?, stocks have been drifting along near record highs and background conditions remain relatively positive in the near term. But seasonal tendencies remain a risk and volatility has picked up a bit, so investors should be on alert for a summer pullback. The U.S. economy continues to glide along, with subdued inflation, providing what typically has been a good environment for stocks, though uncertainty regarding future Fed actions has risen. Bond yields have ticked higher and some commodities have recovered, but it's too early to say that the reflation story is regaining credence. Read these articles on the Markets & Economy page at www.schwab.com and be sure to follow us on Twitter: @schwabresearch.

Finally, with Congress returning to work following a recess and the Senate healthcare bill remaining uncertain, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Washington Midyear Update: 4 Key Issues for Investors to Watch, on the Insights & Ideas page at www.schwab.com.

Europe and Asia higher as busy week begins

European equities finished higher, with Friday's upbeat U.S. labor report helping improve global sentiment as a busy week begins, overshadowing festering geopolitical concerns toward North Korea and following last week's G-20 Summit in Germany. The euro and British pound dipped versus the U.S. dollar and bond yields in the region gave back some recent gains. Amid this backdrop, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, Are bonds signaling a major stock market peak? on the Markets & Economy page at www.schwab.com, as well as Jeff's and Vice President of Trading and Derivatives, Randy Frederick's video, How Do U.S. Equity Market Valuations Compare to Other Developed Markets?, on the Insights & Ideas page at www.schwab.com. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. In economic news, German exports grew more than anticipated, French business sentiment slipped and eurozone investor confidence topped forecasts.

Stocks in Asia finished mostly higher following Friday's gains in the U.S. that followed a stronger-than-expected June nonfarm payroll report, while the markets digested some mixed data in the region. Japanese equities advanced with the yen losing ground on the U.S. jobs data and a report that showed Japanese machine orders—a gauge of capital spending—unexpectedly fell. Mainland Chinese stocks declined and shares that traded in Hong Kong were higher after reports showed the nation's CPI and PPI both rose roughly in line with expectations. Australian securities increased and South Korean listings ticked higher. Indian equities rallied to another record high. The markets shrugged off heightened geopolitical concerns following last week's first intercontinental ballistic missile (ICBM) test by North Korea and in the wake of the G-20 Summit in Germany. For analysis if the global front, see Schwab's Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks and his commentary 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks as we reach the halfway point of 2017on the International Investing page at www.schwab.com.

The international economic docket for tomorrow will be relatively light with releases including machine tool orders from Japan, home loans and business confidence from Australia and industrial production from Italy.