Charles Schwab: On the MarketPosted: 7/20/2017 4:15 PM ET
Stocks Mostly Flat amid Earnings and Political Uncertainty
U.S. stocks finished mixed and near the flatline with health care listings the standout winners, though some disappointing earnings results from a couple of Dow constituents weighed on the blue chip index. Treasuries were higher amid some mixed domestic economic results, while in global central bank action, both the European Central Bank and the Bank of Japan kept their monetary policy stances unchanged as expected. Crude oil prices and the U.S. dollar were lower and gold saw minor gains.
The Dow Jones Industrial Average (DJIA) lost 29 points (0.1%) to 21,612, the S&P 500 Index was flat at 2,473, and the Nasdaq Composite increased 5 points (0.1%) to 6,390. In moderate volume, 752 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.40 to $46.92 per barrel and wholesale gasoline was $0.01 lower at $1.61 per gallon. Elsewhere, the Bloomberg gold spot price increased $2.56 to $1,243.81 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% lower at 94.31.
Dow member Travelers Companies Inc. (TRV $125) reported Q2 earnings-per-share (EPS) of $2.11, or $1.92 ex-items, versus the $2.11 FactSet estimate, as net written premiums rose 5.0% year-over-year (y/y) to $6.6 billion, roughly in line with forecasts. The insurer said profits were impacted by high levels of catastrophe and non-catastrophe weather-related losses caused by significant U.S. tornado and hail activity. TRV traded lower.
Dow component American Express Co. (AXP $85) posted Q2 EPS of $1.47, above the projected $1.43, as revenues increased 1.0% y/y to $8.3 billion, topping the estimated $8.2 billion. AXP maintained its full-year profit outlook and shares finished lower.
Qualcomm Inc. (QCOM $54) announced fiscal Q3 earnings of $0.83 per share, in line with forecasts, with revenues decreasing 11.0% y/y to $5.4 billion, exceeding the $5.3 billion estimate. The chipmaker issued Q4 EPS guidance that came in below expectations. Shares were under pressure.
Sears Holdings Corp. (SHLD $10) rallied after the company announced the launch of Kenmore products on Amazon.com (AMZN $1,029), including Alexa-enabled smart appliances.
Jobless claims fall, Leading Indicators continue gains
Weekly initial jobless claims (chart) fell by 15,000 to 233,000 last week, below the Bloomberg forecast of 245,000, with the prior week’s figure being revised higher by 1,000 to 248,000. The four-week moving average declined by 2,250 to 243,750, while continuing claims rose 28,000 to 1,977,000, north of estimates of 1,949,000.
The Conference Board's Index of Leading Economic Indicators (LEI) (chart) for June rose 0.6% month-over-month (m/m), above projections of a 0.4% gain, and compared to last month's downwardly adjusted 0.2% increase. This was the tenth-straight monthly gain for the index, bolstered by building permits, ISM new orders and the yield curve.
The Philly Fed Manufacturing Index (chart) in July fell to 19.5 from 27.6 in June, though a reading above zero indicates expansionary activity, and compared to estimates of a decline to 23.0.
Treasuries traded mostly higher, with the yield on the 2-year note nearly unchanged at 1.35%, the yield on the 10-year note declining 1 basis point (bp) to 2.26% and the 30-year bond rate decreasing 2 bps to 2.83%.
Bond yields and the U.S. dollar have stumbled as of late amid the backdrop of mixed economic data and subdued inflation, exacerbated by Fed Chair Janet Yellen dovish semi-annual monetary policy testimony last week. 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.
The political front remains in focus as the markets grapple with the fallout from the Senate healthcare bill failure, and what the implications may be on other business-friendly policy implementation. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's Washington Midyear Update: 4 Key Issues for Investors to Watch, where he points out dysfunction, drama and ethical issues in the White House have combined with Republican infighting on Capitol Hill to bog down the policy agenda. There's growing concern among congressional Republicans that the much-anticipated policy changes will need to be significantly scaled back—or that they may not happen at all. Read more on the Insights & Ideas page at www.schwab.com.
The U.S. economic calendar will be void of any major releases tomorrow.
Europe turns lower as ECB causes volatility, Asia mostly higher after BoJ decision
European equities turned to the downside, with the European Central Bank (ECB) leaving its monetary policy stance unchanged as expected. The euro reversed early losses and rallied to weigh on the markets as the customary press conference by ECB President Mario Draghi following the decision appeared to cause some confusion. The ECB President said its highly accommodative policy remains necessary and there are no signs that inflation is picking up—though he reiterated that he is confident that inflation will return and added that the reasons for a 2.0% target were still valid. Draghi also said the central bank did not discuss tapering its stimulus measures but he did note for the first time that this topic will be discussed in the fall. On the economy, he pointed out that there was "unquestionable improvement" in the growth outlook. Bond yields finished mixed in volatile action, notably in Germany, following the comments, which came as Draghi jolted the markets a few weeks ago by appearing to offer a more hawkish view.
The British pound was lower versus the greenback as Brexit negotiations roll on and despite a stronger-than-expected read on the nation's retail sales. Political uncertainty remained and for analysis see 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?. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.
Stocks in Asia finished mostly to the upside, with Japanese equities rising as the yen weakened after the Bank of Japan (BoJ) kept its monetary policy stance unchanged as expected but lowered its inflation forecast again. The markets digested ramped up Q2 earnings season and awaited the monetary policy decision from the European Central Bank. Shares trading in mainland China and Hong Kong finished higher. Australian securities advanced as strength in oil & gas issues and financials more than offset a slide in technology stocks and a dip in the basic materials sector. South Korean stocks extended a record high run, while Indian listings declined amid some choppiness as the index remains near all-time highs. For a look at the global markets, 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 on the International Investing page.
The international economic docket will be light tomorrow, offering department store sales from Japan, trade data from South Korea and public sector borrowing from the U.K.