Dow Tops 22,000

Charles Schwab: On the Market

Posted: 8/2/2017 4:15 PM ET

Dow Tops 22,000

U.S. equities were mostly higher amid a sundry of earnings reports and lingering political and geopolitical uncertainty, and as Apple's results gave the Dow strength to close above 22,000 for the first time. Crude oil prices were mixed following a smaller-than-expected decline in oil inventories, as were Treasuries, while the U.S. dollar was flat and gold was lower. In economic news, ADP's job report slightly missed forecasts ahead of Friday's key July nonfarm payroll release.

The Dow Jones Industrial Average (DJIA) rose 52 points (0.2%) to 22,016, the S&P 500 Index was 1 point higher at 2,478, and the Nasdaq Composite was nearly unchanged at 6,363. In moderate volume, 832 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.43 to $49.59 per barrel and wholesale gasoline was $0.02 lower at $1.64 per gallon. Elsewhere, the Bloomberg gold spot price fell $2.65 to $1,266.11 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 92.87.

Dow member Apple Inc. (AAPL $157) reported fiscal Q3 earnings-per-share (EPS) of $1.67, above the $1.57 FactSet estimate, as revenues grew 7.1% year-over-year (y/y) to $45.4 billion, topping the projected $44.9 billion. iPhone and iPad shipments topped the Street's forecasts. AAPL issued Q4 revenue guidance with a midpoint above estimates. Shares rallied.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Big Time: An Update on Our U.S. Large Cap Bias, that most secular trends point to large cap outperformance; but there are risks to the story. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Time Warner Inc. (TWX $103) posted Q2 profits of $1.34 per share, or $1.33 ex-items, versus the projected $1.19, with revenues increasing 5.0% y/y to $7.3 billion, roughly in line with expectations. TWX reaffirmed its full-year operating profit outlook. Shares were higher.

Mondelez International Inc. (MDLZ $44) announced that Chief Executive Officer (CEO) Irene Rosenfeld will retire effective November 2017 and be replaced by Dirk Van de Put, who is currently President and CEO of McCain Foods. Rosenfeld will remain Chairman of the Board until March 31, 2018. The news comes as the company topped the Street's earnings estimates and raised its quarterly dividend by 16.0% to $0.22 per share. Shares overcame early losses and were modestly higher.

Humana Inc. (HUM $241) posted Q2 EPS of $4.46, or $3.49 ex-items, versus the expected $3.08, with the company noting that individual Medicare Advantage results are significantly outperforming management's original expectations. Revenues declined 3.4% y/y to $13.5 billion, below the $13.6 billion expectation. HUM raised its full-year earnings outlook. Shares were solidly higher.

AutoNation Inc. (AN $39) reported Q2 EPS of $0.86, compared the $0.98 estimate, as revenues declined 3.0% y/y to $5.3 billion, below the forecasted $5.6 billion. The company said its pre-owned margins declined due to implementation challenges with its centralized one price strategy, but it has taken decisive action to resolve those issues. AN traded solidly lower.

ADP report shows private sector job growth slightly misses forecasts

The ADP Employment Change Report showed private sector payrolls rose by 178,000 jobs in July, below the Bloomberg forecast of a 190,000 gain, while June's increase of 158,000 jobs was revised to a gain of 191,000. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday's broader July nonfarm payroll report, expected to show increases of 180,000 jobs to the headline rate and private sector payrolls (economic calendar). The unemployment rate is forecasted to dip to 4.3% from 4.4%, and average hourly earnings are projected to rise 0.3% month-over-month (m/m).

Tomorrow, the employment component of the ISM non-Manufacturing Index will likely be an area of focus leading up to Friday's jobs report. In June, most service industries surveyed reported increased employment, with some noting that after delays in the hiring process, they are "finally reaching optimum staffing levels." The ISM index is a measure of activity in the U.S. services sector, which accounts for a majority of domestic GDP growth, and is projected to decline slightly to 56.9 in July from 57.4 in June, though a reading above 50 depicts expansion. Additionally, weekly initial jobless claims will be reported, forecasted to tick lower to a level of 243,000 from the prior week's 244,000, and factory orders will round out the day.

As noted in the latest Schwab Market Perspective: Are Danger Signs Rising…or Will the Bull Run Continue?, we expect the continuation of the bull market in stocks, supported by economic data that is showing a robust labor market, but few signs of inflation building. Dangers are lurking, however, and the possibility of a decent-sized pullback has grown over the past couple of months, in light of monetary policy and geopolitical uncertainties. Read more on the Markets & Economy page at www.schwab.com and be sure to follow us on Twitter: @schwabresearch.

The MBA Mortgage Application Index declined 2.8% last week, following the previous week's 0.4% rise. The decrease came as a 3.8% drop in the Refinance Index was met with a 2.0% decline for the Purchase Index. The average 30-year mortgage rate remained at 4.17%.

Treasuries were mixed, as the yield on the 2-year note ticking 1 basis point (bp) higher to 1.36%, while the yield on the 10-year note was flat at 2.25% and the 30-year bond rate declined 1 bp to 2.85%.

Treasury yields have stabilized somewhat but the U.S. Dollar Index remains near lows not seen since May 2016 and for a look at the bond markets and the greenback, see Schwab's Chief Fixed Income Strategist Kathy Jones' Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' on the Fixed Income page at www.schwab.com, as well as her article, 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 and a source of uncertainty with constant changes in the White House and as another attempt at health care reform failed recently as discussed in Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's article, Health Care Reform: What Investors Should Know, on the Insights & Ideas page at www.schwab.com.

Europe mostly lower on mixed earnings, Asia mixed

European equities finished mostly lower, with the upbeat results from Apple being met with some disappointing reports in the region, while the euro and British pound gained ground on the U.S. dollar, ahead of tomorrow's monetary policy decision from the Bank of England. Bond yields in the region finished mixed. The markets continued to grapple with political uncertainty in the U.S. and lingering focus on geopolitical concerns toward North Korea and China/U.S. trade relations. Swiss stocks played catch up to yesterday's gains in the region, returning to action following a holiday. For analysis of the global markets, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, An important benefit to global investors is back after 20 years on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed, with the technology sector getting a lift from yesterday's upbeat earnings results and guidance from Apple, while commodity issues saw some pressure. Japanese equities advanced, with the yen losing ground, shares traded in Australia declined amid the weakness in commodity issues, while stocks in South Korea rose slightly. Mainland Chinese securities decreased amid flared-up trade concerns, but those traded in Hong Kong advanced. Markets in India declined ahead of the announcement from the Reserve Bank of India, which expectedly cut rates. With exacerbated U.S. trade relation uncertainty and festering geopolitical concerns toward North Korea, Schwab's Jeffrey Kleintop, CFA, offers his commentary, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com.

Tomorrow's international economic calendar will include trade data from Australia, PMI Services reports from across the globe, CPI from the U.K. and retail sales from the Eurozone.