Early Gains Fade as Traders See North Korean Threat Upgrade

Charles Schwab: On the Market

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

Early Gains Fade as Traders See North Korean Threat Upgrade

U.S. stocks gave up gains in the final hour of trading to finish the regular trading session lower after President Trump commented on threats from North Korea. Earlier today, the Dow and S&P 500 both rose to record-highs on the heels of reports that showed domestic job openings jumped and small business optimism surprisingly improved. In equity news, upbeat earnings results from CBS, Michael Kors and Ralph Lauren initially buoyed sentiment. The U.S. dollar and gold advanced, while Treasuries and crude oil prices declined.

The Dow Jones Industrial Average (DJIA) declined 33 points (0.2%) to 22,085, the S&P 500 Index lost 6 points (0.2%) to 2,475, and the Nasdaq Composite decreased 13 points (0.2%) to 6,370. In moderate volume, 772 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined by $0.22 to $49.17 per barrel and wholesale gasoline was $0.01 lower at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price was $2.92 higher at $1,257.69 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—traded 0.2% higher at 93.62.

CBS Corp. (CBS $66) reported Q2 earnings-per-share (EPS) of $0.14, or $1.04 ex-items, versus the $0.97 FactSet estimate, as revenues grew 9.0% year-over-year (y/y) to $3.3 billion, topping the projected $3.1 billion. Ad growth missed forecasts but its revenues out of its entertainment and cable networks segments bested expectations. Shares traded higher.

Michael Kors Holdings Ltd. (KORS $45) posted fiscal Q1 EPS of $0.80, above the expected $0.62, as revenues declined 3.6% y/y to $952 million, north of the forecasted $919 million. The luxury fashion company posted stronger-than-expected same store sales in North America and Europe, while its operating profit margin easily exceeded estimates. KORS issued Q2 and full-year guidance that topped the Street's estimates. Shares rallied sharply.

CVS Health Corp. (CVS $79) announced Q2 earnings of $1.07 per share, or $1.33 ex-items, versus the projected $1.31, with revenues rising 4.5% y/y to $45.7 billion, above the forecasted $45.4 billion. CVS issued Q3 EPS guidance that was below estimates, while raising the low end its full-year profit outlook. Shares saw some pressure.

FibroGen Inc. (FGEN $50) surged after announcing favorable results from a study of its experimental idiopathic pulmonary fibrosis treatment. The announcement came as the company posted softer-than-expected Q2 results.

Ralph Lauren Corp. (RL $89) reported Q1 profits of $0.72 per share, or $1.11 ex-items, versus the estimated $0.95, as revenues decreased 13.0% y/y to $1.4 billion, compared to the expected $1.3 billion. The company's gross and operating margins both topped forecasts. RL reaffirmed its full-year guidance and shares moved decisively higher.

Job openings jump to record high, small business optimism unexpectedly improves

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, jumped to a level of 6.16 million jobs available to be filled in June—a record high—from May's upwardly revised 5.70 million level. The Bloomberg forecast called for an increase to 5.75 million. The hiring and separation rates remained at May's levels of 3.7% and 3.6% respectively.

The National Federation of Independent Business (NFIB) Small Business Optimism Index for July rose to 105.2—the highest since February—from June's unrevised 103.6 level, versus expectations of a dip to 103.5.

Treasuries were lower, with the yield on the 2-year note mostly flat at 1.36%, while the yield on the 10-year note added 1 basis point (bp) to 2.27% and the 30-year bond rate rose 2 bps to 2.85%. Schwab's Chief Fixed Income Strategist Kathy Jones offers a look at the bond markets in her article, Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' on the Fixed Income page at www.schwab.com.

The U.S. Dollar Index has regained some support on the economic data. The greenback slipped yesterday from Friday's jump from lows not seen since May 2016 that came courtesy of a stronger-than-expected July nonfarm payroll report. Schwab's Kathy Jones discusses the greenback in her article, Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

The political front remains a source of uncertainty amid multiple shakeups in the White House, a potential debt ceiling fight, and another failed attempt at health care reform that is causing concerns about the ability and timing of pro-business policy implementation. For analysis, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's articles, Health Care Reform: What Investors Should Know, and Washington Midyear Update: 4 Key Issues for Investors to Watch, on the Insights & Ideas page at www.schwab.com.

Tomorrow, the U.S. economic calendar will yield the weekly MBA mortgage applications report, which will be followed by a preliminary read on Q2 nonfarm productivity and unit labor costs with productivity forecasted to have improved 0.7% and costs estimated to have increased 1.1%. Rounding out the day, we'll receive wholesale inventories for June, expected to have increased 0.6% m/m, matching the rise seen in May.

Europe turns higher as euro drops on U.S. data, Asia mostly lower

European equities overcame early pressure and finished higher, with the euro and British pound losing ground on the dollar following a dose of upbeat U.S. employment and small business optimism data. Early pressure came amid disappointing trade reports out of China and Germany. Earnings results in the region diverged. Bond yields in the region finished mostly higher. For our latest analysis of the global markets, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, What are fund flows telling us about trends and risks in the global stock market?, as well as his commentary, 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 mostly lower in the wake of China's release of its July trade activity, which showed export and import growth both came in below expectations. Japanese equities declined with the yen showing some strength late in the session. Australian securities traded lower, South Korean shares dipped and Indian listings fell. South Korean and Indian markets continued retreats from recent all-time highs, and Schwab's Jeffrey Kleintop CFA, discusses in his article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page at www.schwab.com. However, stocks trading in mainland China and Hong Kong gained ground as the trade data was met with optimism regarding corporate earnings in the region. For more on the global markets, check out Jeffrey Kleintop's 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page.

The international economic docket for tomorrow will include machine tool orders from Japan, CPI and PPI from China, consumer confidence from Australia and industrial production from Italy.