Stocks Overcome Early Pressure, Manage Mild Gains

Charles Schwab: On the Market

Posted: 9/28/2017 4:15 PM EDT

Stocks Overcome Early Pressure, Manage Mild Gains

 

U.S. stocks overcame some early weakness to finish the regular trading session slightly higher as market participants welcomed a surprising upward revision to Q2 GDP, while Fed rate hike expectations remained elevated and yesterday's GOP tax reform proposal found focus. The U.S. dollar pared its recent run and Treasury yields finished mixed. Crude oil registered lower after a midday reversal and gold was higher. In equity news, BlackBerry and Rite Aid announced quarterly results and Abbot Labs received a boost after the FDA approved its diabetes device.

The Dow Jones Industrial Average (DJIA) increased 40 points (0.2%) to 22,381, the S&P 500 Index was 3 points (0.1%) higher at 2,510, and the Nasdaq Composite was nearly unchanged at 6,453. In moderate volume, 766 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.58 to $51.56 per barrel and wholesale gasoline was $0.01 lower at $1.61 per gallon. Elsewhere, the Bloomberg gold spot price added $4.18 to $1,286.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 93.17.

BlackBerry Ltd. (BBRY $10) reported a Q2 loss of $0.07 per share, or earnings-per-share (EPS) ex-items of $0.05 per share, versus the breakeven FactSet estimate, as revenues decreased 28.7% year-over-year (y/y) to $238 million, above the projected $222 million. The company said it achieved historical highs in total software and services revenue and gross margin, reflecting its complete transformation to a software company. BBRY reaffirmed its full-year guidance. Shares rallied.

Abbott Laboratories (ABT $54) gained solid ground after the U.S. Food and Drug Administration (FDA) approved the company's continuous glucose monitor for people with diabetes that does not require routine finger pricking. The treatment is already sold in other countries and will be the first in the U.S. DexCom Inc. (DXCM $45), a competitor that got FDA approval for its device late last year but it does require finger pricking, fell sharply on the news.

Conagra Brands Inc. (CAG $34) posted fiscal Q1 EPS of $0.36, or $0.46 ex-items, versus the expected $0.40, with revenues decreasing 4.8% y/y to $1.8 billion, roughly in line with expectations. The company said it continued to see gross margin expansion, despite higher-than-expected inflation and its planned increase in investments. CAG reaffirmed its full-year guidance and shares traded higher.

Rite Aid Corp. (RAD $2) reported Q2 EPS of $0.16, or a $0.01 per share loss ex-items, compared to the $0.01 shortfall that was expected, as revenues declined 4.4% y/y to $7.7 billion, below the projected $7.8 billion. Same-store sales dropped 3.4% y/y, versus the estimated 2.2% decrease. The company said its performance reflects a challenging reimbursement rate environment and the effects of an extended merger and asset sale process. Additionally, RAD announced that Kermit Crawford will join the company as president and chief operating officer. Shares finished sharply lower.

Final read on Q2 GDP revised higher, jobless claims increase

The final look (of three) at Q2 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 3.1%, adjusted up from the 3.0% expansion posted in the first revision, where it was expected to remain. Q1 GDP expanded by an unrevised 1.2% rate. Personal consumption was unrevised at a 3.3% gain for Q2, matching estimates. Personal consumption grew by an unrevised 1.9% in Q1.

On inflation, the GDP Price Index was unadjusted at a 1.0% gain, in line with forecasts, while the core PCE Index, which excludes food and energy, was unadjusted at a 0.9% rise, matching expectations.

Weekly initial jobless claims (chart) rose by 12,000 to 272,000 last week, above forecasts of 270,000, with the prior week’s figure being revised higher by 1,000 to 260,000. The four-week moving average gained by 9,000 to 277,750, while continuing claims fell 45,000 to 1,934,000, south of estimates of 1,993,000.

The advance goods trade deficit narrowed unexpectedly to $62.9 billion in August, from the downwardly revised $63.9 billion in July, and compared to expectations of $65.1 billion.

Preliminary wholesale inventories rose 1.0% month-over-month (m/m) in August, versus forecasts for a 0.4% increase, and following July's unrevised 0.6% rise.

The Kansas City Fed Manufacturing Activity Index for September unexpectedly showed growth (a reading above zero) accelerated, rising to 17 from August's 16 reading, versus forecasts of a dip to 15.

Treasuries were mixed, with the yield on the 2-year note dipping 2 basis points (bps) to 1.46%,the yield on the 10-year note nearly unchanged at 2.31% and the 30-year bond rate adding 1 bp to 2.87%.
Treasury yields eased off a recent rally that took the rate on the 10-year note to multi-month highs, while the U.S. Dollar Index pared a jump as of late to levels not seen in over a month. These moves were bolstered by heightened December Fed rate hike expectations and apparent optimism regarding fiscal policy as some details regarding tax reform were released.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market, on the Market Commentary page at www.schwab.com. Also, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend discusses the tax reform details his latest article, Tax Reform Framework Released, But The Road Ahead Is Long, on the Insights & Ideas page. Follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch.

The stock markets remain near record highs despite a plethora of things for the market to worry about and Schwab's Chief Investment Strategist Liz Ann Sonders provides analysis of this resiliency in her article, Comfortably Numb? An Update on Investor Sentiment, on the Market Commentary page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Tomorrow, the U.S. economic calendar will include personal income and spending for August, with economists expecting increases of 0.2% and 0.1%, respectively, and the Chicago Purchasing Managers Index, anticipated to show a slight downtick to a level of 58.7 in September from the 58.9 registered in August. Rounding out the day's releases will be the final University of Michigan Consumer Sentiment Index for September, forecasted to remain at the preliminary level of 95.3, but down from August's final read of 96.8.

Europe mostly higher on data, Asia mixed following advance in U.S. yesterday

European equity markets finished mostly higher, with an upbeat read on eurozone sentiment supporting the advance and helping the euro rebound. The British pound also recovered from recent weakness, as the two currencies have come under pressure amid a rally in the U.S. dollar on heightened Fed rate hike expectations and on the heels of yesterday's details of the tax reform framework. Bond yields in the region finished mixed. German consumer confidence unexpectedly dipped in October, while the nation's consumer price inflation came in slightly below expectations for September. However, September eurozone economic confidence improved more than expected. For a look at the global markets, see Schwab's Jeffrey Kleintop's, CFA, article, U.S. vs International: What Do Earnings Tell Us About What May Be Ahead?, on the Market Commentary page at www.schwab.com.

Stocks in Asia finished mixed on the heels of yesterday's gains in the U.S., which were bolstered by an upbeat durable goods orders report and the release of details of tax reform framework for the world's largest economy. The U.S. dollar has rallied to apply pressure on the yen, which helped Japanese equities move higher. However, lingering regulatory concerns and dampened conviction ahead of next week's holiday break weighed on Chinese stocks. Australian securities ticked higher and South Korean shares finished flat. Indian equities snapped a seven session losing streak that developed amid recent economic data that fostered concerns and led to the markets retreat from record highs. For analysis of global investing, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page at www.schwab.com.

The international economic docket for tomorrow will be dominated with reports from Japan as it releases its jobless rate, CPI, retail sales, industrial production, vehicle production, housing starts and construction orders. Additional releases include private sector credit from Australia, industrial production from South Korea, retail sales and unemployment claims from Germany and 2Q GDP, consumer credit and business investment from the U.K.

Equities Close Out the Week in Mixed Fashion

Charles Schwab: On the Market

Posted: 7/28/2017 4:15 PM ET

Equities Close Out the Week in Mixed Fashion

U.S. stocks finished the trading session mixed with the Dow outperforming its peers after the Senate failed another attempt at healthcare reform and Amazon.com posted disappointing profit figures. A plethora of Dow components reported earnings today, while tobacco stocks were under pressure on the heels of the FDA announcing new plans for cutting the level of nicotine in cigarettes. Treasuries were higher after an advance read on Q2 GDP narrowly missed forecasts, gold and crude oil prices also advanced and the U.S. dollar traded to the downside.

The Dow Jones Industrial Average (DJIA) advanced 34 points (0.2%) to 21,830, the S&P 500 Index was 3 points (0.1%) lower at 2,472, and the Nasdaq Composite declined 8 points (0.1%) to 6,375. In moderate volume, 772 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.67 to $49.71 per barrel and wholesale gasoline was $0.03 higher at $1.65 per gallon. Elsewhere, the Bloomberg gold spot price inched $0.61 lower to $1,259.83 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 93.29. Markets were mixed for the week, as the DJIA increased 1.2%, the S&P 500 Index was nearly unchanged and the Nasdaq Composite ticked 0.2% lower.

Amazon.com Inc. (AMZN $1,020) reported Q2 earnings-per-share (EPS) of $0.40, below the $1.41 FactSet estimate, as revenues grew 25.0% year-over-year (y/y) to $38.0 billion, above the projected $37.2 billion. AMZN issued Q3 revenue guidance that had a midpoint above the Street's expectations. Shares were solidly lower.

Starbucks Corp. (SBUX $54) posted fiscal Q3 earnings of $0.47 per share, or $0.55 ex-items, versus the expected $0.55, as revenues rose 8.0% to $5.7 billion, below the projected $5.8 billion. Q3 same-store sales increased 4.0% y/y, versus the estimated 4.2% gain, as sales grew 5.0% in the U.S. SBUX issued Q4 EPS guidance that missed forecasts, while it lowered its full-year profit outlook. Shares fell.

Dow member Merck & Co. Inc. (MRK $64) announced Q2 EPS of $0.71, or $1.01 ex-items, versus the estimated $0.87, as revenues increased 1.0% y/y to $9.9 billion, north of the $9.8 billion expectation. MRK reaffirmed its full-year EPS outlook, while raising its revenue guidance. Shares ticked higher.

Dow component Exxon Mobil Corp. (XOM $80) reported Q2 EPS of $0.78, compared to the expected $0.84, as revenues rose 9.0% y/y to $62.9 billion, versus the projected $61.3 billion. Shares closed lower.

Dow member Chevron Corp. (CVX $108) posted Q2 profits of $0.77 per share, below the estimated $0.86, as revenues rose 17.8% y/y to $34.5 billion, above the forecasted $33.0 billion. CVX traded higher.

Dow component Intel Corp. (INTC $35) announced Q2 EPS of $0.58, or $0.72 ex-items, compared to the forecasted $0.68, as revenues grew 14.0% y/y to $14.8 billion, north of the expected $14.4 billion. INTC issued Q3 guidance that topped projections and raised its full-year outlook. INTC traded higher.

Tobacco stocks fell to pressure the consumer staples sector as the U.S. Food and Drug Administration (FDA) announced new plans for tobacco and nicotine regulation, including the pursuit of cutting nicotine in cigarettes to non-addictive levels.

First look at Q2 shows growth accelerated less than expected

The first look (of three) at Q2 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 2.6%, from the downwardly revised 1.2% expansion in Q1, and below the 2.7% growth forecasted by Bloomberg. Personal consumption gained 2.8%, matching forecasts and following the upwardly adjusted 1.9% increase recorded in Q1.

On inflation, the GDP Price Index came in at a 1.0% rise, below expectations of a 1.3% gain and the upwardly revised 2.0% increase seen in Q1, while the core PCE Index, which excludes food and energy, moved 0.9% higher, above expectations of a 0.7% gain, and following the downwardly adjusted 1.8% advance in Q1.

Along with personal consumption, the accelerated Q2 growth came as the decline in private inventory investment eased and federal government spending turned higher. Also, although nonresidential fixed investment decelerated, investment in equipment jumped, suggesting improved business sentiment may have bolstered capital spending. Residential spending dropped after a strong Q1, reflecting the growing headwinds facing the housing sector. State and local government spending turned lower and Imports—a subtraction to GDP—increased, while growth in exports downshifted.

The report adds credence to Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, outperform rating on the technology sector as discussed in the latest Schwab Sector Views: One half down, one to go! Brad adds that we currently have a modestly pro-cyclical stance, which means that our current calls are geared to perform better as the economy grows. And for now the economy appears to be on a relatively stable growth path that shows few signs of ending in the foreseeable future as depicted by the continued uptrend in the Index of Leading Economic Indicators. Read more on the Markets & Economy page and be sure to follow us on Twitter: @schwabresearch.

The Q2 Employment Cost Index (chart) rose by 0.5% q/q, south of forecasts of a 0.6% rise, and compared to the 0.8% gain seen in Q1.

The final July University of Michigan Consumer Sentiment Index (chart) was revised higher to 93.4 from the preliminary level of 93.1, versus forecasts of 93.2. But the index is down versus June's level of 95.1. Compared to last month, the expectations component dipped, while the current conditions component improved. The 1-year inflation outlook remained at June's 2.6% rate, while the 5-10 year forecast ticked higher to 2.6% from 2.5%.

Treasuries traded modestly higher, with the yields on the 2-year and 10-year notes decreasing 2 basis points (bps) to 1.35% and 2.29% respectively, while the yield on the 30-year bond dipped 3 bp to 2.89%.

Bond yields and the U.S. dollar experienced some choppiness following this week's unchanged Fed monetary policy decision, as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her latest article, Fed Keeps it on the QT. Liz Ann notes that the decision was unanimous, and the addition of the words "relatively soon" point to a September start point to balance sheet shrinkage, or quantitative tightening (QT). Next up is the Jackson Hole annual conference, at which Yellen will speak, which could provide an opportunity to further steer the consensus around QT's timing. There is a September timing risk however, given that we could be in the midst of a debt ceiling stand-off, so stay tuned. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

For a look at the bond markets and the declining U.S. dollar, see Schwab's Chief Fixed Income Strategist Kathy Jones' article, 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 commentary, Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page. Follow Kathy on Twitter: @kathyjones.

Europe and Asia mostly lower as sentiment hits headwinds

European equities finished mostly lower, with the euro and British pound rising versus the U.S. dollar. Uneasiness seemed to flare up, with the tech sector leading to the downside on the heels of yesterday's late-day rollover in the U.S. Also, another failed attempt at U.S. healthcare reform exacerbated political uncertainty. The stock markets shrugged off a ten-year high read on eurozone economic confidence, accelerating Spanish GDP growth and stronger-than-expected German inflation figures. Bond yields in the region rose following the economic data. For a look at global investing, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, An important benefit to global investors is back after 20 years where he notes that the degree to which the world's stock markets move in sync with each other has fallen to the lowest level in 20 years. Jeff adds that the lower correlation enhances the risk-reducing benefits of diversification, which may be especially good news right now since stocks could be due for a pullback. Read more on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop. Also, 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.

Stocks in Asia finished mostly lower amid an apparent flare-up in risk aversion following yesterday's tech rollover in the U.S. and another failed attempt at healthcare reform late last night in the U.S. The yen gained ground to weigh on Japanese equities. Japan also released national consumer inflation figures for June, which rose in line with forecasts, while its July read on core consumer inflation in Tokyo came in slightly above estimates. Chinese stocks ticked higher, but shares in Hong Kong declined as the aforementioned headwinds were met with some earnings uneasiness as a plethora of key results loom. Australian securities dropped amid broad-based weakness, led by healthcare. South Korean equities fell and Indian stocks decreased, with both indexes pulling back from recent all-time highs. For more on the emerging markets, see Schwab's Jeffrey Kleintop's CFA, article, 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.

Stocks mixed as earnings meet uncertainties

Stocks finished mixed with the busiest week of earnings season lifting the Dow, courtesy of rallies in Boeing Co. (BA $241), Caterpillar Inc. (CAT $114) and McDonald's Corp. (MCD $156) following their results. Verizon Communications Inc. (VZ $48) also jumped to aid the Dow and telecommunications issues, which led to the upside. However, technology stocks dipped amid some late week volatility as the Street appeared to grapple with valuations following the sector's sharp rally the past year, while Google's parent Alphabet Inc's (GOOGL $959) higher-than-expected traffic acquisition costs fostered margin concerns. However, Facebook Inc (FB $173) managed to rally on its earnings results. Earnings season has been mostly better than expected, as about 73% have topped revenue forecasts and nearly 78% bested earnings expectations of the 287 S&P 500 companies posting results.

Healthcare issues led to the downside amid mixed earnings results, disappointing news from Eli Lilly and Co. (LLY $83) and AstraZeneca PLC. (AZN $30) regarding potential new drugs, and another failed attempt at healthcare reform. Energy issues were standout gainers this week as crude oil prices extended a recent run on signs of global economic growth and aided by more bullish oil inventory data. Bond rates and the U.S. dollar were in focus, with the Treasury yield curve steepening and the U.S. Dollar Index hitting a low not seen since mid-2016. The moves came on relatively upbeat economic data and after the Fed's unchanged monetary policy stance.

Next week, earnings will continue to pour in, but the economic calendar will likely garner attention given the recent action in bonds and currencies and as the markets appear a little less certain that another Fed rate hike this year is in the offing. Personal income and spending, the ISM Manufacturing and non-Manufacturing Indexes, trade balance, Markit's business activity reports and monthly auto sales are notable releases. However, the headliner will likely be Friday's July nonfarm payroll report.

As noted in the latest Schwab Market Perspective: Are Danger Signs Rising…or Will the Bull Run Continue?, a solid earnings season should contribute to a continuation of the bull market in stocks. 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. While we would likely view such a move as healthy, it can be disconcerting. Stay diversified and be prepared to guard against overreacting to any such move. Read more on the Markets & Economy page at www.schwab.com.

International reports due out next week that deserve a mention include: Australia—Reserve Bank of Australia monetary policy decision, retail sales building approvals and trade balance. China—Manufacturing and non-Manufacturing PMIs. India—Manufacturing and Services PMIs and the Reserve Bank of India's monetary policy decision. Japan—industrial production and wage figures. Eurozone—unemployment rate, consumer price inflation, Q2 GDP, Markit's business activity reports and retail sales, along with German factory orders. U.K.—Bank of England monetary policy decision and Markit's business activity reports.

Stocks Give Back Previous Session's Gains

Charles Schwab: On the Market

Posted: 9/29/2016 4:15 PM ET

Stocks Give Back Previous Session's Gains

Domestic stocks traded lower, with financials among the largest decliners as Deutsche Bank continued to make headlines after recently being fined by U.S. authorities. The energy sector managed to limit losses as crude oil prices extended yesterday's jump that developed on the announced preliminary production cut agreement from OPEC, despite some elevated scrutiny toward the details of the deal. Treasuries and the U.S. dollar were slightly higher, while gold was flat. In economic news, reports on 2Q GDP, weekly jobless claims and the trade deficit were mostly favorable.

The Dow Jones Industrial Average (DJIA) fell 196 points (1.1%) to 18,143, the S&P 500 Index lost 20 points (0.9%) to 2,151, and the Nasdaq Composite dropped 49 points (0.9%) to 5,269. In moderately-heavy volume, 977 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.78 to $47.83 per barrel, wholesale gasoline was flat at $1.44 per gallon and the Bloomberg gold spot price declined $0.03 to $1,321.51 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 95.53.

PepsiCo Inc. (PEP $108) reported fiscal 3Q earnings-per-share (EPS) ex-items of $1.40, above the $1.32 FactSet estimate, as revenues declined 1.9% year-over-year (y/y) to $16.0 billion, compared to the expected $15.9 billion. PEP raised its full-year profit guidance. Shares finished higher.

Dow member McDonald's Corp. (MCD $115) announced a 6.0% increase in its quarterly cash dividend to $0.94 per share. The company noted meaningful progress it has made against its turnaround plan. MCD gained modest ground.

Intra-Cellular Therapies Inc. (ITCI $15) plunged over 60% after the company reported failed results from a trial of its treatment for schizophrenia.

ConAgra Foods Inc. (CAG $46) posted fiscal 1Q EPS ex-items of $0.61, above the estimated $0.48, as revenues declined 5.0% y/y to $2.7 billion, roughly in line with forecasts. This is the last earnings release for ConAgra Foods as it remains on track to split into two independent, publicly-traded companies. CAG rallied.

Final revision to 2Q GDP tops forecasts, jobless claims tick higher

The final look (of three) at 2Q Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 1.4%, adjusted up from the 1.1% and the 1.2% expansion reported in the second and first revisions, respectively. This compared to the Bloomberg forecast of a revised 1.3% pace of growth. 1Q GDP expanded by an unrevised 0.8% rate. Personal consumption came in at a 4.3% gain for 2Q, down from the preliminary estimate of 4.4%, where it was expected to remain. Personal consumption grew by an unrevised 1.6% in 1Q.

Schwab's Chief Investment Strategist, Liz Ann Sonders notes in her article, Every Picture Tells a Story: Recession Risk Up, but Not High, that recession models show rising, but still low risk of a coming contraction in economic activity. Economic recoveries don’t tend to die of old age; they die of excess…of which there's little in this recovery. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Weekly initial jobless claims (chart) rose by 3,000 to 254,000 last week, versus estimates of an increase to 260,000, with the prior week's figure being downwardly revised to 251,000. The four-week moving average declined by 2,250 to 256,000, while continuing claims fell 46,000 to 2,062,000, south of the estimated level of 2,129,000.

The advance goods trade deficit narrowed to $58.4 billion in August, from the downwardly revised $58.8 billion in July, versus projections calling for the deficit to widen to $62.2 billion.

Pending home sales fell 2.4% month-over-month (m/m) in August, versus projections of a flat reading and following the downwardly revised 1.2% gain registered in July. Compared to last year, sales were 4.0% higher, versus forecasts of a 2.6% increase. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which unexpectedly declined last month.

Treasuries finished higher, with the yields on the 2-year and 10-year notes, as well as the 30-year bond rate all dipping 2 basis points to 0.74%, 1.56% and 2.28%, respectively. Schwab's Chief Fixed Income Strategist, Kathy Jones points out in her article, With a Whimper Instead of a Bang: Is the Great Bond Bull Market Over?, the end of the bull market doesn't mean a bear market is starting, as slow global growth, deflationary pressures abroad, a firm dollar and demographic trends are likely to keep yields low. Investors should focus less on short-term changes in the market and more on structuring a fixed income portfolio that can work for them over the long run. Read the whole article and other timely bond market commentary at www.schwab.com/onbonds. Follow Kathy on Twitter: @kathyjones.

Tomorrow's economic calendar will begin with a report on personal income and spending, forecasted to show income rose 0.2% m/m during August and that spending increased 0.1%, followed by the Chicago Purchasing Managers Index, with economists expecting a reading of 52.0 for September, up from the 51.5 registered in August. Rounding out the day, we'll receive the final University of Michigan Consumer Sentiment Index for September, estimated to have inched higher to 90.0 after the preliminary read matched August's 89.8 level.

Europe mixed, Asia mostly higher

European equities finished mixed, with oil & gas issues rallying on the heels of the surprise agreement to cut oil production for the first time in eight years at an informal meeting by the Organization of the Petroleum Exporting Countries (OPEC). Also, financials modestly added to yesterday's rebound after selling off recently on capital concerns toward Deutsche Bank AG (DB $11). However, the German financial sector finished lower as DB gave back some of a two-day rebound and saw heavy pressure in U.S. trading after the European markets closed as Bloomberg reported that about 10 hedge funds that clear derivatives trades with the company have withdrawn some excess cash and positions held at the lender. A spokesperson for the German lender said the company is confident that the vast majority of its trading clients have a full understanding of its stable financial position, per the report. In economic news, preliminary German consumer price inflation came in slightly hotter than expected, eurozone economic confidence unexpectedly improved, and U.K. consumer credit topped forecasts, though a separate read on the nation's mortgage approvals came in slightly below estimates. The euro was higher and British pound declined versus the U.S. dollar, while bond yields in the region were mostly higher.

With global market uncertainty/volatility elevated, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, reminds investors, Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think. Read these articles, at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mostly higher, with the energy sector gaining ground following yesterday's surge in crude oil prices as OPEC announced the first oil output cut deal in eight years. An advance for Japanese equities was aided by some late-session weakening of the yen, even as the nation reported a larger-than-expected drop in August retail sales. Australian stocks gained ground, with oil & gas and basic materials stocks leading the way. Securities trading in mainland China and Hong Kong increased ahead of next week's golden week holiday break. South Korean listings traded to the upside and Indian stocks fell after the country announced that it has carried out surgical strikes on terrorist camps in Pakistan. For our latest analysis of the global economic front, see Schwab's Jeffrey Kleintop's, CFA, article, World Tour: An Around The World Look At the Economic Landscape, at www.schwab.com/oninternational.

Tomorrow, the international economic docket will yield household spending, CPI, vehicle production, housing starts and construction orders for Japan, private sector credit from Australia and a manufacturing PMI read from China. Releases from across the pond will include consumer confidence and 2Q GDP from the U.K., retail sales from Germany and CPI from France, Italy and the Eurozone.

Stocks off Highs, Up from Lows in Mixed Close

Charles Schwab: On the Market

Posted: 8/26/2016 4:15 PM ET

Stocks off Highs, Up from Lows in Mixed Close

U.S. stocks erased early session gains and finished mixed on the heels of Fed Chair Janet Yellen's highly anticipated speech which was followed by comments from Vice Chair Stanley Fischer to CNBC, alluding to the possibility of two rate hikes before year end. Treasuries, gold and crude oil prices were lower and the U.S. dollar was higher. In economic news, 2Q GDP was revised slightly lower, as expected, while on the equity front, GameStop and Ulta Salon sank in the wake of some disappointing earnings reports.

The Dow Jones Industrial Average (DJIA) declined 53 points (0.3%) to 18,395, the S&P 500 Index lost 3 points (0.2%) to 2,169, and the Nasdaq Composite increased 7 points (0.1%) to 5,219. In moderate volume, 808 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.31 to $47.64 per barrel, wholesale gasoline added $0.01 to $1.43 per gallon and the Bloomberg gold spot price decreased $1.08 to $1,320.90 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.7% higher at 95.47. Markets were down for the week, as the DJIA ticked 0.9% lower, the S&P 500 Index declined 0.7%, and the Nasdaq decreased 0.4%.

GameStop Corp. (GME $29) reported 2Q earnings-per-share (EPS) ex-items of $0.27, one penny north of the FactSet estimate, as revenues declined 7.4% year-over-year (y/y) to $1.6 billion, below the projected $1.7 billion. 2Q same-store sales fell 10.6% y/y, versus the expected 5.9% decline. GME issued 3Q and full-year guidance that was roughly in line with forecasts. Shares finished solidly lower.

Ulta Salon, Cosmetics & Fragrance Inc. (ULTA $255) posted 2Q EPS of $1.43, above the projected $1.40, as revenues rose 21.9% y/y to $1.1 billion, roughly in line with expectations. Quarterly same-store sales rose 14.4% y/y, above the estimated 12.9% gain. ULTA issued softer-than-expected 3Q earnings guidance, while raising its full-year outlook. ULTA was under solid pressure.

Yellen's speaks, 2Q GDP revised slightly lower as expected

Federal Reserve Chairwoman Janet Yellen spoke at the Central Bank's annual policy symposium in Jackson Hole, Wyoming on the subject of the Fed's monetary policy toolkit. Yellen noted that the U.S. economy is now nearing the Central Bank's goals of maximum employment and price stability. Looking ahead, Yellen noted that the Federal Open Market Committee (FOMC) expects moderate GDP growth, additional strengthening in the labor market and inflation rising to 2.0% over the next few years. In light of this outlook, she believes the case for an increase in the fed funds rate "has strengthened in recent months." She did reiterate that the FOMC's decisions always depend on the degree to which incoming data continues to confirm its outlook, and that the FOMC continues to anticipate that gradual rate increases will be appropriate.

Stocks and Treasuries gained ground on the speech and the U.S. dollar remained lower. However, the markets reversed course as Fed Vice Chairman Stanley Fischer spoke on CNBC after the speech suggesting that a September rate hike may be on the table and next week's August nonfarm payroll report will probably weigh on the decision. Fischer added that Yellen's comments were consistent with the possibility of as many as two rate hikes this year

Yellen's comments are in line with Schwab's Chief Investment Strategist, Liz Ann Sonders' view in her latest commentary, With a Little Help From My Friends: On Africa, Economy and Earnings, that we continue to believe a rate hike is on the table for this year. However, the combination of Fed policy uncertainty and the contentious election season could mean the recent lull in volatility will not persist into the fall. Read more at www.schwab.com/marketinsight. Follow Liz Ann on Twitter: @lizannsonders.

The second look (of three) at 2Q Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 1.1%, revised slightly from the 1.2% expansion reported in the first report. This matched the Bloomberg forecast. 1Q GDP expanded by an unrevised 0.8% rate. Personal consumption came in at a 4.4% gain for 2Q, up from the preliminary estimate of a 4.2% increase, where it was expected to remain. Personal consumption grew by an unrevised 1.6% in 1Q.

On inflation, the GDP Price Index was revised to a 2.3% gain, versus forecasts of an unrevised 2.2% increase, while the core PCE Index, which excludes food and energy, was adjusted at a 1.8% rise, versus expectations of an unadjusted 1.7% increase.

The final August University of Michigan Consumer Sentiment Index (chart) was revised to 89.8 from the preliminary level of 90.4, and compared to expectations of a slight rise to 90.8. The index was down compared to July's level of 90.0. The expectations component of the report was revised lower but remained above July's level, while current conditions were adjusted higher but below the prior month's level. The 1-year inflation outlook held steady at 2.5% but was down from July's 2.7% rate.

Treasuries finished lower , with the yields on the 2-year and 10-year notes rising 5 basis points (bps) to 0.84% and 1.62%, respectively, while the yield on the 30-year bond was 2 bps higher at 2.29%.For analysis on the fixed income markets see the video from Schwab's Managing Director of Trading and Derivatives, Randy Frederick and Fixed Income Director Collin Martin, CFA, titled Tempered Expectations for Bond Returns: Why Hold Bonds? Follow Randy on Twitter: @randyafrederick.

Europe higher following Yellen's speech

European equities gained ground amid an initial positive reaction to Fed Chairwoman Janet Yellen's speech that mirrored recent comments from Central Bank officials that the U.S. economy is now nearing goals of maximum employment and price stability, and the case for a rate hike has strengthened in recent months. However, healthcare stocks remained hamstrung by festering concerns about a pricing crackdown following the presidential election in the U.S. France's 2Q GDP growth was up 1.4% y/y as expected and matching 1Q's growth, while 2Q U.K. GDP growth increased 2.2% to match forecasts and following the 2.0% y/y expansion seen in 1Q. The British pound dipped versus the U.S. dollar, following its recent rally that has been fueled by a string of upbeat data suggesting the economy is seeing a limited impact from the late-June vote in the U.K. to leave the European Union, known as a Brexit. For commentary on the Brexit vote fallout, see Schwab's Director of International Research, Michelle Gibley's, CFA, article, Keep Calm and Carry On: The Brexit Shock That Wasn't at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch. The euro lost ground on the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mixed as today's speech by U.S. Fed Chair Yellen kept conviction in check, while some disappointing inflation data out of Japan weighed on sentiment. Japan reported that core consumer inflation for July declined more than expected y/y, exacerbating deflationary concerns and sending equities in the region lower, while the yen reversed to the upside. However, Chinese stocks bucked the trend, rebounding modestly from yesterday's slide that came courtesy of resurfacing liquidity concerns and as reports fostered uneasiness about a government crackdown aimed at cooling the real estate markets. The cautious mood ahead of Yellen's speech resulted in a decline for securities in South Korea and India. Finally, weakness in financials and oil & gas issues helped pull Australian stocks to the downside. Amid the choppiness in the global markets, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think. Read both articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop.

Stocks decline after Yellen's speech

U.S. stocks retreated from recent record highs for the week, following Friday's highly-anticipated speech from Federal Reserve Chairwoman Janet Yellen which culminated a week of commentary from Fed officials that raised the prospects for a rate hike this year, but did support the financial sector. Healthcare issues led to the downside amid resurfaced concerns about a crackdown on drug pricing as the U.S. presidential election looms, while the energy sector stumbled as crude oil prices came under pressure amid some bearish oil inventory reports. The U.S. dollar ticked higher and Treasuries were mixed, with rates on the short-end of the curve moving higher, while yields on the mid-to-long end lost ground.

Mixed earnings and economic data likely kept conviction in check. A jump in new home sales was met with a larger-than-expected drop in existing home sales, while durable goods orders showed business spending may be starting to pick up, though a preliminary read on services sector activity from Markit surprisingly declined. Best Buy Co. Inc. (BBY $40) rallied after its upbeat earnings report, while HP Inc. (HPQ $15) offered a disappointing outlook. As noted in the Schwab Market Perspective: The Calm Before the…., a period of peace has reigned in the market over the past month, but the lull in volatility likely won’t last. However, we do believe the secular bull market has further to run. Read the whole perspective at www.schwab.com/marketinsight.

Labor report set to command attention

On the heels of today's comments from the Fed's Yellen and Fischer, next Friday's August nonfarm payroll report is poised to be a key focus for the global markets as a September rate hike remains a possibility (economic calendar). The report will also be preceded by key reads on personal income and spending, Manufacturing Purchasing Managers Indexes (PMIs) from ISM and Markit, the trade balance, Consumer Confidence, and August vehicle sales.

Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her article, What Does Strong Job Growth Mean for Bond Investors?, recent strong job growth has improved the odds the Fed will raise short-term interest rates in the coming months and this has potentially negative implications for the U.S. bond market, which has put in a strong performance so far this year. The risk of higher rates appears greater than the potential for lower rates. We suggest investors keep the average duration of their portfolios within the short- to intermediate-term bond range to help reduce volatility, and consider holding Treasury Inflation-Protected Securities. Read more at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.

Along with global manufacturing PMIs, international reports for next week worth noting include: Australia—building approvals and retail sales. China—industrial profits. India—2Q GDP. Japan—household spending, retail sales, and industrial production. Eurozone—consumer price inflation and unemployment rate. U.K.—mortgage approvals, consumer confidence and consumer credit.

A Week of Uncertainty

Charles Schwab: On the Market

Posted: 7/29/2016 4:15 PM ET

A Week of Uncertainty

U.S. equities ended today's session in the same fashion as it has seen all week, mixed and near the flat line, as investors continued to search for some sort of catalyst amid another sundry of divergent reports on both the equity and economic fronts. Meanwhile, a much softer-than-expected 2Q U.S. GDP report was offset somewhat by relatively favorable reads on consumer sentiment and regional manufacturing activity. Treasuries were higher, as was gold, while the U.S. dollar tumbled, and crude oil prices inched higher.

The Dow Jones Industrial Average (DJIA) fell for the fifth-straight session, shedding 24 points (0.1%) to 18,432, while the S&P 500 Index added 4 points (0.1%) to 2,174 and the Nasdaq Composite increased 7 points (0.1%) to 5,162. In heavy volume, 1.2 billion shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil was $0.46 higher at $44.60 per barrel, wholesale gasoline gained $0.02 to $1.32 per gallon and the Bloomberg gold spot price jumped $18.04 to $1,353.79 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—plunged 1.3% to 95.52. Markets were mixed for the week, as the DJIA lost 0.8%, the S&P 500 Index ticked 0.1% lower, while the Nasdaq Composite advanced 1.2%.

Alphabet Inc. (GOOGL $791), the parent of Google, reported 2Q earnings-per-share (EPS) ex-items of $8.42, above the $8.04 FactSet estimate, as revenues excluding traffic acquisition costs (TAC) rose 22.1% year-over-year (y/y) to $17.5 billion, topping the expected $16.9 billion. Shares finished higher.

Amazon.com Inc. (AMZN $759) posted 2Q profits of $1.78 per share, exceeding the estimated $1.11, with revenues rising 31.0% y/y to $30.4 billion, above the projected $29.6 billion. AMZN issued 3Q revenue guidance with a midpoint above expectations and shares were modestly higher.

Dow member Merck & Co. Inc. (MRK $59) announced 2Q EPS ex-items of $0.93, north of the forecasted $0.91, as revenues grew 1.0% y/y to $9.8 billion, roughly in line with estimates. Shares were slightly higher, as it raised the low end of its full-year profit outlook and increased its revenue guidance.

Dow component Exxon Mobil Corp. (XOM $89) reported 2Q earnings of $0.41 per share, well below the expected $0.64, as revenues fell 22.2% y/y to $57.7 billion, below the anticipated $58.0 billion. The company said its performance reflects sharply lower commodity prices, weaker refining margins and continued strength in the chemical segment. XOM traded solidly lower.

Dow member Chevron Corp. (CVX $102) posted a 2Q loss of $0.78 per share, including items pertaining to impairments and other non-cash charges that may be affecting comparability to the projected $0.32. Revenues fell 27.4% y/y to $29.3 billion, above the expected $28.3 billion. The company said its results reflect lower oil prices and its ongoing adjustment to a lower oil price world, while noting that its downstream business continued to perform well. Shares of CVX inched higher.

United Parcel Service Inc. (UPS $108) achieved 2Q earnings of $1.43 per share, roughly in line with forecasts, as revenues increased 3.8% y/y to $14.6 billion, mostly matching projections. UPS reaffirmed its full-year EPS guidance. Shares were lower.

For more on the global earnings landscape, see Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, article, Earnings estimates are rebounding: what it means for stocks, at www.schwab.com/marketinsight, and be sure to follow Jeff on Twitter: @jeffreykleintop.

First read on 2Q GDP disappoints

The first look (of three) at 2Q Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 1.2%, from the downwardly revised 0.8% expansion in 1Q, and well below the 2.5% growth forecasted by Bloomberg. Personal consumption came in slightly south of forecasts, rising 4.2%, following the positively adjusted 1.6% increase recorded in 1Q, and versus the 4.4% gain that was projected. The preliminary 2Q GDP report showed the solid gain in personal consumption was accompanied by favorable contributions from exports and imports, though output was negatively impacted by private inventory investment, residential and nonresidential fixed investment, and state and local government spending.

On inflation, the GDP Price Index came in at a 2.2% rise, above expectations of a 1.9% increase, from an upwardly revised 0.5% gain seen in 1Q, while the core PCE Index, which excludes food and energy, increased 1.7%, matching forecasts, and following the upwardly revised 2.1% growth in 1Q.

The final July University of Michigan Consumer Sentiment Index (chart) was revised to 90.0 from the preliminary level of 89.5, and compared to expectations of a slight rise to 90.2. Expectations and current conditions components of the report were both revised higher. The index was down compared to June's level of 93.5. The 1-year inflation outlook ticked higher and the 5-10 year inflation forecast held steady.

The Chicago Purchasing Managers Index (chart) remained in expansion territory (above 50), dipping to 55.8 in July from 56.8 in June—which was the highest since January 2015—and versus expectations of a decline to 54.0.

The 2Q Employment Cost Index (chart) grew by 0.6% q/q, matching forecasts and the increase posted in 1Q.

Today's data was in line with our view in the latest Schwab Market Perspective: New Records…Same Skepticism, that wages and housing appear to be helping bolster spending and confidence among the all-important consumer, while business confidence and spending remain hamstrung. Additionally, some inflation measures heating up may force the Federal Open Market Committee's (FOMC) hand and we believe the risk of an actual inflation problem remains low; but we could have an inflation scare. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Treasuries finished higher following the GDP report, with the yield on the 2-year note declining 6 basis points (bps) to 0.66%, while the yields on the 10-year note and the 30-year bond fell 5 bps to 1.45% and 2.18%, respectively. Bond yields have been mixed in the wake the FOMC leaving its monetary policy stance unchanged this week as discussed by Schwab's Chief Investment Strategist, Liz Ann Sonders in her commentary, A Hopeful Transmission: Fed Holds Rates Steady, But…

For more on the bond market moves, see Schwab's Chief Fixed Income Strategist, Kathy Jones discusses in her recent article titled, With a Whimper Instead of a Bang: Is the Great Bond Bull Market Over?. Read both articles at www.schwab.com/marketinsight and follow Liz Ann and Kathy on Twitter: @lizannsonders and @kathyjones.

Financials lead Europe higher, Asia mixed in reaction to Bank of Japan decision

European equities finished mostly higher, with financials leading the way, buoyed by a plethora of positive earnings results. Also a troubled Italian lender announced that it has received an alternative rescue proposal to help ease ramped up concerns in the nation's banking sector. The move for the sector came ahead of key European banking stress tests results that are due out after the closing bell in the U.S. Traders digested a smaller-than-expected expansion of stimulus measures out of Japan, as well as the softer-than-expected 2Q GDP in the U.S. These were accompanied by the preliminary estimate of 2Q eurozone GDP, which slowed to a q/q growth rate of 0.3%, as expected, from the 0.6% expansion posted in 1Q. Also, the eurozone consumer price inflation estimate for July came in hotter than anticipated. The euro and British pound gained ground on the U.S. dollar, while bond yields in the region were mostly lower. Amid the heightened volatility in the global markets following a plethora of data and monetary policy decisions, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification. Read more at www.schwab.com/oninternational.

Stocks in Asia finished mixed, with Japanese stocks posting wild swings in the wake of the Bank of Japan's (BoJ) monetary policy decision to hold off on more aggressive stimulus measures and instead just boost its buying program of exchange traded funds (ETFs). The yen rallied sharply following the decision, though BoJ Governor Kuroda reiterated that further easing will be done if needed and said the central bank has not hit a policy limit, per Bloomberg. For more on Japan's potential increased stimulus measures see Jeffrey Kleintop's, article, What investors need to know about helicopter money, at www.schwab.com/oninternational. Japanese equities were able to post gains after briefly falling sharply on the heels of the BoJ's decision. Ahead of the announcement, Japan reported cooler-than-expected core consumer price inflation and a larger-than-expected drop in household spending, while its industrial production grew more than anticipated for June.

Mainland Chinese shares declined, though stocks did post a solid monthly gain, buoyed by recent relatively favorable economic data, while those in Hong Kong fell sharply. Australian securities ticked higher, with healthcare and consumer services issues outweighing some weakness in basic materials stocks, while markets in India and South Korea traded lower.

Mixed week full of data and monetary policy decisions

U.S. stocks finished mixed on the week that saw 2Q earnings season reach its apex, while results from Dow member Apple Inc. (AAPL $104), Facebook Inc. (FB $125) and Alphabet Inc bolstered a solid gain for technology issues. For the 316 companies in the S&P 500 that have reported results thus far, 58% have topped revenue forecasts, while 81% have bested earnings expectations, per data compiled by Bloomberg. The global markets grappled with an unchanged monetary policy decision from the U.S. FOMC and a disappointing stimulus announcement from the Bank of Japan. Treasury yields and the U.S. dollar both came under pressure as the FOMC decision was followed by much softer-than-expected U.S. 2Q GDP growth. As such, crude oil prices fell to weigh on the energy sector. For analysis of the stock market sectors amid the heightened volatility and renewed pressure on oil prices and the U.S. dollar, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Drilling Down on the Energy Sector at www.schwab.com/marktetinsight.

Another week of heavy data looms

With earnings season remaining robust, next week's domestic economic calendar will also be plentiful, headlined by key July services and manufacturing reports from the Institute for Supply Management (ISM) and Markit, while culminating with Friday's July nonfarm payroll report. U.S. economic data has been positive as of late helping push the Dow and S&P 500 to all-time highs in July as discussed by Liz Ann Sonders in her article, 19th Nervous Breakout: Stocks Finally Reach New Highs. Liz Ann offers one of her favorite mantras, "better or worse usually matters more than good or bad when it comes to the stock market," and lists a plethora of recent better-than-expected economic reports. She also points out that many—including the ISM readings—are leading indicators, but there are implications for Fed policy. Read more at www.schwab.com/marketinsight.

Other notable releases on next week's economic calendar include: personal income and spending, monthly auto sales, factory orders and the trade balance.

Along with manufacturing and services reports across the board, next week's international reports worth noting include: Australia—the Reserve Bank of Australia monetary policy decision. Eurozone—retail sales and German factory orders. U.K.—Bank of England monetary policy decision.

Drop in Crude Pressures Markets

Charles Schwab: On the Market

Posted: 7/25/2016 4:15 PM ET

Drop in Crude Pressures Markets

Despite more upbeat news on the manufacturing front, U.S. equities finished lower as a drop in crude oil prices weighed on energy issues, and caution appeared to prevail ahead of a heavy dose of economic reports this week, headlined by the FOMC's monetary policy meeting mid-week. Treasuries, the U.S. dollar and gold were also all lower.

The Dow Jones Industrial Average (DJIA) declined 78 points (0.4%) to 18,493, the S&P 500 Index lost 7 points (0.3%) to 2,168 and the Nasdaq Composite ticked 3 points (0.1%) lower to 5,098. In moderate volume, 763 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil was $1.16 lower at $43.13 per barrel, wholesale gasoline lost $0.03 to $1.33 per gallon and the Bloomberg gold spot price decreased $6.23 to $1,316.50 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 97.28.

In M&A action, Verizon Communications Inc. (VZ $56) announced it has entered into a definitive agreement to acquire the operating business of Yahoo! Inc. (YHOO $38) for approximately $4.8 billion. The deal is subject to customary closing conditions, approval by Yahoo's shareholders, and regulatory approvals, and is expected to close in 1Q of 2017. Yahoo added that, until the closing it will continue to operate independently, offering and improving its own products and services for users, advertisers, developers and partners. Shares of both companies were lower.

Kimberly-Clark Corp. (KMB $133) announced adjusted 2Q earnings-per-share (EPS) of $1.53, north of the $1.47 FactSet estimate, while revenues declined 1.2% year-over-year (y/y) to $4.6 billion, roughly in line with expectations. The company reaffirmed its full-year 2016 EPS guidance and stated that the restructuring program it began in October of 2014 is expected to be completed by the end of this year. KMB finished lower.

Sprint Corp. (S $6) announced a 1Q loss of $0.08 per share, matching the FactSet estimate, while revenues were flat y/y at $8.0 billion, also in line with forecasts. Sprint's CEO noted that the company experienced the highest first quarter postpaid phone net additions in nine years. S rallied over 25%.

Rockwell Collins Inc. (COL $84) reported fiscal 3Q EPS of $1.63, beating the FactSet consensus estimate of $1.59, while revenues rose 3.2% y/y to $1.3 billion, roughly matching forecasts. The company also announced that it has narrowed the range of its 2016 fiscal year EPS outlook to between $5.50 and $5.55, from the previously reported $5.45 to $5.65 range. Shares traded to the downside.

2Q earnings season is entering one of its busiest weeks and Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, provides some bottom-line analysis in his recent article Earnings estimates are rebounding: what it means for stocks. Jeff discusses how in the past month, headlines have been full of geopolitical risks including Brexit, a terror attack in France, and an attempted coup in Turkey. Yet global stocks are rallying—a different reaction than might have taken place earlier this year or last year. One reason for the change in stock market reaction: earnings expectations are back on the rise. Read the article at www.schwab.com/marketinsight and follow Jeff on Twitter: @jeffreykleintop.

Regional manufacturing activity tops estimates

The Dallas Fed Manufacturing Index ascended to -1.3 for July from June's unrevised -18.3 level with economists forecasting an improvement to -10.0. A reading below zero denotes contraction in manufacturing activity. The Dallas Fed noted that the production index component, a key measure of state manufacturing conditions, came in near zero after two months of negative readings, suggesting output stopped falling this month.

A ramp-up of earnings reports will be accompanied by a plethora of releases from the U.S. economic calendar this week, beginning in earnest tomorrow with the release of new home sales, which are forecasted to have risen 1.6% month-over-month (m/m) during June to an annual rate of 560,000, as well as the S&P/CaseShiller Home Price Index, with economists expecting a year-over-year (y/y) advance of 5.54% for May and a 0.2% increase m/m on a seasonally-adjusted basis. As well, investors will get the latest reads on consumer confidence, the Richmond Fed Manufacturing Index, and Markit's preliminary Manufacturing PMI Index.

Reports likely to be the headline events for the week, however, include Friday's first look (of three) at 2Q GDP, which will follow Wednesday's monetary policy decision from the Federal Open Market Committee (FOMC), with no changes expected to its current policy stance, while earnings season will continue to ramp-up. Schwab's experts tackle these topics in the latest Schwab Market Perspective: New Records…Same Skepticism, noting that while there’s a near unanimous opinion that the Federal Open Market Committee (FOMC) will stay put at its meeting this week, market expectations for a rate hike later this year have risen over the past couple of weeks, coming closer to what we have believed was the more realistic possibility. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Treasuries finished lower, as the yield on the 2-year note rose 3 basis points (bps) to 0.74%, the yield on the 10-year note was unchanged at 1.57%, and the 30-year bond ticked 1 bp higher to 2.29%. Bond yields have rebounded as of late from record lows on favorable U.S. economic data, as well as eased U.K. Brexit concerns and expectations of a Fed rate hike this year. For analysis see the video from Schwab's Chief Investment Strategist, Liz Ann Sonders and Managing Director of Trading and Derivatives, Randy Frederick, titled Strong Jobs Report: Recession off the Table but Is Rate Hike Back On?, at www.schwab.com/insights. Follow Liz Ann and Randy on Twitter: @lizannsonders and @randyafrederick. Also, Schwab's Chief Fixed Income Strategist, Kathy Jones offers analysis in her recent article titled, With a Whimper Instead of a Bang: Is the Great Bond Bull Market Over?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

Europe and Asia mixed after giving up early gains

European equities pared early gains and finished trading mostly lower as some initial support from better-than-expected business climate data released from Germany seemingly faded as the decline in crude oil prices weighed on energy issues. Business sentiment in Germany declined, but less than was forecasted according to the Ifo's recent survey results, suggesting a robust business climate in the wake of the Brexit vote and the recent string of terror attacks in Germany in the past few weeks. It's been just over a month since the U.K. voted in favor of Brexit and Schwab's experts inform us in the recent Schwab Market Perspective: New Records…Same Skepticism, that at the time of the vote we noted that the stock market typically recovered after initial shocks like Brexit, but that recovery usually took about three months. For the Brexit shock it took just three weeks. We believe there are three primary reasons that the global stock market has remained so resilient. To find out what they are, read the whole article at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch. In other economic news in the region, U.K. manufacturing confidence slipped to its lowest level since early 2009, adding to the haze of uncertainty that has been growing since the Brexit vote as the world awaits a clear plan and timeline from the British government in how it will negotiate its new relationship with the European Union. The euro and British pound advanced versus the U.S. dollar and bond yields in the region finished mixed higher.

Stocks in Asia finished mostly higher on Monday as investors may have been exercising some caution ahead of a couple of high-profile central bank monetary policy meetings taking place later this week in the U.S. and Japan. Japanese equities finished slightly to the downside, but mostly flat as the island nation reported a larger-than-expected trade surplus for June, though exports were shown to have declined for the ninth-consecutive month. With the Bank of Japan's upcoming meeting fast approaching, Schwab's Chief Global investment Strategist, Jeffrey Kleintop, CFA, discusses in his article, What investors need to know about helicopter money, how the return of deflation in Japan has led to heightened expectations for more unconventional monetary policy and some have even called for the use of so-called “helicopter money." Read the whole article at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop. Stocks traded in both Mainland China and Hong Kong finished slightly higher with some volatile trading occurring on lower-than-average volume as traders in the world's second largest economy may be searching for some economic clues as data from the country is expected to be light for the week. Meanwhile markets in Australia, South Korea's and India finished higher.

Reports on tomorrow's international economic calendar will be very sparse, with those scheduled for release to include inflation data from Japan and industrial production from Sweden.

Stocks Pop Higher as Earnings Ramp Up

Charles Schwab; On the Market

Posted: 7/22/2016 4:15 PM ET

Stocks Pop Higher as Earnings Ramp Up

U.S. equities finished the regular trading session higher as investors weighed some mixed earnings reports, headlined by upbeat results from Dow member General Electric. In domestic economic news, Markit's preliminary July manufacturing activity read was better than expected. Treasuries were mixed, gold and crude oil prices were lower and the U.S. dollar rallied. Overseas, stocks in Europe were mixed and equities in Asia were mostly lower as global traders hoped for indications of additional stimulus from the European Central Bank and Bank of Japan.

The Dow Jones Industrial Average (DJIA) advanced 54 points (0.3%) to 18,571, the S&P 500 Index added 10 points (0.5%) to 2,175 and the Nasdaq Composite increased 26 points (0.5%) to 5,100. In moderate volume, 741 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil was $0.56 lower at $44.19 per barrel, wholesale gasoline was unchanged at $1.36 per gallon and the Bloomberg gold spot price decreased $7.46 to $1,323.97 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 97.41. Markets were higher for the week, as the DJIA gained 0.3%, the S&P 500 Index increased 0.6% and the Nasdaq Composite advanced 1.4%.

Dow member General Electric Co. (GE $32) reported 2Q earnings-per-share (EPS) ex-items of $0.51, well above the $0.46 FactSet estimate, as revenues rose 3.0% year-over-year (y/y) to $33.5 billion, versus the expected $31.8 billion. Chief Executive Officer (CEO) Jeffrey Immelt said, “The diversity and scale of our portfolio enabled the company to perform well despite a volatile and slow-growth economy,” adding, “We expect strong organic growth in the second half of the year.” Despite the beat, shares were lower.

Fellow Dow component Boeing Co. (BA $133) warned that it expects to report a $2.1 billion after-tax charge in the 2Q on expenses surrounding its 787 Dreamliner, 787-8 jumbo jet and air tanker for the U.S Air Force. The aircraft manufacturer said it will write off two of the flight-test aircraft at a cost of $847 million. Boeing's CEO said, “These are the right, proactive decisions to strengthen our business going forward." BA traded lower.

AT&T Inc. (T $43) registered 2Q EPS ex-items of $0.72, matching the FactSet estimate, with consolidated revenues, including those from its recent acquisition of DIRECTV, growing 23.0% y/y to $40.5 billion, but below the Street's $40.6 billion forecast. A net loss of 49,000 video subscribers pressured results, as declines in the unit continue to mount as customers are dumping traditional TV packages for lower-cost online-only offerings elsewhere. Shares of T gained ground.

Advanced Micro Devices Inc. (AMD $6) posted a 2Q loss ex-items of $0.05 per share, better than the $0.09 per share shortfall forecasted by analysts, on a 9.0% y/y increase in revenues to $1.0 billion, which topped the Street's $951.3 million estimate. The chip maker said it expects the current quarter to see an 18% y/y rise in sales, plus or minus 3%, as well as growth in the subsequent quarter. AMD closed solidly higher.

Honeywell International Inc. (HON $116) announced 2Q profits ex-items of $1.66 per share, topping the forecasted $1.64, as revenues rose 2.0% y/y to $10.0 billion, mostly in line with estimates. However, shares of HON were under pressure, as the conglomerate said it expects 3Q EPS between $1.67-1.72, compared to analysts' forecasts of $1.72.

Chipotle Mexican Grill Inc. (CMG $442) missed analysts' estimates when it reported 2Q EPS of $0.87, compared to the $0.91 FactSet estimate, as sales at the restaurant chain fell 16.8% y/y to $998.4 million, also shy of the forecasted $1.1 billion, as same-store sales tumbled 23.6%, well below the anticipated 20.6% decline. The company's CEO said, "Our entire company is focused on restoring customer trust and re-establishing customer frequency," adding, "There’s no quick solution to improving our sales and bringing our customers’ trust back." Despite the dismal report, shares finished higher.

Capital One Financial Corp. (COF $67) posted 2Q earnings ex-items of $1.76 per share, ten cents short of the FactSet estimate, as revenues were mostly in line with forecasts calling for $6.3 billion. The company's CEO said it remains well positioned to deliver growth in the future, as well as continue to return capital to shareholders. COF traded lower.

U.S. manufacturing posts better-than-expected increase

The preliminary Markit U.S. Manufacturing PMI Index for July improved to 52.9 from June's downwardly revised 51.3 level, and above the forecasted modest rise to 51.5, with a reading above 50 denoting expansion in activity.

The recent string of upbeat domestic data has helped fuel the recent stock market rally that took the Dow and S&P 500 to all-time highs, as discussed by Liz Ann Sonders in her latest article, 19th Nervous Breakout: Stocks Finally Reach New Highs, at www.schwab.com/marketinsight. As well, you can find the latest Schwab Sector Views: Drilling Down on the Energy Sector by Schwab's Director of Market & Sector Analysis, Brad Sorensen, CFA, where Brad argues the case that the correlation that had emerged between oil prices and stock market performance appears to have started to diminish.

Treasuries were mixed with the yield on the 2-year note up 3 basis points (bps) at 0.70%, the yield on the 10-year note 1 bp higher at 1.57%, while the yield on the 30-year bond was down 1 bp at 2.28%. Bond yields have rebounded as of late from record lows on favorable U.S. economic data, as well as eased U.K. Brexit concerns and expectations of a Fed rate hike this year. For analysis see the video from Schwab's Chief Investment Strategist, Liz Ann Sonders and Managing Director of Trading and Derivatives, Randy Frederick, titled Strong Jobs Report: Recession off the Table but Is Rate Hike Back On?, at www.schwab.com/insights. Follow Liz Ann and Randy on Twitter: @lizannsonders and @randyafrederick. Also, Schwab's Chief Fixed Income Strategist, Kathy Jones offers analysis in her recent article titled, With a Whimper Instead of a Bang: Is the Great Bond Bull Market Over?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

Europe mixed, Asia lower

European markets finished mixed, as traders digested a plethora of manufacturing activity reports in the region, as well as yesterday's decision from the European Central Bank (ECB) to leave its monetary policy unchanged where it lacked any clues as to if the ECB will become more aggressive in its stimulus measures following the June vote by the U.K. to leave the European Union (EU), known as a Brexit. Manufacturing data in Germany and the Eurozone as a whole continued to show expansion, despite a slight downtick in the readings, and France saw improvement. However, activity out of the U.K. plunged to a level depicting contraction, further fueling concerns of the economy post-Brexit. Amid the backdrop of heightened volatility in the region as the markets grapple with the impact of a Brexit, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers analysis for investors in his article, After the Brexit Vote: What Lies Ahead for Markets?, and gives us Three Reasons Why Now is Not the Time to Retreat from Global Diversification. Read both articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop.

In other economic news, Italy's retail sales came in well ahead of forecasts, while industrial sales in the nation fell well short of expectations. The euro and the British pound were slightly lower versus the U.S. dollar, while bond yields in the region were mixed.

Stocks in Asia finished lower, as hopes of aggressive stimulus measures from the Bank of Japan (BoJ) were tempered following a radio interview with BoJ Governor Kuroda—that was pre-recorded in June—that doused the notion of so-called helicopter money, as well as inaction by the European Central Bank yesterday to offer any hint of further aid. Japanese equities pared a recent rally, as the comments sent the yen sharply higher. For more on Japan's potential increased stimulus measures see Jeffrey Kleintop's, article, What investors need to know about helicopter money, at www.schwab.com/oninternational. The tempered sentiment toward central bank easing overshadowed an increase in Japan's manufacturing activity, with Markit's preliminary Manufacturing PMI Index showing a reading of 49.0 for July, up from 48.1 in June, and closing in on the 50 level that indicates the demarcation point between expansion and contraction in activity.

Chinese stocks declined despite action from the People's Bank of China (PBoC) where it pegged the yuan 3% higher versus the greenback and while the country's leaders dictated some clear differences on how to reform the country's state-owned enterprises (SOEs) raising contradicting viewpoints of whether to reinforce the sector or to trim SOEs down. Elsewhere, securities in Australia and South Korea dipped, while Indian equities bucked the regional trend, finishing higher in a somewhat subdued session.

Stocks see another weekly advance

U.S. equities managed gains for the week, as the Dow & S&P 500 indexes continued to chart record-high territory, though the blue-chip benchmark ended a nine day winning streak on Thursday. Earnings season began to heat up with financial heavyweights including Bank of America Corp. (BAC $14) and Morgan Stanley (MS $29) and Dow components Goldman Sachs Group Inc. (GS $160) and American Express Co. (AXP $64) all releasing quarterly results that bested analysts' bottom-line expectations. Some tech titans including Dow members International Business Machines Corp. (IBM $162), Microsoft Corp. (MSFT $57) and Intel Corp. (INTC $35) also announced quarterly results that topped forecasts.

As record-highs continued for the equity markets as a whole, the energy sector was unable to spark significant gains and lagged for the week. Schwab's Director of Market and Sector Analysis Brad Sorensen, CFA, shares in his recent Schwab Sector Views: Drilling Down on the Energy Sector, that with the market shifting its focus to the Brexit vote and its immediate aftermath, the energy sector may finally be taking a backseat in the minds of investors and while it may not seize the market's attention the way it used to, the energy sector remains important. Much of the global economy depends on access to oil, and also its price. And we've seen oil prices move considerably in the past two years. Read the rest of Brad's refined assessment of crude, as well as his views on all sectors at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

Fed set to conclude monetary meeting prior to GDP release next week

Next week's robust domestic economic calendar will likely be headlined by Friday's first look (of three) at 2Q GDP, which will follow the mid-week monetary policy decision from the Federal Open Market Committee (FOMC), with no changes expected to its current policy stance, while earnings season will continue to ramp-up. Schwab's experts tackle these topics in the latest Schwab Market Perspective: New Records…Same Skepticism, noting that while there’s a near unanimous opinion that the Federal Open Market Committee (FOMC) will stay put at its meeting next week, market expectations for a rate hike later this year have risen over the past couple of weeks, coming closer to what we have believed was the more realistic possibility. Separately, they also point out that commentary from second quarter earnings season has so far been relatively cautious, although the results have been better than the relatively low expectations so far. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Other reports on next week's U.S. economic calendar include: new home sales, pending home sales, durable goods orders, the S&P/CaseShiller Home Price Index, Markit's preliminary Services PMI Index, consumer confidence, the Kansas City Fed Manufacturing Activity Index, and the final University of Michigan Consumer Sentiment Index.

Major international economic releases for next week include: Japan—trade data, the Leading Index, CPI, retail sales, industrial production, vehicle production, and the Bank of Japan's monetary policy decision. China—industrial profits. Australia—CPI, PPI, export and import prices and private sector credit. Eurozone—consumer confidence, CPI and 2Q GDP. Germany—CPI, retail sales, import prices, GfK consumer confidence and Ifo business climate survey. U.K.—2Q GDP, GfK consumer confidence, Index of Services and consumer credit.