Stocks Extend Recent Gains

Charles Schwab: On the Market

Posted: 12/8/2017 4:15 PM EST

Stocks Extend Recent Gains

 

U.S. stocks advanced during the regular trading session to extend recent gains and finish the week mostly higher. The advance for equities was aided by a relatively upbeat read on the domestic labor market which followed favorable economic reports out of China and Japan. Treasury yields were mixed and the U.S. dollar was higher, while gold was little changed and crude oil prices rallied. 

The Dow Jones Industrial Average (DJIA) increased 119 points (0.5%) to 24,329, the S&P 500 Index was 15 points (0.6%) higher at 2,651, and the Nasdaq Composite advanced 27 points (0.4%) to 6,840. In moderate volume, 740 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.67 to $57.36 per barrel and wholesale gasoline gained $0.02 to $1.72 per gallon. Elsewhere, the Bloomberg gold spot price moved $0.71 higher to $1,247.93 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.90. Markets were mixed for the week, as the DJIA and the S&P 500 Index increased 0.4% and the Nasdaq Composite declined 0.1%.

United Continental Holdings Inc. (UAL $64) increased its Q4 passenger revenue outlook after reporting a 5.1% increase in November traffic, and it announced a new $3 billion share repurchase program. Shares traded higher.

Western Digital Corp. (WDC $81) is gained solid ground amid media reports that the company and Toshiba Corp. (TOSYY $16) have reached a deal in principle to settle their chip dispute and could announce a formal agreement next week. Neither company commented on the report.

Cooper Companies Inc. (COO $227) reported fiscal Q4 earnings-per-share (EPS) of $1.78, or $2.65 ex-items, versus the $2.64 FactSet estimate, with revenues rising 8.0% year-over-year (y/y) to $562 million, above the projected $559 million. The medical device company issued 2018 EPS guidance that had a midpoint below expectations. Shares finished solidly lower.

November labor report shows job growth tops forecasts, consumer sentiment slips

Nonfarm payrolls (chart) rose by 228,000 jobs month-over-month (m/m) in November, compared to the Bloomberg forecast of a 195,000 increase. The rise of 261,000 seen in October was revised to a gain of 244,000 jobs. The total upward revision to the job gains in October and September was 3,000.

Excluding government hiring and firing, private sector payrolls increased by 221,000, versus the forecasted gain of 195,000, after rising by 247,000 in October, revised from the 252,000 increase that was initially reported. The Department of Labor said employment continued to trend up in professional and business services, manufacturing and healthcare.

The unemployment rate remained at 4.1%, matching estimates, while average hourly earnings were up 0.2% m/m, below projections of a 0.3% increase and versus October's downwardly revised 0.1% decrease. Y/Y, wage gains were 2.5% higher, versus estimates of a 2.7% increase and October's downwardly revised 2.3% rise. Finally, average weekly hours ticked higher to 34.5 from October's unrevised 34.4 rate, where it was forecasted to remain.

Rate hike expectations for when the Fed concludes its meeting next week remained elevated following the relatively favorable employment report but the softer-than-expected wage growth and downward revision to the prior month may have caused some uncertainty regarding the pace of rate hikes in 2018. As we head toward the New Year, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers a look at the key issues to watch in his latest, Schwab Sector Views: 18 Thoughts Heading into '18, pointing out that business optimism is elevated, which could bolster already rising capital investments. This could help support a continuation of the strong labor market.
Schwab's Chief Investment Strategist Liz Ann Sonders points out that capital spending (capex) is likely to be an economic highlight in 2018 and coupled with the continued rebound in productivity is good news for wages in her articles, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle and One Thing Leads to Another: Productivity's Rebound.

The preliminary University of Michigan Consumer Sentiment Index (chart) declined to 96.8 in December, from 98.5 in November, and compared to expectations of an improvement to 99.0. The current economic conditions component of the survey improved but was more than offset by a decline in the expectations part of the report. The 1-year inflation forecast rose to 2.8% from November's 2.5% rate, while the 5-10 year inflation outlook ticked higher to 2.5% from the prior month's level of 2.4%.

Wholesale inventories (chart) were revised lower to a 0.5% m/m decline for October from the preliminary estimate of a 0.4% decrease, where it was forecasted to remain and compared to September's 0.1% gain. Sales grew 0.7% m/m, compared to forecasts of a 0.3% increase and September's upwardly revised 1.4% rise. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—dipped to a 1.25 months pace from September's 1.26 rate.

Treasuries finished mixed, with the yield on the 2-year note dipping 1 basis point (bp) to 1.79%, the yield on the 10-year note remaining at 2.37%, and the 30-year bond rate increasing 1 bp to 2.76%.

The U.S. dollar is extended its weekly gain and Treasury yields are diverged on the heels of the employment data, which followed favorable Chinese trade and Japanese GDP figures. Moreover, the markets cheered a breakthrough in the U.K. Brexit impasse, and a short-term government funding bill late yesterday that should help avoid a U.S. government shutdown this weekend. However, tax reform continues to be a main focus for the markets as the House and Senate grapple with reconciling key differences in their bills.

Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of the reconciliation process and what investors should be paying attention to, in his article, Tax Reform: What Investors Should Know.

If you have questions regarding how the potential tax overhaul may affect you as an investor, see Hayden's Tax Reform: Frequently Asked Questions.

Europe and Asia higher

European equity markets moved higher, with the markets cheering upbeat economic reports out of the U.S., China and Japan, which overshadowed an unexpected drop in German exports and mixed industrial and manufacturing production figures in the region. Financials led the way, bolstered by a long-awaited deal by regulators to complete the final batch of post-crisis capital rules, which offered clarity for the industry. The U.K. and European Union (EU) reached a deal on three key issues, including the Irish border, that paves the way to break the Brexit negotiation deadlock and likely leads to talks moving to the next phase ahead of next week's EU summit. However, the next stage would revolve around trade and headlines suggested this could be a lengthy process in getting an agreement, which appeared to weigh on the British pound versus the U.S. dollar. The Brexit breakthrough joined the agreement in the U.S. on a short-term government spending bill that likely avoids a near-term shutdown, though the markets continued to eye the U.S. tax reform reconciliation process.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans. The euro dipped versus the greenback and bond yields in the region finished mixed.

Stocks in Asia finished higher as the U.S. markets rose to break a string of sluggishness, while economic reports in the region fostered some optimism. Japan's Q3 GDP was revised to a 2.5% quarter-over-quarter annualized pace of growth, from the preliminary estimate of a 1.4% rise, and versus expectations of an adjustment to a 1.5% rate of expansion. China's November exports and imports rose much more than expected resulting in an unexpected widening of the nation's trade surplus. The yen lost ground for a second day amid some rejuvenated global economic optimism, helping lift Japanese share prices. Stocks trading in mainland China and Hong Kong advanced, while securities trading in Australia and India also gained ground and South Korean equities ticked to the upside. The markets rebounded after a recent stumble and Schwab's Jeffrey Kleintop, CFA, and Randy Frederick, discuss in the video, It's All Relative: Why Stocks May Not Be Overvalued.

Stocks nudge higher on week as tech rebounds and tax reform moves closer

U.S. stocks finished the week modestly higher with economic data continuing to paint a positive global backdrop, while the weekend passage of the Senate's tax reform bill fostered optimism that the most sweeping overhaul effort in decades was moving closer to President Donald Trump's desk. Moreover, the tech sector rollover that had pressured the markets as of late, reversed to the upside as the week matured to help nudge the markets into positive territory and the Nasdaq mostly recover early losses. Energy stocks lagged behind as crude oil prices moved to the downside. The U.S. dollar moved noticeably higher and Treasury yields ticked to the upside in choppy trading with political uncertainty in Europe also garnering attention.

Next week, fiscal policy focus will share the spotlight with monetary policy as the Federal Open Market Committee (FOMC) is highly expected to conclude its Wednesday meeting with a 25 bps increase to its target fed funds rate to 1.50% (economic calendar). However, the accompanying updated FOMC projections and Chairwoman Janet Yellen's final press conference shortly after the decision will likely garner the most attention as the markets try to gauge the pace of rate hikes in 2018. The decision will also be joined by releases next week including: JOLTS Job Openings report, the NFIB Small Business Optimism Index, the Consumer Price Index (CPI), the Producer Price Index (PPI), retail sales, Markit's business activity reports, and industrial production and capacity utilization.

As noted in the latest Schwab Market Perspective: The Big Picture Heading into 2018, a better-than-expected 2017 appears to be morphing into a solid start to 2018, but it is unlikely to be as smooth a ride. We believe the bull market still has room to run but it could shape up to be a bumpier ride as expectations and sentiment are elevated. U.S. economic growth appears to be picking up, but with the Federal Reserve tightening policy and inflation likely to heat up, we appear to be in the latter stages of the cycle. Global markets are also poised to have an unprecedented year of performance; which is unlikely to be repeated, but conditions around the world still look largely supportive of further gains.

International reports due out next week to look out for include: Australia—employment change. China—CPI and PPI, lending statistics, retail sales, and industrial production. India—CPI, industrial production, and trade balance. Japan—machine orders, industrial production and capacity utilization, and the Q4 Tankan Large Manufacturing Index. Eurozone—European Central Bank monetary policy decision, industrial production, Markit's business activity reports, and the trade balance, along with German investor sentiment and CPI. U.K.—the Bank of England monetary policy decision, CPI, employment change, and retail sales.

Stocks Advance Ahead of Jobs Report

Charles Schwab: On the Market

Posted: 12/7/2017 4:15 PM EST

Stocks Advance Ahead of Jobs Report

 

U.S. stocks traded higher with technology shares leading the advance on the heels of some upbeat results and guidance from Broadcom. Crude oil prices rose solidly and Treasury yields were mostly higher, while gold was lower and the U.S. dollar ticked to the upside to add to its recent gains. Market participants continued to assess the tax reform landscape amid the reconciliation process. Tomorrow, the morning release of the November labor report will likely garner much attention.

The Dow Jones Industrial Average (DJIA) increased 71 points (0.3%) to 24,211, the S&P 500 Index was 8 points (0.3%) higher at 2,637, and the Nasdaq Composite advanced 36 points (0.5%) to 6,813. In moderate volume, 824 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.73 to $56.69 per barrel and wholesale gasoline gained $0.04 to $1.70 per gallon. Elsewhere, the Bloomberg gold spot price moved $15.54 lower to $1,247.83 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% higher at 93.74.

Broadcom Limited (AVGO $264) reported fiscal Q4 earnings-per-share (EPS) of $1.50, or $4.59 ex-items, versus the $4.52 FactSet estimate, as revenues rose 17.0% year-over-year (y/y) to $4.9 billion, above the projected $4.8 billion. The chipmaker issued Q1 revenue guidance that had a midpoint above expectations. The company also announced a 72% increase to its quarterly dividend to $1.75 per share. Shares finished flat after initially trading higher.

Dollar General Corp. (DG $93) posted Q3 EPS of $0.93, versus the estimated $0.94, as revenues increased 11.0% y/y to $5.9 billion, topping the projected $5.8 billion. Q3 same-store sales grew 4.3% y/y, exceeding the forecasted 2.7% gain. DG narrowed its full-year earnings outlook, while increasing its sales guidance. Shares gained ground.

Dow member General Electric Co. (GE $18) announced that its GE Power group plans to reduce its global headcount by about 12,000 positions as part of its effort to reduce overall structural costs. GE traded to the upside.

Lululemon Athletica Inc. (LULU $72) announced Q3 EPS of $0.43, or $0.56 ex-items, versus the projected $0.52, with revenues rising 14.0% y/y to $619 million, north of the expected $610 million. Q3 same-store sales grew 8.0% y/y, above the estimated 5.3% gain. The company's gross and operating margins topped forecasts. LULU issued Q4 guidance that topped forecasts, while it raised its full-year outlook. Separately, the company authorized the repurchase of up to $200 million in its common shares. Shares gained solid ground.

Shares of SAGE Therapeutics Inc. (SAGE $156) rallied 70% after the company announced positive results regarding a trial of its treatment for major depressive disorder.

Consumer credit tops expectations, jobless claims surprisingly decline

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $20.5 billion during October, well above the $17.0 billion forecast of economists polled by Bloomberg, while September's figure was adjusted lower to $19.2 billion from $20.8 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $12.2 billion, a 5.3% increase y/y, while revolving debt, which includes credit cards, rose by $8.3 billion, a 9.9% y/y rise.

Weekly initial jobless claims (chart) decreased by 2,000 to 236,000 last week, versus the Bloomberg forecast of 240,000, as the prior week was unrevised at 238,000. The four-week moving average dipped by 750 to 241,500, while continuing claims dropped by 52,000 to 1,908,000, south of estimates of 1,919,000.

The upbeat report comes ahead of tomorrow's November nonfarm payroll report, with jobs projected to rise by 195,000, following October's 261,000 jump (economic calendar). Private sector employment is expected to grow 198,000 on the heels of the prior month's 252,000 gain. The unemployment rate is forecasted to remain at 4.1%. However, given the importance of the consumer on U.S. economic output and the subdued inflation outlook, tomorrow's wage component of the report is likely to garner the most attention as the markets try to project the pace of Fed rate hikes in 2018 after December's highly-expected increase. Average hourly earnings are anticipated to rise 0.3% month-over-month (m/m) after being disappointingly flat in October and the y/y pace of earnings is projected to accelerate to 2.7% from 2.4%.

As we head into 2018, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers his latest, Schwab Sector Views: 18 Thoughts Heading into '18. In our view, a repeat of 2017 is unlikely, and we’re expecting more sector changes in 2018 than there were in 2017. Brad adds that the Fed will be under new management and have several new members throughout the year, and we don’t currently expect major changes in the normalization process but the new makeup could change things.

Treasuries were mostly lower, with the yield on the 2-year note dipping 1 basis point (bp) to 1.80%, while the yield on the 10-year note increased 2 bps to 2.36%, and the 30-year bond rate advanced 3 bps to 2.76%.

The U.S. dollar slightly extended its weekly gain and Treasury yields dipped. Tax reform continues to be a main focus for the markets as the House and Senate grapple with key differences in their bills with the reconciliation process expected to be highly competitive.

Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of some likely changes, based on what we know about the current bills, in his article, Tax Reform: What Investors Should Know, though he cautions that it's hard to be certain what might be in the final bill.
We believe it would be premature for individual investors to make changes now, given the high degree of uncertainty over any eventual new tax law, but Hayden offers his Tax Reform: Frequently Asked Questions for investors wondering how the most sweeping tax overhaul effort in decades will affect them.

Additional economic reports expected tomorrow include wholesale inventories, forecasted to have declined 0.4% m/m in October, and the preliminary University of Michigan Consumer Sentiment Index, expected to have ticked higher for December's initial result to 99.0 from November's final read of 98.5.

Europe and Asia finish mixed

European equity markets finished mixed, following some divergent economic data in the region, while conviction remained stymied by policy uncertainty as the U.S. tax reform reconciliation process looms and U.K. Brexit concerns festered. The British pound turned slightly higher versus the U.S. dollar as U.K. Prime Minister May scrambles amid heightened political pressures to try to make progress on Brexit negotiations. The U.K. and EU have reportedly agreed on the future role of the European Court of Justice in British legal cases but the Irish border issues still remains a substantial sticking point as a deadline nears for the EU to deem if negotiations have progressed enough to move on to the next stage. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans. In economic news, German industrial production unexpectedly fell in October and the Q3 eurozone GDP growth rate was revised higher to a 2.6% y/y pace, from a previous estimate of a 2.5% gain, where it was expected to remain. The euro was little changed versus the U.S. dollar and bond yields in the region traded mixed.

Stocks in Asia finished mixed, with technology issues rebounding after a recent bout of pressure, while the focus on U.S. tax reform remained and the markets appear to be continuing to assess the year's strong advance. The global rally is discussed by Schwab's Jeffrey Kleintop, CFA, and Randy Frederick, in the video, It's All Relative: Why Stocks May Not Be Overvalued. Japanese equities almost overcame yesterday's entire drop, with the yen giving back yesterday's rise. Stocks trading in Hong Kong rebounded slightly from yesterday's slide, though mainland Chinese shares declined with banks seeing some pressure after a the IMF said lenders need more capital and the government proposed liquidity-management regulations. Australian securities traded higher, led by strength in banking stocks and Indian equities gained ground on the heels of yesterday's unchanged monetary policy decision by the Reserve Bank of India. South Korean stocks declined with the tech rebound being countered by weakness in manufacturing and energy issues.

The international economic docket for tomorrow will yield reports on Q3 GDP and bank lending from Japan, home loans from Australia, the trade balance and labor costs from Germany, and construction output, industrial and manufacturing production, and the trade balance from the U.K.

Stocks Little Changed Following Two-Day WobbleStocks Mostly Flat After Overcoming Morning Lows

Charles Schwab: On the Market

Posted: 12/6/2017 4:15 PM EST

Stocks Little Changed Following Two-Day WobbleStocks Mostly Flat After Overcoming Morning Lows

 

U.S. stocks overcame some early weakness to finish the regular trading session fairly flat. U.S. tax reform continued to garner attention as the reconciliation process has begun. Treasury yields were lower and crude oil prices fell, while the U.S. dollar extended recent gains and gold was higher. Dow member Home Depot traded to the downside after announcing an accelerated business investment plan and the kidney dialysis services company DaVita agreed to sell its medical group to a unit of Dow component UnitedHealth for approximately $4.9 billion. 

The Dow Jones Industrial Average (DJIA) declined 40 points (0.2%) to 24,141, the S&P 500 Index was nearly unchanged at 2,629, and the Nasdaq Composite traded 14 points (0.2%) higher to 6,776. In moderate volume, 801 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $1.66 to $55.96 per barrel and wholesale gasoline fell $0.06 to $1.66 per gallon. Elsewhere, the Bloomberg gold spot price ticked $1.39 higher to $1,267.79 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.2% higher at 93.55.

DaVita Inc (DVA $69) announced an agreement to sell its DaVita Medical Group to Optum, a unit of Dow member UnitedHealth Corp. (UNH $220), for about $4.9 billion in cash. DVA rallied and UNH dipped.

Dow member Home Depot Inc. (HD $181) reaffirmed its full-year guidance and announced a new $15 billion share repurchase program, along with providing an update on its strategic priorities including its intent to accelerate business investment over the next three years. The boosted investment plans pressured shares of HD due to concerns about margin expansion as it issued its long-term goal for operating margins that missed expectations.

Dave & Buster's Entertainment Inc. (PLAY $53) reported Q3 earnings-per-share (EPS) of $0.29, or $0.27 ex-items, versus the $0.24 FactSet estimate, as revenues rose 9.3% year-over-year (y/y) to $250 million, compared to the forecasted $256 million. Q3 same-store sales declined 1.3% y/y, versus the expected 1.0% decrease. PLAY raised its full-year earnings guidance, but lowered its sales outlook, while its longer-term guidance appeared to please the Street. Shares traded solidly higher.

ADP private sector payroll report matches forecasts

The ADP Employment Change Report showed private sector payrolls rose by 190,000 jobs in November, matching the Bloomberg forecast, while October's increase of 235,000 jobs was unrevised. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday's broader November nonfarm payroll report, expected to show jobs grew by 195,000 and private sector payrolls rose by 200,000 (economic calendar). The unemployment rate is forecasted to remain at 4.1% and average hourly earnings are projected to rise 0.3% month-over-month (m/m).

Final Q3 nonfarm productivity (chart) was unrevised at the preliminary estimate of a 3.0% rate of growth on an annualized basis, versus expectations of a revised 3.3% rise. Q2 productivity was unrevised at a 1.5% gain. Unit labor costs were adjusted to 0.2% decrease, from the initial report of a 0.5% increase, and versus the forecast calling for an adjustment to a 0.2% rise. Q2 labor costs were revised lower to a 1.2% drop.

The MBA Mortgage Application Index rose 4.7% last week, following the prior week's 3.1% decline. The increase came as a 9.0% jump in the Refinance Index was met with a 2.4% increase in the Purchase Index. The average 30-year mortgage rate dipped 1 basis point (bp) to 4.19%.
Treasuries traded higher, with the yields on the 2-year and 10-year notes dipping 2 bps to 1.80% and 2.33%, respectively while the 30-year bond rate decreased 1 bp to 2.72%.

The U.S. dollar added to its recent gains with European currencies seeing pressure, while Treasury yields dipped from levels near the top end of the year's trading range. The markets continue to await the expected competitive tax reform reconciliation process between the House and Senate as they try to find compromises on some key differences of their bills.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Bill Passes Senate, Clearing Key Hurdle, reaching consensus between the two chambers won’t be easy; there are significant differences between the two bills that will need to be resolved. The conference process will begin this week and Republican leaders are optimistic that a deal can be struck within a matter of days. Complicating matters, the two chambers also must find time this week to avert a government shutdown and approve legislation that extends funding to keep the government open and operating.

The tech sector has seen some volatility as of late with the prospects of tax reform improving and fostering some noticeable sector rotation, which Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, I Melt with You: Anatomy of a Market Melt Up, is a healthy occurrence, for now.

The U.S. economic calendar for tomorrow will be light, starting with weekly initial jobless claims, forecasted to have ticked higher to a level of 240,000 from 238,000. Consumer Credit will be released in the final hour of trading to round out the day, expected to have increased by $17.0 billion in October, after expanding $20.8 billion in September.

Europe mixed on data, Asia falls amid global retreat

European equity markets finished mixed in the wake of the recent global market pullback recently after a strong year, while the euro lost some ground on the U.S. dollar and technology issues remained under pressure. Financials were also lower along with bond yields in the region. The economic calendar delivered a surprising rise in German factory orders. The British pound lost ground versus the greenback, amid ramped up uncertainty as Brexit negotiations remain deadlocked and British Prime Minister May faces political pressures regarding her stance during the talks on how to resolve the Irish border issue. May has only a few days left to reach a deal on the Irish border issue as the European Union is due to decide on whether Brexit talks can move to the next stage. The markets also grappled with the looming highly expected contested U.S. tax reform reconciliation process. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans.

Stocks in Asia finished decisively lower amid a global market retreat as of late, with technology issues leading the slide, while traders assess the strong global rally this year and U.S. tax reform heads for a likely contested reconciliation process. The global rally and recent volatility is discussed by Schwab's Jeffrey Kleintop, CFA, and Randy Frederick, in the video, It's All Relative: Why Stocks May Not Be Overvalued. The yen showed some strength as risk aversion nudged higher, weighing on Japanese equities. Stocks trading in mainland China and Hong Kong declined, with the markets giving back some of the year's strong gains and concerns about government regulations lingered. South Korean shares traded lower. Australian securities slipped after the nation reported softer-than-expected Q3 GDP growth. Indian stocks finished lower ahead of today's monetary policy decision by the Reserve Bank of India (RBI). After the closing bell, the RBI left its monetary policy and benchmark interest rates unchanged as expected.

The international economic docket for tomorrow will include the trade balance from Australia, the Leading Index from Japan, industrial production from Germany, and house prices from the U.K.

Stocks Mixed in Subdued Action Ahead of Thanksgiving

Charles Schwab: On the Market

Posted: 11/22/2017 4:15 PM EST

Stocks Mixed in Subdued Action Ahead of Thanksgiving 

 

U.S. stocks were mostly lower, though the Nasdaq was able to tick higher with volume subdued ahead of the Thanksgiving break. In equity action, a flood of mixed earnings reports were highlighted by Deere & Co, while in economic news, a drop in durable goods orders was met with upward revisions to the prior month's solid advance. Treasury yields and the U.S. dollar were lower. Gold and crude oil prices gained ground.

The Dow Jones Industrial Average (DJIA) declined 65 points (0.3%) to 23,526, the S&P 500 Index shed nearly 2 points (0.1%) to 2,597, and the Nasdaq Composite increased 5 points (0.1%) to 6,867. In light volume, 661 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.19 to $58.02 per barrel and wholesale gasoline was unchanged at $1.77 per gallon. Elsewhere, the Bloomberg gold spot price increased $11.02 to $1,291.63 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.7% to 93.28.

Deere & Co. (DE $145) reported Q4 earnings-per-share (EPS) of $1.57, versus the $1.47 FactSet estimate, as equipment sales rose 25.6% year-over-year (y/y) to $7.1 billion, topping the expected $6.9 billion. The company noted improving markets for farm and construction equipment. DE issued earnings guidance for next year that exceeded the Street's forecasts. Shares traded nicely higher.

Hewlett Packard Enterprise Co. (HPE $13) posted Q4 profits of $0.23 per share, or $0.29 ex-items, compared to the projected $0.28, as revenues grew 5.0% y/y to $7.7 billion, north of the estimated $7.3 billion. HPE issued Q1 EPS guidance that missed forecasts. The company announced that Antonio Neri will succeed Meg Whitman, who will step down as Chief Executive Officer, effective February 1, 2018. Shares were solidly lower.

HP Inc. (HPQ $21) announced Q4 EPS of $0.39, or $0.44 ex-items, versus the expected $0.44, with revenues rising 11.0% y/y to $13.9 billion, above the estimated $13.4 billion. The company issued Q1 profit guidance that had a midpoint just shy of projections, while its full-year earnings outlook had a midpoint that was north of expectations. Shares lost ground.

Salesforce.com Inc. (CRM $107) reported fiscal Q3 profits of $0.07 per share, or $0.39 ex-items, compared to the expected $0.37, as revenues increased 25.0% y/y to $2.7 billion, roughly in line with forecasts. The company issued Q4 EPS and billings guidance that was below expectations, overshadowing its revenue outlook that was slightly above estimates and its raised full-year guidance. Shares finished lower.

Durable goods orders mixed, Fed releases its recent meeting minutes

October preliminary durable goods orders (chart) were down 1.2% month-over-month (m/m), compared to the Bloomberg estimate of a 0.3% gain, and September's 2.0% rise was revised to a 2.2% increase. Ex-transportation, orders were 0.4% higher m/m, versus forecasts of a 0.5% gain and compared to September's favorably-revised 1.1% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, fell 0.5%, versus projections of a 0.5% increase, and following the upwardly-revised 2.1% rise posted in the month prior.

Weekly initial jobless claims (chart) dropped by 13,000 to 239,000 last week, versus forecasts of a decrease to 240,000, with the prior week’s figure being upwardly revised to 252,000. The four-week moving average rose by 1,250 to 239,750, while continuing claims increased 36,000 to 1,904,000, north of estimates of 1,880,000.

The final November University of Michigan Consumer Sentiment Index (chart) was revised higher to 98.5, above forecasts of 98.0, from the preliminary level of 97.8. The index is below October's level of 100.7. Compared to last month, the expectations and current conditions components of the survey both dipped. The 1-year inflation outlook ticked higher to 2.5% from October's 2.4% rate, and the 5-10 year forecast dipped to 2.4% from 2.5%.

The MBA Mortgage Application Index ticked 0.1% higher last week, following the prior week's 3.1% gain. The slight increase came as a 4.8% drop in the Refinance Index was met by a 5.3% jump in the Purchase Index. The average 30-year mortgage rate rose 2 basis points (bps) to 4.20%.

At 2:00 p.m. ET, the Federal Reserve released the minutes from its monetary policy meeting that ended on November 1st. The information contained in the report showed that labor market conditions generally continued to strengthen and that real GDP expanded at a solid pace in Q3 despite disruptions from Hurricanes Harvey and Irma. Also, several participants indicated that an increase in the target range for the federal funds rate in the near term "would depend importantly on whether the upcoming economic data boosted their confidence that inflation was headed toward the Committee's objective." And participants "agreed that they would continue to monitor closely and assess incoming data before making any further adjustment to the target range for the federal funds rate."

As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, the selection of the new head of the Fed is seen as representing continuity as the Central Bank continues its policy normalization and given the strong economic backdrop, along with signs of wage growth picking up, we believe the Fed will hike rates for the third time this year next month.

Treasuries were higher with the yield on the 2-year note falling 5 bps to 1.73% and the yield on the 10-year note dropping 4 bps to 2.32%, while the 30-year bond rate was 2 bps lower at 2.74%.
Treasury yields and the U.S. dollar found some pressure as the markets grappled with Fed Chief Yellen's comments, as well as U.S. tax reform uncertainty ahead of next week's expected Senate vote on its plan that differs significantly from the House's that passed last week. This is being countered by Q3 earnings season that is winding down and mostly above expectations against a positive global economic backdrop.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, we believe the prospects for a tax reform bill being signed into law before the end of the year are improving, but a number of tricky steps must still be overcome. Schwab's Chief Investment Strategist Liz Ann Sonders points out in her newest article, Green Grass and High Tides: Earnings Stellar But Not Without Risk, both earnings and revenues were strong; and importantly, the "beat rates" were well above average. The outlook for 2018 is bright, but we are on watch for an expectations bar that gets set too high.

Please note: All U.S. markets will be closed tomorrow in observance of the Thanksgiving Day holiday, and will close early on Friday.

The U.S. economic calendar will round out the week on Friday with the release of the preliminary Markit Manufacturing and Services PMI Indexes for November, with economists forecasting readings of 55.0 and 55.3, respectively, with manufacturing ticking higher and services unchanged from the final October prints.

Europe gives up early advance as euro gains ground, Asia advances 

European equity markets relinquished early gains and finished mostly lower, with the euro moving higher versus the U.S. dollar, ahead of the release of the Fed minutes and following comments about inflation from Chairwoman Yellen. The British pound also rose compared to the greenback after overcoming a brief drop as the markets digested the nation's budget release, which included a lowered economic growth forecast. Bond yields in the region finished mixed. Energy issues managed to eke out gains as crude oil prices recovered somewhat from a recent bout of weakness as the markets awaited next week's OPEC meeting. Stocks in Germany led to the downside with focus still on the flared-up political uncertainty as nation may face a snap election following the recently failed coalition talks, which joined continued scrutiny of the possibility for U.S. tax reform. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans.

Stocks in Asia finished higher on the heels of the back-to-back gains registered in the U.S. yesterday, with global economic optimism appearing to overshadow flared-up political concerns in Germany and lingering tax reform uncertainty in the U.S. Japanese equities rose ahead of tomorrow's holiday, even as the yen regained some of yesterday's drop. Stocks trading in mainland China and Hong Kong finished higher. South Korean and Australian securities traded to the upside, while Indian equities also advanced. Schwab's Jeffrey Kleintop, CFA, offers a look at the global market rally seen this year that has been fostered by the broadest economic growth in a decade and is expected to continue in 2018 in his latest article, 5 Reasons Investors Should Give Thanks.

Tomorrow, the international economic docket will yield Markit Manufacturing and Services PMI reads for Germany, France and the Eurozone, while Germany will also release Q3 GDP and the U.K. will report Q3 GDP and total business investment. On Friday, reports will include leading indicators from Japan, the Ifo Business Climate Survey from Germany and industrial orders from Italy.

Stocks Settle Mostly Flat Amid Light Data and News

Charles Schwab: On the Market

Posted: 3/20/2017 4:15 PM ET

Stocks Settle Mostly Flat Amid Light Data and News

U.S. equities wavered on either side of the unchanged mark and ultimately closed mixed, though a catalyst for direction could possibly come later in the week when the economic calendar begins to heat up. Treasury yields and crude oil prices were lower, the U.S. dollar was little changed and gold was modestly higher. Equity news was light, while across the pond, the U.K. announced it will trigger Article 50 to formally start the Brexit process on March 29.

The Dow Jones Industrial Average (DJIA) decreased 9 points (0.1%) to 20,906 and the S&P 500 Index shed 5 points (0.2%) to 2,373, while the Nasdaq Composite was nearly 1 point higher at 5,902. In moderate volume, 752 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil traded $0.40 lower to $48.91 per barrel and wholesale gasoline ticked $0.01 higher to $1.61 per gallon. Elsewhere, the Bloomberg gold spot price gained $5.26 to $1,234.52 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 100.31.

Movado Group, Inc. (MOV $25) reported a fiscal 4Q profit of $0.22 per share, a penny short of the FactSet estimate, as sales declined 8.7% year-over-year (y/y) to $130.8 million, below expectations of $136.9 million. The luxury watch maker said it expects the retail segment to remain “difficult”, as a shift from “brick-and-mortar shopping” to ecommerce continues to challenge the high-end watch market. Despite the report, shares closed nicely higher.

For more insight into the U.S. equity markets, see Schwab’s Chief Investment Strategist Liz Ann Sonders’ latest article, Big Machine: Why Large Caps Are Likely to Outperform. Liz Ann notes that momentum, breadth, sentiment, earnings, valuation and macro conditions currently support a bias within the U.S. equity market toward large caps over small caps. Read why at www.schwab.com/marketinsight, where you can also find Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: How Should Investors Look at Health Care Now?. Follow Liz Ann and Schwab on Twitter: @lizannsonders and @schwabresearch.

Economic front quiet, calendar for rest of the week light

Treasuries were higher, with the economic calendar void of any major reports today, as the yields on the 2-year note and the 30-year bond declined 3 basis points (bps) to 1.29% and 3.08%, respectively, and the yield on the 10-year note decreased 4 bps to 2.46%.

This week's economic calendar will decelerate somewhat and will remain dormant tomorrow, but later in the week we'll see a couple key reads on housing in the form of new and existing home sales, along with preliminary looks at manufacturing demand and activity in the form of durable goods orders and Markit's Manufacturing PMI Index. Weekly initial jobless claims and MBA Mortgage Applications will also be reported.

The stock markets attempted to pare a spate of losses after having pulled back from all-time highs reached in early March. The U.S. dollar experienced some fresh choppiness and Treasury yields pared their recent rally, with the markets grappling with upbeat economic data, soothed concerns over the pace of any future Fed rate hikes, along with continued political uncertainty, domestically and abroad. As noted in the latest Schwab Market Perspective: Teflon Market, political infighting, Presidential tweets, North Korean missile launches, oil falling below $50, European political uncertainty, higher bond yields, and the Fed raising rates: none of those forces have knocked stocks off their recent uptrend. Volatility remains remarkably low but that doesn't mean it won't pick up—investors should be prepared for bouts of volatility, and pullbacks along the way. The U.S. economy continues to expand; although there are signs that first quarter growth could be on the weak side, largely due to continued seasonal issues. We believe that economic growth is generally accelerating, a thought bolstered by the Fed’s confidence to raise rates again. Politics, both here and abroad, are keeping policy uncertainty high and should also contribute to bouts of volatility. Read more at www.schwab.com/marketinsight.

For analysis of the Fed and its implications for bond investors, see the video from Schwab's Chief Fixed Income Strategist, Kathy Jones and Vice President of Trading and Derivatives, Randy Frederick titled Three Fed Hikes Seen in 2017: How Should Bond Investors Respond?, while Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers timely commentary on the political front in his latest article, Return of the Debt Ceiling: What It Means for Investors at www.schwab.com/insights. Follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Modest losses in Europe, Asia mostly lower 

European equities finished mostly lower in the wake of the conclusion of the G20 meeting of finance ministers and central bank officials, where the pledge to resist protectionism was scrapped, stoking concerns over global trade. Adding to the anxiety, U.K. Prime Minister May announced that she will trigger Article 50 to formally start the Brexit process on March 29, where it will begin an estimated two years of negotiations. Meanwhile, political uncertainty in France continues to ramp up, as the top five candidates running in the forthcoming Presidential election will debate tonight. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Randy Frederick discuss the upcoming election and its possible implications in the video,  Why Should the French Presidential Election Be Important to Investors? at www.schwab.com/insights. Follow Jeff on Twitter: @jeffreykleintop. For additional international perspective, be sure to check out Jeff's articles, Five Reasons to Stay Invested Despite Heightened Uncertainty and The future of Europe: EU 2.0 and its impact on the markets at www.schwab.com/oninternational, as well as Director of International Research, Michelle Gibley's CFA, article, Europe Votes: Could More Countries Reject the EU?.

In economic news, producer prices in Germany were slightly cooler than expected for February, while wages in the Eurozone increased at a faster pace than forecasts, and housing prices in the U.K. were in line with estimates. The euro and the British pound traded lower against the greenback following the Brexit announcement, while bond yields in the region were mixed.

Stocks in Asia finished mostly lower amid sparse news and lighter than usual volume due to markets in Japan being closed for a holiday. Mainland Chinese shares rose and equities in Hong Kong gained ground, despite a flare-up in concerns over the nation’s property market after data showed a marked increase in housing prices, and not only within just the larger cities. As well, the conclusion to the G20 meeting had little impact, even though officials dropped a pledge to avoid protectionism. The banking sector weighed on Australian securities with increased debate over the nation’s housing sector and the government’s backing of fresh regulatory oversight of property investing. Elsewhere, stocks trading in South Korea and India declined. Schwab's Michelle Gibley, CFA, provides timely analysis of global investing in her articles, Fed Rate Hikes May Benefit Japanese Stocks and Currency Hedging: 5 Things You Need to Know, at www.schwab.com/oninternational.

Tomorrow, the international economic calendar will include leading indicators from China and the House Price Index from Australia. Also, a plethora of releases will flow from the U.K., including CPI, the Retail Price Index, PPI, the House Price Index and public sector borrowing.

Equities Finish Fairly Flat

On the Market

Posted: 3/17/2017 4:15 PM ET

Equities Finish Fairly Flat

U.S. stocks wavered on either side of the unchanged mark before ultimately finishing the regular trading session mildly lower. Treasury yields declined and the U.S. dollar was nearly unchanged despite upbeat economic reads on consumer sentiment and leading indicators. Gold managed minor gains and crude oil prices were mostly flat. In equity news, Adobe Systems posted upbeat earnings and Amgen was lower after announcing study results on a cholesterol-lowering drug. Also, volume was on the heavy side due to quadruple witching, the simultaneous expiration of options and futures contracts on individual stocks and stock indexes.

The Dow Jones Industrial Average (DJIA) decreased 20 points (0.1%) to 20,915 and the S&P 500 Index shed 3 points (0.1%) to 2,378, while the Nasdaq Composite was unchanged at 5,901. In heavy volume due to quadruple witching, 2.2 billion shares were traded on the NYSE and 3.0 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.03 higher to $48.78 per barrel and wholesale gasoline ticked $0.01 higher to $1.60 per gallon. Elsewhere, the Bloomberg gold spot price gained $2.41 to $1,229.02 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined nearly 0.1% to 100.31. Markets were lower for the week, as the DJIA increased 0.1%, the S&P 500 Index gained 0.2%, and the Nasdaq Composite was 0.7% higher.

Adobe Systems Inc. (ADBE $127) reported fiscal 1Q earnings-per-share (EPS) of $0.80, or $0.94 ex-items, compared to the FactSet estimate of $0.87, with revenues rising 21.6% year-over-year (y/y) to $1.7 billion, above the projected $1.6 billion. ADBE said it saw strong creative cloud and document cloud adoption and retention. The company noted that it remains "bullish about our prospects for the rest of 2017 and beyond." Shares finished nicely higher.

Amgen Inc. (AMGN $168) fell after a key study of the company's cholesterol-lowering drug Repatha reduced heart risk by a lower rate than had been expected. Shares of competing cholesterol drugmakers were also lower.

Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, Big Machine: Why Large Caps Are Likely to Outperform, momentum, breadth, sentiment, earnings, valuation and macro conditions currently support a bias within the U.S. equity market toward large caps over small caps. Read more at www.schwab.com/marketinsight, where you can also find Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: How Should Investors Look at Health Care Now?. Follow Liz Ann and Schwab on Twitter: @lizannsonders and @schwabresearch.

Tiffany & Co. (TIF $92) posted 4Q earnings of $1.26 per share, or $1.45 ex-items, versus the expected $1.39, as revenues increased 1.0% y/y to $1.2 billion, roughly in line with estimates. 4Q same-store sales were flat y/y, compared to the forecasted 1.4% decline. The upscale retailer issued current year sales and EPS guidance that was mostly in line with the Street's estimates, noting that despite an outlook for continued macroeconomic and geopolitical challenges it believes it has meaningful growth opportunities. TIF traded solidly to the upside.

Industrial production flat, though consumer sentiment and Leading Index improve

Industrial production (chart) came in flat month-over-month (m/m) in February, compared to the Bloomberg estimate of a 0.2% gain, and January's favorably revised 0.1% decrease. Manufacturing and mining production both gained ground, with the former rising for a sixth-straight month and the latter jumping, while utilities output tumbled amid continued unseasonably warm weather. Capacity utilization dipped to 75.4%, compared to January's upwardly revised 75.5%, where it was expected to remain. Capacity utilization is 4.5 percentage points below its long-run average.

The Conference Board's Index of Leading Economic Indicators (LEI) (chart) for February matched January's unrevised 0.6% m/m gain, just above projections of a 0.5% increase. Support came from the components pertaining to the yield curve, jobless claims, ISM new orders, stock prices, average workweek, and consumer expectations, more than offsetting a drop in building permits.

The preliminary University of Michigan Consumer Sentiment Index (chart) improved this month to 97.6, from the prior month's 96.3 level and compared to expectations of an increase to 97.0. The current economic conditions component rose solidly m/m, while the outlook portion ticked higher. The 1-year inflation estimate fell from 2.7% to 2.4%, and 5-10 year inflation outlook dropped to 2.2% from 2.5%.

Treasuries were higher, with the yield on the 2-year note declining 2 basis points (bps) to 1.32%, while the yields on the 10-year note and the 30-year bond dropped 4 bps to 2.50% and 3.11%, respectively.

Treasury yields and the U.S. dollar have seen some pressure in the wake of this week's highly-expected Fed rate hike, which also delivered a dovish tone in the statement and forecast of future rate hikes that seemed to ease concerns that an upbeat economic outlook would accelerate the pace of further increases. For analysis of the Fed's decision, see Senior Fixed Income Research Analyst, Collin Martin's, CFA, commentary, Fed Raises Rates, Signals Additional Hikes in 2017, and our article, Fed Rate Hike: What Does It Mean for Your Portfolio?, at www.schwab.com/insights.

Finally, for a look at the stock markets, which rallied after the Fed's decision, potential increased volatility, and festering political uncertainty, see our article, End of an Era: Why Volatility May Return to the Stock Market and Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's commentary, Return of the Debt Ceiling: What It Means for Investors, at www.schwab.com/insights.

Europe ticks higher amid central bank and political focus

European equities nudged higher to add to yesterday's gains, with the global markets continuing to grapple with this week's flood of monetary policy decisions, and eyeing the start of the two-day meeting between G20 finance ministers and central bank governors. The U.S. hiked rates as widely expected, though it offered a dovish statement and forecast for future rate increases that soothed concerns. The U.K., Japan and Switzerland held policies steady, while China increased its short-term borrowing costs. Also, the political front remained in focus, after this week's approval for U.K. Prime Minister May to trigger Article 50, which formally starts the clock on a Brexit, while a midweek Dutch election eased fears about a populist threat in Europe. This set the stage for the upcoming key French Presidential election next month as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick, in the video, Why Should the French Presidential Election Be Important to Investors? at www.schwab.com/insights. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. Also, be sure to check out Jeff's articles, Five Reasons to Stay Invested Despite Heightened Uncertainty and The future of Europe: EU 2.0 and its impact on the markets at www.schwab.com/oninternational, where you can also find Director of International Research, Michelle Gibley's CFA, article, Europe Votes: Could More Countries Reject the EU?. In economic news, the eurozone trade surplus narrowed much more than expected, preceding today's meeting between U.S. President Donald Trump and German Chancellor Angela Merkel, and the region's construction output declined. The euro was lower and the British pound ticked higher versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mixed as the global markets grappled with a plethora of monetary policy decisions this week, headlined by the highly-expected rate hike in the U.S., which included a dovish tone and unchanged rate hike outlook. Also, China raised its short-term rates, while the Japan, the U.K. and Switzerland left policy stances unchanged. Japanese equities declined, with the yen choppy following the monetary policy actions as discussed by Schwab's Michelle Gibley CFA, in her article, Fed Rate Hikes May Benefit Japanese Stocks at www.schwab.com/oninternational, where you can also find her commentary, Currency Hedging: 5 Things You Need to Know. Mainland Chinese shares fell on the heels of the higher borrowing costs, while stocks trading in Hong Kong ticked slightly higher. Securities in Australia and India advanced, while South Korean equities also increased despite lingering geopolitical concerns.

Stocks tick higher following midweek Fed-fueled jump

U.S. stocks nudged higher as a midweek rally was bookended by sessions of modest declines on continued subdued volatility. Lingering global political uncertainty and a plethora of monetary policy decisions kept conviction contained, except for the Fed's highly-anticipated rate hike decision. The stock markets rallied on Wednesday afternoon, while Treasury yields and the U.S. dollar fell as the Central Bank delivered a dovish tone in its statement and its forecast for future hikes cooled concerns of a higher-than-expected acceleration in borrowing costs. Interest rate sensitive sectors made the biggest moves, with financials falling, while real estate and utilities rallied. Energy stocks got a reprieve from recent selling pressure as crude oil prices rebounded modestly from a tumble as of late, with some bullish supply data helping ease some concerns. A robust economic front saw retail sales tick higher and consumer price inflation match estimates, but homebuilder sentiment jumped to the highest level since June 2005. The equity front was relatively quiet in the wake of earnings season, though Dow member Intel Corp's (INTC $35) $15.3 billion agreement to acquire Mobileye NV (MBLY $61) and Oracle Corp's (ORCL $46) solid quarterly results caught the Street's attention.

Next week's economic calendar will decelerate somewhat, but bring a couple key reads on housing in the form of new and existing home sales, along with preliminary looks at manufacturing demand and activity in the form of durable goods orders and Markit's Manufacturing PMI Index.

As noted in the latest Schwab Market Perspective: Teflon Market, political infighting, Presidential tweets, North Korean missile launches, oil falling below $50, European political uncertainty, higher bond yields, and the Fed raising rates: none of those forces have knocked stocks off their recent uptrend. Volatility remains remarkably low but that doesn't mean it won't pick up—investors should be prepared for bouts of volatility, and pullbacks along the way. The U.S. economy continues to expand; although there are signs that first quarter growth could be on the weak side, largely due to continued seasonal issues. We believe that economic growth is generally accelerating, a thought bolstered by the Fed’s confidence to raise rates again. Politics, both here and abroad, are keeping policy uncertainty high and should also contribute to bouts of volatility. Read more at www.schwab.com/marketinsight.

International reports due out next week include: China—property prices. Japan—trade balance and PMI Manufacturing Index. Eurozone—Markit's preliminary Composite PMI Index. U.K.—inflation statistics and retail sales.

Stocks Rebound After Brief Dip

Charles Schwab: On the Market

Posted: 3/10/2017 4:15 PM ET

Stocks Rebound After Brief Dip

After a brief dip midday, U.S. equities recovered to finish higher following a stronger-than-expected nonfarm payroll report. Meanwhile, crude oil prices fell, as did the U.S. dollar, and Treasury yields dipped as political uncertainty continued to linger. Gold inched higher. News on the equity front was on the light side.

The Dow Jones Industrial Average (DJIA) rose 45 points (0.2%) to 20,903, the S&P 500 Index added 8 points (0.3%) to 2,373, and the Nasdaq Composite increased 23 points (0.4%) to 5,862. In moderate volume, 838 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.79 to $48.49 per barrel and wholesale gasoline shed $0.02 to $1.60 per gallon. Elsewhere, the Bloomberg gold spot price ticked $3.25 higher to $1,204.49 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 101.28. Markets were lower for the week, as the DJIA decreased 0.5%, the S&P 500 Index declined 0.4%, and the Nasdaq Composite was 0.2% lower.

Ulta Beauty Inc. (ULTA $286) reported 4Q earnings-per-share (EPS) of $2.24, above the $2.14 FactSet estimate, as revenues rose 24.6% year-over-year (y/y) to $1.6 billion, above the projected $1.5 billion. 4Q same-store sales rose 16.6% y/y, compared to the expected 13.8% gain. The company's gross margin came in a bit shy of the Street's estimates and its 1Q and full-year guidance missed forecasts. Separately, ULTA announced a new $425 million share repurchase program. Shares gained solid ground.

Finisar Corp. (FNSR $27) posted fiscal 3Q EPS of $0.40, or $0.59 ex-items, below the projected $0.62, as revenues grew 2.9% y/y to $381 million, south of the estimated $390 million. The fiber optics equipment company's gross margin missed expectations. FNSR issued 4Q guidance that was below expectations. Shares fell sharply.

Southwest Airlines Co. (LUV $56) saw some pressure after lowering its 1Q guidance for key industry metric revenue per available seat mile (RASM), citing loss of traffic from heavy California rainfall and unexpected softness in close-in demand in the second half of February "that has since rebounded in March."

February labor report shows job growth tops forecasts

Nonfarm payrolls (chart) rose by 235,000 jobs month-over-month (m/m) in February, compared to the Bloomberg forecast of a 200,000 increase. The rise of 227,000 seen in January was upwardly revised to a gain of 238,000 jobs. The total upward revision to the job gains in January and December was 9,000. Excluding government hiring and firing, private sector payrolls increased by 227,000, versus the forecasted gain of 215,000, after increasing by 221,000 in January, revised down from the 237,000 rise that was initially reported. Construction job growth posted the strongest monthly gain in nearly a decade and manufacturing employment rose at the fastest pace since August 2013, per Bloomberg, though the unseasonably warm weather in February likely pulled some of gains forward. Other sectors showing job growth were healthcare, mining and private educational services, but retail employment edged down.

The unemployment rate dipped to 4.7% from 4.8%, matching forecasts, while the labor force participation rate ticked higher. Average hourly earnings rose 0.2% m/m, versus projections of a 0.3% increase, and January's favorably revised 0.2% gain. Compared to last year, wage growth was 2.8%, matching expectations and the prior month's upwardly revised figure. Finally, average weekly hours remained at January's unrevised 34.4 rate, in line with estimates.

Today's report is having no impact on an already almost 100% probability that the Fed hikes rates next week. Also, the data, notably the slight uptick in hourly earnings, appears to be in that sweet spot, keeping expectations of a faster-than-expected pace of rate hikes for the rest of the year in check and not rattling the markets. As noted in the latest Schwab Market Perspective: "Phenomenal" Expectations, the economic picture continues to look good, but inflation is heating up, and we are watching to see if this could force the Fed's hand. History compiled by Strategas Research Partners shows that the best stock market performance during a rate hiking cycle comes when the Fed moves slowly in the first year, but quicker in the second year. That pattern appears to be panning out in this cycle. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Treasuries finished higher, as the yield on the 2-year note dipped 2 basis points (bps) to 1.36%, while the yields on the 10-year note and the 30-year bond decreased 3 bps to 2.58% and 3.16%, respectively.

The equity markets modestly extended yesterday's slight rebound that snapped a three-session losing streak, while Treasury yields pared a weekly rally and the U.S. dollar saw pressure, with political uncertainty remaining and economic data buoying sentiment amid the heightened expectations of a Fed rate hike next week.

Amid this backdrop, see our latest article, End of an Era: Why Volatility May Return to the Stock Market and video from Schwab’s Chief Investment Strategist Liz Ann Sonders and Vice President of Trading and Derivatives, Randy Frederick titled, Stock Rally Continues, but Is It Time for Markets to Take a Breather?, at www.schwab.com/insights. Follow Liz Ann and Randy on Twitter: @lizannsonders and @randyafrederick.

For analysis of the Fed and President Trump's highly-anticipated reflationary policies, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, What would a shake-up at the Fed mean for bond investors? at www.schwab.com/onbonds, and Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Presidential Reset: What Does Trump's Speech Mean for His Agenda?, at www.schwab.com/insights. Follow Kathy on Twitter: @kathyjones.

Europe higher following jobs data and as oil recovers

European equities finished mostly higher, led by oil & gas issues, which rebounded even as crude oil prices failed to recover from a two-day tumble, while the markets digested another solid U.S. employment report. Yesterday's relatively upbeat economic tone from the European Central Bank, as it left its monetary policy stance unchanged, continued to lift bond yields, which buoyed the financial sector. Political uncertainty took a back seat to the global economic optimism, though a key French Presidential election looms as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Randy Frederick in the video, Why Should the French Presidential Election Be Important to Investors? at www.schwab.com/insights. Also, be sure to check out Jeff's articles, Five Reasons to Stay Invested Despite Heightened Uncertainty and The future of Europe: EU 2.0 and its impact on the markets at www.schwab.com/oninternational. Follow Jeff on Twitter: @jeffreykleintop.

In economic news, the German trade surplus shrank more than expected and French industrial production declined unexpectedly, while the U.K. reported a smaller-than-expected trade deficit and declines in manufacturing and industrial production. The euro jumped and the British pound was little changed versus the U.S. dollar.

Stocks in Asia finished mostly higher, with yesterday's relatively upbeat economic tone from the European Central Bank and optimism of another strong U.S. employment report later today helping overshadow festering global political uncertainty and heightened expectations of a U.S. rate hike next week. The political uncertainty was exacerbated by a court ruling in South Korea upholding a parliamentary vote to impeach President Park. Japanese equities rallied, with the yen falling, and South Korea's Kospi Index gained modest ground. Australia's markets saw gains, despite the continued pullback in basic resources, and India's bourse ticked higher amid continued caution as exit polls from state elections continued to be eyed.

Stocks in China were mixed, with shares traded in the mainland dipping slightly, while those in Hong Kong increased, on the heels of yesterday's data showing mixed inflation rates and lending statistics, while the markets focused on resurfacing liquidity/currency concerns. Moreover, despite the mixed Chinese data yesterday, which may have been impacted by the Lunar New Year holiday, the nation has reported a string of stronger-than-expected economic reports that is fostering concerns that the central bank may tighten monetary policy. For insight on global investing, see Schwab's Director of International Research, Michelle Gibley's, CFA, articles, Currency Hedging: 5 Things You Need to Know and Emerging Markets: Why They Deserve a Place in Your Portfolio at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

Stocks post rare post-election red figures

U.S. stocks snapped a four-week winning streak, with political uncertainty continuing to hamper conviction as the markets grapple with the timing and details of President Donald Trump's policies and as a key French Presidential election moved closer. Also, last weekend's firing of ballistic missiles by North Korea off its east coast exacerbated geopolitical concerns, while the markets braced for a Fed rate hike next week as expectations remain near a 100% probability. The energy sector was pressured as crude oil prices plunged on flared-up supply concerns, while financials also pared a post-election rally even as Treasury yields rallied. However, as the week matured, stocks snapped a three-session losing streak as global economic optimism appeared to catch a tailwind after ADP's employment report blew away expectations and European Central Bank President Mario Draghi noted that the cyclical recovery may be gaining momentum after leaving its policy stance unchanged. The relatively upbeat tone boosted the euro and aided a downside reversal of early week gains for the U.S. dollar. The technology sector was the lone sector to post a gain on the week, extending its recent run as discussed by Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, in his latest Schwab Sector Views: Can the Tech Rally Continue? at www.schwab.com/marketinsight.

The table is set for next week's full-loaded economic calendar, headlined by Wednesday's conclusion of the Federal Open Market Committee's (FOMC) two-day monyetary policy meeting, which is expected to deliver a 25 bp hike to the target fed funds rate. The markets are likely to pay close attention to the statement and accompanying updated economic projections, which includes individual fed funds forecasts from FOMC participants, known as the dot plots, to see if the pace of rate hikes is expected to accelerate beyond current expectations. This will be followed by the customary press conference by Fed Chairwoman Janet Yellen, which typically garners heavy focus.

Next week will also bring a plethora of key reads on small business optimism, producer and consumer price inflation, retail sales, housing starts and building permits, industrial production and capacity utilization, leading indicators, and consumer sentiment. As noted in the Schwab Market Perspective, there are solid economic supports for the market's surge, but gains may have gotten a bit ahead of themselves. Be prepared for a pullback, but don't fear it marks the end of the bull market. We would likely view any pullbacks as buying opportunities for those needing to add to equity exposure; while also taking some of the pressure off from sentiment. Read more at www.schwab.com/marketinsight.

The international calendar will bring some data worth noting: Australia—consumer confidence and employment change. China—retail sales, fixed asset investment and industrial production. India—whole and consumer price inflation and trade balance. Japan—machine orders and the Bank of Japan's monetary policy decision. Eurozone—industrial production, consumer price inflation, and the trade balance, along with German investor confidence. U.K.—employment change and the Bank of England monetary policy decision.

Schwab Center for Financial Research - Market Analysis Group

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Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

Stocks Able to Avoid 4-day Losing Streak

Charles Schwab: On the Market

Posted: 3/9/2017 4:15 PM ET

Stocks Able to Avoid 4-day Losing Streak

After a brief dip into negative territory, the U.S. equity markets were able to notch slim gains and avoid a fourth-straight session of losses, as investors await tomorrow's jobs report, and as political uncertainty on both sides of the pond persisted. Meanwhile, Treasury yields inched higher, following a rise in jobless claims, but crude oil, gold and the U.S. dollar lost ground.

The Dow Jones Industrial Average (DJIA) ticked 2 points higher to 20,858, the S&P 500 Index gained 2 points (0.1%) to 2,365, and the Nasdaq Composite added a shade over a point to 5,839. In moderate volume, 881 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.00 lower to $49.28 per barrel and wholesale gasoline lost $0.03 to $1.62 per gallon. Elsewhere, the Bloomberg gold spot price declined $6.67 to $1,201.64 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 101.89.

Staples Inc. (SPLS $8) reported a 4Q loss of $0.94 per share, or earnings-per-share (EPS) of $0.25 ex-items, versus the FactSet estimate calling for a profit of $0.26, as revenues declined 2.9% year-over-year (y/y) to $4.6 billion, below the projected $5.0 billion. 4Q same-store sales decreased 0.9% y/y, compared to the estimated 2.6% drop. SPLS issued 1Q EPS guidance that bracketed analysts' expectations. Shares were lower.

American International Group Inc. (AIG $63) announced that its President and Chief Executive Officer (CEO) Peter Hancock has notified the Board of his intention to resign. He will remain as CEO until a successor has been named, which the Board will conduct a comprehensive search for. AIG gave up an early advance and finished lower.

Shares of Tailored Brands Inc. (TLRD $16) tumbled over 30% after posting a 4Q net loss of $0.62 per share, or $0.19 ex-items, missing the projected shortfall of $0.12 per share, as revenues decreased 3.9% y/y to $793 million, south of the forecasted $811 million. 4Q same-store sales at Men's Wearhouse and K&G declined, while sales at Jos. A. Bank dropped sharply. The company said the challenging retail environment resulted in soft traffic, which drove lower-than-forecasted 4Q net sales and gross margins. TLRD issued current year EPS guidance that missed estimates.

Jobless claims jump ahead of February labor report

Weekly initial jobless claims (chart) jumped by 20,000 to 243,000 last week, above the Bloomberg forecast of 238,000, with the prior week’s figure being unrevised at 223,000. The four-week moving average rose by 2,250 to 236,500, while continuing claims declined by 6,000 to 2,058,000, south of estimates of 2,062,000.

The larger-than-expected rise in jobless claims doesn’t appear to be causing too much concern, given that they hit a 44-year low in the prior week, per Bloomberg, and as data has shown the labor market remains solid. This sets the stage for tomorrow's key February nonfarm payroll report, expected to show an increase of 200,000 jobs and a rise of 210,000 jobs to private sector payrolls (economic calendar). The unemployment rate is forecasted to dip to 4.7% from 4.8%, and average hourly earnings are projected to rise 0.3% month-over-month (m/m). The report likely will have little impact on Fed rate hike expectations for next week that have surged to almost a certainty, but the data, notably the wage growth figure, could cause some volatility as the markets grapple with what it means for the frequency of rate hikes for the rest of the year.

As noted in the latest Schwab Market Perspective: "Phenomenal" Expectations, the bar is now set higher for policy action to support the rhetoric, setting up the possibility for a market pullback and/or a pickup in volatility. The economic picture continues to look good, but inflation is heating up, which has put a March rate hike by the Federal Reserve firmly on the table. An earnings growth recovery has helped fuel a global rally, but there are risks that expectations and valuations have gotten a bit extended. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

The Import Price Index (chart) increased 0.2% m/m for February, compared to projections of a 0.1% increase and January's upwardly revised 0.6% gain. Compared to last year, prices were higher by 4.6%, above forecasts calling for a 4.4% jump, and following January's upwardly revised 3.8% increase.

Treasuries were lower, as the yield on the 2-year note ticked 1 basis point (bp) higher to 1.36%, while the yields on the 10-year note and the 30-year bond increased 3 bps to 2.59% and 3.18%, respectively.

Stocks avoided posting a fourth-straight session of losses that has pulled them back from record highs, while Treasury yields regained some upward momentum, amid festering global political uncertainty and boosted expectations of a Fed rate hike next week. Amid this backdrop, see our article, End of an Era: Why Volatility May Return to the Stock Market and video from Schwab’s Chief Investment Strategist Liz Ann Sonders and Vice President of Trading and Derivatives, Randy Frederick titled, Stock Rally Continues, but Is It Time for Markets to Take a Breather?, at www.schwab.com/insights. Follow Liz Ann and Randy on Twitter: @lizannsonders and @randyafrederick.

For analysis of the Fed and President Trump's highly-anticipated reflationary policies, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, What would a shake-up at the Fed mean for bond investors? at www.schwab.com/onbonds, and Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Presidential Reset: What Does Trump's Speech Mean for His Agenda?, at www.schwab.com/insights. Follow Kathy on Twitter: @kathyjones.

Europe turns higher after ECB's Draghi offers upbeat tone, Asia mixed on China data

European equities overcame early losses and finished mostly higher, despite oil & gas issues falling as crude oil prices extended yesterday's drop that ensued after some bearish oil inventory reports. The markets digested the expected unchanged monetary policy decision from the European Central Bank (ECB). Stocks got a boost from ECB President Mario Draghi's relatively upbeat tone about the economy, noting that the cyclical recovery may be gaining momentum, though he reiterated the need to continue its stimulus measures as underlying inflation pressures remain subdued. Political uncertainty continued to linger, as the key French Presidential election continues to nudge closer as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Randy Frederick in the video, Why Should the French Presidential Election Be Important to Investors? at www.schwab.com/insights. Also, be sure to check out Jeff's articles, Five Reasons to Stay Invested Despite Heightened Uncertainty and The future of Europe: EU 2.0 and its impact on the markets at www.schwab.com/oninternational. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. In other economic news, Spanish house transactions jumped in January, French business sentiment unexpectedly rose last month, and Irish 4Q GDP growth easily topped forecasts. The euro gained ground and the British pound dipped versus the U.S. dollar, while bond yields in the region turned to the upside to boost the financial sector.

Stocks in Asia finished mixed as traders digested some mixed February Chinese inflation data and crude oil's drop yesterday, while appearing to tread cautiously ahead of today's monetary policy decision from the European Central Bank and tomorrow's key U.S. labor report. Moreover, political uncertainty lingered and the markets continued to brace for the impact of a potential rate hike in the U.S. next week, which expectations of have jumped. Mainland Chinese stocks and those listed in Hong Kong dropped, following reports that showed the nation's consumer price index rose by a much smaller rate than expected, but producer price inflation accelerated more than anticipated. After the closing bell, China reported that its new yuan loans topped forecasts, while its aggregate financing—a gauge of total credit issued—was below estimates and its money supply figures were mixed for last month. Australian equities declined, bogged down by weakness in oil & gas and basic materials issues, while South Korea's markets also lost ground.

However, stocks in Japan bucked the trend, finishing higher, aided by some weakness in the yen, while Indian securities ticked higher, led by strength in auto stocks though gains were held in check as the markets awaited exit polls from five state elections, per Bloomberg. For insight on global investing, see Schwab's Director of International Research, Michelle Gibley's, CFA, articles, Currency Hedging: 5 Things You Need to Know and Emerging Markets: Why They Deserve a Place in Your Portfolio at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.