Dow Continues Rally, Techs Sock Nasdaq

Charles Schwab: On the Market

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

Dow Continues Rally, Techs Sock Nasdaq

 

The Dow added to its recent surge, with economic optimism getting a boost from another strong read on domestic business spending, while the Senate's passage of its tax reform bill over the weekend added to the enthusiasm. However, sustained weakness in the tech sector continued to weigh on the Nasdaq. Treasury yields and the U.S. dollar were higher ahead of a busy week of economic reports that will culminate with Friday's nonfarm payroll report, while crude oil and gold were lower.

The Dow Jones Industrial Average (DJIA) rose 58 points (0.2%) to 24,290, the S&P 500 Index lost 3 points (0.1%) to 2,639, and the Nasdaq Composite tumbled 72 points (1.1%) to 6,775. In heavy volume, 987 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.89 to $57.47 per barrel and wholesale gasoline declined $0.05 to $1.69 per gallon. Elsewhere, the Bloomberg gold spot price decreased $4.42 to $1,276.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 93.23.

CVS Health Corp. (CVS $72) announced an agreement to acquire Aetna Inc. (AET $179) for $207 per share in cash and stock, valued at about $69 billion, excluding debt. Under the terms of the deal, Aetna stockholders will receive $145 in cash and 0.8378 CVS Health shares for each share owned. Shares of both companies were lower.

Italy's Prysmian SpA (PRYMY $16) announced an agreement to acquire Kentucky-based General Cable Corp. (BGC $30) for $30 per share in cash, for a total value of about $3 billion, including the assumption of debt. Shares of BGC rallied over 35%.

Dollar, rates and stocks gain ground on tax reform and continued robust business spending

Treasuries finished lower, as the yield on the 2-year note rose 3 basis points (bps) to 1.80%, while the yields on the 10-year note and the 30-year bond advanced 1 bp to 2.37% and 2.76%, respectively.
Treasury yields and the U.S. dollar moved to the upside and the stock markets added to last week's strong gains, bolstered by the Senate's passing of its tax reform bill over the weekend. Now the reconciliation process looms as the House and Senate have to find some key areas of compromise before a tax reform bill can go to President Donald Trump's desk for a signature.

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, negotiations between the House and Senate will likely be extremely challenging, given the differences between the two approaches. For investors, we still think it is too early to take any drastic action. If and when a tax bill passes, there will be time to review the details and amend your tax and financial plans accordingly. Regardless of the outcome of the tax bill, it’s always a good idea to meet with your tax and financial advisors before the end of the year to review your current financial situation and discuss your plans for the coming year.

Factory orders (chart) dipped 0.1% month-over-month (m/m) in October, better than the Bloomberg expectation of a 0.4% decline, and versus September's upwardly revised 1.7% gain. Stripping out the volatile transportation component, orders rose 0.8% and September's 0.7% gain was revised to a 1.1% increase. October durable goods orders—preliminarily reported last week to have dropped 1.2%—were favorably adjusted to a 0.8% decrease, and compared to forecasts of a revised 1.0% decline. Also, nondefense capital goods orders excluding aircraft, a gauge of business spending, were revised higher to a 0.3% decrease from the initially-reported 0.5% decline.

The highlight of the report was the upward revision to the gauge of business spending, which has risen for four-straight months, with an average month gain of 1.3% for the period. This adds credence to Schwab's Chief Investment Strategist Liz Ann Sonders' view that an even sharper recovery could be in the cards for U.S. business capital spending in 2018, while tax reform—if we get it—would be an additional kicker in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle.

Today's release kicked off a busy economic calendar that will continue tomorrow with a look at the all-important services sector in the form of the ISM non-Manufacturing Index, with economists forecasting a slight decline in the reading for November to a level of 59.0 from October's 60.1, as well as Markit's final Services PMI Index for November, expected to post a reading of 54.7, in line with its preliminary report, but below the 55.3 registered the month prior, while the trade balance will round out the day's docket, with the deficit expected to widen to $47.1 billion during October from September's $43.5 billion.

Europe higher on U.S. tax reform, Brexit negotiations in focus, Asia mixed

The European equity markets rallied, with financials a noticeable gainer along with industrials. Bond yields in the region were mostly higher, while the euro declined versus the U.S. dollar on the weekend's tax reform bill passage by the Senate and upbeat U.S. business spending data, which bolstered global economic optimism. The British pound reversed to the downside on the greenback after the meeting between Prime Minister Theresa May and European Commission President Juncker ended without reaching a deal on an Irish border issue. The meeting was highly expected to produce a deal and likely help Brexit talks end a deadlock. With volatility showing some signs of life last week, in his article, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, tackles the question, Are Stocks too Expensive?, noting that although world stock market valuations are above average, similar valuations have produced double-digit gains over the following 12 months during the past 50 years. Jeff concludes that valuations support a globally diversified portfolio offering the best diversification benefits in 20 years.

Stocks in Asia finished mixed as the markets grapple with the weekend's tax reform bill passing in the U.S. Senate, along with flared-up uncertainty regarding what possible ramifications former U.S. NSA advisor Mike Flynn's guilty plea for lying to the FBI may have for the Trump administration. This news on Friday caused the U.S. stock markets to dip but they held onto solid weekly gains. Stocks in Japan, mainland China and Australia all lost ground, but securities traded in South Korea, Hong Kong and India saw modest gains. Although showing some signs of choppiness, the global stock markets remain nicely higher for the year that has been bolstered by the broadest economic growth in a decade. This is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, in his article, 5 Reasons Investors Should Give Thanks.

Services PMI readings from across the globe will dominate tomorrow's international economic calendar, with other reports of note to include retail sales from the U.K. and the Eurozone, new home sales from Australia, and industrial production from Spain. In central bank action, the Reserve Bank of Australia will meet, with no change to its benchmark interest rate expected.

North Korea Tensions Rattle Markets

Charles Schwab: On the Market

Posted: 9/5/2017 4:15 PM ET

North Korea Tensions Rattle Markets

U.S. equities began the holiday-shortened week solidly lower, as risk appetites were severely limited following this weekend's claim that North Korea detonated a hydrogen bomb and reports that it may be preparing another ICBM launch. Treasury yields fell sharply on the uneasiness and the U.S. dollar lost ground, while gold rose and crude oil prices were mixed.

The Dow Jones Industrial Average (DJIA) tumbled 234 points (1.1%) to 21,753, the S&P 500 Index lost 19 points (0.8%) to 2,457, and the Nasdaq Composite declined 60 points (0.9%) to 6,376 In moderately heavy volume, 909 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.37 to $48.66 per barrel and wholesale gasoline lost $0.05 to $1.70 per gallon. Elsewhere, the Bloomberg gold spot price was $8.10 higher at $1,341.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.5% to 92.21.

Dow member United Technologies Corp. (UTX $111) announced an agreement to acquire Rockwell Collins Inc. (COL $131) for $140.00 per share in cash and UTX stock, for a total equity value of about $23.0 billion. Under the terms of the deal, each COL shareowner will receive $93.33 per share in cash and $46.67 in shares of UTX. United Technologies said the deal is expected to be accretive to its earnings after the first full year following closing. UTX finished lower and COL ticked higher as the stock had jumped recently on speculation of the deal.

Insmed Inc. (INSM $27) surged nearly 120% after the company announced positive results from a late-stage trial of its treatment for certain lung diseases and that it intends to seek accelerated approval and request a priority review.

Factory orders mixed to kick off the week

Factory orders (chart) fell 3.3% month-over-month (m/m) in July, matching the Bloomberg expectation, while June's figure was positively revised to a 3.2% increase. However, stripping out the volatile transportation component, orders rose 0.5% and June's 0.2% decline was upwardly revised to a 0.1% gain. July durable goods orders—preliminarily reported two weeks ago—were unrevised at a 6.8% drop versus forecasts of an adjustment to a 2.9% decrease. Nondefense aircraft and parts fell sharply after June's surge, while electrical equipment, along with computers and electronic products, rose solidly.

Today's report kicked off the holiday shortened week that will bring a flood of key reports for the markets to digest, including the July trade balance, August ISM non-Manufacturing and Markit Services PMI Indexes, the Fed's Beige Book, and final Q2 productivity and labor costs. Also, the international calendar will bring a plethora of trade reports, and monetary policy decision from the European Central Bank (ECB).

Today's report kicked off the shortened week's economic calendar that will culminate with tomorrow's releases of MBA mortgage applications, the trade balance and the Fed's Beige Book, a summary of business activity across the nation used as a tool to prepare for this month's two-day monetary policy meeting ending on the 20th. However, the headlining data could be the August ISM non-Manufacturing and final Markit's Services PMI Indexes, on the heels of today's upbeat services sector reports in China and eurozone. ISM's report is projected to improve to 55.5 from 53.9 in July and Markit's release is forecasted to be unrevised at the preliminary level of 56.9, and up from July's 54.7 figure. Readings above 50 for both reports denote expansion.

As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, limited risk of an economic recession keeps us in the bull market camp, notwithstanding near-term risks of fiscal and monetary uncertainties. Read more on the Markets & Economy page at www.schwab.com.

Treasuries rallied, as the yield on the 2-year note decreased 6 basis points to 1.29%, the yield on the 10-year note fell 10 bps to 2.07%, and the 30-year bond rate was 9 bps lower at 2.69%. Risk aversion flared back up in the wake of claims that North Korea detonated a hydrogen bomb over the weekend, weighing on Treasury yields and the U.S. dollar. This continues to accompany lingering global monetary policy, trade and U.S. political uncertainties.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, we think bond yields are likely to rise from current levels as the economy continues to improve and the Federal Reserve tightens policy, but we don’t see a bubble in the market. We suggest managing the duration in your bond portfolio to mitigate the risk of rising rates. We also suggest managing your exposure to the higher risk parts of the fixed income markets where yields are low and the risk premium offered versus Treasuries is low. Read more on the Fixed Income page at www.schwab.com, and for analysis of investing styles, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?, on the Markets & Economy page. Follow Kathy and Liz Ann on Twitter: @kathyjones and @lizannsonders.

For our latest analysis of the political front, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's newest article, Congress Returns to Face Debt Ceiling, Government Shutdown Deadlines, on the Insights & Ideas page at www.schwab.com.

Europe declines, Asia mixed amid festering geopolitical concerns 

European equity markets finished mostly lower, with the euro and British pound gaining ground on the U.S. dollar, while the global markets remained skittish as tensions with North Korea continued to fester. Amid this backdrop, Schwab's Chief Investment Strategist Liz Ann Sonders offers her article, Twist and Shout: United States Takes on North Korea … Implications for Stocks on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders. Bond yields in the region lost ground, even as China posted favorable services sector data and a report from Markit showed eurozone manufacturing and services sectors continued to expand for August. This comes ahead of this week's monetary policy decision by the ECB. However, a separate report showed eurozone retail sales declined in July. Bucking the trend, Swiss markets ticked higher as today's subdued consumer price inflation data followed yesterday's disappointing Q2 GDP report to appear to ease concerns about the Swiss National Bank normalizing monetary policy. Also, German markets moved higher with automakers getting a boost from positive comments about diesel technology from Chancellor Merkel and yesterday's solid gain in August car registrations, while the aforementioned Markit report showed the nation's business activity grew more than expected.

For a look at global stock investing, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mixed as sentiment remained cautious after this weekend's claim that North Korea detonated a hydrogen bomb, while the markets digested a report that showed growth in China's key services sector activity accelerated. Japanese equities fell, with the yen extending gains, while those traded in South Korea gave up early gains and dipped, with media reports suggesting North Korea is preparing another intercontinental ballistic missile (ICBM) test. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com, as well as his 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks. Markets in Australia ticked higher, with the Reserve Bank of Australia holding its monetary policy stance steady as expected. Stocks in mainland China and Hong Kong were little changed after the Caixin PMI Services Index increased to 52.7 for August, from 51.5 in July, with a reading above 50 denoting expansion. Finally, Indian equities advanced modestly.

For tomorrow, the international economic calendar will offer GDP from Australia, manufacturing orders from Germany, and retail sales from Italy.

Stocks Mixed as Harvey, Dollar and Oil the Focus

Charles Schwab: On the Market

Posted: 8/28/2017 4:15 PM ET

Stocks Mixed as Harvey, Dollar and Oil the Focus

U.S. equities were mixed with investors eyeing the impact of Hurricane Harvey, as well as the continued decline in the U.S. dollar following Friday's uneventful speeches from Fed Chair Yellen and ECB President Draghi in Jackson Hole, Wyoming. Energy stocks were lower as crude oil prices fell, despite a rise in gasoline prices as refineries in Houston are offline. Treasuries were nearly unchanged and gold was solidly higher.

The Dow Jones Industrial Average (DJIA) declined 8 points to 21,806, the S&P 500 Index inched a point higher to 2,444, and the Nasdaq Composite gained 17 points (0.3%) to 6,283. In moderate volume, 704 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.30 to $46.57 per barrel and wholesale gasoline rose $0.03 at $1.57 per gallon. Elsewhere, the Bloomberg gold spot price jumped $19.87 to $1,311.07 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 92.21.

Gilead Sciences Inc. (GILD $75) announced an agreement to acquire cell therapy company Kite Pharma Inc. (KITE $178) for $180.00 per share in cash, in a transaction valued at about $11.9 billion. GILD traded higher and KITE rallied over 25%.

CBS Corp. (CBS $64) announced an agreement to acquire Network Ten, one of three major commercial broadcast networks in Australia, and it will launch its digital subscription video on-demand service, CBS All Access, in the Australian market. Terms of the deal were not disclosed. Shares were lower.  

Expedia Inc. (EXPE $143) came under pressure amid reports that the travel booking site's Chief Executive Officer (CEO), Dara Khosrowshahi, is leaving the company to become the CEO of Uber. EXPE's Chairman Barry Diller acknowledged that Dara has been asked to lead Uber and said that talks with him indicate that he will accept, but pointed out that nothing has been finalized yet.

Preliminary reads on wholesale inventories and trade deficit mixed

The advance goods trade deficit widened more than expected to $65.1 billion in July, from the upwardly revised $64.0 billion in June, and compared to the Bloomberg expectation of $64.5 billion.

Preliminary wholesale inventories rose 0.4% month-over-month (m/m) in July, versus forecasts for a 0.3% increase, and following June's downwardly revised 0.6% rise.

The Dallas Fed Manufacturing Activity Index nudged further into a level depicting expansion (a reading above zero). The index improved to 17.0 in August, from 16.8 in July, matching forecasts.

Treasuries were nearly unchanged, as the yields on the 2-year note and the 30-yield were flat at 1.33% and 2.74%, respectively, while the yield on the 10-year note was 1 basis point (bp) higher at 2.16%. For our latest analysis of the bond markets, check out Schwab's Chief Fixed Income Strategist Kathy Jones' article, What's the Bigger Risk: Bond Market Bubble or Complacency? on the Fixed Income page at www.schwab.com, and follow Kathy on Twitter: @kathyjones.

Treasury yields and the U.S. Dollar Index saw some pressure on Friday, with the latter extending losses to more than a two-year low, as the markets digested speeches by Fed Chair Janet Yellen and European Central Bank (ECB) President Mario Draghi at the Fed's highly-anticipated annual symposium in Jackson Hole, Wyoming. Both central bank leaders held off on offering new insight to monetary policy changes. The Fed is expected to begin shrinking its behemoth $4.5 trillion balance sheet next month and uncertainty remains whether it raises rates one more time this year. The ECB is expected to begin discussing the possibility of tapering its stimulus efforts later this year.

This week, low volume, politics and the geopolitical front will likely remain sources of volatility, but a robust back-end loaded U.S. economic calendar is poised to garner attention, headlined by Friday's August nonfarm payroll report. A look at August Consumer Confidence will get the ball rolling tomorrow, with economists anticipating a level of 120.3, slightly lower than the 121.1 posted in July, followed by Wednesday’s second read (of three) on Q2 GDP and July personal income and spending data, while August releases of the ISM Manufacturing Index, final University of Michigan Consumer Sentiment Index and auto sales will join the labor report to close out the week.

Some housing data is also on tap for tomorrow, with the S&P Corelogic Case-Shiller Home Price Index slated for release, forecasted to show home prices in the 20-city composite rose 0.3% m/m on a seasonally-adjusted basis, and 5.8% y/y.

As noted in the latest Schwab Market Perspective: Volatility Returns!, the latest bout of volatility illustrates why investors should stay focused on the longer-term. Risks for a more substantial pullback in the near-term still exist, as valuations remain elevated. After a weak first quarter, U.S. economic growth has rebounded, with an improving employment picture, tightening labor market, rising median wage growth, and a relatively healthy consumer. Even though past performance is no indication of future results, a prolonged bear market has never occurred outside the context of a recessionary environment. Looking at the Index of Leading Economic Indicators (LEI) from the Conference Board, there are no signs of a coming recession and the U.S. economy is getting some support from the rest of the world. Read more on the Markets & Economy page at www.schwab.com.

Europe dips as euro extends rally, Asia mixed 

European equities dipped, with the markets reacting to late-Friday's speech from ECB President Mario Draghi that offered no new monetary policy clues and boosted the euro to a two-and-half year high versus the U.S. dollar. The euro extended gains and the markets also assessed the impact of the weekend's Hurricane Harvey in the U.S., which continues to damage parts of Texas. Volume was lighter than usual as markets in the U.K. were closed for a holiday, though Brexit negotiations resumed and the British pound gained ground on the greenback. In economic news in the region, Italian economic, manufacturing and consumer sentiment reports all improved for August. Bond yields in the region finished mostly lower. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA offers a look at a potential milestone for global profits in his latest article, Earnings may be about to do something they've never done before, on the Markets & Economy page at www.schwab.com and for a look at Brexit talks, see our article, Brexit Begins: What's Next for the U.K.? on the Insights & Ideas page. Follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch.

Stocks in Asia finished mixed, with the markets digesting speeches from central bank leaders in the U.S. and Europe, which lacked details regarding changes to the path of monetary policy. Also, the impact of Hurricane Harvey in Texas was closely followed, with an eye on the oil and gas markets, while U.S. political and global trade uncertainty lingered. Recently flared-up tensions toward North Korea appeared to continue to recede. For analysis of this backdrop, see Schwab's Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks on the International Investing page at www.schwab.com, as well as his video with Vice President of Trading and Derivatives, Randy Frederick, Political Risk: How Should Investors Respond? on the Insights & Ideas page. Follow Randy on Twitter: @randyafrederick. Japanese equities finished flat with the yen ticking slightly higher, while stocks in mainland China and Hong Kong gained modest ground, with earnings optimism bolstering brokerage stocks. Australia securities declined, with weakness seen in financials, and those traded in South Korea also fell, as technology issues weighed on the markets. Finally, stocks in India advanced.

Tomorrow’s international economic calendar will include personal income and wage data from Japan, consumer confidence from Germany, and GDP and consumer spending from France.

Stocks Mixed Amid Persistent Uncertainty

Charles Schwab: On the Market

Posted: 8/25/2017 4:15 PM ET

Stocks Mixed Amid Persistent Uncertainty

U.S. equities finished out the week mixed in a choppy session, as a morning relief rally succumbed to the recent persistent uncertainty. Early gains came as political concerns seemed to have eased somewhat, with President Trump's top economic advisor Gary Cohn suggesting he will not leave his post. However, the highly-anticipated speeches from Fed Chair Janet Yellen and ECB President Mario Draghi didn’t offer anything new to remedy swirling anxiety surrounding global monetary policy. The U.S. dollar fell following Yellen’s and Draghi’s remarks, but bounced off the lows of the day, and Treasury yields ticked lower, while gold was higher and crude oil prices were mixed.

The Dow Jones Industrial Average (DJIA) rose 30 points (0.1%) to 21,814, the S&P 500 Index added 4 points (0.2%) to 2,443, and the Nasdaq Composite shed 6 points (0.1%) to 6,266. In light-to-moderate volume, 663 million shares were traded on the NYSE and 1.4 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.44 to $47.87 per barrel and wholesale gasoline lost $0.01 at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price gained $4.42 to $1,290.82 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 92.50. Markets were higher for the week, as the DJIA increased 0.6%, the S&P 500 Index rose 0.7% and the Nasdaq Composite gained 0.8%.

Ulta Beauty Inc. (ULTA $212) reported Q2 earnings-per-share (EPS) of $1.83, above the $1.78 FactSet estimate, as revenues grew 20.6% year-over-year (y/y) to $1.3 billion, roughly matching expectations. Q2 same-store sales rose 11.7% y/y, just shy of the 12.0% increase that the Street had projected. ULTA issued Q3 EPS guidance that had a midpoint below estimates, while its revenue and same-store sales outlooks were roughly in line with projections. For the full-year, the company raised its guidance. Shares finished solidly lower.

Broadcom Ltd. (AVGO $246) posted fiscal Q3 EPS of $1.14, or $4.10 ex-items, compared to the expected $4.03, as revenues rose 18.0% y/y to $4.5 billion, roughly in line with estimates. BRCM issued Q4 revenue guidance that was mostly in line with forecasts. Shares were lower as the company suggested some areas of weakness in its hard disk drive and data center segments that are fostering some concerns on the Street.

GameStop Corp. (GME $19) announced Q2 earnings of $0.22 per share, or $0.15 ex-items, compared to the $0.18 estimate, as revenues rose 3.4% y/y to $1.7 billion, above the projected $1.6 billion. Q2 same-store sales rose 1.9%, versus the expected 2.2% decline, but its gross margin declined y/y and missed the Street's forecasts. GME reaffirmed its full-year EPS outlook and said it expects same-store sales to be at the high end of its previous guidance. Shares fell sharply on analyst concerns about the lighter-than-expected gross margin.

Early look at July manufacturing demand show core orders grew

July preliminary durable goods orders (chart) fell 6.8% month-over-month (m/m), compared to the Bloomberg estimate of a 6.0% drop, and June's 6.4% jump was unrevised. Ex-transportation, orders were 0.5% higher m/m, compared to forecasts of a 0.4% gain and versus June's unrevised 0.1% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, grew 0.4%, in line with projections, and following the unrevised flat reading posted in the month prior.

The headline figure was driven by the volatile component of transportation equipment as nondefense aircraft and parts orders fell nearly 71% m/m, more than offsetting a 48% rise in defense aircraft and parts, and following the prior month's 129% surge. Demand for computers and related products, along with electrical equipment, appliances and components led the rise in core durable goods orders, partially offset by declines in orders for communications and machinery goods.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: What Makes the World Go Around?, the industrial sector is often overlooked but is at the center of much of what occurs in the global economy. Improving global growth and a solid U.S. economy should bode well for industrials. However, the diversity of the group and monetary and fiscal uncertainty keep us from upgrading the sector … for now. Read more on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

Treasuries were mostly higher, as the yield on the 2-year note was little changed at 1.33%, while the yield on the 10-year note decreased 3 basis points (bps) to 2.17% and the 30-year bond rate declined 2 bps to 2.75%.

Treasury yields came under pressure in the wake of Fed Chairwoman Janet Yellen's speech at the Fed's symposium in Jackson Hole, Wyoming. Amid the backdrop of festering global monetary policy uncertainty on signs of steady economic growth but low inflation, Yellen offered little in terms of economic and monetary policy commentary, focusing on financial regulation. She pointed out progress in putting in place a regulatory and supervisory structure to lower risks to financial stability and achieving a stronger financial system. Yellen added that any changes to post-crisis financial reforms should be "modest." She did note that "substantial progress has been made" toward the Fed's economic objectives of maximum employment and price stability. The markets were looking for any clues to the possibility of another rate hike this year and if the Central Bank will begin the process of shrinking its behemoth $4.5 trillion balance sheet next month as most are expecting.

Similar to Yellen, European Central Bank President (ECB) Mario Draghi steered clear from commenting on future monetary policy in his afternoon speech at the Fed symposium, instead focusing on trade and tax regulations. The euro jumped following Draghi’s remarks, adding pressure to the U.S dollar, as the lack of commentary toward future policy only added to the recent uncertainty.

For more on the Fed gathering, see the video by Schwab's Chief Fixed Income Strategist Kathy Jones titled, Jackson Hole Agenda: What's Next for the Fed and ECB? on the Insights & Ideas page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

Europe gives up gains, Asia mostly higher as monetary policy eyed

European stocks relinquished early gains and finished mostly lower, with the euro and British pound gaining noticeable ground on the greenback after Fed Chair Janet Yellen offered few new clues to monetary policy at the highly-anticipated Fed symposium in Jackson Hole, Wyoming. Caution appeared evident ahead of today's speech by ECB President Draghi at the Fed's symposium. Bond yields in the region finished mixed. Germany reported Q2 GDP growth of 2.1% y/y, in line with forecasts, and versus the 1.9% expansion posted in Q1. In other economic news, the expectations component of the August German business confidence report unexpectedly improved, while French consumer confidence dipped as expected for this month.

Amid the backdrop of solid earnings and economic growth, along with lingering political and trade uncertainty, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA offers his articles, Earnings may be about to do something they've never done before, on the Markets & Economy page at www.schwab.com, as well as Top Five Trade Issues Investors Should Be Watching on the International Investing page. Jeff and Vice President of Trading and Derivatives, Randy Frederick deliver the video, Political Risk: How Should Investors Respond? on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mostly higher to close out the week even as potential volatility-boosting speeches from the Fed and ECB loomed on the horizon, while U.S. political and global trade uncertainty festered. Japanese equities rose, with the yen extending yesterday's decline, and as the Asian country reported that national consumer price inflation rose in line with expectations in July, while Tokyo consumer price inflation for August came in hotter than expected. Mainland Chinese stocks and those listed in Hong Kong rallied, with earnings results in the region boosting sentiment, while securities in South Korea overcame early weakness and ticked slightly higher. For a look at 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. Shares in Australia finished flat and Indian markets were closed for a holiday.

Stocks avoid third straight weekly decline

U.S. stocks rebounded from back-to-back weekly declines in typical late-August subdued volume. Earnings season wrapped up with mixed results from the consumer discretionary and staples sectors, but Q2 remained on track to post profit growth breaching 9.0% and revenue expansion topping 5.0%. Even as U.S. political uncertainty festered, sentiment appeared soothed by reports of progress on tax reform and as President Donald Trump's top economic advisor Gary Cohn suggested he will not leave his post. Signs of continued global growth likely buoyed the markets, with eurozone and U.S. business activity reports from Markit showing expansion persisted in August, helping overshadow disappointing U.S. existing and new home sales reports. Stocks showed some resiliency in the face of lingering global monetary policy as highly-anticipated speeches by Fed Chair Yellen and ECB President Draghi came into focus ahead their September monetary policy meetings. The U.S. Dollar Index fell back to lows not seen since May 2016 and crude oil prices continued to drop, while the Treasury yield curve flattened a bit.

Next week, low volume, politics and the geopolitical front will likely remain sources of volatility, but a robust back-end loaded U.S. economic calendar is poised to garner attention, headlined by Friday's August nonfarm payroll report. Consumer Confidence and the second (of three) read on Q2 GDP will get the ball rolling, followed by July personal income and spending data, while August releases of the ISM Manufacturing Index, final University of Michigan Consumer Sentiment Index and auto sales will join the labor report to close out the week.

As noted in the latest Schwab Market Perspective: Volatility Returns!, the latest bout of volatility illustrates why investors should stay focused on the longer-term. Risks for a more substantial pullback in the near-term still exist, as valuations remain elevated. After a weak first quarter, U.S. economic growth has rebounded, with an improving employment picture, tightening labor market, rising median wage growth, and a relatively healthy consumer. Even though past performance is no indication of future results, a prolonged bear market has never occurred outside the context of a recessionary environment. Looking at the Index of Leading Economic Indicators (LEI) from the Conference Board, there are no signs of a coming recession and the U.S. economy is getting some support from the rest of the world. Read more on the Markets & Economy page at www.schwab.com.

International reports due out next week that deserve a mention include: Australia—building approvals. China—industrial profits, Manufacturing and non-Manufacturing PMIs. India—Q2 GDP. Japan—household spending, retail sales, and industrial production. Eurozone—economic confidence, unemployment rate, consumer price inflation and Markit's Manufacturing PMI, along with German retail sales and unemployment change. U.K.—mortgage approvals and Markit's Manufacturing PMI.

Stocks Close Near Lows Amid Flow of DC Woes

Charles Schwab: On the Market

Posted: 8/17/2017 4:15 PM ET

Stocks Close Near Lows Amid Flow of DC Woes

U.S. stocks closed sharply lower with tech listings under scrutiny and leading the decline after results from Dow member Cisco Systems disappointed on its profit margin outlook. The pressure on equities developed early and accelerated toward the end of the trading session as the dysfunction in DC continues and monetary policy uncertainty remains. Treasuries, gold and crude oil prices were higher and the U.S. dollar ticked to the upside after paring its initial advance. In other economic developments, reads on weekly jobless claims, manufacturing and Leading Indicators were upbeat, but had seemingly little impact.

The Dow Jones Industrial Average (DJIA) fell 274 points (1.2%) to 21,750, the S&P 500 Index dropped 38 points (1.5%) to 2,430, and the Nasdaq Composite tumbled 123 points (1.9%) to 6,222. In moderate volume, 739 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.31 to $47.09 per barrel and wholesale gasoline was $0.03 higher at $1.59 per gallon. Elsewhere, the Bloomberg gold spot price gained $5.66 to $1,288.77 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.67.

Dow member Wal-Mart Stores Inc. (WMT $80) reported Q2 earnings-per-share (EPS) of $0.96, or $1.08 ex-items, compared to the $1.07 FactSet estimate, as revenues grew 2.1% year-over-year (y/y) to $123.4 billion, above the forecasted $122.8 billion. Q2 U.S. same-store sales rose 1.8% y/y, in line with expectations. The company highlighted increased traffic at store levels and on-line. WMT issued Q3 EPS and same-store sales guidance with midpoints slightly below estimates, while raising the low end of its full-year profit outlook. Shares were under pressure.

Dow component Cisco Systems Inc. (CSCO $31) announced fiscal Q4 EPS of $0.48, or $0.61 ex-items, compared to the projected $0.61, as revenues declined 4.0% y/y to $12.1 billion, roughly in line with forecasts. The company noted that it made progress transitioning its business to more software and recurring revenue. CSCO issued Q1 earnings and revenue guidance that matched estimates, while its profit margin outlook missed expectations. Shares traded lower.

L brands Inc. (LB $38) posted Q2 earnings of $0.48 per share, versus the $0.45 estimate, on previously reported revenues of $2.8 billion. The retailer said its Q2 same-store sales decline of 8.0% y/y was below its expectations. The company said the exit of swim and apparel categories had a negative impact on total company and Victoria's Secret same-store sales. LB issued Q3 EPS guidance that missed forecasts and it lowered its sales outlook, while lowering its full-year profit projection. Shares closed lower.

Jobless claims decline, Leading Indicators continue to climb

Weekly initial jobless claims (chart) declined by 12,000 to 232,000 last week, below the Bloomberg forecast of 240,000, with the prior week’s figure being unrevised at 244,000. The four-week moving average dipped by 500 to 240,500, while continuing claims decreased 3,000 to 1,953,000, south of estimates of 1,955,000.

The Conference Board's Index of Leading Economic Indicators (LEI) (chart) for July rose 0.3% month-over-month (m/m), matching projections, and compared to last month's unadjusted 0.6% increase. This was the eleventh-straight monthly gain for the index, bolstered by ISM new orders, the yield curve, and consumer expectations, which more than offset the negative impact of building permits.

Industrial production (chart) was up 0.2% m/m in July, below estimates calling for a 0.3% gain, and compared to June's unrevised 0.4% increase. Manufacturing production dipped as output in the auto sector fell substantially and excluding the sector, manufacturing activity expanded. Mining and utilities production rose solidly. Capacity utilization remained at June's upwardly revised 76.7% rate, in line with forecasts. Capacity utilization is 3.2 percentage points below its long-run average.

The Philly Fed Manufacturing Index (chart) in August dipped to 18.9 from 19.5 in July, though a reading above zero indicates expansionary activity, compared to estimates of a decline to 18.0.

Treasuries ticked higher, with the yields on the 2-year note and the 30-year bond dipping 3 basis point (bps) to 1.30% and 2.78%, respectively, while the yield on the 10-year note declined 4 bps to 2.19%. Treasury yields and the U.S. dollar have been choppy as of late as some upbeat economic data has countered persistent subdued inflation reports, and yesterday's Fed meeting minutes showed the Central Bank is grappling with the divergence between the tightening labor market and low inflation. Also, the markets appeared to showing a dovish takeaway from the European Central Bank's July meeting minutes, while global sentiment continues to recover as concerns about the heightened tensions between North Korea and the U.S. recede.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Twist and Shout: United States Takes on North Korea … Implications for Stocks the S&P 500 was hit with a sharp near-1.5% reversal last Thursday, followed by a relief rally. We don't believe significant military escalation is the likely outcome of the battle of wills between President Trump and North Korea’s Kim Jong Un. But it is a year ending in "7" and there are other forces at work which could keep stocks in a choppy pattern for the next couple of months. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Tomorrow, the lone release from the U.S. economic calendar will be the preliminary University of Michigan Consumer Sentiment Index for August, expected to have ticked higher to a reading of 94.0 from July's final read of 93.4.

Europe lower on monetary policy uncertainty, Asia mixed

European equities traded to the downside, as the markets grappled with monetary policy uncertainty, with yesterday's Fed meeting minutes revealing division regarding the divergence between the strong labor market and low inflation. Also, today's look at the July European Central Bank (ECB) meeting showed policymakers were concerned about the overheating of the euro, fostering uncertainty regarding the central bank's timing of the removal of stimulus measures. This comes on the heels of yesterday's reports that ECB President Mario Draghi will not introduce a new policy message at next week's key Fed symposium in Jackson Hole, Wyoming. The economic calendar delivered a larger-than-expected eurozone trade surplus and stronger-than-forecasted U.K. retail sales. The euro declined and the British pound dipped versus the U.S. dollar, while bond yields in the region were lower.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA points out in his article, What are fund flows telling us about trends and risks in the global stock market?, that the money coming into ETFs is flowing into a broad range of stock markets featuring a preference for international stocks and revealing a surprising disconnect with the performance and geopolitical risk of the underlying markets. Read more on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed following some relatively upbeat data in the region, while the markets grappled with monetary policy uncertainty as yesterday's Fed minutes showed the Central Bank remains divided on the strong labor market and low inflation. Also, the exacerbated political dysfunction in the U.S. garnered attention, though concerns about the tensions between North Korea and the U.S. continued to fade.

Japanese equities dipped as the yen gained ground following a larger-than-expected trade surplus in the nation and as the U.S. dollar lost ground. Australian securities also slipped, even as the nation's employment growth topped expectations. Shares in mainland China finished higher, while those traded in Hong Kong declined. Indian stocks ticked higher and South Korean equities advanced. Markets in South Korea continued to trade near all-time highs despite the recently flared-up geopolitical tensions in the region, and Schwab's Jeffrey Kleintop, CFA, offers his articles, Missiles and Markets: An investor guide to geopolitical risks and The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page at www.schwab.com.

The international economic docket for tomorrow will be light, with reports to include PPI from Germany, the current account from both Italy and the Eurozone, as well as construction output from the latter.

Stocks Shave Gains Following Fed Minutes

Charles Schwab: On the Market

Posted: 8/16/2017 4:15 PM ET

Stocks Shave Gains Following Fed Minutes

U.S. stocks pared solid early gains that developed on the heels of some upbeat retail sector news in the form of better-than-expected earnings reports from Target and Urban Outfitters. Stocks shaved their gains in the wake of the Fed's afternoon release of its July monetary policy meeting minutes and reports that President Trump disbanded both of his business advisory groups, the Strategic and Policy Forum and the manufacturing council. In other developments, housing starts and building permits both dropped, though weekly mortgage applications rose. Treasuries and gold were higher, while the U.S. dollar and crude oil prices were lower.

The Dow Jones Industrial Average (DJIA) gained 26 points to 22,025, the S&P 500 Index added 4 points (0.1%) to 2,468, and the Nasdaq Composite ticked 12 points (0.2%) higher to 6,345. In moderate volume, 717 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.77 lower to $46.78 per barrel and wholesale gasoline was $0.02 lower at $1.56 per gallon. Elsewhere, the Bloomberg gold spot price gained $10.70 to $1,282.23 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 93.50.

Target Corp. (TGT $56) reported Q2 earnings-per-share (EPS) of $1.22, or $1.23 ex-items, above the $1.19 FactSet estimate, as revenues grew 1.6% year-over-year (y/y) to $16.4 billion, topping the forecasted $16.3 billion. Q2 same-store sales rose 1.3% y/y, north of the expected 0.3% increase. The company said traffic growth was healthy, reflecting increases in both its store and digital channels. TGT issued Q3 guidance that exceeded expectations, while raising its full-year profit outlook and issuing a forecast for same-store sales that bested estimates. Shares finished nicely higher.

Urban Outfitters Inc. (URBN $20) posted Q2 EPS of $0.44, versus the projected $0.37, as revenues declined 2.0% y/y to $873 million, above the expected $862 million. Q2 same-store sales declined 4.9% y/y, compared to the estimated 6.5% drop. Shares rallied.

Bristol-Myers Squibb Co. (BMY $58) traded lower after reporting disappointing results from a study of its kidney cancer treatment.

Housing construction activity misses ahead of look at Fed meeting

Housing starts (chart) for July dropped 4.8% month-over-month (m/m) to an annual pace of 1,155,000 units, below the Bloomberg forecast of a 1,220,000 unit rate. June starts were downwardly revised to an annual pace of 1,213,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, fell 4.1% m/m in July to an annual rate of 1,223,000, after June's upwardly revised 1,275,000 rate, and south of the expected annual pace of 1,250,000 units.

Construction activity for multi-unit structures fell sharply m/m and is down noticeably compared to last year, while single-family activity was little changed m/m and is up solidly y/y. The data echoes yesterday's homebuilder sentiment report that noted rising demand in the new-home market due to ongoing job and economic growth, but builders continue to face supply-side challenges such as lot and labor shortages and rising building material costs.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, discuss our underperform rating on the real estate sector in his latest Schwab Sector Views: Time to "Energize" Your Portfolio?, noting that low interest rates can make dividend-paying equity real estate investment trusts (REITs) more attractive, a factor that has supported them in recent years but now appears to be lessening as rates tick higher. Apartment and office markets have been generally strong, supporting rents; however, supply is rising, which could pressure profitability. Also, an ongoing shift away from brick-and-mortar retailers could pressure mall REITs. Read more on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

At 2:00 p.m. ET, the Federal Reserve released the minutes from its July monetary policy meeting. The information contained in the report showed that labor market conditions continued to strengthen as total nonfarm payroll employment increased solidly in June, though the unemployment rate edged up to 4.4%. The minutes also indicated that total industrial production rose moderately and real PCE appeared to have rebounded in the second quarter. However, some participants addressed the uncertainty surrounding the course of federal government policy and how it may weigh down the spending and hiring plans of firms. Finally, in regard to discussions of the Fed's balance sheet, participants "generally agreed that, in light of their current assessment of economic conditions and the outlook, it was appropriate to signal that implementation of the program likely would begin relatively soon, absent significant adverse developments in the economy or in financial markets."

As noted in the latest Schwab Market Perspective: Things are Looking Good … But are They Too Good?, the Federal Reserve continues its slow and steady approach to monetary policy normalization; leaving interest rates steady at its latest meeting, but hinting strongly that the winding down of the Fed’s balance sheet will likely begin in September. Investors shouldn't be complacent about the Fed, however. With the labor market tight, and commodity prices rising, inflation could start to flare up. At the same time, the Fed is sailing uncharted waters as it begins quantitative tightening (QT) by shrinking its balance sheet. Read more on the Markets & Economy page at www.schwab.com.

The MBA Mortgage Application Index ticked 0.1% higher last week, following the previous week's 3.0% gain. The slight increase came as a 1.6% rise in the Refinance Index was met with a 1.5% drop for the Purchase Index. The average 30-year mortgage rate declined 2 basis points (bps) to 4.12%.

Treasuries ticked higher, with the yield on the 2-year note losing 2 bps to 1.33%, the yield on the 10-year note decreasing 4 bps to 2.23% and the 30-year bond rate declining 3 bps to 2.82%.

Tomorrow, the U.S. economic calendar will include the Fed's June industrial production and capacity utilization report, forecasted to show production increased 0.3% m/m and utilization ticked higher to 76.7%. Additionally, we will also receive weekly initial jobless claims, with economists expecting a slight downtick to a level of 240,000 from the prior week's 244,000, as well as the Philly Fed Manufacturing Index, forecasted to decline to 18.0 for August from the 19.5 posted in July, while the Index of Leading Economic indicators (LEI) will round out the day, anticipated to have increased 0.3% for July following the 0.6% rise in June. .

Europe higher following data, Asia mixed following two-day rebound

European equities finished higher, as yesterday's upbeat U.S. economic data was followed by a favorable read on eurozone GDP, while geopolitical concerns continued to ease. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA points out in his article, What are fund flows telling us about trends and risks in the global stock market?, that the money coming into ETFs is flowing into a broad range of stock markets featuring a preference for international stocks and revealing a surprising disconnect with the performance and geopolitical risk of the underlying markets. Read more on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop. Q2 eurozone GDP growth accelerated to a 2.2% y/y pace of growth, from the 1.9% expansion posted in Q1, and compared to the forecasted 2.1% increase. In the U.K., June employment growth topped expectations. The British pound dipped versus the U.S. dollar. The euro saw some pressure after reports suggested European Central Bank President Mario Draghi will not deliver a new policy message at next week's key Fed symposium in Jackson Hole, Wyoming. Bond yields in the region were mixed, with the markets awaiting today's release of the July U.S. monetary policy meeting minutes.

Stocks in Asia finished mixed on the heels of the two-day rally that came as geopolitical concerns eased along with tensions between North Korea and the U.S., with the former opting to not go through with a plan to fire missiles at the U.S. territory of Guam. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors are best served when grim headlines are in the news by remembering that geopolitical risks are a regular part of investing and that a long history of geopolitical developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are most often the result. Investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com.

The markets also grappled with a slight increase in Fed monetary policy uncertainty in the wake of yesterday's much stronger-than-expected retail sales report in the U.S. Japanese equities dipped, even as the yen continued to lose ground on the U.S. dollar following the data, while stocks in both South Korea and India advanced, with each country's market playing catch up after being closed yesterday for holidays. Australian securities advanced, with earnings season in the nation getting under way. Mainland Chinese shares declined, while equities in Hong Kong moved higher, with the markets digesting yesterday's mostly stronger-than-expected July lending statistics.

Tomorrow, the international economic docket will include trade data from Japan, employment figures for Australia, retail sales from the U.K. and the trade balance and CPI from the Eurozone.

Stocks Continue Rebound

Charles Schwab: On the Market

Posted: 8/14/2017 4:15 PM ET

Stocks Continue Rebound

U.S. equities continued to regain some of the losses suffered last week in the midst of the sell-off that came courtesy of heightened tensions between North Korea and the U.S. Treasury yields moved higher amid a dormant economic calendar, while news on the equity front was also limited. Crude oil prices lost ground, as did gold, while the U.S. dollar was nearly flat.

The Dow Jones Industrial Average (DJIA) advanced 135 points (0.6%) to 21,993, the S&P 500 Index was 25 points (1.0%) higher at 2,466, and the Nasdaq Composite jumped 84 points (1.3%) to 6,340. In moderate volume, 744 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.23 to $47.59 per barrel and wholesale gasoline was down $0.03 at $1.58 per gallon. Elsewhere, the Bloomberg gold spot price lost $7.80 to $1,281.51 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.43.

VF Corp. (VFC $64) announced an agreement to acquire privately-held workwear company, Williamson-Dickie Mfg. Co. for about $820 million. As a result of the expected impact of the deal, VFC raised its full-year guidance. VFC traded higher.

Sysco Corp. (SYY $51) posted fiscal Q4 earnings-per-share (EPS) of $0.57, or $0.72 ex-items, versus the $0.71 FactSet estimate, as revenues rose 5.7% year-over-year (y/y) to $14.4 billion, roughly in line with forecasts. The food distribution company's gross margin came in below expectations and its total case volume growth came under scrutiny and shares were lower.

VMware Inc. (VMW $98) preannounced that its Q2 EPS and revenues were higher than previously expected, while raising its full-year guidance. The cloud infrastructure and business mobility company said it expects continued broad-based strength across its product portfolio. Shares rallied.

Data light today but set to ramp up

Treasuries declined with the economic calendar void of any major releases today. The yields on the 2-year and 10-year notes, along with the 30-year bond, rose 2 basis points to 1.32%, 2.22% and 2.81%, respectively.

Treasury yields and the U.S. Dollar Index are looking to bounce back from a choppy week, as subdued inflation data fostered Fed uncertainty and met continued global market skittishness amid the flare-up geopolitical tensions. For analysis of the bond markets and the greenback see Schwab's Chief Fixed Income Strategist Kathy Jones' articles, Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' on the Fixed Income page at www.schwab.com and Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page. Follow Kathy on Twitter: @kathyjones.

This week, the retail sector will remain in focus as Dow members Wal-Mart Stores Inc. (WMT $81) and Home Depot Inc. (HD $154), along with Target Corp. (TGT $56), will put the finishing touches on earnings season. Moreover, the economic calendar will start with tomorrow's release of July retail sales, with the headline and ex-autos figures both forecasted to rise 0.3% month-over-month (m/m) after June's 0.2% declines. Stripping out autos and gas, sales are projected to grow 0.4% after the prior month's 0.1% dip. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, discusses our marketperform rating on the consumer discretionary sector in his Schwab Sector Views: Time to "Energize" Your Portfolio?, noting that the outlook for American consumer spending appears to be relatively stable, with consumer confidence strong and wages generally showing signs of trending higher. However, spending on traditional retail items has been cautious and competition among retailers may limit profitability.

As noted in the latest Schwab Market Perspective: Things are Looking Good … But are They Too Good?, the bull market should continue but the risk of a "melt-up" appears to be rising. The U.S. economy is growing modestly and the Federal Reserve is maintaining its slow pace of policy normalization—both supports for further equity market gains, but geopolitical risk remains elevated. While the weaker U.S. dollar is a benefit for U.S. companies, there is a downside internationally … but it may not be where you think. Read these articles on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

The housing market will also garner attention beginning with tomorrow's release of the NAHB Housing Market Index, with economists anticipating August's reading to match the 64 posted in July, as well as housing starts and building permits later in the week. Rounding out the busy week, the Fed will deliver its industrial production and capacity utilization report and the minutes from its July meeting, while we will get our first look at the consumer for August in the form of the preliminary University of Michigan Consumer Sentiment Index.

Other items on tomorrow's docket include the Import Price Index, forecasted to have increased 0.1% m/m during July, as well as business inventories, expected to indicate a 0.4% increase m/m for June.

Europe and Asia rebound as global markets recover

European equities moved broadly higher, snapping a four-session losing streak, with the euro and British pound losing ground on the U.S. dollar, while the global markets recovered from last week's drop that stemmed from heightened tensions between the U.S. and North Korea. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA points out in his article, What are fund flows telling us about trends and risks in the global stock market?, that the money coming into ETFs is flowing into a broad range of stock markets featuring a preference for international stocks and revealing a surprising disconnect with the performance and geopolitical risk of the underlying markets. Read more on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop. Stocks shrugged off a larger-than-expected decline in eurozone industrial production for June. Bond yields in the region finished mixed.

Stocks in Asia finished mostly higher as recently exacerbated global sentiment appears to be easing after last week's ramp-up in geopolitical concerns as tensions rose between North Korea and the U.S. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors are best served when grim headlines are in the news by remembering that geopolitical risks are a regular part of investing and that a long history of geopolitical developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are most often the result. Investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com. However, Japan's Nikkei 225 Index fell sharply, with the market playing catch up after Friday's holiday that came when stocks ended the week broadly lower on the heightened uneasiness, which fostered a rally in the yen. The Japanese currency did give back some of the gains today as the nation reported a much stronger-than-expected preliminary estimate of Q2 GDP growth, which came as private consumption and business spending more than offset a negative contribution from the country's trade activity.

Mainland Chinese stocks and those traded in Hong Kong gained ground, as the global rebound overshadowed disappointing reads on the nation's retail sales, fixed asset investment and industrial production for July. Meanwhile, markets in Australia, South Korea and India all saw gains as well.

A slew of reports form the U.K. will dominate tomorrow's international economic calendar, with the island nation slated to report CPI, PPI, the Retail Price Index, and mortgage payments, while other releases from abroad will include retail sales and industrial production from Japan, and GDP from Germany.

Markets Rebound from Three-Day Skid

Charles Schwab: On the Market

Posted: 8/11/2017 4:15 PM ET

Markets Rebound from Three-Day Skid

U.S. equities finished the week on a high note following a three-day slide that has come courtesy of escalating tensions between North Korea and the U.S. Treasury yields were mixed and the U.S. dollar was nearly flat, as another lackluster inflation report appeared to have dampened expectations of another Fed rate hike this year. Crude oil inched higher gold extended a recent rally. Meanwhile, J.C. Penney and Snap posted larger-than-expected losses and NVIDIA's quarterly results faced some scrutiny.

The Dow Jones Industrial Average (DJIA) advanced 14 points (0.1%) to 21,858, the S&P 500 Index was 3 points (0.1%) higher at 2,441, and the Nasdaq Composite rose 40 points (0.6%) to 6,257. In moderate volume, 790 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.23 higher to $48.82 per barrel and wholesale gasoline was up $0.01 at $1.61 per gallon. Elsewhere, the Bloomberg gold spot price gained $4.45 to $1,290.98 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.06. Markets were lower for the week, as the DJIA decreased 1.1%, the S&P 500 Index fell 1.4% and the Nasdaq Composite was 1.5% lower.

J.C. Penney Co. Inc. (JCP $4) reported a Q2 loss of $0.20 per share, or $0.09 ex-items, versus the FactSet estimate of a $0.04 per share shortfall, as revenues increased 1.5% year-over-year (y/y) to $3.0 billion, topping the projected $2.8 billion. Q2 same-store sales declined 1.3% y/y, versus the expected 1.2% decrease. JCP said it liquidated inventory in 127 off its closing stores which had a negative impact on gross margin and earnings-per-share (EPS). The company added that while broader retail remains challenged, nearly all categories delivered improved sales results, and it is encouraged by the improved performance in its total apparel business. JCP reaffirmed its full-year guidance. Shares tumbled.

NVIDIA Corp. (NVDA $155) posted Q2 EPS of $0.92, or $1.01 ex-items, versus the projected $0.70, as revenues rose 56.0% y/y, or up 15.0% quarter-over-quarter, to $2.2 billion, north of the expected $2.0 billion. The graphics chipmaker's gaming revenue topped expectations, but its data center sales missed forecasts and its gross margin came in a bit shy of estimates. NVDA issued Q3 revenue guidance with a midpoint above forecasts. Shares fell as the Street scrutinized the data center and margin results.

Snap Inc. (SNAP $12) announced a Q2 loss of $0.36 per share, wider than the forecasted $0.30 shortfall, as revenues rose 153.0% y/y to $182 million, south of the estimated $186 million. The social media company's daily active users missed expectations and shares saw heavy pressure.

Consumer price inflation misses forecasts

The Consumer Price Index (CPI) (chart) ticked 0.1% higher month-over-month (m/m) in July, versus the Bloomberg estimate calling for a 0.2% gain, while June's flat reading was unrevised. The core rate, which strips out food and energy, also nudged 0.1% to the upside m/m, compared to expectations of a 0.2% increase and matching June's unrevised rise. Y/Y, prices were 1.7% higher for the headline rate, below forecasts of a 1.8% rise, while the core rate was up 1.7%, in line with projections. June y/y figures showed an unrevised 1.6% rise and an unadjusted 1.7% increase for the headline and core rates respectively.

Prices for shelter, medical care, recreation and apparel all rose, slightly more than offsetting declines for autos, communication and household furnishing. The core rate remained below the Fed's 2.0% target for the third-straight month, causing uncertainty regarding if the Central Bank has one more rate hike in it this year as it also aims to start to shrink its behemoth $4.5 trillion balance sheet.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article, Fed Keeps it on the QT, the period of weak inflation continues, which Fed chair Janet Yellen has suggested is somewhat due to temporary factors. However, to date, the Fed has raised rates four times; yet over that same period, financial conditions have actually loosened. This is why the Fed feels it can continue to tighten policy in the face of lower inflation. Liz Ann adds that the Fed has signaled that September is likely the start point to balance sheet shrinkage, but eyes will be on the Jackson Hole annual conference and a potential debt ceiling stand-off for opportunities to further steer consensus around that timing. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Treasuries finished mixed, as the yield on the 2-year note declined 3 basis points (bps) to 1.29%, while the yield on the 10-year note dipped 1 bp to 2.19% and the 30-year bond rate ticked 1 bp higher to 2.79%.

Treasury yields and the U.S. Dollar Index have seen pressure in choppy action as this week's subdued inflation data is meeting continued global market skittishness amid the flare-up geopolitical tensions. For analysis of the bond markets and the greenback see Schwab's Chief Fixed Income Strategist Kathy Jones' articles, Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' on the Fixed Income page at www.schwab.com and Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page. Follow Kathy on Twitter: @kathyjones.

Europe and Asia continue to see pressure 

Most European equities extended a weekly slide, with all major market sectors seeing pressure. Global sentiment remained hampered by escalating tensions between North Korea and the U.S., which continued to foster risk aversion. The euro rose and British pound was little changed versus the U.S. dollar, while bond yields in the region lost ground. In economic news, inflation data out of Germany and France matched expectation for July. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, points out in his article, What are fund flows telling us about trends and risks in the global stock market?, that the money coming into ETFs is flowing into a broad range of stock markets featuring a preference for international stocks and revealing a surprising disconnect with the performance and geopolitical risk of the underlying markets. Read more as well as his commentary, An important benefit to global investors is back after 20 years on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop. However, healthcare issues gained solid ground to help German markets stabilize.

Stocks in Asia fell broadly after yesterday's solid drops in the U.S. and Europe as the global markets continue to rein in risk appetites amid ramped-up tensions between the U.S. and North Korea as rhetoric from both sides escalate. The Japanese yen rallied but markets in Japan were closed for a holiday. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors are best served when grim headlines are in the news by remembering that geopolitical risks are a regular part of investing and that a long history of geopolitical developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are most often the result. Investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com.

Stocks in South Korea fell sharply, as did those traded in mainland China and Hong Kong, with the global uneasiness being met with reports that Chinese regulators are investigating the nation's internet companies for cyber-security violations. After the closing bell, Hong Kong reported stronger-than-expected Q2 GDP growth. Australian securities traded noticeably to the downside and India's markets were lower. After the markets closed, India reported an unexpected dip in industrial production for June.

Stocks Fall as volatility sparks up

U.S. stocks fell on the week as volatility showed signs of life on ramped-up geopolitical concerns, with the U.S. and North Korea lobbing threats and warnings at each other. The earnings and economic fronts delivered mixed results to further dampen conviction. The Street cheered Michael Kors Holdings Ltd's (KORS $45) and Ralph Lauren Corp's (RL $84) better-than-expected earnings despite declining sales but jeered similar results from Macy's Inc. (M $21) and Kohl's Corp. (KSS $39). Dow member Walt Disney Co. (DIS $102) came under pressure after its topline and bottomline results diverged and analysts' scrutinized its new streaming service deal and plans. Of the 454 companies in the S&P 500 that have reported earnings so far, about 68% have topped revenue forecasts and roughly 78% have exceeded earnings projections, per data compiled by Bloomberg.

While inflation figures were cooler than expected, the Labor Department's Job Openings jumped to a record high and small business optimism improved to the highest since February. The U.S. dollar, Treasury yields and crude oil prices all finished lower on the week, along with most major market sectors, though consumer staples issues eked out a weekly advance.

Next week, the retail sector will remain in focus as Dow members Wal-Mart Stores Inc. (WMT $81) and Home Depot Inc. (HD $155), along with Target Corp. (TGT $56), will put the finishing touches on earnings season, while we will get the release of July retail sales. The housing market will also garner attention amid the releases of the NAHB Housing Market Index, as well as housing starts and building permits (economic calendar). Rounding out the busy week, the Fed will deliver its industrial production and capacity utilization report and the minutes from its July meeting, while we will get our first look at the consumer for August, in the form of the preliminary University of Michigan Consumer Sentiment Index.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers timely analysis of the retail and housing sectors, as well as our latest commentary on the consumer in his Schwab Sector Views: Time to "Energize" Your Portfolio? As noted in the latest Schwab Market Perspective: Things are Looking Good … But are They Too Good?, the bull market should continue but the risk of a "melt-up" appears to be rising. The U.S. economy is growing modestly and the Federal Reserve is maintaining its slow pace of policy normalization—both supports for further equity market gains, but geopolitical risk remains elevated. While the weaker U.S. dollar is a benefit for U.S. companies, there is a downside internationally … but it may not be where you think. Read these articles on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

International reports due out next week that deserve a mention include: Australia—employment change. China—lending statistics, retail sales, industrial production and property prices. India—trade balance and inflation statistics. Japan—Q2 GDP and trade balance. Eurozone—industrial production, Q2 GDP, trade balance, CPI, and the minutes from its July monetary policy meeting. U.K.—inflation statistics, employment change and retail sales.