Tech Earnings Power Market Gains

Charles Schwab: On the Market

Posted: 10/27/2017 4:15 PM EDT

Tech Earnings Power Market Gains

 

U.S. equities finished out the week higher, as technology issues jumped on a number of favorable earnings reports, including Google's parent Alphabet and Dow members Microsoft and Intel. Meanwhile, the consumer discretionary sector got a boost from Amazon's strong report. Treasury yields were lower, with Fed leadership uncertainty overshadowing favorable reads on Q3 GDP and consumer sentiment. Crude oil and gold prices were higher, and the U.S. dollar added to its recent run. 

The Dow Jones Industrial Average (DJIA) rose 33 points (0.1%) to 23,434, the S&P 500 Index increased 21 points (0.8%) to 2,581, while the Nasdaq Composite soared 145 points (2.2%) to 6,701. In moderate-to-heavy volume, 892 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil jumped $1.26 to $53.90 per barrel and wholesale gasoline gained $0.02 to $1.72 per gallon. Elsewhere, the Bloomberg gold spot price rose $5.98 to $1,272.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 94.87. Markets were nicely higher for the week, as the DJIA increased 0.5%, the S&P 500 Index gained 0.2% and the Nasdaq Composite advanced 1.1%.

Amazon.com Inc. (AMZN $1,101) reported Q3 earnings-per-share (EPS) of $0.52, well above the $0.07 FactSet estimate, as revenues rose 34.0% year-over-year (y/y) to $43.7 billion, topping the expected $41.6 billion. The results included the contribution from its recent acquisition of Whole Foods. AMZN issued Q4 revenue guidance with a midpoint below expectations. Shares rallied.

Google parent Alphabet Inc. (GOOGL $1,034) posted Q3 EPS of $9.57, exceeding the projected $8.35, with revenues excluding traffic acquisition costs (TAC) growing 21.9% y/y to $22.3 billion, north of the forecasted $21.9 billion. Shares were decisively higher.

Dow member Microsoft Corp. (MSFT $84) announced fiscal Q1 earnings of $0.84 per share, versus the expected $0.71, as revenues rose 12.0% y/y to $24.5 billion, above the projected $23.5 billion. Shares were solidly higher.

Dow component Intel Corp. (INTC $44) reported Q3 EPS of $0.94, or $1.01 ex-items, compared to the forecasted $0.80, with revenues rising 2.0% y/y to $16.1 billion, topping the expected $15.7 billion. INTC issued Q4 guidance that bested estimates, while it raised its full-year outlook. INTC moved solidly higher.

With the flurry of key earnings reports from the tech sector, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers timely analysis of our outperform rating we have held for some time on the group in his latest, Schwab Sector Views: Technology Trick or Treat?. Brad notes that the technology sector’s strong run could continue, with improving global growth prospects and continued high consumer confidence providing support. But risks for the sector have risen and investors should be careful not to get overly concentrated in the tech sector.

Dow member Merck & Co. Inc. (MRK $58) posted a Q3 loss of $0.02 per share, or a profit of $1.11 per share ex-items, compared to the estimated $1.03, as revenues declined 2.0% y/y to $10.3 billion, below the forecasted $10.5 billion. MRK increased its full-year guidance. Shares of MRK came under heavy pressure.

Dow component Exxon Mobil Corp. (XOM $84) announced Q3 EPS of $0.93, north of the expected $0.86, on revenues of $66.2 billion, versus the projected $62.8 billion. Shares are ticked higher.

Dow member Chevron Corp. (CVX $114) achieved Q3 earnings of $1.03 per share, while excluding one-time items reflecting asset sales and write offs, EPS was $0.85, but it is unclear if it is comparable to the anticipated $0.98. Revenues were $36.2 billion, versus the forecasted $34.5 billion. Shares were lower.

First read on Q3 GDP tops forecasts, consumer sentiment remains at 13-year high

The first look (of three) at Q3 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 3.0%, after the unrevised 3.1% expansion in Q2, and above the 2.6% growth forecasted by Bloomberg. Personal consumption gained 2.4%, topping forecasts of a 2.1% rise and following the unadjusted 3.3% increase recorded in Q2.

Private inventory investment, nonresidential fixed investment, exports and federal government spending joined personal consumption to contribute to the stronger-than-expected growth, and more than offset negative contributions from residential fixed investment, as well as state and local government spending.

On inflation, the GDP Price Index came in at a 2.2% rise, well above expectations of a 1.7% gain and the unrevised 1.0% increase seen in Q2, while the core PCE Index, which excludes food and energy, moved 1.3% higher, matching expectations, and following the unadjusted 0.9% advance in Q2.

The GDP report suggests that business capital spending (capex) continues to gain steam and Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle, that an even sharper recovery could be in the cards for 2018, while tax reform—if we get it—would be an additional kicker. She adds that the pick-up in capex is a relatively new bright spot for the U.S. economy; and in 2018 it will likely be a shining characteristic of the latter innings of an economic expansion.

The final October University of Michigan Consumer Sentiment Index (chart) was revised lower to 100.7, matching forecasts, from the preliminary level of 101.1. The index was up solidly versus September's level of 95.1 and sits at a level not seen since January 2004. Compared to last month, the expectations and current conditions components of the survey both improved decisively. The 1-year inflation outlook fell to 2.4% from September's 2.7% rate, and the 5-10 year forecast remained at 2.5%.

Treasuries were higher as the data was met with Fed leadership speculation, as the yield on the 2-year note dropped 3 basis points (bps) to 1.60%, while the yields on the 10-year note and the 30-year bond fell 4 bps to 2.42% and 2.93%, respectively.

The U.S dollar continues to climb, bolstered by global economic and earnings optimism, along with the euro's extended drop following yesterday monetary policy decision by the European Central Bank and relative optimism of U.S. tax reform as it appears to be nudging down the long road to fruition.
Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend and Vice President of Trading and Derivatives, Randy Frederick, discuss tax reform in the video, Where Does Tax Reform Stand?, while Chief Fixed Income Strategist, Kathy Jones delivers the video with Randy about Should a Change in Fed Leadership Matter to Investors?.

Europe mixed on data and Spanish political turmoil, Asia higher

European equity markets finished mixed, with global earnings optimism rising in the wake of the host of upbeat results from U.S. tech sector heavyweights. Also, a positive global economic backdrop was bolstered by the stronger-than-expected U.S. Q3 GDP growth. The euro added to yesterday's drop that came courtesy of the European Central Bank's monetary policy decision to cut and extend its stimulus measures, which appeared to foster a dovish takeaway. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market, and talks with Randy Frederick in the video about Is An Optimistic Outlook for Global Equities Warranted?. The British pound also saw some pressure as Brexit uncertainty lingered, while bond yields in the region traded mixed. Spanish stocks fell amid ramped up political uncertainty as tensions with Catalonia remain elevated, with the Catalan parliament declaring independence from Spain.

Stocks in Asia finished mostly higher following the flood of upbeat earnings reports out of the U.S. tech sector after yesterday's close, while the markets continued to digest the dovish takeaway from the European Central Bank's monetary policy decision to trim and extend its stimulus measures. Japanese equities rallied to extend their recent run to highs not seen since 1996, with the yen losing ground and a report showing the nation's consumer price inflation rose in September. Improved global earnings sentiment helped lift mainland stocks in China and Hong Kong, while those traded in South Korea also gained solid ground. However, markets in Australia declined amid flared-up political uncertainty after Prime Minister Turnbull lost his parliamentary majority, and securities in India finished flat. Schwab's Liz Ann Sonders discusses with Randy Frederick in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?.

Stocks grind out another positive week

Stocks managed to squeak out a seventh-straight weekly gain, with upbeat Q3 GDP, durable goods, new home sales, and business activity reports preserving global economic optimism, though action was choppy as a ramped-up earnings season fostered mixed responses. The technology sector was a standout winner, buoying the markets amid a glut of positive earnings reports from heavyweights in the group, while telecommunications and healthcare issues fell solidly, bogged down by AT&T Inc's (T $34) results and guidance from Celgene Corp. (CELG $97). Energy stocks dipped as Dow member Chevron's results appeared to fail to live up to lofty expectations for the sector and offset the continued climb in crude oil prices. With earnings season more than half way done, of the 273 S&P 500 companies that have reported, 68% have topped revenue forecasts and 79% have bested profit projections, per data compiled by Bloomberg. Treasury yields climbed to support financials amid the improved economic sentiment, which also helped the U.S. dollar extend a rally, along with the euro tumbling in the wake of a seemingly dovish takeaway from the European Central Bank's monetary policy decision.

Next week, earnings season will remain robust, but a fully-loaded economic calendar will likely go a long way in shaping market direction, headlined by the midweek Federal Open Market Committee (FOMC) monetary policy decision, the ISM Manufacturing and non-Manufacturing Indexes, monthly auto sales, and the nonfarm payroll report. Other releases that deserve a mention include: personal income and spending, Consumer Confidence, Q3 nonfarm productivity and labor costs, the trade balance, and factory orders.

As noted in the latest Schwab Market Perspective: Stocks Aren't so Spooky, along with new records being set by stocks, investor sentiment measures are showing widespread optimism; yet households’ exposure to equities is not at an extreme. We believe the bull market will continue, and suggest investors remain at their target allocations, but worry a bit about complacency. Third quarter earnings season has been solid so far and economic growth has picked up. But the pick of the next Fed chair could cause an uptick in volatility. Globally earnings have been strong as well and are helping to support stocks, but geopolitical and trade issues could cause some consternation.

International reports due out next week to keep an eye on include: Australia—trade balance, building approvals and retail sales. China—Manufacturing and non-Manufacturing PMIs. India—Manufacturing and Services PMIs. Japan—retail sales, household spending, industrial production, and the Bank of Japan monetary policy decision. Eurozone—Q3 GDP and consumer price inflation, along with German unemployment change. U.K.—Bank of England monetary policy decision.

Stocks Overcome Early Pressure, Manage Mild Gains

Charles Schwab: On the Market

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

Stocks Overcome Early Pressure, Manage Mild Gains

 

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

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

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

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

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

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

Final read on Q2 GDP revised higher, jobless claims increase

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Equities Close Out the Week in Mixed Fashion

Charles Schwab: On the Market

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

Equities Close Out the Week in Mixed Fashion

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

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

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

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

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

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

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

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

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

First look at Q2 shows growth accelerated less than expected

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

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

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

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

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

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

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

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

For a look at the bond markets and the declining U.S. dollar, see Schwab's Chief Fixed Income Strategist Kathy Jones' article, Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' on the Fixed Income page at www.schwab.com as well as her commentary, Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page. Follow Kathy on Twitter: @kathyjones.

Europe and Asia mostly lower as sentiment hits headwinds

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

Stocks in Asia finished mostly lower amid an apparent flare-up in risk aversion following yesterday's tech rollover in the U.S. and another failed attempt at healthcare reform late last night in the U.S. The yen gained ground to weigh on Japanese equities. Japan also released national consumer inflation figures for June, which rose in line with forecasts, while its July read on core consumer inflation in Tokyo came in slightly above estimates. Chinese stocks ticked higher, but shares in Hong Kong declined as the aforementioned headwinds were met with some earnings uneasiness as a plethora of key results loom. Australian securities dropped amid broad-based weakness, led by healthcare. South Korean equities fell and Indian stocks decreased, with both indexes pulling back from recent all-time highs. For more on the emerging markets, see Schwab's Jeffrey Kleintop's CFA, article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page at www.schwab.com, where you can also find his 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks.

Stocks mixed as earnings meet uncertainties

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

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

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

As noted in the latest Schwab Market Perspective: Are Danger Signs Rising…or Will the Bull Run Continue?, a solid earnings season should contribute to a continuation of the bull market in stocks. Dangers are lurking, however, and the possibility of a decent-sized pullback has grown over the past couple of months, in light of monetary policy and geopolitical uncertainties. While we would likely view such a move as healthy, it can be disconcerting. Stay diversified and be prepared to guard against overreacting to any such move. Read more on the Markets & Economy page at www.schwab.com.

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

Stocks Off Lows, But Still Down on Close

Charles Schwab: On the Market

Posted: 6/29/2017 4:15 PM ET

Stocks Off Lows, But Still Down on Close

U.S. stocks came off the lows of the day, but still saw significant declines as yesterday's upbeat stress-test results that fueled gains for some big banks were overshadowed by another steep sell-off for the Nasdaq with tech listings nearly doubling the decline of most other depressed sectors. Treasury yields were higher following some mostly lackluster economic data, while gold and the U.S. dollar were lower and crude oil prices were mixed. In equity M&A news, Rite Aid and Walgreens terminated their previously announced merger agreement and Staples inked a deal to be acquired by private equity firm Sycamore Partners.

The Dow Jones Industrial Average (DJIA) fell 168 points (0.8%) to 21,287, the S&P 500 Index dropped 21 points (0.9%) to 2,420, and the Nasdaq Composite plummeted 90 points (1.4%) to 6,144. In moderately-heavy volume, 946 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.19 to $44.93 per barrel and wholesale gasoline was $0.01 higher at $1.48 per gallon. Elsewhere, the Bloomberg gold spot price decreased $4.82 to $1,244.45 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% lower at 95.55.

Financials extended a recent run on the heels of late-yesterday's release of the banking stress test results by the Federal Reserve, which showed that it did not object to the capital plans of all 34 bank holding companies participating in the review. However, the Fed said it is requiring one firm, Capital One Financial Corp. (COF $81), to address weakness in its capital planning process and resubmit its capital plan by the end of 2017. COF traded lower.

The approval of capital plans opened the door to a plethora of share buybacks and increased dividend plans in the sector, headlined by Dow member  JPMorgan Chase & Co. (JPM $91), which announced plans to increase its quarterly dividend by 12% to $0.56 per share and repurchase up to $19.4 billion of its stock. Citigroup Inc's (C $67) plan was also a standout as it intends to increase its quarterly dividend by 100% to $0.32 per share and common stock repurchases of up to $15.6 billion. Morgan Stanley (MS $45) said it plans to raise its dividend by 25% to $0.25 per share and buyback up to $5.0 billion in stock, while Bank of America Corp. (BAC $24) announced intentions to raise its dividend by 60% to $0.12 per share and repurchase up to $12.0 billion in its stock. All four of these companies gained ground.

The results and subsequent capital actions add credence to Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, outperform rating on the financial sector that has been in place for some time as discussed in his latest Schwab Sector Views: From the Top Down on the Markets & Economy page at www.schwab.com.

Rite Aid Corp. (RAD $3) and Walgreens Boots Alliance Inc. (WBA $78) announced that they have terminated their merger agreement, replacing it with a new agreement in which WBA will purchase 2,186 RAD stores, including three distribution centers and related inventory for about $5.2 billion in cash. RAD will receive a $325 million merger termination fee and the new agreement also replaces RAD's deal to divest certain stores to Fred's Inc. (FRED $10), which fell sharply on the news. RAD tumbled over 25% as the news also accompanied its quarterly earnings report that missed expectations. WBA was nicely higher as it posted quarterly results that topped forecasts, while it also raised its guidance and announced a $5.0 billion share repurchase program.

Dow member Cisco Systems Inc. (CSCO $31) lowered its long-term revenue growth target following its analyst day as it shifts to software and recurring revenue models. CSCO traded lower. The tech sector remained in focus due to the recent flare-up in volatility amid valuation concerns as discussed in our article, Tech's Rough Ride: Is There More Turmoil Ahead? on the Insights & Ideas page at www.schwab.com and Schwab's Chief Investment Strategist Liz Ann Sonders' latest commentary, The Space Between … Tech Today Doesn't Resemble Tech Circa 2000, on the Markets & Economy page at www.schwab.com. Be sure to follow us and Liz Ann on Twitter: @schwabresearch and @lizannsonders.

Staples Inc. (SPLS $10) announced an agreement to be acquired by private equity firm Sycamore Partners for $10.25 per share in cash, valuing the company at about $6.9 billion. SPLS gained ground.

Constellation Brands Inc. (STZ $194) reported fiscal Q1 earnings-per-share (EPS) of $2.00, or $2.34 ex-items, compared to the FactSet estimate of $1.98, as revenues rose 3.4% year-over-year (y/y) to $1.9 billion, roughly in line with projections. The beer, wine and spirits maker raised its full-year EPS outlook and shares rallied.

Jobless claims unexpectedly tick higher, final read on Q1 GDP surprisingly revised up

Weekly initial jobless claims (chart) rose by 2,000 to 244,000 last week, above the Bloomberg forecast of 240,000, with the prior week’s figure being upwardly revised by 1,000 to 242,000. The four-week moving average declined by 2,750 to 242,250, while continuing claims increased by 6,000 to 1,948,000, north of estimates of 1,935,000.

The final look (of three) at Q1 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 1.4%, adjusted up from the 1.2% expansion posted in the second and first reports, where it was expected to remain. Q4 GDP expanded by an unrevised 2.1% rate. Personal consumption came in at a 1.1% gain for Q1, above the preliminary estimate of a 0.6% increase, where it was expected to remain. Personal consumption grew by an unrevised 3.5% in Q4.

On inflation, the GDP Price Index was adjusted to a 1.9% gain, versus forecasts of an unrevised 2.2% increase, while the core PCE Index, which excludes food and energy, was adjusted to a 2.0% rise, compared to expectations of an unrevised 2.1% gain.

Treasuries traded lower, with the yield on the 2-year note rising 2 basis points (bps) to 1.37%, while the yield on the 10-year note advanced 4 bps to 2.27%, and the 30-year bond rate rose 3 bps to 2.82%. Bond yields continued a rebound from depressed levels and Schwab's Chief Fixed Income Strategist Kathy Jones notes in her Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' in the second half of 2017, we expect 10-year Treasury yields to remain in a 2% to 2.5% range, consistent with the eight-year "lower for longer" theme in the bond market. We expect the Federal Reserve to continue to tighten monetary policy and reduce its balance sheet gradually, assuming inflation doesn't slip further. Read more, including how we feel investors should position themselves in this environment on the Fixed Income page at www.schwab.com and follow Kathy on Twitter: @kathyjones.

Finally, the political front remained in focus with the Senate delaying a vote on its healthcare replacement bill until after the July 4th holiday which exacerbated uncertainty, while the debt ceiling debate continues and the markets are looking for any developments on tax and regulatory reforms, as well as other reflationary policy implementation. As such, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Washington Midyear Update: 4 Key Issues for Investors to Watch, on the Insights & Ideas page at www.schwab.com.

Tomorrow, the U.S. economic calendar will finish off the week with reports expected to include personal income and spending, with economists predicting a 0.3% m/m increase in income and a 0.1% rise in spending in May, shy of the 0.4% respective advances seen the month prior, and the Chicago Purchasing Managers Index for June, expected to show activity in the Midwest declined to 58.0 from the 59.4 posted in May, though a reading above 50.0 represents expansion. The last release for the day will be the final University of Michigan Consumer Sentiment Index for June, forecasted to remain at the preliminary level of 94.5, but below May's final reading of 97.1.

Europe lower, Asia gains ground

European equities finished lower as the markets appeared to get weary in the midst of a rising hawkish tone among global central banks, though the financials sector was the lone group in the green. Banking stocks eked out a gain on the heels of the upbeat stress test results and actions in the U.S. and as bond yields in the region moved higher. Stocks found pressure as the euro extended a recent run that has come on the heels of this week comments from European Central Bank (ECB) President Mario Draghi, which fostered a hawkish takeaway despite yesterday's reports that ECB members said the markets misjudged his remarks. Draghi pointed out a strengthening and broadening recovery, while saying that pressures on inflation are temporary and that "the threat of deflation is gone and reflationary forces are at play." The British pound added to a recent jump to weigh on the U.K. markets in the wake of Bank of England Governor Mark Carney saying yesterday that policy makers may need to begin the removal of stimulus if the trade-off between growth and inflation continues to lessen and the central bank will discuss this in the coming months. Amid this backdrop, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his article, Are bonds signaling a major stock market peak? on the Markets & Economy page at www.schwab.com.

In economic news, German consumer price inflation unexpectedly rose and the nation's consumer confidence surprisingly ticked higher. Also, eurozone economic confidence improved more than expected. Political uncertainty remained in focus ahead of key elections in the eurozone and as U.K. Brexit negotiations are set to ramp up. Jeff and Vice President of Trading and Derivatives, Randy Frederick offer the video, Political Risk: How Should Investors Respond?, on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished higher on the heels of yesterday's rebound in the U.S., with banking stocks leading the way on optimism ahead of the favorable stress test results and as bond yields rose amid apparent hawkish global central bank commentary most recently out of the Bank of England. Japanese equities advanced with the yen slipping somewhat and despite a softer-than-expected read on the nation's retail sales. Australian securities rose with financials moving higher and commodity-related issues gaining ground, bolstered by the recovery in crude oil prices. Indian stocks ticked higher to snap a string of losses, though action was choppy amid derivative expirations. South Korean markets moved to the upside. Mainland Chinese shares increased and those traded in Hong Kong jumped, boosted by banking stocks. China is expected to report some key data on manufacturing and services sector activity tonight. For a look at the global landscape, see Schwab's Jeffrey Kleintop's, CFA, 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page at www.schwab.com.

The international economic docket for tomorrow will be busy, beginning with employment data, CPI, industrial production, vehicle production, housing starts and construction orders from Japan, private sector credit from Australia and manufacturing and non-manufacturing PMIs from China. Releases from across the pond will include consumer confidence, current account balance, Index of Services and GDP from the U.K., CPI, PPI and consumer spending from France and retail sales and unemployment data from Germany.

Stocks Finish Flat Ahead of Holiday Weekend

Charles Schwab: On the Market

Posted: 5/26/2017 4:15 PM ET

Stocks Finish Flat Ahead of Holiday Weekend

U.S. stocks finished trading mostly flat on light volume, ending the recent six-session winning streak ahead of the extended Memorial Day holiday weekend. Traders digested mixed Q1 GDP and durable goods orders reports, while Costco and Ulta Beauty announced some upbeat earnings data. Crude oil prices rebounded somewhat from yesterday's tumble, Treasury yields dipped and the U.S. dollar and gold gained ground. Overseas, equities in Asia and Europe finished mixed.

The Dow Jones Industrial Average (DJIA) decreased 3 points to 21,080, the S&P 500 Index added 1 point to 2,416, and the Nasdaq Composite ticked 5 points (0.1%) higher to 6,210. In light volume, 683 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.90 to $49.80 per barrel and wholesale gasoline was $0.03 higher at $1.63 per gallon. Elsewhere, the Bloomberg gold spot price increased $11.76 to $1,267.44 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 97.45. Markets were solidly higher for the week, as the DJIA jumped 1.3%, the S&P 500 Index rallied 1.4%, and the Nasdaq Composite surged 2.1%.

Costco Wholesale Corp. (COST $178) reported fiscal Q3 earnings-per-share (EPS) of $1.59, or $1.40 ex-items, compared to the $1.31 FactSet estimate, as revenues increased 8.0% year-over-year (y/y) to $28.9 billion, above the projected $28.6 billion. Q3 same-store sales rose 5.0% y/y, north of the expected 4.7% increase. Shares were nicely higher.

Ulta Beauty Inc. (ULTA $302) posted Q1 EPS of $2.05, or $1.91 ex-items, versus the forecasted $1.80, with revenues growing 22.5% y/y to $1.3 billion, roughly in line with expectations. Q1 same-store sales jumped 14.3% y/y, exceeding the estimated 11.0% gain. ULTA issued Q2 guidance that was a bit shy of expectations, while raising its full-year EPS and same-store sales outlooks. Shares gained solid ground.

GameStop Corp. (GME $22) announced Q1 earnings of $0.58 per share, or $0.63 ex-items, versus the forecasted $0.53, as revenues increased 3.8% y/y to $2.1 billion, above the projected $2.0 billion. Q1 same-store rose 2.3% y/y, compared to the expected 4.2% decline. The company reaffirmed its full-year EPS outlook, while issuing same-store sales guidance that was just below estimates. Shares traded lower as the Street showed some concern regarding GME's y/y decline in new video game software sales, a lower gross margin and lackluster mobile revenues.

Big Lots Inc. (BIG $50) reported Q1 EPS of $1.15, topping the expected $0.99, as revenues declined 1.2% y/y to $1.3 billion, roughly in line with estimates. Q1 same-store sales declined 0.9% y/y, versus projections of a 0.9% gain. BIG issued Q2 EPS guidance that exceeded estimates and raised its full-year profit outlook. Shares traded higher.

Amid the plethora of earnings reports from the consumer discretionary sector, check out Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Don't Cut the Cord Just Yet, on the Markets & Economy page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

Durable goods orders miss, Q1 GDP growth revised higher

April preliminary durable goods orders (chart) declined 0.7% month-over-month (m/m), compared to the Bloomberg estimate of a 1.5% decline, though March's 1.7% gain was revised to a 2.3% rise. Ex-transportation, orders were 0.4% lower m/m, compared to forecasts of a 0.4% gain and versus March's upwardly revised 0.8% increase. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, came in flat, versus projections of a 0.5% increase, and matching the downwardly revised reading in the month prior.

Orders for the volatile component of transportation weighed on the headline figure as a slight gain in autos and a solid rise in defense aircraft and parts were more than offset by a drop in nondefense aircraft and parts. Weakness was also seen in demand for machinery, electrical equipment and appliances, and fabricated metals. However, a bright spot was a solid gain in orders for computers and electronic products.

The data, notably the back-to-back flat readings for the proxy for business spending in the durable goods report, may have fostered concerns about whether Q1's soft patch was transitory as recent history and the Fed have suggested. Schwab’s Chief Investment Strategist Liz Ann Sonders discusses this in her article, ½ Full: Seeing Through a Weak Q1, pointing out that the average GDP growth for the subsequent quarters over the past 10 years has been 1.8%, but hard data has been stubbornly weak relative to soft data. So for now, Liz Ann is seeing the glass half full, concluding that we are likely just experiencing yet another "soft patch" in an ongoing expansion. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

The second look (of three) at Q1 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 1.2%, up from the first release's 0.7% gain. Forecasts called for an adjusted 0.9% pace of expansion. Q4 GDP grew by an unrevised 2.1% rate. Personal consumption came in at a 0.6% gain for Q1, up from the preliminary estimate of a 0.3% increase, and compared to the expectations of a 0.4% increase. Personal consumption grew by an unrevised 3.5% in Q4.

On inflation, the GDP Price Index was revised to a 2.2% gain, versus forecasts of an unrevised 2.3% increase, while the core PCE Index, which excludes food and energy, was adjusted to a 2.1% rise, compared to expectations of an unrevised 2.0% gain.

The final May University of Michigan Consumer Sentiment Index (chart) was revised to 97.1 from the preliminary level of 97.7, versus forecasts of 97.5. However, the index was up slightly compared to April's level of 97.0. Compared to last month, the expectations component improved, while the current conditions component declined. The 1-year inflation outlook remained at April's 2.6% rate, while the 5-10 year forecast ticked higher to 2.4% from 2.3%.

Treasuries were mostly higher in an abbreviated session, with the yield on the 2-year note flat at 1.29%, while the yields on the 10-year note and the 30-year bond dipped 1 basis point to 2.25% and 2.91%, respectively. For analysis of the bond markets, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, where you can also find Schwab's Vice President of Trading and Derivatives, Randy Frederick's and Chief Fixed Income Strategist, Kathy Jones' video, Fed Rate-Hike Cycle: How Can Bond Investors Prepare? Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones. Also, for more on the Fed, see Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, Gimme Three Steps … and a Stumble?, where she discusses the transition from quantitative easing (QE) to quantitative tightening (QT) on the Markets & Economy page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

Please note: All U.S. markets will be closed on Monday in observance of the Memorial Day holiday.

Europe and Asia mixed amid political uncertainty and continued energy weakness

European equities finished mixed, with oil & gas issues remaining a drag on the markets as crude oil prices tumbled yesterday amid apparent disappointment from the highly-anticipated extension of production cuts by OPEC. Political and geopolitical uncertainty lingered to hamper conviction, with polls showing U.K. Prime Minister Theresa May losing ground ahead of next month's election as Brexit negotiations continue. However, the British pound fell to help buoy the U.K. markets. Also, the markets eyed U.S. President Trump's first international trip as he wraps up in Europe with G-7 leaders gathering in Italy. For analysis, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, as well as Jeff's article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop. The euro declined versus the U.S. dollar and bond yields in the region lost ground. In light economic news, Italian economic, manufacturing and consumer sentiment reports all declined for May.

Stocks in Asia finished mixed with the energy sector getting pressured as oil prices tumbled yesterday in reaction to the highly-expected extension of production cuts by OPEC. Japanese equities declined, with the yen gaining ground late in the session, while a read on the nation's core consumer price inflation came a bit cooler than expected. Chinese shares took a breather after a strong weekly advance and stocks in Hong Kong finished flat. Australian securities fell amid a drop in oil & gas issues and weakness out of the basic materials sector. However, South Korean and Indian equities hit record highs for a second session. Schwab's Director of International Research, Michelle Gibley CFA, offers some timely commentary of the global markets in her latest article, Different Drivers: Why Emerging Market Stocks Aren't All the Same on the Insights & Ideas page at www.schwab.com.

Stocks string together gains to post weekly rally

U.S. stocks posted a six-session winning streak before Friday's pause, extending a rebound from last week's selloff and spike in volatility on Wednesday that stemmed from a flare-up in domestic political concerns that called pro-growth policy pledges into question. President Trump embarked on his first trip overseas, which appeared to take some of the focus off domestic political issues, likely helping foster the rebound. Also, he struck some defense and aerospace deals in Saudi Arabia to boost the stocks in the sector. Technology stocks continued to rally, while some relative upside surprises by retailers, headlined by Best Buy Co. Inc. (BBY $60), boosted the consumer discretionary sector. The Fed's May meeting minutes seemed to foster a dovish takeaway to help ease concerns about the pace of future rate hikes after June's highly-anticipated move. However, the energy sector took a hit as crude oil prices gave back a rally that led up to this week's widely-expected OPEC extension of production cuts that looked to disappoint the markets. The divergence between hard and soft economic data also festered, with new and existing home sales both falling more than expected in April to exacerbate concerns about the impact of demand easily outstripping supply. Treasury yields nudged higher, along with the U.S. dollar.

Although next week's economic calendar will be truncated by Monday's holiday, the docket will bring plenty of data to digest ahead of the Fed's monetary policy meeting later in June. Personal income and spending, and Consumer Confidence will get the ball rolling, followed by the Fed's Beige Book, the ISM Manufacturing Index and monthly auto sales. The week will culminate with Friday's key May nonfarm payroll report.

As noted in the latest Schwab Market Perspective: Unprecedented! Or Maybe Not?, U.S. markets were roiled by so-called "unprecedented" political issues but bounced back quickly. Investing based on political winds is not likely to be a successful strategy and we urge focus on economic and earnings fundamentals. The U.S. economy is bouncing back from the weak first quarter while the labor market continues to tighten. A June rate hike by the Federal Reserve remains on the table for now. Global growth has picked up, but the recent slowdown and inversion of the yield curve in China are causing some concerns. Read more on the Markets & Economy page at www.schwab.com.

Next week's international economic reports worth noting include: Australia—building approvals and retail sales. China—industrial profits and Manufacturing and non-Manufacturing PMIs. India—Q1 GDP. Japan—household spending, retail sales, and industrial production. Eurozone—consumer price inflation and consumer confidence, along with German retail sales and unemployment change. U.K.—Markit's PMI Manufacturing Index.

Markets Finish Lower Ahead of Trump's Speech

Charles Schwab: On the Market

Posted: 2/28/2017 4:15 PM ET

Markets Finish Lower Ahead of Trump's Speech

U.S. equities finished lower, as investors await tonight's highly-anticipated Congressional speech by President Donald Trump. Political uncertainty took center stage, with a more than 15-year high in Consumer Confidence and stronger-than-expected regional manufacturing activity taking a back seat. Meanwhile, Treasuries were mixed, gold and crude oil prices were modestly lower, while the U.S. dollar was flat.

The Dow Jones Industrial Average (DJIA) fell 25 points (0.1%) to 20,812, the S&P 500 Index declined 6 points (0.3%) to 2,363, and the Nasdaq Composite decreased 36 points (0.6%) to 5,825. In heavy volume, 1.2 billion shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.04 lower to $54.01 per barrel and wholesale gasoline lost $0.01 to $1.73 per gallon. Elsewhere, the Bloomberg gold spot price declined $3.20 to $1,249.53 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was little changed at 101.15.

Target Corp. (TGT $58) reported 4Q earnings-per-share (EPS) of $1.46, or $1.45 ex-items, below the $1.51 FactSet estimate, as revenues declined 4.3% year-over-year (y/y) to $20.7 billion, roughly in line with projections. 4Q same-store sales declined 1.5% y/y, compared to the forecasted 1.4% decrease. TGT issued 1Q and full-year EPS and same-store sales guidance that came in well below expectations. The company said the quarter reflected the impact of rapidly-changing consumer behavior, which drove very strong digital growth but unexpected softness in its stores.

In the wake of the disappointing results, TGT announced plans to combat the aforementioned headwinds, including lowering prices that are expected to pressure margins, investments of more than $7 billion over the next three years, and launching 12 new exclusive brands, projected to represent $10 billion in sales over the next two years. Shares fell sharply.

Priceline Group Inc. (PCLN $1,725) posted 4Q profits of $13.47 per share, or $14.21 ex-items, well above the estimated $12.89, as revenues rose 17.4% y/y to $2.4 billion, topping the expected $2.3 billion. The travel site registered stronger-than-expected gross bookings and accelerating growth in hotel room nights booked. Shares were nicely higher.

Shares of Valeant Pharmaceuticals International Inc. (VRX $14) fell after the company's guidance for 2017 operating earnings came in below estimates, and its outlook for a y/y drop in full-year revenue had a midpoint that missed forecasts, overshadowing its slightly stronger-than-expected 4Q results.

For a look at investing in the current bull market, see Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive: Is Passive's Dominance Over Active Set to Wane?, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

First revision to 4Q GDP unchanged, while Consumer Confidence hits multi-year high

The second look (of three) at 4Q Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 1.9%, unrevised from the first release. The Bloomberg forecast called for an adjusted 2.1% pace of expansion. 3Q GDP grew by an unrevised 3.5% rate. Personal consumption came in at a 3.0% gain for 4Q, up from the preliminary estimate of a 2.5% increase, and compared to the expectations of a 2.6% increase. Personal consumption grew by an unrevised 3.0% in 3Q. The unchanged revision came as the upward adjustment to personal consumption was met with a downward revision to business investment.

On inflation, the GDP Price Index was revised to a 2.0% gain, versus forecasts of an unrevised 2.1% increase, while the core PCE Index, which excludes food and energy, was adjusted to a 1.2% rise, compared to expectations of an unrevised 1.3% gain.

The Consumer Confidence Index (chart) rose to 114.8 in February—the highest level since July 2001—from the downwardly revised 111.6 level in January, and compared to estimates of 111.0. Sentiment toward the present situation and expectations of business conditions for the next six months both improved. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—dipped to 5.9 from the 6.0 posted in January.

The Chicago Purchasing Managers Index (chart) moved further into a level depicting expansion (above 50), after rising to 57.4 in February—the highest level since January 2015—from 50.3 in January, and versus expectations of a gain to 53.5.

The advance goods trade deficit rose to $69.2 billion in January, from the downwardly revised $64.4 billion in December, and compared to expectations of it to widen to $66.0 billion.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.6% gain in home prices y/y in December, versus expectations of a 5.4% increase. Month-over-month (m/m), home prices were up 0.9% on a seasonally adjusted basis for December, above forecasts calling for a 0.7% gain.

The Richmond Fed Manufacturing Activity Index unexpectedly moved further into expansion territory (a reading above zero), rising to 17 for February from the 12 posted in January, and versus expectations of a 10 reading.

Treasuries finished mixed, as the yield on the 2-year note was 2 basis points (bps) higher at 1.22%, the yield on the 10-year note was flat at 2.36%, while the 30-year bond declined 2 basis points to 2.97%. For a look at the bond markets, see Schwab's Director of Income Planning, Rob Williams', CFP, and Senior Research Analyst, Cooper Howard's, CFA, latest article, Short-Term Bonds: Why They Could Outperform As Interest Rates Rise, at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

Along with the host of data today, the markets continue to focus on cooled off post-election rallies in the U.S. dollar and Treasury yields, along with all-time high stock markets. Political risk in the U.S. and Europe has tempered conviction. As such, the global markets are likely anticipating tonight's speech in front of Congress by President Donald Trump, looking for details regarding his tax and regulatory reforms, along with infrastructure spending plans that have teamed up with recent solid economic data to fuel the rallies in the stock and bond markets and the greenback since the November election.

As noted in the latest Schwab Market Perspective: Not So Fast!, elevated earnings and economic expectations could lead to a pullback or more sideways action but we believe the bull market in U.S. stocks will continue. If economic data continues to surprise on the upside, a March rate hike is likely to be on the table; while there is an additional risk that the Fed may be forced to speed up the tightening process should inflation accelerate from here. Read more at www.schwab.com/marketinsight, where you can also find Schwab's Chief Fixed Income Strategist, Kathy Jones' article, What would a shake-up at the Fed mean for bond investors?. Follow Kathy on Twitter: @kathyjones. Finally, for a look at the U.S. political front, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest article, Washington's Way: Why Trump's Policy Changes Could Take Time, at www.schwab.com/insights.

Tomorrow's economiccalendar will again be busy, headlined by personal income and spending, with economists expecting a 0.3% m/m increase for both figures in January, compared to the respective 0.3% and 0.5% advances seen the month prior, as well as construction spending, forecasted to have gained 0.5% m/m in January from the 0.2% decline posted in December. Like the rest of the world, national manufacturing activity reads are on tap, with the Institute for Supply Management (ISM) Manufacturing Index expected to show a level of 56.2 during February, and Markit's final February US Manufacturing PMI to be revised to a level of 54.5, with values above 50 for both readings indicating expansion in activity. Rounding out the docket will be MBA Mortgage Applications, while in afternoon action the Federal Reserve will release its Beige Book—an anecdotal look at national economic activity—used as a tool by the Federal Open Market Committee (FOMC) to prepare for its two-day monetary policy meeting scheduled to end March 15.

Europe higher, Asia mixed as markets eye Presidential speech in U.S.

European equities nudged higher, despite festering global political uncertainty ahead of looming key elections in France and tonight's Congressional speech from U.S. President Donald Trump. For more on the global markets and the European political risk, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, The stock market sees nothing to worry about—that may be about to change. Jeff notes that Europe's economy is performing the best in many years and stock markets are currently behaving as if there is nothing to worry about, but that may be about to change now that we are within two months of the French Presidential election. He concludes that savvy investors should be prepared for a rise in volatility in global stock markets in the coming months. Read more at www.schwab.com/oninternational, and be sure to check out Jeff's article, Five Reasons to Stay Invested Despite Heightened Uncertainty. Follow Jeff on Twitter: @jeffreykleintop. French 4Q GDP growth came in at a 1.2% y/y pace, topping forecasts of 1.1%, while shares of Meggitt PLC. (MEGGY $12) jumped after the U.K. defense and energy engineer's earnings report topped expectations. Spanish stocks were noticeable gainers, bolstered by travel-related issues and solid gains in the financial sector. The euro ticked higher and the British pound declined versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mixed with the global markets cautiously awaiting tonight's Congressional speech from U.S. President Trump, amid the backdrop of heightened political uncertainty on both sides of the Atlantic. Moreover, a plethora of data was released today, ahead of this week's global reads on manufacturing and services sector activity. Japanese equities ticked higher, giving up early gains late in the session as the yen reversed losses. Japan reported an unexpected drop in industrial production for January, though its retail sales rose more than expected m/m for last month. Chinese stocks diverged to cap off this month's rally, with those traded in Hong Kong falling, while mainland Chinese equities advanced, with the nation set to report its manufacturing and services PMIs tonight. Strength in oil & gas issues was met with weakness in other sectors to lead a decline in Australia's markets, while South Korean securities rose, but Indian listing declined ahead of its 4Q GDP report. After the closing bell, India's 4Q GDP growth decelerated to a 7.0% y/y pace, from 7.4% expansion in 3Q, and compared to expectations of a 6.1% gain.

Schwab's Director of International Research, Michelle Gibley, CFA, provides some timely analysis of global investing in her 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.

Manufacturing PMI reads from across the globe will dominate tomorrow's international economic calendar, while other reports slated for release include South Korea's trade balance, and CPI from Germany.