Stocks Rise as Hopes for Tax Reform Stay Alive

Charles Schwab: On the Market

Posted: 10/20/2017 4:15 PM EDT

Stocks Rise as Hopes for Tax Reform Stay Alive

 

U.S. equities extended weekly gains on the heels of last night's budget resolution passed by the Senate which sparked some tax reform optimism, though many obstacles still remain to securing an overhaul. Treasury yields and the U.S. dollar rallied, crude oil prices were also higher and gold declined. Limited economic news showed existing home sales in September increased more than forecasted. Meanwhile, on the earnings front, market participants seemingly shrugged off Dow member General Electric's severe earnings miss.

The Dow Jones Industrial Average (DJIA) advanced 166 points (0.7%) to 23,329, the S&P 500 Index gained 13 points (0.5%) to 2,575, and the Nasdaq Composite increased 24 points (0.4%) to 6,629. In moderate volume, 899 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil traded $0.34 higher to $51.84 per barrel and wholesale gasoline increased $0.04 to $1.68 per gallon. Elsewhere, the Bloomberg gold spot price declined $8.94 to $1,281.18 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.5% higher at 93.69. Markets were nicely higher for the week, as the DJIA jumped 2.0%, the S&P 500 Index gained 0.9% and the Nasdaq Composite advanced 0.4%.

Dow member General Electric Co. (GE $24) reported Q3 earnings-per-share (EPS) of $0.22, or $0.29 ex-items, well below the $0.49 FactSet estimate, as revenues grew 14.4% year-over-year (y/y) to $33.5 billion, above the projected $32.5 billion. The company called the quarter challenging as solid earnings performance in a majority of its businesses was offset by a decline in power performance in a difficult market. GE lowered its full-year EPS outlook. Shares finished lower, but pared heavy losses.

Dow component Procter & Gamble Co. (PG $88) posted fiscal Q1 EPS of $1.06, or $1.09 ex-items, versus the $1.08 expectation, with revenues rising 1.0% y/y to $16.7 billion, roughly in line with forecasts. The company's gross margin missed expectations. The company said it saw organic sales growth in a decelerating global market and against a relatively strong base period. PG reaffirmed its full-year guidance. Shares saw pressure.

Honeywell International Inc. (HON $145) announced Q3 earnings of $1.75 per share, matching estimates, as revenues increased 3.0% y/y to $10.1 billion, compared to the expected $10.0 billion. HON reaffirmed its full-year profit outlook, but its Q4 earnings guidance missed forecasts. Shares ticked higher.

Home sales surprisingly rise, tax reform and Fed speculation boost yields and dollar

Existing-home sales in September rose 0.7% month-over-month (m/m) to a 5.39 million annual rate, compared to the Bloomberg forecast of a 5.30 million pace, and versus August's unrevised 5.35 million rate. Sales of single-family homes grew m/m but were below year ago levels, while purchases of multi-family structures fell and remain lower y/y. The median existing-home price was up 4.2% y/y at $245,100. Unsold inventory came in at a 4.2-months pace at the current sales rate, down from the 4.5 months rate a year ago. Inventory of homes for sale rose, but are down 6.4% y/y, falling for 28 consecutive months. Sales were flat m/m in the Northeast and slipped in the South, while rising in the Midwest and West. Existing home sales are based on contract closings instead of signings and account for the majority of the housing sales market.

The National Association of Realtors (NAR) noted temporary, but notable declines in Texas and Florida due to the hurricanes, as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, in his latest article, Fires, Hurricanes, and Earthquakes: What Disasters Mean For Markets. The NAR added that home sales in recent months remain at their lowest level of the year and are unable to break through, despite considerable buyer interest in most parts of the country as supply issues and fast-rising prices continue to stifle sales growth. If supply and price pressures ease, the housing market could get a boost, amplified by that fact that the report said nearly two-thirds of renters currently believe now is a good time to buy a home. This is one pillar buoying Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, outperform rating on the financial sector noted in his latest, Schwab Sector Views: Sustainable Energy?.

Treasuries fell, with the yields on the 2-year note and the 30-year bond rising 5 basis points (bps) to 1.58% and 2.89%, respectively, while the yield on the 10-year note gained 6 bps to 2.38%.
Treasury yields and the U.S. dollar gained ground amid speculation on who the next Fed Chief will be and as the Senate passed its budget resolution late last night to nudge tax reform down the lengthy path to fruition.

Schwab's Chief Fixed Income Strategist, Kathy Jones offers analysis of the potential leadership changes and balance sheet reduction at the Fed in her article, Understanding the Federal Reserve's Shrinking Balance Sheet, and the video with Vice President of Trading and Derivatives, Randy Frederick, Should a Change in Fed Leadership Matter to Investors?. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend discusses the likely elongated journey of tax reform in the article, Tax Reform Framework Released, But The Road Ahead Is Long.
Check out these articles and video on the Market Commentary page at www.schwab.com and follow Kathy, Randy and Schwab on Twitter: @kathyjones, @randyafrederick and @schwabresearch.

Europe and Asia higher as financials gain and politics remain in focus

European equity markets tilted to the upside, with financials leading the advance, bolstered by a gain in bond yields in the region. The euro traded lower versus the U.S. dollar, which got a boost from relative optimism regarding tax reform after the Senate passed its budget resolution. The British pound was higher versus the greenback as the European Union's summit in Brussels continued as Brexit negotiations remained in a deadlock but headlines suggested talks could be getting closer to moving to the next phase. However, Spanish political uneasiness lingered on the heels of yesterday's announcement that Spain was moving to suspend Catalonia's autonomy after it missed a deadline to renounce its independence push.

For analysis of Brexit and Spanish political concerns, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Market Commentary page at www.schwab.com.
Stocks in Asia finished higher amid an afternoon push to the upside as optimism regarding tax reform in the U.S. was lifted by the Senate's passing of its budget resolution. Japanese equities overcame early losses to finish little changed, ahead of this weekend's election, and on the heels of a 13-day winning streak that has taken the Nikkei 225 Index to highs not seen in over two decades. The yen gave back some of yesterday's gains as the U.S. dollar rose on the tax reform optimism and amid speculation of who will head up the Fed. Mainland Chinese stocks rose and shares trading in Hong Kong rallied, rebounding from yesterday's declines that followed some mixed economic data that showed industrial production missed, retail sales beat and Q3 GDP growth slowed. Australian and South Korean securities gained ground. Markets in India were closed for a holiday. With the global markets rallying, Schwab's Chief Investment Strategist Liz Ann Sonders talks with Schwab's Randy Frederick in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?, discussing that there seems to be no end in sight to the bull market in equities, but that doesn’t mean there’s nothing to worry about. See this video on the Market Commentary page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Stocks higher on week as Dow breaches milestone

Stocks finished the week higher, hitting fresh record highs and the Dow breaching the 23,000 milestone. Global economic and earnings optimism underpinned sentiment, with regional manufacturing reports jumping, while industrial production rebounded and existing home sales surprisingly recovered. Dow members IBM Corp. (IBM $162), Verizon Communications Inc. (VZ $50) Johnson & Johnson (JNJ $142) and UnitedHealth Group Inc. (UNH $207) highlighted a heating-up earnings season, along with Morgan Stanley (MS $51). Of the 88 S&P 500 companies that have reported thus far, 75% have topped revenue forecasts and 82% have bested earnings estimates, per data compiled by Bloomberg. Financials led the way, along with healthcare issues, while technology stocks gained ground, shrugging off an intraweek drop in Dow member Apple Inc. (AAPL $156) on iPhone8 demand worries and Apple Watch connection concerns in China. The energy sector dipped as crude oil prices slid late in the week and early earnings reports from the sector disappointed against the backdrop of lofty growth expectations. Consumer staples fell solidly, continuing to be hampered by industry concerns, exacerbated by negative reactions to results from Dow component Procter & Gamble and Unilever NV (UN $56). Tax reform optimism ensued to support stocks after passing another early hurdle on the long road to passage, while Fed leadership uncertainty lingered, boosting the U.S. dollar. Treasury yields also rallied to bolster gains for financials.

Next week, the tone for the markets will likely be set by today's speech after the closing bell by Federal Reserve Chairwoman Janet Yellen, the continued ramp-up of earnings season, and the economic calendar culminating with the first look (of three) at Q3 GDP. Other reports that will dawn the economic docket next week include, Markit's October business activity reports, preliminary durable goods orders, new home sales and the final University of Michigan Consumer Sentiment Index for October.

As noted in the latest Schwab Market Perspective: Preparing for the Latter Innings, U.S. stocks continue to grind higher, with little appearing able to knock them off course. The possibility of a pullback always exists but a melt up is also reemerging as a real possibility. Earnings tend to drive equity market direction, and the next few weeks should help set the tone for market action for the rest of the year. Expectations came down a bit as we entered reporting season and recent robust economic data gives support to the potential for companies to meet and/or beat estimates. Global economic growth continues to improve, which should help support both domestic and global stock markets. Read more on the Market Commentary page at www.schwab.com.

International reports on next week's calendar worth noting include: Australia—CPI. China—property prices and industrial profits. Japan—CPI. Eurozone—consumer confidence, Markit's business activity reports, and the European Central Bank monetary policy meeting, along with German business confidence and retail sales. U.K.—Q3 GDP.

Stocks Advance to Begin the Week

Charles Schwab: On the Market

Posted: 10/16/2017 4:15 PM EDT

Stocks Advance to Begin the Week

 

U.S. stocks began the week on a positive note as shares continued the recent record run on the heels of an unexpected jump in regional manufacturing activity that coupled with some upbeat Chinese economic data to aid global economic optimism. The advance for stocks may have been limited as market participants await a host of earnings and economic reports expected later this week. Treasury yields and the U.S. dollar ticked higher, while gold was flat and crude oil added to last week's gains. In equity news, Nordstrom traded lower after suspending its search to go private. 

The Dow Jones Industrial Average (DJIA) increased 85 points (0.4%) to 22,957, the S&P 500 Index added 4 points (0.2%) to 2,558, and the Nasdaq Composite gained 18 points (0.3%) to 6,624. In moderate-to-light volume, 695 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.42 to $51.87 per barrel and wholesale gasoline was flat at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price lost $9.00 to $1,294.82 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 93.31.

Nordstrom Inc. (JWN $40) saw heavy pressure after the retailer announced, in light of the difficulty of obtaining debt financing in the current retail environment, it suspended active exploration, for the balance of the year, of the possibility of proposing a transaction to take the company private. The company said it intends to continue its efforts to explore the possibility of making a going private proposal after the conclusion of the holiday season.

Aramark (ARMK $42), a provider of uniforms and food to schools and stadiums, announced agreements to acquire competitors Avendra for about $1.35 billion, as well as AmeriPride Services Inc. for $1.0 billion. ARMK finished little changed.

Regional manufacturing activity jumps to three-year high

The Empire Manufacturing Index showed output from the New York region jumped further into a level depicting expansion (a reading above zero) for October. The index rose to 30.2—the highest since 2014—from September's unrevised 24.4 level, with the Bloomberg forecast calling for a decline to 20.2.

Treasuries dipped, with the yield on the 2-year note rising 4 basis points (bps) to 1.53%, the yield on the 10-year note advancing 3 bps to 2.30%, and the 30-year bond rate ticking 1 bp higher to 2.82%. Bond yields and the U.S. dollar nudged higher and have been choppy as inflation remains in focus and global economic growth remains steady, while global monetary policy uncertainty lingers and the markets continue to grapple with the potential for tax reform.

For more on this backdrop, see Schwab's Chief Investment Strategist Liz Ann Sonders' article, The Waiting: Wage Growth and Inflation Finally Getting in Gear?, and Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, commentary, Inflation May Be The Biggest Question For Investors In 2018.

Moreover, Jeff discusses, How the Shift by Central Banks May Affect the Stock Market, and talks in the video with Vice President of Trading and Derivatives, Randy Frederick, Should a Change in Fed Leadership Matter to Investors?, while Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend, delivers his article, Tax Reform Framework Released, But The Road Ahead Is Long.

Check out these articles and video on the Market Commentary page at www.schwab.com. Follow our Schwab experts on Twitter: @lizannsonders, @jeffreykleintop, @kathyjones and @randyafrederick.
Tomorrow, the U.S. economic calendar will offer the Import Price Index for September, expected to have increased 0.6% month-over-month (m/m), matching the increase seen in August. Additionally, we'll receive the Fed's September industrial production and capacity utilization report, forecasted to show production increased 0.3% m/m and utilization ticked higher to 76.2%. The housing market will also garner attention with tomorrow's release of the NAHB Housing Market Index, with economists anticipating October's reading to match the 64 posted in September, where the 50 mark represents the point of separation for good versus poor conditions.

Europe mixed, Asia mostly higher 

European equity markets finished mixed amid persistent global economic optimism following some upbeat Chinese and U.S. economic data, while a report showed the eurozone trade surplus widened more than expected. Crude oil prices extended last week's gains to support the energy sector, bolstered by reports of turmoil in parts of Kirkuk, a Kurdish-controlled oil rich province, per Reuters. For more on the energy sector, check out Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest, Schwab Sector Views: Sustainable Energy? on the Market Commentary page at www.schwab.com. Political uncertainty remained elevated, with Catalonia calling for talks with the Spanish government, which is pressing it to clarify if it declared independence, while U.K.

Prime Minister Theresa May headed to Brussels to talk with European officials as Brexit negotiations remain in a deadlock. For analysis, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Market Commentary page at www.schwab.com. The euro dipped and British pound was little changed versus the U.S. dollar, while bond yields in the region lost ground.

Stocks in Asia finished mostly higher on the heels of last week's gains in the U.S. to fresh record highs, culminating with a cooler-than-expected consumer price inflation reading that kept accelerated Fed monetary policy tightening concerns in check. Japanese stocks continued to rally, for their tenth-straight session of gains, rising to levels not seen in over two decades, despite some strength in the yen as the U.S. dollar slipped. Mainland Chinese stocks declined and shares trading in Hong Kong advanced following mixed reads on inflation in September, as well as late-Friday's reports that showed lending activity topped forecasts for last month. The markets are awaiting a flood of Chinese economic data this week, headlined by its Q3 GDP report, along with the beginning of the 19th National Congress of the Communist Party. South Korean equities moved higher, while Indian and Australian securities gained ground. Schwab's Jeffrey Kleintop, CFA, and Randy Frederick discuss in the video, Are Investors Underestimating the Stock Market Rally?, on the Market Commentary page at www.schwab.com.

The international economic docket for tomorrow will yield new motor vehicle sales from Australia, CPI, PPI and house prices from the U.K., investor confidence from Germany and CPI for the Eurozone.

Markets Back to Winning Ways

Charles Schwab: On the Market

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

Markets Back to Winning Ways

 

The U.S. equity markets finished higher, despite continued domestic and global political uncertainties, and a slight cooling in small business sentiment. Dow member Wal-Mart's $20 billion share buyback plan and upbeat sales outlook gave the consumer staples sector a boost, and the hotly-contested proxy fight surrounding Dow component Procter & Gamble was also in focus. Treasury yields and the U.S. dollar were lower after recent rallies, while gold and crude oil prices were higher. 

The Dow Jones Industrial Average (DJIA) increased 70 points (0.3%) to 22,831, the S&P 500 Index gained 6 points (0.2%) to 2,551, and the Nasdaq Composite added 7 points (0.1%) to 6,587. In moderate volume, 709 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil increased $1.34 to $50.92 per barrel and wholesale gasoline was $0.03 higher at $1.59 per gallon. Elsewhere, the Bloomberg gold spot price was up $4.42 to $1,288.47 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% lower at 93.24.

Dow member Wal-Mart Stores Inc. (WMT $84) announced at its analyst day a new $20.0 billion share repurchase program and reiterated its earnings guidance for the current year. The company issued a profit outlook for the following year that had a midpoint that was below forecasts, but said it expects sales growth at or above 3.0%, driven by same-store sales and eCommerce growth. Shares rallied.

Dow component Pfizer Inc. (PFE $36) reported that it is reviewing strategic alternatives for its consumer healthcare business, with options ranging from a full or partial separation through a spin-off, as well as a sale or other transaction, but it may ultimately determine to retain the business. Shares were little changed.

Honeywell International Inc. (HON $143) announced that it plans to separately spin off its homes product portfolio and ADI global distribution business, as well as its transportation systems business, into two stand-alone, publicly-traded companies. Shares were slightly lower.

Dow member Procter & Gamble Co. (PG $92) was in focus today as the company held a highly-anticipated and hotly-contested shareholder vote. PG said after the vote that activist investor Nelson Peltz, who runs Trian Fund Management, was not elected to the company's Board. Peltz told CNBC that the vote was too close to call and Trian is awaiting certification by an independent inspector, adding that no matter how the vote goes, PG should add him to the Board. PG said it is encouraged that shareholders recognize it is a profoundly different, much stronger, more profitable company than just a few years ago. Shares finished lower.

Small business optimism declines

The National Federation of Independent Business (NFIB) Small Business Optimism Index for September fell to 103.0, from August's unrevised 105.3 level, versus the Bloomberg expectation of a dip to 105.0.

Treasuries were slightly higher, as the yield on the 2-year note was flat at 1.50%, while the yields on the 10-year note and the 30-year bond declined 1 basis point to 2.35% and 2.88%, respectively.
Bond yields and the U.S. dollar have given back some of recent rallies to multi-month highs. Uncertainty appears to be ramping up regarding if the tax-reform framework can avoid being derailed as discussed by Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend, in his article, Tax Reform Framework Released, But The Road Ahead Is Long.

Interest rates and the greenback have received a boost from elevated December Fed rate hike expectations and the Central Bank's plan to begin to shrink its massive balance sheet this month, as well as an upbeat global economic backdrop, which has also seen signs that inflation may be nudging higher. Global market attention on inflation is ramping up and Schwab's Chief Investment Strategist Liz Ann Sonders notes that with wage growth picking up and the labor market even tighter, it’s time to put even traditional measures of inflation back on the radar screen in her article, The Waiting: Wage Growth and Inflation Finally Getting in Gear?.

Also, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, points out in his commentary, Inflation May Be The Biggest Question For Investors In 2018, that central banks are behaving as if wages and inflation will revive in the year ahead. If they don’t, and central banks don’t alter their policy path, the global stock markets could be in for a rough 2018. Read these articles and other timely commentary from our Schwab experts on the Market Commentary page at www.schwab.com. Follow Liz Ann, Jeff and Schwab on Twitter: @lizannsonders, @jeffreykleintop, and @schwabresearch.

Tomorrow's economic calendar will provide investors a look at the job market via the Job Openings and Labor Turnover Survey (JOLTS), with the measure of unmet demand for labor forecasted to show 6.1 million jobs were available to be filled in August, a slight downtick from the 6.2 million posted in July, as well as MBA Mortgage Applications. In afternoon action, the Fed will release the minutes from its September monetary policy meeting.

Europe mostly lower despite data, Asia mostly higher as markets return to action
European equity markets finished mostly lower, despite stronger-than-expected manufacturing and industrial production reports out of the U.K. and a larger-than-projected rise in German exports, which likely preserved the positive global economic sentiment. However, political uncertainty continued to hamper the Spanish markets, with a speech by the Catalan leader later today being highly anticipated to see if he declares independence following last week's referendum that was deemed illegal by national authorities. After the close of the markets, the Catalan President treaded cautiously in his remarks, looking to initiate talks with the government in Madrid as opposed to an outright declaration of independence. Also, Brexit and political uncertainty in the U.K. festered as Prime Minister Theresa May's speech yesterday afternoon detailing a two-year transition period after exiting the European Union as digested as the fifth round of negotiations continue.

For analysis, see Schwab's Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick. The British pound and the euro traded higher versus the U.S. dollar and bond yields in the region finished mixed. Fed leadership uncertainty remains, along with hawkish sentiment toward the European Central Bank and the Bank of England. As such, Schwab's Jeffrey Kleintop, CFA, offers analysis in his article, How the Shift by Central Banks May Affect the Stock Market, on the Market Commentary page at www.schwab.com.

Stocks in Asia finished mostly higher despite the slip in the U.S. yesterday, with global economic optimism continuing to buoy sentiment, while Japanese markets returned to action following yesterday's holiday and South Korean markets coming back after more than a week-long break. Japanese equities advanced, and South Korean securities rallied sharply to catch up to the global markets' run over the past week. Schwab's Jeffrey Kleintop, CFA, and Randy Frederick discussion in the video, Are Investors Underestimating the Stock Market Rally?, on the Insights & Ideas page at www.schwab.com. Meanwhile, mainland Chinese stocks and those traded in Hong Kong and India all traded higher, though markets in Australia finished flat.

The international economic calendar for tomorrow will hold consumer sentiment from Australia, core machinery orders from Japan, and CPI from Spain.

Gains Garnish Stocks amid Data and Proposed Tax Overhaul

On the Market

Posted: 9/27/2017 4:15 PM EDT

Gains Garnish Stocks amid Data and Proposed Tax Overhaul

U.S. stocks gained solid ground with technology and financial shares leading an advance that followed an upbeat business spending report and an optimistic reception for the latest ambitious tax reform proposal. Treasury yields and the U.S. dollar rallied, gold was lower and crude oil prices were mixed. In earnings news, Micron topped the Streets expectations, while Dow member Nike announced quarterly results and a forecast that weighed on the blue chip index.

The Dow Jones Industrial Average (DJIA) increased 56 points (0.3%) to 22,341, the S&P 500 Index was 10 points (0.4%) higher at 2,507, and the Nasdaq Composite rallied 73 points (1.1%) to 6,453. In moderate volume, 834 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.26 to $52.14 per barrel and wholesale gasoline was $0.03 lower at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price lost $10.11 to $1,283.87 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 93.42.

Dow member Nike Inc. (NKE $53) reported fiscal Q1 earnings-per-share (EPS) of $0.57, versus the $0.48 FactSet estimate, as revenues were flat year-over-year (y/y) at $9.1 billion, roughly in line with forecasts. The company said it saw growth in international geographies and Nike Direct globally, but North American wholesale revenues declined and its gross margin fell on unfavorable changes in foreign currency exchange rates and a higher mix of off-price sales. The athletic apparel and footwear company warned that it expects North American sales to decline again in Q2 and its outlook for gross margin disappointed the Street. Shares traded solidly lower.

Micron Technology Inc. (MU $37) posted fiscal Q4 EPS of $1.99, or $2.02 ex-items, compared to the forecasted $1.82, as revenues jumped 91.0% y/y and were up 10.0% quarter-over-quarter to $6.1 billion, topping the expected $5.9 billion. The chipmaker said volumes rose and average selling prices increased. MU said it expects robust demand for its memory and storage solutions to continue into 2018 as it issued Q1 guidance that exceeded estimates. Shares rallied.

Business spending jumps again, Treasury yields and dollar rally on Fed expectations

August preliminary durable goods orders (chart) were up 1.7% month-over-month (m/m), compared to the Bloomberg estimate of a 1.0% gain, and July's 6.8% drop was unrevised. Ex-transportation, orders were 0.2% higher m/m, in line with forecasts and versus July's upwardly revised 0.8% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, rose 0.9%, well above projections of a 0.3% increase, and following the upwardly revised 1.1% rise posted in the month prior. The volatile component of nondefense aircraft and parts orders jumped to bolster the headline figure, along with a rebound in demand for motor vehicles and parts. Orders for communications equipment jumped and machinery ticked higher, while demand for computers dropped and electrical equipment and appliances was little changed

The highlight of the report is likely the back-to-back monthly jump in the business spending component, which adds credence to our view in the latest Schwab Market Perspective: A Cat and Mouse Fall, that both domestic and global economic and earnings growth continues to look healthy and we expect the bull market to continue. Read more on the Market Commentary page at www.schwab.com and follow us on Twitter: @schwabresearch.

The MBA Mortgage Application Index declined 0.5% last week, following the prior week's 9.7% drop. The decrease came as a 3.5% drop in the Refinance Index more than offset a 2.8% gain for the Purchase Index. The average 30-year mortgage rate rose 7 basis points (bps) to 4.11%.

Pending home sales fell 2.6% m/m in August, versus projections of a 0.5% decline, and following the unrevised 0.8% decrease registered in July. Compared to last year, sales were 3.1% lower. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which unexpectedly fell in August due to inadequate levels of available inventory and the upward pressure it's putting on prices.

Treasuries were lower, with the yield on the 2-year note rising 2 bps to 1.48%, the yield on the 10-year note gaining 7 bps to 2.30%, and the 30-year bond rate advancing 8 bps to 2.85%.
Treasury yields rallied, with the 10-year rate hitting a two-month high, and the U.S. Dollar Index jumped to levels not seen in over a month. Fiscal policy focus appears to be heating up as the markets began to digest the release of tax-reform proposal details, while expectations of a Fed rate hike in December were bolstered by yesterday's speech by Federal Reserve Chairwoman Janet Yellen, which seemed to foster a hawkish reaction. The comments come on the heels of last week's Fed monetary policy decision, after which its statement was viewed as a bit more hawkish, as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her commentary, The Fed's on the QT, on the Market Commentary page at www.schwab.com, where you can also find Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market. Follow Liz Ann and Jeff on Twitter: @lizannsonders and @jeffreykleintop.

Amid the backdrop of a plethora of things for the market to worry about, Schwab's Liz Ann Sonders discusses the market's resiliency in her article, Comfortably Numb? An Update on Investor Sentiment, on the Market Commentary page at www.schwab.com.

Tomorrow, the U.S. economic calendar will remain busy, beginning with four major releases an hour prior to the opening bell. Early reports include the third and final read for Q2 GDP, with economists anticipating no revision to the quarterly 3.0% annualized growth rate in the second release, weekly initial jobless claims, forecasted to tick higher to 270,000 from the prior week's 259,000, the advanced goods trade balance, estimated to show that the deficit widened in August to $65.1 billion, and preliminary wholesale inventories for August, expected to have increased by 0.4% after registering a 0.6% rise for July's final print. Rounding out the day will be the September Kansas City Fed Manufacturing Index, anticipated to have decreased to a level of 15 from 16 in August, with a reading above 0 indicating expansion in activity.

Europe higher and Asia mixed amid Fed expectations

Most European equity markets finished higher, with the euro and British pound losing ground versus the U.S. dollar, which rallied on some upbeat economic data and yesterday's speech by Fed Chief Janet Yellen that bolstered expectations of a December rate hike. Bond yields in the region moved noticeably to the upside to boost the financial sector. In economic news, Italian economic and consumer confidence both topped forecasts in September. 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 as the markets grappled with heightened rate hike expectations in the U.S. following the Fed Chair's speech yesterday, while shares in China and Hong Kong gained ground following an upbeat read on the nation's industrial profits. Japanese equities declined, though losses may have been limited by continued weakness in the yen as the U.S. dollar has rallied as of late. Indian stocks extending their losing streak to seven sessions as recent economic data has fostered concerns and the markets continue to retreat from record highs. South Korean and Australia securities ticked lower. For analysis of global investing amid this backdrop, see Schwab's 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 at www.schwab.com.

The international economic docket for tomorrow will yield reports on job vacancies in Australia, CPI from South Korea, CPI and GfK Consumer Confidence from Germany and consumer confidence from the Eurozone.

Stocks Little Changed Amid Data and Geopolitical Developments

Charles Schwab: On the Market

Posted: 9/22/2017 4:15 PM EDT

Stocks Little Changed Amid Data and Geopolitical Developments

 

U.S. stocks finished nearly unchanged to round up the trading week as the markets grappled with flared up tensions in regard to North Korea and as international and domestic business activity reports painted a positive global growth picture. Treasury yields and the U.S. dollar pared a weekly advance, while gold was higher and crude oil prices were mixed. In equity news, Texas Instruments raised its dividend and CarMax rallied after topping quarterly expectations.

The Dow Jones Industrial Average (DJIA) decreased 10 points (0.1%) to 22,350, the S&P 500 Index added 2 points (0.1%) to 2,502, and the Nasdaq Composite ticked 4 points higher (0.1%) to 6,427. In light to moderate volume, 719 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil added $0.11 to $50.66 per barrel and wholesale gasoline was $0.02 higher at $1.63 per gallon. Elsewhere, the Bloomberg gold spot price increased $5.80 to $1,297.00 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% lower at 92.18. Markets were mixed for the week, as the DJIA gained 0.4%, the S&P 500 Index ticked 0.1% higher and the Nasdaq Composite declined 0.3%.

Dow member McDonald's Corp. (MCD $159) announced a 7.0% increase to its quarterly dividend to $1.01 per share, while Texas Instruments Inc. ( TXN $88) reported that it will boost its quarterly dividend by 24.0% to $0.62 per share and a $6.0 billion addition to its share repurchase program. MCD dipped, while TXN gained solid ground.

CarMax Inc. (KMX $73) reported fiscal Q2 earnings-per-share (EPS) of $0.98, versus the $0.95 FactSet estimate, as revenues rose 9.7% year-over-year (y/y) to $4.4 billion, above the expected $4.3 billion. Q2 same-store sales of used autos grew 5.3% y/y, compared to the 5.0% increase that was expected. Shares are rallied.

Preliminary September business activity reports mixed but continue to signal growth

The preliminary Markit U.S. Manufacturing PMI Index showed expansion in output accelerated after rising to 53.0 in September, from August's 52.8 level, matching the Bloomberg expectation. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector this month slowed more than expected, declining to 55.1 from August's 56.0 level, versus forecasts calling for a dip to 55.7.

Readings above 50 for both reports denote expansion in activity and the data followed Markit's eurozone manufacturing and services growth that topped forecasts. All of the world's top 20 economies are growing this year, a rare occurrence over the last decade and a key component to our positive global outlook for earnings right now as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick in the video, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page at www.schwab.com. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Treasuries were mostly higher, with the yield on the 2-year note flat at 1.44%, while the yield on the 10-year note declined 2 basis points (bps) to 2.26% and the 30-year bond rate dipped 1 bp to 2.80%.
Bond yields and the U.S. dollar experienced volatility following Wednesday's decision by the Fed to hold interest rates steady, discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her latest commentary, The Fed's on the QT, on the Market Commentary page at www.schwab.com. Liz Ann notes that the Fed, as expected, left rates unchanged but announced it would start to shrink its balance sheet in October. On balance, the statement was seen as more hawkish than expected, with the majority of FOMC participants expecting at least one more rate hike this year. We continue to believe a December rate hike remains firmly on the table given continued strength in the labor market and some signs that inflation is getting a lift. In addition, since the Fed began raising interest rates in late-2015, financial conditions have actually loosened—giving the Fed the runway to continue tightening policy. Follow Liz Ann on Twitter: @lizannsonders.

North Korean concerns flared-up after the country issued a threat that it could test another hydrogen bomb over the Pacific. The threat comes as U.S. President Donald Trump offered some tough commentary toward the nation in his speech at this week's United Nations gathering. Schwab's Chief Global Investment Strategist 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 page at www.schwab.com, and follow Jeff on Twitter: @jeffreykleintop.

Europe mostly higher and Asia mostly lower amid geopolitical uneasiness
Most European equity markets finished higher, with some upbeat economic data in the region helping overshadow flared up risk aversion on new threats by North Korea. Markit's preliminary Eurozone Composite PMI Index—a gauge of activity in both the manufacturing and services sectors—improved to 56.7 in September from 55.7 in August, and versus the projected dip to 55.6. A reading above 50 denotes expansion and German manufacturing activity was a standout in the report as its index unexpectedly rose to a level above 60. The euro ticked higher versus the U.S. dollar following the data and as the greenback was hampered by the geopolitical uneasiness. The markets mostly shrugged off some political uncertainty ahead of this weekend's national election in Germany and as today's highly anticipated Brexit speech from U.K. Prime Minister Theresa May appeared to disappoint as it lacked details on the path to leave the European Union. The British pound saw pressure following May's speech. For analysis of the political front see Schwab's Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's 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.?.

Global monetary policy remained in focus as the Fed this week signaled a December rate hike remains in play, while the European Central Bank and Bank of England have offered hawkish signals as of late. Schwab's Jeffrey Kleintop, CFA, notes in his latest article, How the Shift by Central Banks May Affect the Stock Market, despite the coming shift by central banks towards trimming/tapering their balance sheets, we don't believe the bull market is at risk. Read more on the Market Commentary page at www.schwab.com, including Jeff's point that earnings, not easing, remain the key support for stock markets around the world. Bond yields in the region were relatively flat.

Stocks in Asia finished mostly to the downside amid a reversal as new bomb testing threats by North Korea caused geopolitical tensions to flare up and bolster risk aversion. Schwab's Liz Ann Sonders offers analysis of the tensions toward North Korea in her article, Twist and Shout: United States Takes on North Korea … Implications for Stocks, on the Market Commentary page at www.schwab.com. The yen rallied in the final hours of trading and Japanese equities declined. Shares trading in mainland China and Hong Kong fell, with the geopolitical uneasiness being met with a downgrade of China's credit rating by Standard & Poor's. South Korean stocks decreased and Indian equities dropped. However, strength in financials helped lift Australian securities higher.

Stocks mixed as a plethora issues persist

Stocks finished the week mixed but still remained near record high territory as the markets took a plethora of traditional market-moving events relatively in stride. The U.S. dollar spiked briefly and Treasury yields continued a recent rally on the heels of the Fed's perceived hawkish monetary policy statement. However, both pared gains in the second-half of the week as geopolitical concerns were revived after President Trump's stern warning at this week's UN gathering appeared to prompt a threat of another hydrogen bomb test by North Korea. Natural disasters remained in focus as U.S. homebuilder sentiment, housing construction activity, and existing home sales were impacted by Hurricanes Harvey and Irma, Maria hit the already ravaged Caribbean, and Mexico was rocked by a deadly earthquake.

Telecommunications stocks led to the upside, bolstered by merger chatter regarding T-Mobile US Inc. (TMUS $64) and Sprint Corp. (S $9), which appeared to ease heated up price competition concerns. Financials posted a solid gain on the rise in bond yields, and energy issues gained ground as crude oil prices posted a third-straight weekly gain. However, the rise in interest rates weighed on real estate and utilities issues, while technology issues declined on the choppiness in the U.S. dollar and pressure on Dow member Apple Inc. (AAPL $152) amid concerns following last week's new iPhone launch. Best Buy Co. Inc's (BBY $54) disappointing long-term outlook and Bed Bath & Beyond Inc's (BBBY $23) decisive earnings miss and lowered guidance hamstrung the consumer discretionary sector. General Mills Inc's (GIS $51) results preserved concerns toward the packaged foods market to hamper the consumer staples sector. Healthcare issues moved lower amid the volatile biotech sector as discussed by Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, in his latest, Schwab Sector Views: Biotech Bonanza or Bust?, on the Insights & Ideas page at www.schwab.com.

Next week, the U.S. economic calendar will bring some key data points for the markets to digest, courtesy of Consumer Confidence, preliminary durable goods orders, personal income and spending, as well as the final look at Q2 GDP. A host of Fedspeak is poised to garner attention, headlined by Fed Chairwoman Janet Yellen's speech on inflation, uncertainty and monetary policy, which will include a Q&A segment. As noted in the latest Schwab Market Perspective: A Cat and Mouse Fall, volatility has ramped up a bit in the traditionally-slow final weeks of summer, which could be a preview of a bumpy fall for investors. Solid economic data and strong corporate earnings should allow the bull market to continue, but fiscal and monetary uncertainties present risks. Read more on the Market Commentary page at www.schwab.com, and follow us on Twitter: @schwabresearch.

International reports due out next week that deserve a mention include: China—Caixin China PMI Manufacturing Index and industrial profits. Japan—PMI Manufacturing Index, household spending, retail sales, industrial production and consumer price inflation. Eurozone—consumer price inflation estimate, along with German business confidence and retail sales. U.K.—Q2 GDP.

Stocks Add to Record Highs

Charles Schwab: On the Market

Posted: 9/18/2017 4:15 PM ET

Stocks Add to Record Highs

U.S. equities extended recent record highs, continuing to show resiliency against lingering geopolitical and political concern, as well as monetary policy uncertainty ahead of decisions from the Fed and Bank of Japan this week. Treasury yields extended last week's run and the U.S. dollar was higher amid softer-than-expected home-builder sentiment, while gold was lower and crude oil prices gained slight ground.

The Dow Jones Industrial Average (DJIA) increased 63 points (0.3%) to 22,331, the S&P 500 Index gained 4 points (0.2%) to 2,504, and the Nasdaq Composite increased 6 points (0.1%) to 6,455. In moderate volume, 821 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.02 higher to $49.91 per barrel and wholesale gasoline gained $0.01 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price declined $11.73 to $1,308.46 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 92.08.

Northrop Grumman Corp. (NOC $262) announced an agreement to acquire aerospace and defense technology company, Orbital ATK Inc. (OA $132), for $134.50 per share or about $7.8 billion in cash plus the assumption of $1.4 billion in net debt. NOC said the deal is expected to be accretive to earnings-per-share (EPS) in the first full year after the deal closes, which is expected in the first half of 2018. NOC was nicely higher and OA rallied sharply.

Home-builder sentiment drops to kick off economic week headlined by Fed

The National Association of Home Builders (NAHB) Housing Market Index showed home-builder sentiment this month fell to 64, versus the Bloomberg forecast calling for it to match August's downwardly-revised 67 level. However, the index sits well above the 50 mark, the point of separation for good versus poor conditions. The NAHB said the recent hurricanes have intensified its members' concerns about the availability of labor and the cost of building materials, but once the rebuilding process is underway builder confidence is expected to return to the high levels seen this spring.

Tomorrow, we will get a look at August housing construction activity in the form of housing starts and building permits, with starts projected to rebound 1.7% month-over-month (m/m) to an annual rate of 1,174,000 units after July's 4.8% drop (economic calendar). Permits are expected to dip 0.8% to an annual rate of 1,220,000 units following the prior month's 4.1% fall. Also on tap is the Import Price Index, forecasted to have increased 0.4% m/m during August following the 0.1% rise seen in July.

Schwab's Chief Investment Strategist Liz Ann Sonders points out in her article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", that we expect to see a dip in economic activity in the short-term, followed by a boost associated with the recovery/rebuilding efforts. She adds that real estate has been one of most consistent beneficiaries in the subsequent three-to-twelve months following the 10 costliest U.S. hurricanes. We believe the impact will unlikely dent the Fed's plans to continue monetary policy normalization. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter:@lizannsonders.

Treasuries were lower, as the yield on the 2-year note ticked 1 basis point (bp) higher to 1.39%, while the yields on the 10-year note and the 30-year bond gained 3 bps to 2.23% and 2.80%, respectively.

Bond yields rebounded sharply last week after hitting levels not seen since November and the U.S. dollar recovered modestly from multi-year lows, as an ongoing positive economic backdrop was met with consumer price inflation accelerating in August to keep the possibility of a December Fed rate hike in play. Also, The Bank of England (BoE) and European Central Bank (ECB) has signaled they may start to tighten highly accommodative monetary policy, the markets shrugged off another missile test by North Korea, and economic cost estimates of Hurricane Irma appeared to be less than feared.

Schwab's Chief Fixed Income Strategist, Kathy Jones, and Vice President of Trading and Derivatives, Randy Frederick, provide analysis of the bond markets in the video, The Economy is Picking Up, But Bond Yields Are Falling—What's That About?, on the Insights & Ideas page and follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Schwab's Chief Global Investment Strategist 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.

This sets the stage for Wednesday's monetary policy decision from the Federal Open Market Committee (FOMC) (economic calendar). As noted in the latest Schwab Market Perspective: A Cat and Mouse Fall, the Fed is playing their own internal cat and mouse game with some officials citing low inflation as a reason to delay further tightening; while others want to stay on the steady path toward normalization, due to the tighter labor market. We continue to believe that the start to the slow winding down of the Fed's massive balance sheet will be announced this week; but that an additional rate hike before year end remains in question. We continue to believe the Fed's "quantitative tightening" (QT) could be the cause of some heightened volatility. Read more on the Markets & Economy page at www.schwab.com.

Europe and Asia move higher to begin the week

European equity markets traded higher, continuing to shrug off lingering geopolitical concerns, while monetary policy decisions from the Fed and Bank of Japan this week were in focus but appeared to not stymie conviction. The British pound gave back some of last week's surge against the U.S. dollar as the Bank of England (BoE) signaled that it may raise rates in the coming months. The pound lost ground despite BoE Governor Carney reiterating that a rate hike could be in the offing. The euro gave up modest gains and dipped late in the session even as the European Central Bank is expected to announce the start of dialing back its stimulus measures this fall. Bond yields in the region were mostly higher, except for in Portugal, which fell sharply after the nation received an upgrade of its credit rating to investment grade by Standard & Poor's. In economic news, eurozone consumer price inflation rose in line with expectations for August.

For a look at global investing, see Schwab's Jeffrey Kleintop's, CFA, article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page.

Stocks in Asia finished higher amid the recent global market resiliency in the face of festering North Korean tensions and monetary policy uncertainty, though attention on this week's Fed and Bank of Japan decisions ramped up. The yen continued to lose ground on the U.S. dollar, but markets in Japan were closed for a holiday. Mainland Chinese stocks rose modestly and those traded in Hong Kong rallied, as late-Friday's stronger-than-expected lending statistics were met with today's report showing August home prices cooled to ease concerns about further government efforts to curb housing activity. Markets in Australia advanced, led by financials, South Korean listings jumped and Indian equities gained ground in the wake of the nation's upbeat August trade report after Friday' close. Both South Korean and Indian markets moved back to near record highs and Schwab's Jeffrey Kleintop, CFA, offers his article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over, on the Markets & Economy page at www.schwab.com. 

Stocks Take a Mid-Week Breather

Charles Schwab: On the Market

Posted: 9/13/2017 4:15 PM ET

Stocks Take a Mid-Week Breather

U.S. stocks paused a bit from the recent two-day run, but still registered mild gains as another subdued inflation report hit the Street and participants await tomorrow's Bank of England monetary policy decision. Treasury yields continued to rise from multi-month lows and the U.S. dollar furthered its fresh advance. Geopolitical concerns seemingly continued to ease and cost assessments related to the aftermath of Hurricane Irma have been relatively favorable. Crude oil prices were higher and gold experienced a minor decline.

The Dow Jones Industrial Average (DJIA) increased 39 points (0.2%) to 22,158, the S&P 500 Index added 2 points (0.1%) to 2,498, and the Nasdaq Composite ticked 6 points (0.1%) higher to 6,460. In moderate volume, 820 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.07 to $49.30 per barrel and wholesale gasoline moved $0.01 lower to $1.65 per gallon. Elsewhere, the Bloomberg gold spot price lost $9.90 to $1,321.92 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 92.45.

American Airlines Group Inc. (AAL $47) lowered its Q3 guidance for the key industry metric of total revenue per available seat mile (TRASM) and pre-tax profit margin. The airline cited the impact of Hurricane Irma, which caused more than 5,000 flight cancelations amid closures at 40 airports in Florida and the Caribbean, including its hub at Miami International Airport. Shares traded higher after airline stocks took a hit leading up to Hurricane Irma's landfall and as early estimates of the economic cost impact have been less than projected.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", we expect to see a dip in economic activity in the short-term, followed by a boost associated with the recovery/rebuilding efforts, and the impact will unlikely dent the Fed's plans to continue monetary policy normalization. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

CNBC reported that Nordstrom Inc. (JWN $48) is in talks with private equity firm Leonard Green & Partners regarding a buyout which would take the retailer private, per people familiar with the matter. Neither entity has commented on the report. Shares were nicely higher.

Centene Corp. (CNC $98) announced an agreement to acquire substantially all of the assets of privately-held health insurer Fidelis Care for $3.75 billion, subject to certain adjustments, allowing the company to enter the New York Market. CNC rallied.

Shares of Western Digital Corp. (WDC $86) fell after Toshiba Corp's (TOSYY $18) announcement to enter into a memorandum of understanding (MoU) to speed up talks regarding the sale of its memory chip unit with a rival group led by Bain Capital Private Equity LP. WDC said it was disappointed with Toshiba's actions. WDC is leading a group bidding to acquire Toshiba's chip unit.

Wholesale price inflation misses forecasts, mortgage applications jump

The Producer Price Index (PPI) (chart) showed prices at the wholesale level in August were up 0.2% month-over-month (m/m), versus the Bloomberg expectation to rise 0.3%, after July's unrevised 0.1% dip. The core rate, which excludes food and energy, rose 0.1%, compared to forecasts of a 0.2% advance and July's unrevised 0.1% decline. Y/Y, the headline rate was 2.4% higher, below projections of a 2.5% increase, and the core PPI rose 2.0% last month, south of estimates of a 2.1% gain. In July, producer prices were 1.9% higher and up 1.8% for the headline and core rates, respectively.

Tomorrow, the economic calendar will complete the picture of the August inflation landscape with the release of the Consumer Price Index, projected to rise 0.3% and 0.2% m/m for the headline and core rates respectively, accelerating from the 0.1% gains posted in July. Y/Y, prices are expected to be 1.8% and 1.6% higher respectively, after the 1.7% gains registered the month prior and below the Fed's target 2.0% rate. Stubbornly low inflation has caused expectations for another Fed rate hike this year to fade, but the Central Bank is still expected to announce the beginning of shrinking its gargantuan $4.5 trillion balance sheet following next week's monetary policy meeting.

As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, how the Fed ultimately threads the needle and when it begins the process of unwinding its balance sheet will be closely watched and could result in times of increased market volatility. Read more on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

The MBA Mortgage Application Index jumped 9.9% last week, following the previous week's 3.3% gain. The increase came as an 8.9% rise in the Refinance Index was met with a 10.9% gain for the Purchase Index. The average 30-year mortgage rate declined 3 basis points (bps) to 4.03%.

Treasuries dipped, with the yields on the 2-year note and the 30-year bond ticking 2 bps higher to 1.35% and 2.79%, respectively, while the yield on the 10-year note advanced 3 bps to 2.19%. For analysis of the bond markets, see 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. Follow Kathy on Twitter: @kathyjones.

Bond yields and the U.S. dollar have rebounded this week from the former's November lows and the latter's levels not seen since early 2015, aided by eased geopolitical and domestic political concerns, as well as less-than-feared estimates of the economic cost impact of Hurricane Irma.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend points out in his article, Debt Ceiling Deal Pushes Showdown in Congress to December, with the debt ceiling debate being extended to December, we continue to believe that tax reform won't get resolved until the first part of 2018. Read more on the Insights & Ideas page at www.schwab.com and follow us on Twitter: @schwabresearch.

Finally, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, adds 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 and follow Jeff on Twitter: @jeffreykleintop.

Tomorrow's domestic docket will also include weekly initial jobless claims, expected to have increased by 2,000 to a level of 300,000.

Europe and Asia mixed

European equity markets pulled back modestly in late-day action to finish mixed, with the Stoxx Europe 600 Index finishing flat after posting five sessions of gains. Energy stocks traded to the upside as crude oil prices moved higher. However, mining issues finished lower amid weakness in industrial metals prices, bogging down U.K. stocks, along with caution ahead of tomorrow's monetary policy decision by the Bank of England (BoE). Ahead of the decision, U.K. employment growth topped forecasts for July, but wage growth lagged estimates, on the heels of yesterday's hotter-than-expected inflation statistics. Technology stocks were choppy after rallying into yesterday's Apple iPhone unveiling, which appeared to foster some concerns about the timing of when customers can place orders for the device. The euro and the British pound fell versus the U.S. dollar and bond yields in the region finished mixed. In other economic news, eurozone industrial production rose modestly in July to match expectations.

For a look at global investing, see Schwab's Jeffrey Kleintop's, CFA, article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Vice President of Trading and Derivatives, Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Randy on Twitter: @randyafrederick.

Stocks in Asia finished mixed after a couple days of gains that came courtesy of eased geopolitical concerns and estimates suggesting the economic cost impact in the U.S. of Hurricane Irma will be smaller than expected. Tech stocks finished mixed as the markets digest Apple's new iPhone launch, with some expressing concerns over the late timing of pre-order and on-sale dates. Also, the markets awaited tomorrow's BoE monetary policy decision and inflation data in the U.S. Japanese stocks extending a string of gains as the yen held onto recent weakness, while Indian shares ticked higher, despite late reports from yesterday showing consumer price inflation was slightly hotter than expected and industrial production growth missed forecasts. Australian securities finished flat and South Korean equities declined. Mainland Chinese stocks nudged higher, while shares in Hong Kong declined. For analysis of the global markets, see Schwab's Jeffrey Kleintop's, CFA, article, What are fund flows telling us about trends and risks in the global stock market?, as well as his commentary, An important benefit to global investors is back after 20 years, on the Markets & Economy page at www.schwab.com.

The international economic calendar for tomorrow will lead with consumer inflation and employment data from Australia, retail sales and industrial production from China, industrial production and capacity utilization from Japan and wholesale prices from India. Limited releases from across the pond will include CPI from Italy and France, as well as the aforementioned Bank of England monetary policy decision.

Eased Anxieties Help Stocks Rally

Charles Schwab: On the Market

Posted: 9/11/2017 4:15 PM ET

Eased Anxieties Help Stocks Rally

The U.S. equity markets rallied, courtesy of eased geopolitical concerns amid a pause in North Korean missile tests, and as early economic assessments of losses in the aftermath of Hurricane Irma are less than feared. Treasury yields continued to recover from multi-month lows, giving financials a boost, while the U.S. dollar also rebounded from multi-year lows. Crude oil prices were higher, while gold was solidly lower.

The Dow Jones Industrial Average (DJIA) jumped 260 points (1.2%) to 22,057, the S&P 500 Index was 27 points (1.1%) higher at 2,488, and the Nasdaq Composite rallied 72 points (1.1%) to 6,432. In moderate volume, 795 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.59 to $48.07 per barrel and wholesale gasoline lost $0.02 to $1.63 per gallon. Elsewhere, the Bloomberg gold spot price dropped $18.97 to $1,327.62 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 91.87.

Insurance stocks got a boost as the markets assessed the impact of Hurricane Harvey in Texas two weeks ago and Hurricane Irma that hammered the Caribbean and made landfall in Florida over the weekend. Early reports are suggesting Irma's costs will likely be less than feared as the storm has been downgraded to a tropical storm. Airlines and travel companies also found support.

Pilgrim's Pride Corp. (PPC $28) announced an agreement to acquire poultry and prepared foods supplier Moy Park from Brazil's JBS SA (JBSAY $5) for about $1.0 billion. PPC said the acquisition is expected to be immediately accretive to earnings per share. PPC finished lower.

Teva Pharmaceutical Industries Ltd. (TEVA $19) rallied nearly 20% after the generic drug company named Kare Schultz as its new Chief Executive Officer (CEO), the former CEO of Danish drugmaker H. Lundbeck (HLUYY $57). HLUYY was sharply lower.

Treasury yields and the U.S. dollar regaining footing

Treasuries were lower amid a dormant economic calendar, as the yield on the 2-year note increased 6 basis points (bps) to 1.32%, while the yields on the 10-year note and the 30-year bond gained 8 bps to 2.13% and 2.75%, respectively. For analysis of the bond markets, see 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. Follow Kathy on Twitter: @kathyjones.

Treasury yields and the U.S. dollar rebounded from recent weakness that took the former to levels not seen since November and the latter to well over a two-year low, as risk aversion eases with North Korea holding off on another missile test and the impact of Hurricane Irma appears to less than feared. Downside pressure on bond yields and the greenback has come amid fading expectations of another Fed rate hike this year and as the euro surged in the wake of the European Central Bank's signal that it will likely begin discussions of tapering stimulus measures at its meeting next month

This sets the stage for this week's economic calendar to likely regain some focus, beginning with tomorrow's NFIB Small Business Optimism Index, forecasted to show a slight downtick to a level of 104.8 for August from the 105.2 posted in July, as well as the Job Openings and Labor Turnover Survey (JOLTS) report, with economists expecting the measure of unmet demand for labor to have fallen to 5.8 million jobs available to be filled in July from the 6.2 million registered in June. Stubbornly low inflation, which has kept Fed rate expectations hamstrung, will also be on display this week, courtesy of the releases of the Consumer Price Index (CPI) and Producer Price Index (PPI) for August. The all-important U.S. consumer will also garner attention as the markets digest the August retail sales report and the preliminary September University of Michigan Consumer Sentiment Index. The docket will also bring industrial production and capacity utilization.

As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, action is about to heat up as summer comes to an end but investors should remain cool. Geopolitical threats, domestic politics, and Federal Reserve actions all have the potential to add to volatility and heightens the risk of a pullback or correction. But healthy economic growth and strong corporate earnings lead us to believe that the bull market has legs. Read more on the Markets & Economy page at www.schwab.com.

Europe and Asia higher as geopolitical concerns fade and Irma downgraded

European equity markets gained solid ground, with the lack of another missile test by North Korea easing geopolitical concerns, while assessments of the U.S. economic impact of Hurricane Irma were preliminarily reported to be less than estimated as it was downgraded to a tropical storm. Insurance and travel companies got a boost, while sentiment also found some support from upbeat data out of China and Japan. The euro gave back some of a recent surge to near a three-year high versus the U.S. dollar, while bond yields recovered to also bolster the financial sector. The British pound dipped versus the greenback ahead of this week's Bank of England monetary policy decision. In economic news, Italian industrial production rose more than expected. For a look at global investing, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Vice President of Trading and Derivatives, Randy Frederick, 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 higher as North Korea held off on conducting another missile test, which is easing geopolitical concerns, while early reports of the impact of Hurricane Irma in the U.S. are suggesting the costs will be less than feared. 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. Moreover, Japan posted much stronger-than-expected machine orders—a gauge of capital spending—for July, while China's CPI and PPI figures topped forecasts. Japanese equities rallied, with the yen giving back some recent gains, while stocks in China and Hong Kong rose, as sentiment also gets a boost from reports that the People's Bank of China intends to ease requirements for financial institutions. Meanwhile, markets in South Korea, Australia and India also advanced.

Tomorrow's international economic calendar will mostly focus on reports out of the U.K., with the island nation set to release CPI, PPI, housing prices and the Retail Price Index.