Stocks Mixed in Subdued Action Ahead of Thanksgiving

Charles Schwab: On the Market

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

Stocks Mixed in Subdued Action Ahead of Thanksgiving 

 

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

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

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

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

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

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

Durable goods orders mixed, Fed releases its recent meeting minutes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Stocks Finish Mostly lower, Snap Weekly Winning Streaks

On the Market

Posted: 11/10/2017 4:15 PM EST

Stocks Finish Mostly lower, Snap Weekly Winning Streaks

 

U.S. stocks came off the worst levels of the day, but still finished the regular trading session mostly lower as the major domestic indexes snapped their recent weekly winning streaks with market participants weighing the potential for tax reform after the Senate released its plan yesterday. Treasury yields advanced and the U.S. dollar ticked lower, while crude oil prices and gold also lost ground. In equity news, Dow member Walt Disney's outlook overshadowed its softer-than-expected quarterly results, while J.C. Penney and NVIDIA rallied following their earnings reports. 

The Dow Jones Industrial Average (DJIA) declined 40 points (0.2%) to 23,423, the S&P 500 Index was 2 points (0.1%) lower at 2,582, and the Nasdaq Composite ticked nearly 1 point higher to 6,751. In moderate volume, 853 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.43 to $56.74 per barrel and wholesale gasoline was $0.01 lower at $1.81 per gallon. Elsewhere, the Bloomberg gold spot price was $9.49 lower at $1,275.58 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% lower at 94.39. Markets were lower for the week, as the DJIA decreased 0.5%, while the S&P 500 Index and the Nasdaq Composite declined 0.2%.

Dow member Walt Disney Co. (DIS $105) reported fiscal Q4 earnings-per-share (EPS) of $1.13, or $1.07 ex-items, versus the $1.15 FactSet estimate, as revenues declined 3.0% year-over-year (y/y) to $12.8 billion, below the projected $13.3 billion. Revenues at its media and networks unit missed expectations, along with its studio segment, while its parks and resorts topped forecasts. The Street appears to be positive about the company's outlook that included the announcement of new Star Wars Trilogy, details of its new streaming service that will launch in the new year, and investments to bolster its parks and resorts division that was the lone segment to show growth in Q3. Shares traded nicely higher.

J.C. Penney Co. Inc. (JCP $3) posted a Q3 loss of $0.41 per share, or $0.33 per share ex-items, compared to the expected $0.42 shortfall that the Street had projected, with revenues decreasing 1.8% y/y to $2.8 billion, roughly in line with estimates. Q3 same-store sales increased 1.7% y/y, well above the forecasted 0.6% gain. The company said it took aggressive actions to clear slow-moving inventory, allowing for an improved apparel assortment heading into the holiday season. Shares rallied.

NVIDIA Corp. (NVDA $216) announced Q3 EPS of $1.33, above the expected $0.95, with revenues jumping 32.0% y/y to $2.6 billion, topping the estimated $2.4 billion. The chip company issued Q4 guidance that bested forecasts and it increased its quarterly dividend by 7.1% to $0.15 per share. Shares gained solid ground.

Hertz Global Holdings Inc. (HTZ $20) reported Q3 earnings of $1.12 per share, or $1.42 ex-items, versus the estimated $1.35, as revenues rose 1.0% y/y to $2.6 billion, roughly in line with projections. The company said its operating turnaround plan, focused on growth through enhanced fleet, service, brands and technology, is showing encouraging progress. Shares traded solidly lower.

Consumer sentiment surprisingly declines from 13-year high 

The preliminary University of Michigan Consumer Sentiment Index (chart) pulled back from a 13-year high, dropping to 97.8 in November, from 100.7 in October, and compared to the Bloomberg expectation of an improvement to 100.8. The current economic conditions and expectations components of the report both fell. The 1-year inflation forecast rose to 2.6% from October's 2.4% rate, while the 5-10 year inflation outlook remained at the prior month's level of 2.5%.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers timely analysis of the all-important consumer heading into the key holiday period in his latest, Schwab Sector Views: 'Tis the Season…Almost. Brad notes that the status of the American consumer is vital to the overall economy, and the holiday season can go a long way to determining the fate of retailers. Low unemployment, increasing wages, and high confidence among consumers paint a positive picture for both the holiday season and the overall economy. The retail sector may not be as dire as you have been led to believe.

Treasuries traded lower with the yield on the 2-year note rising 3 basis points (bps) to 1.66%, the yield on the 10-year note gaining 6 bps to 2.40%, and the 30-year bond rate advancing 7 bps to 2.88%.

The U.S. dollar came under pressure and Treasury yields gave up gains yesterday as volatility ramped up along with tax reform uncertainty. This stemmed from the Senate unveiling its tax bill details, which differed in some key areas from the last week's House bill, notably its call for a delay of the corporate tax cut to until 2019. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend delivers his latest commentary, Tax Reform: Key Differences Between the Senate and House Plans, noting that we continue to suggest that investors take no action at this time. Investors need to understand that the bill can and will change dozens of times in the weeks ahead, making specific analysis of how the bill affects any particular taxpayer’s situation nearly impossible. Until we have more detail, investors should not overreact. And while the bills are beginning to move forward, passage of tax reform remains far from a certainty.

Europe extends yesterday's drop, Asia mostly lower

Most European equity markets added to yesterday's drop, with exacerbated U.S. tax reform uncertainty, which led to a jump in volatility on Thursday, festering to stymie sentiment. Also, U.K. Brexit negotiations continued but remain in a deadlock and the markets digested a mixed bag of earnings and economic reports. U.K. and French manufacturing and industrial production data all came in stronger than expected, while the U.K. trade deficit narrowed. The euro and the British pound rose versus the U.S. dollar, while bond yields in the region moved higher. For a look at global stock 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?.

Stocks in Asia finished mostly lower following the declines and ramped up volatility in the U.S. yesterday as tax reform uncertainty was exacerbated by the Senates bill that differed in several key areas from the House's plan. The yen gained ground on the increase in volatility to weigh on Japanese equities. South Korean and Australian securities declined. Mainland Chinese shares ticked higher as U.S. President Trump continued his tour of Asia and on the heels of the government's announcement that it will ease limits on foreign equity ownership, while stocks trading in Hong Kong dipped. Indian equities gained ground ahead of a read on industrial production. After the closing bell, India's industrial production rose by a smaller amount than expected for September. With volatility relatively flaring up to hamper the global markets, Schwab's Jeffrey Kleintop, CFA, and Randy Frederick discuss in the video, Is An Optimistic Outlook for Global Equities Warranted?.

Stocks snap winning streak as data yields to fiscal concerns

U.S. stock markets snapped a string of 8-straight weekly gains with the economic docket relatively quiet and earnings season winding down to open the door further for fiscal uncertainty to shape market action. Last week's House tax-reform bill continued to garner scrutiny and uncertainty regarding a timely passage was exacerbated by the Senate's plan that differed substantially and caused volatility to flare up. Financials fell despite gains in Treasury yields and healthcare stocks saw some pressure amid the political uneasiness, while technology issues, which have led the global rally, slipped. The U.S. dollar came under modest pressure as risk aversion nudged higher in the second-half of the week. Over 90% of S&P 500 companies have reported and 67% have topped revenues forecasts and 77% have bested earnings estimates, per data compiled by Bloomberg.

Next week's economic calendar will heat back up, with inflation a focus courtesy of the Producer Price Index (PPI) and Consumer Price Index (CPI), and the consumer heading into the holiday season in the form of retail sales. Moreover, housing activity will be on display as the NAHB Housing Market Index will be followed by housing starts and building permits. The Fed's Industrial production and capacity utilization report will round out the heavy dose of data.

As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?,
the long-running bull market continues and has shown few signs of faltering. Even modest pullbacks have failed to gain any momentum and the uptrend has been largely intact throughout the course of 2017. But there are signs that the potential for a “melt up” is heightened. Additional support for the ongoing bull market could come from the holiday shopping season, which is shaping up to be a good one, as well as ramped up capital spending and productivity as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her articles, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle and One Thing Leads to Another: Productivity's Rebound.

International reports due out next week that deserve a mention include: Australia—employment change and consumer confidence. China—lending statistics, retail sales, and industrial production. India—trade balance, CPI and PPI. Japan—Q3 GDP and industrial production. Eurozone—industrial production, Q3 GDP, trade balance and CPI, along with German investor confidence. U.K.—CPI and PPI, employment change and retail sales.

Stocks Trade Higher, Finish Q3 with Solid Gains

Charles Schwab: On the Market

Posted: 9/29/2017 4:15 PM EDT

Stocks Trade Higher, Finish Q3 with Solid Gains

 

U.S. stocks closed the last trading day of Q3 higher as shares added to weekly, monthly and quarterly advances. In economic developments, personal income and spending matched forecasts though the PCE deflator—a measure of consumer price inflation—was cooler-than-expected, and the Chicago Purchasing Managers Index unexpectedly jumped further into expansion territory. In equity news, KB Home topped earnings estimates and mostly matched revenue forecasts, while Tyson Foods increased its earnings outlook for the current year. Treasury yields diverged and the U.S. dollar was lower. Crude oil prices were mixed and gold traded lower.

The Dow Jones Industrial Average (DJIA) increased 24 points (0.1%) to 22,405, the S&P 500 Index was 9 points (0.4%) higher at 2,519, and the Nasdaq Composite advanced 43 points (0.7%) to 6,496. In moderate-to-heavy volume, 929 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq.

WTI crude oil added $0.11 to $51.57 per barrel and wholesale gasoline was $0.02 lower at $1.59 per gallon. Elsewhere, the Bloomberg gold spot price declined $6.66 to $1,280.64 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 93.06.

Markets were higher for the week, as the DJIA gained 0.3%, the S&P 500 Index added 0.7% higher and the Nasdaq Composite increased 1.1%.

KB Home (KBH $24) reported Q3 earnings-per-share (EPS) of $0.51, above the $0.46 FactSet estimate, as revenues rose 25.0% year-over-year (y/y) to $1.1 billion, roughly in line with forecasts. The homebuilder said deliveries, average selling price, net order value and operating margin all grew. KBH said it believes it is well positioned heading into the closing months of the year, with a backlog value of more than $2.0 billion and positive conditions in most of its served markets. Shares traded solidly higher.

Tyson Foods Inc. (TSN $70) raised its earnings outlook for the current year, due primarily to much better-than-expected profits in its beef segment. The protein producer also said all its segments will perform well in 2018. Shares jumped.

The consumer staples sector is the focus of Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Consumer Staples: More than Meets the Eye, on the Market Commentary page at www.schwab.com. Brad notes that the consumer staples sector is broader than most investors likely think it is and is often perceived as boring. But the group has had some real action lately, although not all of it positive. The staples group can be an important part of a portfolio, but without deteriorating economic conditions, a market weighting is the most we can justify. Follow us on Twitter: @schwabresearch.

Personal income and spending match forecasts, regional manufacturing activity jumps

Personal income (chart) was 0.2% higher month-over-month (m/m) in August, in line with the Bloomberg forecast, and compared to July's downwardly revised 0.3% increase. Personal spending ticked 0.1% higher last month, matching expectations, and versus July's unrevised 0.3% gain. The

August savings rate as a percentage of disposable income was 3.6%. The PCE Deflator was 0.2% higher, below expectations of a 0.3% gain and versus the prior month's unrevised 0.1% rise. Compared to last year, the deflator was 1.4% higher, south of estimates of a 1.5% increase and in line with July's unrevised rise. Excluding food and energy, the PCE Core Index was 0.1% higher m/m, below expectations of a 0.2% gain, and the index was up 1.3% y/y, versus estimates calling for it to match July's unrevised 1.4% increase.

The final September University of Michigan Consumer Sentiment Index (chart) was revised lower to 95.1 from the preliminary level of 95.3, where it was expected to remain. The index was down versus August's level of 96.8. Compared to last month, the expectations component of the report improved, though the current conditions portion slipped. The 1-year inflation outlook ticked higher to 2.7% from August's 2.6% rate, and the 5-10 year forecast remained at 2.5%.

The Chicago Purchasing Managers Index (chart) unexpectedly jumped further into expansion territory (above 50) for September, after rising to 65.2 from August's unrevised 58.9 level, and versus expectations calling for a dip to 58.7. The index moved back to near June's three-year high of 65.7 as new orders and production continued to grow, while employment moved back into expansion territory and order backlogs hit a 29-year high. However, prices paid increased significantly to the highest since July 2011, bolstered by elevated commodity prices and the hurricane(s)-induced materials shortage.

Treasuries were mixed, but tilted to the downside following the regional manufacturing report, with the yields on the 2-year and 10-year notes rising 3 basis points (bps) to 1.48% and 2.34%, respectively, while the 30-year bond rate dipped 1 bp to 2.86%.

Treasury yields and the U.S. dollar have rallied recently, with the rate on the 10-year note hitting multi-month highs and the greenback moving to a level not seen in over a month. These moves have been bolstered by heightened December Fed rate hike expectations and apparent cautious optimism regarding fiscal policy as the markets scrutinize this week's release of tax reform details.

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 on Twitter: @jeffreykleintop.

The stock markets have shown some relative resiliency in the face of a plethora of things to worry about, as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her article, Comfortably Numb? An Update on Investor Sentiment, on the Market Commentary page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

Europe adds to weekly, monthly and quarterly gains, Asia mostly higher

European equity markets finished higher, adding to solid gains for the week, month and quarter, as a plethora of diverging economic data in the region was highlighted by an upbeat read on German unemployment and U.K. consumer data. The euro gained ground on the U.S. dollar but pared an upside move as the greenback found some support from a jump in regional manufacturing activity.

The British pound saw some pressure to help bolster the U.K. markets. The eurozone consumer price inflation estimate came in a bit cooler than expected for this month, while German retail sales unexpectedly declined last month. U.K. Q2 GDP growth was unrevised at a 0.3% quarter-over-quarter pace, but the 1.5% y/y expansion came in below estimates. Economists are pointing to the savings and income component of the GDP report, which showed the former rose and the latter outpaced inflation for the first time in a year to boost optimism regarding the health of the U.K. consumer, per Bloomberg. French consumer spending surprisingly declined last month, though Germany's unemployment fell more than forecasted for this month. In other economic news, U.K. business investment for Q2 and September home prices came in above estimates. Bond yields in the region moved to the downside. 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 tilted to the upside to close out a mixed month, though conviction may have been held in check ahead of next week's plethora of holidays, notably in China where the markets will experience an extended break. Also, the markets digested a host of Japanese economic data. Japan's consumer price inflation rose mostly in line with forecasts in August, but a read on consumer inflation in Tokyo for September a bit cooler than expected. Also, the nation's household spending and retail sales for last month missed forecasts but its preliminary read on industrial production rose more than expected. Japanese equities finished flat, with the yen paring a recent drop that has fueled solid gains for the stock markets this month. Shares trading in mainland China and Hong Kong rose ahead of next week's holidays and tonight's reads on manufacturing and services sector activity.

Australian securities gained ground and South Korean stocks advanced, while Indian equities finished little changed. As the quarter comes to a close, Schwab's Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick offer the video, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick.

Stocks nudge higher on week to tack onto solid Q3 gains

U.S. stocks capped off a Q3 rally with a modest weekly advance. The business spending component of the August durable goods orders report posted a back-to-back monthly jump and Q2 GDP growth was unexpectedly revised higher to 3.1%, adding to an upbeat economic backdrop. This may have helped the markets shrug off elevated December Fed rate hike expectations, which were preserved by continued hawkish rhetoric from the Fed, headlined by Chairwoman Janet Yellen's speech. Financials were one of the best performers as Treasury yields extended a rally, along with the U.S. dollar. Energy issues continued their quarterly rally as crude oil prices remained in recovery mode. The release of the framework for tax reform also appeared to underpin sentiment even as the timing and potential areas of contention were highly scrutinized. Technology issues gained slightly, adding to their decisive quarterly outperformance. However, utilities finished lower on the week amid the upside move in interest rates and healthcare stocks saw some pressure as the sector continued to face regulatory uncertainty and fiscal policy concerns. The consumer staples sector, the worst quarterly performer, nudged higher on the week, along with consumer discretionary issues, despite Dow member Nike Inc's (NKE $52) disappointing outlook.

As Q4 begins next week, the economic calendar will be robust, beginning with the ISM Manufacturing Index, Markit's Manufacturing PMI Index and September auto sales. The ISM non-Manufacturing Index and Markit's Services PMI Index will follow, along with the trade balance and factory orders. However, the docket will culminate with Friday's September nonfarm payroll report, with the wage component likely poised to garner the heaviest attention.

As noted in the latest Schwab Market Perspective: Fourth Quarter Fun…or Folly?, the resiliency of stocks continues but risks of a pullback exist with signs of investor complacency and heightened political and geopolitical uncertainties. U.S. economic data will likely be skewed by the hurricanes' impact but the underlying trend should remain positive. Earnings reporting season will begin with elevated expectations, so the ability to hurdle the bar is getting tougher, but if surprises are biased to the upside, stocks should perform well. Non-U.S. stocks are about to hit multiple milestones, which typically shouldn't concern investors as underlying fundamentals continue to appear solid. Read more on the Market Commentary page at www.schwab.com.

International reports due out next week that deserve a mention include: Australia—the Reserve Bank of Australia monetary policy decision, building approvals and trade balance. China—Manufacturing and non-Manufacturing PMIs. India—Reserve Bank of India monetary policy decision and PMIs. Japan—Q3 Tankan Large Manufacturing Index and labor earnings. Eurozone—unemployment rate, Markit's business activity reports, retail sales, and the minutes from the European Central Bank's September meeting, as well as German factory orders. U.K.—Markit's business activity reports and new car registrations.

Stocks Lower as DC Shuffle Continues

Charles Schwab: On the Market

Posted: 8/18/2017 4:15 PM ET

Stocks Lower as DC Shuffle Continues

Unable to hold gains, U.S. stocks finished to the downside but were off the lows of the day after battling back from morning pressure on the heels of reports that Steve Bannon, a key advisor to President Trump, submitted his resignation. Treasuries were slightly lower, crude oil prices rallied and the U.S. dollar and gold ticked to the downside. In equity news, Deere & Co just missed on its Q3 sales figures, while Foot Locker's results added to the recent woes for the retail sector. In economic news, consumer sentiment rose to its strongest level since January.

The Dow Jones Industrial Average (DJIA) lost 76 points (0.4%) to 21,675, the S&P 500 Index declined 4 points (0.2%) to 2,426, and the Nasdaq Composite shed 5 points (0.1%) to 6,217. In moderate volume, 921 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rallied $1.42 to $48.51 per barrel and wholesale gasoline was $0.03 higher at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price gained $1.54 to $1,286.60 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 94.42. Markets were lower for the week, as the DJIA decreased 0.8%, the S&P 500 Index fell 0.7% and the Nasdaq Composite was 0.6% lower.

Deere & Co. (DE $117) reported fiscal Q3 earnings-per-share (EPS) of $1.97, above the $1.93 FactSet estimate, as net sales of equipment grew 16.6% year-over-year (y/y) to $6.8 billion, just shy of the projected $6.9 billion. Shares were under heavy pressure.

Foot Locker Inc. (FL $34) posted Q2 profits of $0.39 per share, or $0.62 ex-items, versus the expected $0.90, as revenues decreased 4.4% y/y to $1.7 billion, south of the forecasted $1.8 billion. Q2 same-store sales fell 6.0% y/y, compared to the expected 0.8% gain. Shares fell sharply.

Gap Inc. (GPS $23) announced Q2 EPS of $0.68, or $0.58 ex-items, compared to the forecasted $0.52, on previously reported revenues of $3.8 billion. Q2 same-store sales grew 1.0% y/y, versus the estimated 0.1% increase. GPS raised its full-year EPS outlook. Shares gave up early gains and closed lower.

Ross Stores Inc. (ROST $59) rallied after the off-price retailer raised its full-year EPS guidance after posting Q2 earnings of $0.82 per share, above the forecasted $0.77, and same-store sales growth of 4.0% y/y that bested the 2.0% expectation. Revenues of $3.4 billion were roughly in line with estimates.

Expectations drive surprising jump in consumer sentiment

The preliminary University of Michigan Consumer Sentiment Index (chart) rose to 97.6 in August—the strongest since January's thirteen-year high—from the prior month's 93.4 level, and compared to the Bloomberg expectation for it to tick higher to 94.0. The current economic conditions component declined more than expected month-over-month, while the expectations measure posted the biggest jump since December 2011. The 1-year inflation forecast remained at July's 2.6% rate, while the 5-10 year inflation outlook dipped to 2.5% from 2.6%.

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

Treasuries finished mostly lower, with the yields on the 2-year and 10-year notes gaining 1 basis point (bp) to 1.31% and 2.19%, respectively, while the 30-year bond rate was nearly unchanged at 2.78%.

Treasury yields have been jittery, slipping to the downside this month, while the U.S. Dollar Index has shown some signs of relative stabilization. The markets have grappled with mostly upbeat economic data, though low inflation persists, and flared-up monetary policy uncertainty regarding the Fed and European Central Bank (ECB), while the growing dysfunction in the White House appears to be starting to impact sentiment. Finally, tensions between North Korea and the U.S. seem to be fading.

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

Europe pares losses, Asia mostly lower

European equities came off the worst levels of the day but remained mostly lower following yesterday's late-day drop in the U.S.. Risk aversion ramped back up as the exacerbated political dysfunction in the U.S. fostered concerns and the terror attack in Spain further weighed on sentiment. These added to already elevated geopolitical concerns on the heels of the recently ramped up concerns toward North Korea, along with flared-up monetary policy uncertainty toward the ECB and Fed. This comes ahead of next week's key Fed symposium in Jackson Hole, Wyoming, with heads of both central banks set to speak. Travel and leisure issues led to the downside following the terror attack in Spain. The euro was modestly higher and the British pound dipped versus the U.S. dollar, while bond yields in the region finished mixed. In economic news, eurozone construction output declined in June.

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

Stocks in Asia finished mostly lower on the heels of the drop in the U.S. yesterday, as the global markets rein in risk appetites in the face of political dysfunction in the U.S., along with Fed and ECB monetary policy uncertainty, while geopolitical concerns linger in the wake of the terror attack in Spain and amid the recently flare-up tensions between the U.S. and North Korea. Japanese equities fell with the yen rallying on the heightened risk aversion, while Australian securities decreased. Shares trading in Hong Kong and India were lower and South Korean stocks also dipped, but remained near all-time highs despite the North Korean uneasiness. However, mainland Chinese stocks finished flat. Amid this backdrop, Schwab's Jeffrey Kleintop, CFA, offers his articles, Missiles and Markets: An investor guide to geopolitical risks and The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page at www.schwab.com.

Back-to-back weekly loss as sentiment swings negative and volatility ticks higher

All looked well to begin the week, with fading tensions between North Korea and the U.S. helping the markets rebound from last week's drop. However, as the week matured sentiment swung to the negative side and volatility flared-up. The woes for the retail sector continued following disappointing guidance from Dow member Wal-Mart Stores Inc. (WMT $79), as well as reports from Coach Inc. (COH $40) and Dick's Sporting Goods Inc. (DKS $27), while Dow component Home Depot Inc's (HD $147) stronger-than-expected report failed to please the Street. Target Corp's (TGT $56) favorable results and a much stronger-than-expected July retail sales report were not enough to offset losses for the consumer discretionary sector. Q2 earnings season is all but in the books and profit growth for the S&P 500 is running just north of 9.0% and sales expansion above 5.0%, per data compiled by Bloomberg.

Moreover, a plethora events and reports this week suggesting growing dysfunction in the White House finally started to show signs of testing stock market resiliency, while minutes from July meetings by the Fed and ECB exacerbated monetary policy uncertainty. Risk aversion regained momentum to stymie an early-week rally in Treasury yields and lift the U.S. dollar, utilities and gold, while applying late-week pressure to market leaders technology and financials. Energy stocks led the weekly decline for the markets, despite Friday's spike in crude oil prices.

Volatility could remain next week as Federal Reserve Chairwoman Janet Yellen and ECB President Mario Draghi are set to speak Friday at the Central Bank's key symposium in Jackson Hole, Wyoming. Leading up to the speeches, next week's economic calendar will bring Markit's August business activity reports, July new and existing home sales, and the preliminary July durable goods report.

As noted in the latest Schwab Market Perspective: Volatility Returns!, Geopolitical, U.S. political and "bubble" concerns rose recently, putting a dent in the market's recent run. U.S. political turmoil is likely to keep market volatility elevated in the near term, along with the Fed's likely commencement of slowly unwinding its bloated balance sheet, but we believe the bull market still has legs. U.S. economic growth continues to be fairly healthy, and earnings season was positive for both bottom- and top-line growth; lending support to the bulls. But the storm in Washington is picking up velocity, especially as the upcoming debt ceiling fight looms large. Read more on the Markets & Economy page at www.schwab.com.

International reports due out next week that deserve a mention include: Japan—Consumer price inflation. Eurozone—Markit's business activity reports, along with German Q2 GDP and business and investor sentiment indexes. U.K.—Q2 GDP.

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.