Stocks Extend Recent Gains

Charles Schwab: On the Market

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

Stocks Extend Recent Gains

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Europe and Asia higher

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

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

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

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

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

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

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

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

Stocks Mostly Flat, but Finish Week with Solid Gains

Charles Schwab: On the Market

Posted: 10/6/2017 4:15 PM EDT

Stocks Mostly Flat, but Finish Week with Solid Gains

U.S. equities closed the trading session nearly unchanged, holding onto solid weekly gains as the monthly labor report showed an unexpected drop in September job creation due to the recent hurricanes. Treasury yields modestly extended a fresh run amid bolstered December rate hike expectations, while the U.S. dollar reversed to the downside following rumors of a possible North Korean missile test this weekend. Crude oil was lower and gold advanced. In equity news, Costco and Yum China Holdings announced quarterly results. 

The Dow Jones Industrial Average (DJIA) decreased 2 points to 22,774, the S&P 500 Index dipped 3 points (0.1%) to 2,549, and the Nasdaq Composite ticked 5 points (0.1%) higher to 6,590. In moderate volume, 728 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil decreased $1.50 to $49.29 per barrel and wholesale gasoline was $0.05 lower at $1.56 per gallon. Elsewhere, the Bloomberg gold spot price added $6.86 to $1,275.08 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 93.81. Markets were nicely higher for the week, as the DJIA gained 1.7%, the S&P 500 Index added 1.2% and the Nasdaq Composite increased 1.5%.

Costco Wholesale Corp. (COST $157) reported fiscal Q4 earnings-per-share (EPS) of $2.08, above the $2.02 FactSet estimate, as revenues grew 15.8% year-over-year (y/y) to $42.3 billion, exceeding the $41.8 billion expectation. Q4 same-store sales rose 6.1% y/y, topping the forecasted 5.8% gain. However, the company's gross margin and membership renewal rates declined to disappoint the Street. Shares finished solidly lower.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: Consumer Staples: More than Meets the Eye, investors have grown nervous that already thin margins could collapse further as more shopping would potentially move online, and portions of the sector have taken a beating recently, which we think is a bit overdone. 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. Read more on the Market Commentary page at www.schwab.com and follow us on Twitter: @schwabresearch.

Yum China Holdings Inc. (YUMC $41) posted Q3 EPS of $0.53, or $0.52 ex-items, versus the estimated $0.56, as revenues rose 8.0% y/y to $2.0 billion, roughly in line with forecasts. Q3 same-store sales grew 6.0% y/y, exceeding the 3.3% increase that was expected, reflecting solid growth at KFC and flat sales at Pizza Hut. The company approved an initial regular quarterly cash dividend of $0.10 per share, and increased its existing share repurchase program. YUMC traded higher.

September labor report shows wage growth may be gaining steam

Nonfarm payrolls (chart) declined by 33,000 jobs month-over-month (m/m) in September—the first decrease since September 2010—compared to the Bloomberg forecast of an 80,000 increase. The rise of 156,000 seen in August was revised to a gain of 169,000 jobs. The total downward revision to the job gains in August and July was 38,000. Excluding government hiring and firing, private sector payrolls decreased by 40,000, versus the forecasted gain of 75,000, after increasing by 164,000 in August, revised from the 165,000 rise that was initially reported.

The Labor Department noted that employment fell in food services and drinking places and showed below-trend growth in some other industries, likely reflecting major disruptions from hurricanes Harvey and Irma. Schwab's Chief Investment Strategist Liz Ann Sonders points out in her article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", that a boost associated with the recovery/rebuilding efforts is likely. Read more on the Market Commentary page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

However, the unemployment rate fell to 4.2% from 4.4%, where it was forecasted to remain, with the Labor Department saying that there was no discernable effect of the hurricanes on the national unemployment rate. Average hourly earnings rose 0.5% m/m, above projections of a 0.3% increase and versus August's upwardly revised 0.2% increase. Y/Y, wage gains were 2.9%—the highest since 2009—versus estimates of a 2.6% increase, and versus August's upwardly 2.7% rise. Finally, average weekly hours remained at August's unrevised 34.4 rate, matching forecasts.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, points out in his article, Inflation May Be The Biggest Question For Investors In 2018, 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. We expect central banks may get the big question of 2018 right, or at least mostly right, leading to gradually tighter monetary policy that doesn't derail the bull market or disrupt economic and earnings growth. But, there is a lot riding on it for investors and we will be watching the relationship between unemployment and wages closely. Read more on the Market Commentary page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop.

Wholesale inventories (chart) were revised slightly lower to a 0.9% m/m gain for August, versus forecasts calling for an unrevised preliminary 1.0% increase and July's 0.6% gain. Sales jumped 1.7% m/m, compared to forecasts to match July's upwardly revised flat reading. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—dipped to a 1.28 months pace from July's 1.29 rate.

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $13.1 billion during August, below the $15.5 billion forecast of economists polled by Bloomberg, while July's figure was adjusted lower to an increase of $17.7 billion from the originally reported $18.5 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $7.3 billion y/y, while revolving debt, which includes credit cards, increased by $5.8 billion.

Treasuries dipped but finished off the worst levels of the day that initially followed the employment report, with the yields on the 2-year and 10-year notes, as well as the 30-year bond rate, rising 2 basis points (bps) to 1.51%, 2.37% & 2.91%, respectively.

Due to positive and widespread global economic growth, with signs of an uptick in inflation, elevated expectations of a December Fed rate hike and the confirmation that the Central Bank will begin this month to shrink is massive balance sheet, Treasury yields and the U.S. dollar have rebounded noticeably in the past month. The yield on the 10-year Treasury note has recovered from levels not seen since late-2016 and the greenback has bounced off multi-year lows, also bolstered by the recently released tax reform framework, which appeared to foster some fiscal policy optimism despite facing a long road. The stock markets remain resilient, posting fresh record highs this week.

Amid this backdrop, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his article, Tax Reform Framework Released, But The Road Ahead Is Long, and Schwab's Liz Ann Sonders discusses the stock market's resiliency in her article, Comfortably Numb? An Update on Investor Sentiment. Read these articles on the Market Commentary page at www.schwab.com.

Europe mostly lower, Asia advances to close out the week

European equity markets finished mostly lower, as the markets digested the noisy U.S. labor report and a sharp jump in German factory orders for August. Also, continued weakness in the British pound in the wake of the recent rally in the U.S. dollar and amid festering political uncertainty in the region may have buoyed the U.K. markets. The euro reversed to the upside as the U.S. gave up early labor-report-fueled gains and dipped on rumors of a potential missile test by North Korea over the weekend and amid elevated expectations the European Central Bank could begin to dial back stimulus measures. Spanish political uneasiness remained as Catalonia continues to fight for independence after this week's vote that national authorities have called illegal. U.K. political uncertainty also lingered in the wake of this week's speech by U.K. Prime minister Theresa May that was marred by some mishaps, while the Brexit negotiations appear to be getting complicated.

Meanwhile, U.S. rate hike expectations jumped on the employment report, while recent hawkish signals from the ECB and Bank of England added to the global monetary policy anxiety. Bond yields in the region mostly gained ground.

For analysis of political and Brexit uncertainties, 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. Uncertainty regarding who will be the Fed Chief in the U.S. is festering in the wake of the ECB and Bank of England signaling last month moves to tighten monetary policy. 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 out the week in positive fashion, moving broadly higher on the heels of the continued record highs in the U.S., despite today's looming September labor report. However, volume remained lighter than usual, as mainland Chinese and South Korean markets remained closed for holidays. Japanese equities rose, with the yen extending recent weakness versus the U.S. dollar, while data showed wages rebounded slightly in August and Bloomberg pointed out that sentiment may have been supported by data showing foreigners turned to net buyers of Japanese equities last week for the first time since July. Shares trading in Hong Kong advanced, returning to action following yesterday's holiday break, while Indian stocks posted their first weekly gain in three. Australian securities gained ground, boosted by some dovish remarks by a Reserve Bank of Australia (RBA) member who said the RBA had not entirely ruled out further interest rate cuts in the wake of this week's disappointing retail sales figures and the central bank's unchanged monetary policy decision. Schwab's Jeffrey Kleintop, CFA, and Randy Frederick offer a look at global investing in the video, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page at www.schwab.com.

Stocks begin Q4 in positive fashion

U.S. stocks began the final quarter of the year with a solid weekly gain and the U.S. dollar extended a recovery. Financials led the way as Treasury yields added to a recent rally that has taken the 10-year yield to highs not seen since July, with December rate hike expectations solidifying on a host of upbeat economic data. Leading up to Friday's labor report, a 13-year high in U.S. manufacturing activity followed upbeat reads out of China, Japan and eurozone, while growth in the key U.S. services sector was the strongest in 12 years. Both U.S. reports also showed inflation jumped.

Complementing the data, domestic business spending was stronger than initially-reported and September auto sales were mostly higher than projected. The House's passing of its budget resolution to start the long road to tax-reform bolstered fiscal policy optimism and most major sectors. However, crude oil prices fell decisively to give back a recent rally and pressure the energy sector.

Next week, the economic calendar will bring a plethora of releases that could drive volatility, headlined by the Producer Price Index (PPI) and Consumer Price Index (CPI), the minutes from the Fed's September meeting, retail sales and the preliminary October University of Michigan Consumer Sentiment Index. Other data next week to look out for include the NFIB Small Business Optimism Index and the JOLTS Job Openings report. However, the economic front will have to contend with the ramp up of Q3 earnings season, with the financial sector in focus as some banking heavyweights are slated to report.

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. Earnings reporting season begins with elevated expectations and valuations, so the ability to hurdle the bar is getting tougher, but if surprises are biased to the upside, stocks should perform well. But that doesn't mean that there won’t be some Fed-induced volatility in the fourth quarter if inflation begins to kick in in earnest, it could push the Fed to be more aggressive than currently believed. Read more on the Market Commentary page at www.schwab.com.

International reports due out next week worth a mention include: Australia—consumer confidence. China—Caixin's PMI Services Index, trade balance and lending statistics. India—trade balance, CPI and industrial production. Japan—trade balance and core machine orders. Eurozone—investor confidence and industrial production, along with German trade balance and CPI. U.K.—industrial and manufacturing production and trade balance.

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

Markets Dip to End the Week

Charles Schwab: On the Market

Posted: 10/7/2016 4:15 PM ET

Markets Dip to End the Week

U.S. equities finished lower, as September's nonfarm payroll report showed continued steady job growth, but Honeywell International disappointed with its guidance. Crude oil prices turned lower, trimming a solid weekly gain, exacerbated by headlines about Russia's willingness to reach a deal with OPEC at next week's World Energy Congress meeting. Meanwhile, Treasuries finished mixed, showing little reaction to a jump in consumer credit that came in the final hour of trading, the U.S. dollar lost ground, and gold was little changed. In other equity news, Gap rallied on its September sales report.

The Dow Jones Industrial Average (DJIA) dipped by 28 points (0.2%) to 18,240, the S&P 500 Index lost 7 points (0.3%) to 2,154, and the Nasdaq Composite fell 14 points (0.3%) to 5,292. In moderately-heavy volume, 938 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.63 to $49.81 per barrel, wholesale gasoline decreased $0.02 to $1.48 per gallon and the Bloomberg gold spot price inched $0.79 higher to $1,255.17 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 96.59. Markets were lower for the week, as the DJIA lost 0.4%, the S&P 500 Index decreased 0.7% and the Nasdaq Composite was 0.4% lower.

Honeywell International Inc. (HON $107) finished lower after the company lowered its 3Q earnings and revenue guidance, reflecting the impacts of lower shipments and volumes in some areas and continued program delays, along with reorganization efforts and recent acquisitions and divestitures.

Gap Inc. (GPS $26) reported that September same-store sales declined 3.0% year-over-year (y/y), versus the FactSet estimate of a 3.1% decrease, with sales at Gap and Banana Republic falling, while Old Navy sales rose. The company noted the negative impact on sales of the fire which occurred in a building on its Fishkill, New York distribution center campus. Shares rallied. 

CIT Group Inc. (CIT $37) announced an agreement to sell its commercial aircraft leasing business to Avolon Holdings Ltd. for a purchase price of $10.0 billion. Shares were higher.

September nonfarm payroll report suggests steady job growth

Nonfarm payrolls (chart) rose by 156,000 jobs month-over-month (m/m) in September, compared to the Bloomberg forecast of a 172,000 increase. The rise of 151,000 seen in August was upwardly revised to a gain of 167,000 jobs. The total downward revision to job gains in July and August was 7,000. Excluding government hiring and firing, private sector payrolls increased by 167,000, versus the forecasted gain of 170,000, after increasing by 144,000 in August, upwardly revised from the 126,000 rise that was initially reported. Job gains were seen in professional and business services and in healthcare.

The unemployment rate ticked higher to 5.0% from 4.9%, where it was expected to remain, with the labor force participation rate ticking higher, while average hourly earnings grew by 0.2% m/m, below projections of a 0.3% increase, and August's 0.1% rise was unadjusted. Finally, average weekly hours rose to 34.4 from August's unrevised 34.3 hours level, matching forecasts.

Today's report appeared to have little impact on moving the needle on Fed rate expectations, which have received a boost as of late amid continued hawkish Fedspeak and some favorable economic data, headlined by this week's jump in growth out of the key services sector. The recent uptick in economic data follows a lackluster string of August reports, which caused some growth concerns to ramp up. As monetary policy continues to garner most of the attention, investors should read our article, Fed Uncertainty Brings Volatility to Markets for some timely outlooks for stocks and bonds. Also, Schwab's Chief Investment Strategist, Liz Ann Sonders notes in her article, Every Picture Tells a Story: Recession Risk Up, but Not High, leading indicators weakened in August, but are not yet flashing a recession warning. Read both articles at www.schwab.com/marketinsight and follow Schwab and Liz Ann on Twitter: @schwabresearch and @lizannsonders.

Wholesale inventories (chart) declined 0.2% m/m in August, following the 0.1% dip in July, and compared to forecasts calling for a 0.1% decline. Sales were up 0.7% m/m, versus the expected 0.1% increase and the inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—dipped to a 1.33 months level from the 1.34 months pace posted in July.

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $25.9 billion during August, the fastest pace in nearly a year and well more than the $16.5 billion forecast of economists polled by Bloomberg, while July's figure was adjusted modestly upward to an increase of $17.8 billion from the originally reported $17.7 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $20.2 billion, while revolving debt, which includes credit cards, increased by $5.6 billion.

Treasuries finished mixed, with the yield on the 2-year note 2 basis points (bps) lower at 0.84%, the yield on the 10-year note down 1 bp to 1.73%, while the 30-year bond rate rose 1 bp to 2.46%. Bond yields have gained ground as of late and Schwab's Chief Fixed Income Strategist, Kathy Jones discuss the interest rate environment in her latest article, Are Bond Yields About to Rise?, at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.

Europe lower as pound's tumble catches attention, Asia also sees losses

European equities finished mostly lower, with the global markets digesting another steady nonfarm payroll report in the U.S., while a sudden drop in the British pound appeared to unnerve sentiment, though it boosted U.K. stocks. The pound tumbled briefly overnight by more than 6.0% in what is being termed a flash crash, with reports of what caused the drop ranging from computer-initiated sell orders, a human error, or a "fat finger", as well as low liquidity at the time. The pound recovered somewhat but remained solidly lower at a more than 30-year low versus the greenback. The pound has seen pressure this week on concerns about a hard U.K. Brexit, with uneasiness rising that the nation will not get favorable terms in its deal to leave the European Union. The hard Brexit worries were amplified by reports that French President Hollande urged the EU yesterday to take a tough stance in negotiations with the U.K. European Central Bank President Mario Draghi spoke today, noting that, if warranted, the central bank will act by using all instruments within its mandate to prevent harmful second-round effects. The euro was little changed versus the U.S. dollar, while bond yields in the region gained ground. However, oil & gas issues bucked the trend in the wake of this week's rebound in crude oil prices.

Amid the backdrop of heightened global market uncertainty, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, reminds investors, Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think. Read these articles, as well as Jeff's World Tour: An Around The World Look At the Economic Landscape, at www.schwab.com/oninternational. Follow Jeff on Twitter: @jeffreykleintop.

Asian stocks finished mostly lower as caution ahead of today's key employment report in the U.S. was met with uneasiness stemming from the sudden drop in the British pound amid festering Brexit concerns, while holidays await Hong Kong and Japan on Monday. Mainland Chinese markets remained closed for the golden week holidays. Japanese equities declined, with the yen recovering modestly from its recent drop versus the U.S. dollar on increased Fed rate hike expectations and uncertainty toward the Bank of Japan's recent change of direction in monetary policy. Schwab's Jeffrey Kleintop, CFA, offers timely analysis of Japan's monetary policy changes in his article, Going Godzilla: What has the Bank of Japan Unleashed?, at www.schwab.com/oninternational. Meanwhile, stocks in Hong Kong, South Korea, Australia and India all moved lower as well.

Stocks dip as conviction stymied by plethora of headwinds

The equity markets finished lower for the week, with the U.S. dollar rising and Treasury yields rallying as December Fed rate hike expectations got a boost courtesy of another dose of hawkish Fedspeak, while a jump in services sector output to the highest level in almost a year complimented a rebound in manufacturing activity to expansion territory. Moreover, reports fostered concerns that the European Central Bank could taper its asset purchases sooner than some had expected, worries flared-up about a hard U.K. Brexit, and uncertainty festered surrounding the Bank of Japan's shift in monetary policy, exacerbating conviction. However, crude oil prices rallied to help energy stocks eke out a weekly gain, in the wake of another bullish government oil inventory report, while the Fed rate hike expectations lifted the financial sector solidly higher on the week.

This sets the stage for next week, with U.S. economic data continuing to garner attention, headlined by the releases of the Fed's September meeting minutes, retail sales, the Producer Price Index (PPI), and the preliminary University of Michigan Consumer Sentiment Index. However, some of the attention will likely be diverted to the start of 3Q earnings season, unofficially kicking off with Alcoa Inc's (AA $31) results on Tuesday after the close.

As noted in the Schwab Market Perspective: Crunch Time, after five consecutive quarters of declining corporate earnings, the coming reporting season could prove to be important as earnings need to start to carry the weight if this bull market is to advance in our view. If the so-called "beat rate" (the percentage by which companies ultimately exceed consensus expectations) is consistent with the recent past, the quarter could see earnings move back in positive territory. If earnings disappoint, the market could be vulnerable. The collapse in the oil market is now in the rear-view mirror, which should help to solidify both the energy and basic materials sectors' earnings growth rates. And the stability in the dollar has also removed what had been a headwind for exporters and the industrials sector. For our outlooks for the major sectors see Schwab’s Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Can Tech Gains Continue?. Read both articles at www.schwab.com/marketinsight.

International reports due out next week that deserve a mention include: China—Caixin Services PMI Index, trade balance, CPI and PPI, and lending statistics. India—industrial production, trade balance, CPI and PPI. Japan—trade balance and machine orders. Eurozone—industrial production and trade balance, along with German investor confidence and CPI.

Stocks See Solid Gains Following Jobs Report

Charles Schwab: On the Market

Posted: 7/8/2016 4:15 PM ET

Stocks See Solid Gains Following Jobs Report

U.S. stocks rallied early and never looked back in the wake of the June labor report which showed a solid improvement in monthly job creation, though the unemployment rate ticked higher and growth in average hourly earnings was shy of forecasts. Treasuries were mixed following the jobs report, while in the final hour of trading consumer credit was shown to have expanded more than expected. Crude oil prices edged lower, the U.S. dollar was nearly unchanged and gold was slightly higher.

The Dow Jones Industrial Average (DJIA) rallied 251 points (1.4%) to 18,147, the S&P 500 Index surged 32 points (1.5%) to 2,130, and the Nasdaq Composite jumped 80 points (1.6%) to 4,957. In moderately heavy volume, 920 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil was $0.27 higher at $45.41 per barrel, wholesale gasoline added $0.01 to $1.37 per gallon and the Bloomberg gold spot price increased $5.89 to $1,366.34 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 96.25. Markets were higher for the week, as the DJIA gained 1.1%, the S&P 500 Index increased 1.3% and the Nasdaq Composite rallied 1.9%.

Gap Inc. (GPS $23) reported that net sales for the five-week period ended July 2, 2016 rose by 2% to $1.57 billion, compared to a 1% decline a year ago, with growth from its Old Navy segment driving the results for the clothing retailer. Shares of GPS finished nicely higher.

Polycom Inc. (PLCM $12) announced that it has agreed to be acquired by privately-held Siris Capital Group LLC for a price of $12.50 per share in cash. The offer is subject to PLCM's termination of its existing merger agreement with Mitel Networks Corp. (MITL $7). The transaction is valued at roughly $2.0 billion, including debt, a 13.6% premium over its previous offer from MITL. Shares of both companies closed sharply higher.

U.S. jobs jump, but unemployment ticks higher, while consumer credit tops estimates

Nonfarm payrolls (chart) rose by 287,000 jobs month-over-month (m/m) in June, compared to the Bloomberg forecast of a 180,000 increase. The disappointing rise of 38,000 seen in May was downwardly revised to a gain of 11,000 jobs. The total downward revision to job gains in May and April was 6,000. Excluding government hiring and firing, private sector payrolls increased by 265,000, versus the forecasted gain of 170,000, after declining by 6,000 in May, negatively revised from the 25,000 rise that was initially reported. Gains were seen in professional & business services with an increase of 38,000 jobs, telecommunications, with a 28,000 rise following the 32,000 decline registered in May due primarily to the Verizon strike, while manufacturing jumped 14,000.

The unemployment rate rose to 4.9% from 4.7%, compared to expectations of an increase to 4.8%, while average hourly earnings grew by 0.1% m/m, below projections of a 0.2% increase, and May's 0.2% rise was unadjusted. Finally, average weekly hours remained at May's unrevised 34.4 hours level, matching projections.

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $18.6 billion during May, topping the $16.0 billion forecast of economists polled by Bloomberg, while April's figure remained near a level of $13.4 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $16.2 billion, while revolving debt, which includes credit cards, rose by $2.4 billion.

Treasuries were mixed, with the yield on the 2-year note increasing 2 basis points (bps) to 0.61%, while the yield on the 10-year note decreased 3 bps to 1.36%, and the 30-year bond rate declined 4 bps to 2.10%. Bond yields have seen pressure lately, falling to record lows, as the global markets continue to grapple with the impact of the U.K. Brexit vote, and Schwab's Chief Fixed Income Strategist, Kathy Jones offers analysis in her recent article titled, Brexit: What Does It Mean for the Bond Market?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones. Also, for more on the Brexit fallout with a focus on sectors, see the latest Schwab Sector Views: Sector Impact of Brexit from Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, at www.schwab.com/marktetinsight, while you can also follow Schwab on Twitter: @schwabresearch.

European markets get a boost from U.S. labor report, Asia mostly lower

European equities finished the week on a high note, notching solid gains following an upbeat U.S. labor report. The British pound continued to slowly recover from its rout that pushed it to a 31-year low versus the U.S. dollar this week in the wake of the Brexit vote, while a one-off special consumer confidence survey in the U.K. to measure sentiment following the Brexit vote showed a drop to a reading of -9 from the -1 posted in an earlier, regularly-scheduled monthly release. For deeper analysis of the impact of the Brexit vote, see the Schwab Center for Financial Research's recent article, Brexit: What Investors Should Know, at www.schwab.com/marketinsight and be sure to check out the video from Schwab's Managing Director of Trading and Derivatives, Randy Frederick and Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, titled Brexit Aftershock: When Will the Markets Calm Down?, at www.schwab.com/insights. Follow Randy and Jeff on Twitter: @randyafrederick and @jeffreykleintop. Additional economic news in the region was mixed, as trade data out of Germany and the U.K. were mostly in line with forecasts, while industrial production in France fell short of expectations. The euro lost ground versus the U.S. dollar, while bond yield in the region were lower.

Stocks in Asia finished mostly lower, as the post-Brexit rally lost steam amid global growth concerns, ahead of the release of Friday's U.S. employment report. Flight-to-safety continued to boost the yen, pushing Japanese equities lower, while some attention may have shifted to the country's upper house elections, to be held this weekend. Australian securities ticked higher despite a sharp cut in the forecast for iron ore prices from the nation's Department of Industry, Innovation and Science, and following the credit outlook downgrade from Standard & Poor's on Thursday. Chinese stocks were lower amid rising worries over the country's banking sector, after a report showed non-performing loans exceeded $299.2 billion in May, upping banks' bad-loan ratio to 2.15%. Meanwhile, South Korean equites fell and Indian listings also lost ground.

Jobs report gives boost to stocks

Despite a sluggish start, U.S. stocks were higher for the holiday-shortened week as equities rallied on Friday, shaking off some of the post Brexit hangover, with the Dow topping 18,000 and the S&P 500 closing above 2,100. Gains for stocks transpired on the heels of the June labor report, which showed a solid improvement from May's disappointing figures for jobs created during the month. Our experts note in the recent Schwab Market Perspective: Looking Beyond Britain, that healthy job growth and the possible support to inflation from higher wages lead us to wonder if market expectations around Fed policy may have gone too far. The futures market indicates roughly no chance of a hike for the balance of the year; while rate cut expectations have come back in play. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

In addition to the jobs data, some other positive domestic economic reports included a decline in weekly jobless claims and a jump in mortgage applications, while the Institute for Supply Management (ISM) non-Manufacturing Index showed growth accelerated more than expected, rising to 56.5 in June, the highest since November 2015. However, factory orders declined and durable goods orders were revised to a 2.3% drop, slightly lower than the initial estimate.

Unofficial start to 2Q earnings season next week

Next week's economic docket will heat back up, with key releases of retail sales, the Consumer Price Index (CPI), the Producer Price Index (PPI), the Fed's Beige Book, industrial production and capacity utilization, along with the preliminary University of Michigan Consumer Sentiment Index for July.

2Q earnings season will also unofficially kick-off next week as Alcoa Inc. (AA $11) is expected to report results after the close on Monday. As noted in the recent Schwab Market Perspective, some questions have come to light recently regarding what consequences the uncertainty in Europe and a potential strengthening of the U.S. dollar may have. We'll start to get an initial view on those questions in the next few weeks as second quarter earnings season ramps up. Read the whole article at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

International reports slated for next week include: Japan—machine and machine tool orders, PPI, industrial production and capacity utilization and the Tertiary Industry Index. China—foreign direct investment, trade data, industrial production, retail sales and 2Q GDP. India—car sales, CPI, industrial production and trade data. U.K.—construction output and the Bank of England will announce its rate decision. Germany—Wholesale Price Index and CPI. Eurozone—industrial production, trade balance and CPI.