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Thursday, May 12, 2016

Stocks Close Mixed and Mostly Unchanged

Charles Schwab: On the Market
Posted: 5/12/2016 4:15 PM ET

Stocks Close Mixed and Mostly Unchanged

U.S. equities finished the regular trading session mixed as gains were led by the consumer staples sector and health care stocks lagged. The Street digested another round of retail earnings reports, while Treasuries were lower despite an unexpected jump in weekly jobless claims. The U.S. dollar and crude oil prices were higher and gold was lower.

The Dow Jones Industrial Average (DJIA) gained 9 points (0.1%) to 17,721, the S&P 500 Index was nearly unchanged at 2,064, and the Nasdaq Composite was 23 points (0.5%) lower at 4,737. In moderately-heavy volume, 932 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.47 to $46.70 per barrel, wholesale gasoline was flat at $1.58 per gallon, and the Bloomberg gold spot price declined $8.83 to $1,268.39 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 94.15.

Kohl's Corp. (KSS $35) reported 1Q earnings-per-share (EPS) ex-items of $0.31, below the $0.37 FactSet estimate, as revenues decreased 3.7% year-over-year (y/y) to $4.0 billion, south of the projected $4.1 billion. 1Q same-store sales fell 3.9% y/y, compared to the expected 0.2% gain. The company noted a challenging sales environment, and it took the markdowns necessary to clear excess inventory. Shares closed sharply lower.

Ralph Lauren Corp. (RL $87) reported fiscal 4Q EPS ex-items of $0.88, above the expected $0.83, with revenues declining 1.0% y/y to $1.9 billion, in line with forecasts. 4Q same-store sales fell 5.0% y/y, versus the estimated 7.9% drop. RL announced an additional $200 million stock repurchase program. Shares traded higher.

CA Technologies (CA $31) reported fiscal 4Q profits ex-items of $0.60 per share, above the expected $0.57, as revenues declined 1.0% y/y to $1.0 billion, north of the forecasted $988 million. CA issued stronger-than-anticipated EPS guidance for the current year. Shares finished solidly higher.

Monsanto Co. (MON $98) jumped after a report from Bloomberg that German healthcare and ag company Bayer AG (BAYRY $109) is exploring a potential bid for the company. The news follow's yesterday's late-day report from StreetInsider that German chemicals company BASF SE (BASFY $76) was working with investment banks to explore a takeover of Monsanto. None of the entities mentioned has commented on the reports.

Jobless claims unexpectedly jump, import prices rise by smaller amount than forecast

Weekly initial jobless claims (chart) jumped by 20,000 to 294,000 last week, versus the Bloomberg estimate calling for claims to decrease to 270,000, as the prior week's figure was unrevised at 274,000. The four-week moving average rose by 10,750 to 268,750, while continuing claims gained 37,000 to 2,161,000, north of the estimated level of 2,120,000.

The Import Price Index (chart) grew 0.3% month-over-month (m/m) for April, compared to projections of a 0.6% increase, and March's 0.2% rise was revised to a 0.3% gain. Y/Y, prices were down by 5.7%, versus the 5.4% forecasted drop, and following March's favorably revised 6.1% fall.

Treasuries were lower, with the yields on the 2-year and 10-year notes increasing 3 basis points (bps) to 0.75% and 1.75%, respectively, while the 30-year bond rate advanced 2 bps to 2.60%. For our latest analysis on the bond markets see the video by Schwab's Chief Fixed Income Strategist, Kathy Jones and Managing Director of Trading and Derivatives, Randy Frederick, titled Is the Market Underestimating the Fed?, at Follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick. Also check out Schwab's Senior Fixed Income Research Analyst, Cooper Howard's CFA, and Director of Income Planning, Rob Williams' article, 5 Cases Where Out-of-State Munis Might Make Sense, at Follow Schwab on Twitter: @schwabresearch.

For our latest analysis on the stock markets see Schwab's Chief Investment Strategist, Liz Ann Sonders' article, Against the Wind: The Sentiment-Driven Rally Could Take a Breather, at Be sure to follow Liz Ann on Twitter: @lizannsonders.

Tomorrow, the domestic economic week will go out with a bang, with the releases of the Producer Price Index and business inventories. However, the headlining reports will likely be looks at the all-important U.S. consumer, courtesy of April retail sales and the preliminary May University of Michigan Consumer Sentiment Index. Headline retail sales are forecasted to rise 0.8% m/m, after declining 0.3% in March, while stripping out autos, sales are projected to increase 0.5%, on the heels of the prior month's 0.2% gain. Excluding autos and gas, sales are anticipated to grow 0.3%, following March's 0.1% increase. Consumer sentiment is forecasted to tick higher to 89.5 from April's 89.0 level.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in the latest Schwab Sector Views: Tech Hits Some Turbulence, But Will it Last?, data on retail sales and consumer confidence suggest a still-cautious shopper, but we think these reports underestimate what is actually occurring. There are a number of positives for consumers: reduced their debt loads, the continued improving job market and wages increasing in a growing number of areas. However, these are being counterbalanced by other issues and we believe the consumer discretionary sector's performance will be more muted in coming months, resulting in our marketperform rating. Read more at and follow Schwab on Twitter: @schwabresearch.

Europe falls below flatline amid data, Asia finishes mixed

European equities finished lower, with oil & gas issues relinquishing early gains as crude oil prices turned lower. Basic materials stocks led the drop on some disappointing data and as the markets digested the monetary policy decision from the Bank of England (BoE). The BoE held its monetary policy steady, with its benchmark interest rate remaining at a record low of 0.50% and its asset purchase program unchanged.

The central bank cut its economic growth forecast and warned that a June vote for a U.K. exit from the European Union, known as Brexit, would hamper economic activity. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, discusses the possible implications in his article, Brexit: 5 Things Investors Need to Know, at Also, follow Jeff on Twitter: @jeffreykleintop. The euro was lower and the British pound ticked higher versus the U.S. dollar, while bond yields in the region were mostly higher. In economic news, eurozone industrial production surprisingly dropped m/m in March.

Stocks in Asia finished mixed on the heels of the drop in the U.S. yesterday as earnings reports, particularly in the retail sector, missed expectations, overshadowing a jump in crude oil prices in the wake of a bullish oil inventory report. Japanese securities gained ground with the yen weakening late in the session. In economic news, Japan's trade surplus widened more than expected in March. Mainland Chinese equities finished flat and those trading in Hong Kong decreased amid festering economic uncertainty ahead of reports on industrial production and retail sales. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, discusses China data in his article, Trust but Verify: Five Independent Indicators of China's Economy. Also, Schwab's Director of International Research, Michelle Gibley, CFA, offers 5 Reasons China Won't Crash the Global Economy in 2016. Read more at, and be sure to follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch.

Australian stocks declined as strength in oil & gas and basic materials issues on the jump in oil prices and an improved outlook for industrial metals was outmatched by weakness in financials. Indian equities advanced amid strength in banking stocks and increasing optimism regarding economic reforms, ahead of the nation's reports on inflation and industrial production. After the closing bell, India's consumer price inflation for April came in hotter than expected, while industrial production rose by a much smaller amount than projected. South Korean securities finished lower.

Tomorrow, the international economic docket will offer the Tertiary Industry Index from Japan, construction output from the U.K., CPI from Germany, non-farm payrolls from France and GDP from Italy and the Eurozone.

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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