Charles Schwab: On the MarketPosted: 6/7/2016 4:15 PM ET
Equities Lose Steam in Final Minutes
After spending most of the day in the green, U.S. equities finished the session mixed, with the sustained rise in crude oil prices giving energy issues a boost. However, healthcare issues were a drag amid lowered guidance from Valeant Pharmaceuticals and disappointing trial results from Biogen. Treasuries were higher, while the U.S. dollar was flat and gold lost ground.
The Dow Jones Industrial Average (DJIA) rose 18 points (0.1%) to 17,938, the S&P 500 Index added 3 points (0.1%) to 2,112, while the Nasdaq Composite was 7 points (0.1%) lower at 4,962. In moderate volume, 851 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.67 to $50.36 per barrel, wholesale gasoline was unchanged at $1.59 per gallon, while the Bloomberg gold spot price fell $1.59 to $1,243.85 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.85.
Valeant Pharmaceuticals International Inc. (VRX $25) reported 1Q earnings-per-share (EPS) ex-items of $1.27, below the $1.36 FactSet estimate, as revenues rose 9.0% year-over-year (y/y) to $2.4 billion, roughly in line with forecasts. VRX cut its full-year guidance as the company noted significant disruption that it has faced and challenges that are needed to be worked through in certain business operations, such as its U.S. dermatology unit. Shares tumbled nearly 15%.
FedEx Corp. (FDX $165) announced a 60% increase of its quarterly dividend to $0.40 per share, payable July 1, 2016 to stockholders of record at the close of business on June 16, 2016. FDX was higher.
Biogen Inc. (BIIB $253) was sharply lower after the company's experimental treatment for multiple sclerosis missed the primary endpoint in a study.
Ralph Lauren Corp. (RL $94) was lower after the company announced a restructuring plan, including store closures and job cuts, after forecasting a larger-than-expected drop in revenues for the current year. Shares have come well off of the worst levels of the day.
1Q productivity and labor costs revised higher, consumer credit expands modestly
Final 1Q nonfarm productivity (chart) was revised to a 0.6% decline on an annualized basis, from the preliminary 1.0% drop, matching the Bloomberg expectation. 4Q productivity was unrevised at a 1.7% decline. Also, unit labor costs were adjusted to a 4.5% rise, from the 4.1% increase initially reported, and compared to forecasts calling for a revision to a 4.0% gain. Unit labor costs rose by an upwardly revised 5.4% in 4Q.
Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $13.4 billion during April, short of the $18.0 billion forecast of economists polled by Bloomberg, while March's figure was adjusted downward to a level of $28.4 billion from the originally reported $29.7 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $11.8 billion, while revolving debt, which includes credit cards, rose by $1.6 billion.
Treasuries finished higher, with the yields on the 2-year and 10-year notes, as well as the 30-year bond, all declining 2 basis points (bps) to 0.78%, 1.72% and 2.54%, respectively. Bond yields rose modestly yesterday as the global markets digested the speech by Federal Reserve Chairwoman Janet Yellen. Yellen spoke following Friday's much softer-than-expected May nonfarm payroll report, and she made no mention of a time frame for the next rate increase.
However, she noted that she continues to think the fed funds rate will probably need to rise gradually over time and in light of the recent employment report, "my colleagues and I will be wrestling with" new questions about the economic outlook that have been raised. Yellen added that her overall assessment is that the current stance of monetary policy is generally appropriate, in that it is providing support to the economy and will help return inflation to 2.0%.
Schwab's Chief Investment Strategist, Liz Ann Sonders discusses Friday's highly disappointing May labor report in her latest article, Are the Glory Days of Job Growth Over?, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.
Items on tomorrow's economic calendar include the JOLTS Job Openings report, a measure of unmet demand for labor, expected to show 5.68 million jobs were available to be filled in April, down slightly from the 5.78 million posted in the prior month, as well as MBA Mortgage Applications.
Europe and Asia higher following Fed comments and data
European equities traded higher, with oil & gas issues strengthening on the continued rally in crude oil prices, and as the global markets showed some optimism following yesterday's speech from Fed Chair Yellen, who provided a relatively upbeat economic outlook but did not provide a time frame for the Central Bank's next rate hike. Some economic data in the region likely helped the mood, with eurozone 1Q GDP being revised higher to a 0.6% quarter-over-quarter pace of growth from the preliminary rate of 0.5% and an acceleration from the 0.4% expansion seen in 4Q.
Also, German industrial production rose more than expected in April. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Five ways investors can make the most of slower growth at www.schwab.com/oninternational. Follow Jeff on Twitter: @jeffreykleintop. Concerns about the possibility that the U.K. could vote to leave the European Union (EU), known as a Brexit, were eased after recent polls showed support for it to remain in the EU. For analysis on the issue read our article, Brexit: Will the UK Leave the EU? at www.schwab.com/insights and Jeffrey Kleintop's, article, Brexit: 5 Things Investors Need to Know. The British pound rallied and the euro was little changed versus the U.S. dollar, while bond yields in the region were mostly lower.
Stocks in Asia finished mostly higher, with the global markets reacting positively to yesterday's comments from U.S. Fed Chief Yellen, while the yen weakened to boost Japanese stocks and the recent rally in commodity markets helped sentiment. Also, traders digested monetary policy decisions out of India and Australia. Mainland Chinese equities and those listed in Hong Kong advanced amid strength in real estate developers and energy issues, as well as lingering speculation of an imminent announcement of a link between the Hong Kong and Shenzhen exchanges. South Korean stocks rose nicely after being closed yesterday for a holiday, and Australia's market moved higher, with oil & gas and basic materials issues showing solid strength, while the Australian dollar rallied in the wake of the Reserve Bank of Australia's decision to keep its monetary policy stance unchanged.
Finally, Indian equities finished higher, with banking stocks gaining ground, after the Reserve Bank of India (RBI) left its benchmark interest rates unchanged. The RBI's decision comes amid uncertainty regarding the future of the nation's central bank Governor Rajan as his tenure is up for renewal in September and he has come under political fire from a key member of the nation's ruling party. Schwab's Director of International Research, Michelle Gibley, CFA, offers a look at the global political landscape in her article, Performing Reformers: How Political Change Can Affect Stocks at www.schwab.com/oninternational, and be sure to follow Schwab on Twitter: @schwabresearch.
Tomorrow's international economic calendar will be somewhat light, with reports slated for release to include trade data from Japan, CPI from Switzerland and labor statistics from Spain.