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Thursday, April 27, 2017

Stocks Lack Direction in a Fairly Flat Finish

Charles Schwab: On the Market
Posted: 4/27/2017 4:15 PM ET

Stocks Lack Direction in a Fairly Flat Finish

U.S. stocks oscillated around the flatline before ultimately closing with mild gains as the global markets continued to grapple with political uncertainty. A plethora of earnings reports hit the Street highlighted by Comcast and Under Armour, while in economic news, durable goods orders missed expectations and jobless claims rose. Gold and crude oil prices were lower, the U.S. dollar was mostly flat and Treasuries gained ground.

The Dow Jones Industrial Average (DJIA) added 6 points to 20,981, the S&P 500 Index increased 1 point (0.1%) to 2,389, and the Nasdaq Composite was 24 points (0.4%) higher at 6,049. In heavy volume, 1.0 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.65 to $48.97 per barrel and wholesale gasoline was $0.04 lower at $1.55 per gallon. Elsewhere, the Bloomberg gold spot price ticked $4.42 lower to $1,264.80 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% higher at 99.12.

Comcast Corp. (CMCSA $40) reported 1Q earnings-per-share (EPS) of $0.53, above the $0.44 FactSet estimate, with revenues growing 8.9% year-over-year (y/y) to $20.5 billion, topping the forecasted $20.1 billion. Shares finished nicely higher.

Under Armour Inc. (UA $20) posted a 1Q loss of $0.01 per share, compared to the $0.04 per share shortfall that the Street had projected, as revenues rose 7.0% y/y to $1.1 billion, roughly in line with forecasts. UA reaffirmed its full-year revenue outlook. Shares rallied.

United Parcel Service Inc. (UPS $109) announced 1Q EPS of $1.32, exceeding the expected $1.29, with revenues increasing 6.2% y/y to $15.3 billion, north of the estimated $15.2 billion. UPS reaffirmed its full-year earnings guidance and shares traded to the upside.

Bristol-Myers Squibb Co. (BMY $56) reported 1Q EPS of $0.94, or $0.84 ex-items, versus the estimated $0.73, as revenues rose 12.0% y/y to $4.9 billion, above the forecasted $4.8 billion. BMY raised its full-year EPS outlook and shares gained solid ground.

American Airlines Group Inc. (AAL $44) posted 1Q profits of $0.46 per share, or $0.61 ex-items, compared to the expected $0.57, as revenues grew 2.0% y/y to $9.6 billion, roughly in line with estimates. Shares traded decisively to the downside as analysts express profit margin concerns as the company announced pay increases for employees that could exacerbate cost pressures facing the airline. 

Ford Motor Co. (F $11) reported 1Q EPS of $0.40, or $0.39 ex-items, versus its guidance of between $0.30-0.35 issued last month, as revenues rose 4.0% y/y to $39.1 billion, compared to the projected $34.2 billion. Shares lost ground.

Durable goods orders miss, jobless claims rise

March preliminary durable goods orders (chart) increased 0.7% month-over-month (m/m), compared to the Bloomberg estimate of a 1.3% rise, but February's 1.8% gain was revised to a 2.3% rise. Ex-transportation, orders were 0.2% lower m/m, compared to forecasts of a 0.4% gain and versus February's upwardly revised 0.7% increase. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, rose 0.2%, versus projections of a 0.5% increase, and following the favorably revised 0.1% increase in the month prior. Demand for autos slipped to weigh on the headline figure and offset some of the solid growth in volatile component of aircraft and parts. Weakness in computers, communications equipment, fabricated metal products and machinery led to the first decline in the ex-transportation figure since June 2016.

The report is in line with the data divergence seen between "hard" and confidence/survey-based "soft," and the average trend of flat growth in Q1 that we have seen over the past 10 years. Schwab’s Chief Investment Strategist Liz Ann Sonders discusses this phenomenon in her latest article, ½ Full: Seeing Through a Weak Q1, but points out that the average GDP growth for the subsequent quarters over the past 10 years has been 1.8%, and forward looking data remains quite healthy. Read more on the Markets & Economy page at and follow Liz Ann on Twitter: @lizannsonders.

Weekly initial jobless claims (chart) rose by 14,000 to 257,000 last week, above forecasts of 245,000, with the prior week’s figure being downwardly revised to 243,000. The four-week moving average dipped by 500 to 242,250, while continuing claims grew by 10,000 to 1,988,000, south of estimates of 2,007,000.

Pending home sales declined 0.8% m/m in March, versus projections of a 1.0% decrease, and following the unrevised 5.5% gain registered in February. Compared to last year, sales were 0.5% higher. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which rose more than expected in March to the fastest pace since 2007.

The advance goods trade deficit widened to $64.8 billion in March, from the downwardly revised $63.9 billion in February, and compared to expectations for it to increase to $65.2 billion.

Preliminary wholesale inventories dipped 0.1% m/m in March, versus forecasts for a 0.2% increase, and following February's downwardly revised 0.2% gain.

The Kansas City Fed Manufacturing Activity Index for April slid to 7, from March's 20 reading, below forecasts of a decline to 17, though a level north of zero depicts expansion.

Treasuries were higher, with the yield on the 2-year note slipping 2 basis points (bps) to 1.25% and the yield on the 10-year note dipping 1 bp to 2.29%, while the 30-year bond rate was unchanged at 2.96%. Bond yields have rebounded recently following eased European political risk concerns in the wake of the French Presidential election and as earnings season has remained favorable. For analysis of the bond markets, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, Three Reasons to Own Bonds When the Fed is Raising Interest Rates on the Markets & Economy page at Follow Kathy on Twitter: @kathyjones. Also, Schwab's Vice President of Trading and Derivatives, Randy Frederick and Senior Fixed Income Research Analyst, Collin Martin, CFA, offer the video What's Driving the Ongoing Drop in Long-Term Bond Yields? on the Insights & Ideas page at Follow Randy on Twitter: @randyafrederick.

The markets are digesting yesterday's rough framework of President Trump's tax-reform plan, but political uncertainty remains elevated as discussed by Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend in his latest article, Congress Facing Possible Government Shutdown—Again, on the Insights & Ideas page at

Tomorrow, the U.S. economic calendar will bring the first look (of three) at 1Q GDP, projected to show growth slowed to a 1.0% quarter-over-quarter (q/q) annualized pace, from 4Q's 2.1% rate of expansion. Personal consumption is expected to rise 0.9% after 4Q's 3.5% increase. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in the latest Schwab Sector Views: Is Retail Really Dead?, that it seems like a daily fixture of the business news: Another retailer announcing it is closing stores, warning of declining sales or declaring bankruptcy. There is no doubt that online shopping has changed the way Americans consume, and many industry observers have been sounding the death knell of “brick and mortar” retailers for some time. But is this really a terminal case? Read more, as well as Brad's views on other sectors on the Markets & Economy page at and follow Schwab on Twitter: @schwabresearch.

Additionally, we will receive the 1Q Employment Cost Index, expected to have increased by 0.6% quarter-over-quarter, after rising 0.5% in the 4Q and the Chicago Purchasing Managers Index for April, expected to show activity in the Midwest declined to 56.2 from the 57.7 posted in March, though a reading above 50.0 represents expansion. The last release for the day will be the final University of Michigan Consumer Sentiment Index for April, forecasted to remain at the preliminary level of 98.0, but above the final reading of 96.9 for March.

Europe lower and Asia mixed amid central bank decisions, data and political uncertainty

European equities finished lower, with oil & gas issues leading to the downside amid some weakness in crude oil prices, while the markets took a breather from the strong gains seen this week that were fostered by the French Presidential election and mostly upbeat earnings reports. The markets paid close attention to the customary press conference by European Central Bank (ECB) President Mario Draghi that followed the central bank's unchanged monetary policy stance. Comments were scrutinized for any clues to the timing regarding when the ECB may begin to dial back its highly accommodative monetary policy position. Draghi noted that downside risks to the economy have further diminished and the recovery is now solid and broad. However, he noted that the ECB did not discuss options for June or changing its policy bias as underlying inflation remains subdued and has yet to show a convincing upward trend. The euro was volatile on the comments, briefly spiking but then moving lower versus the U.S. dollar.

U.S. President Trump's tax-reform plan also garnered attention, along with recent comments and actions regarding the world's largest economy's global trade relations. For analysis of the political uncertainty on both sides of the pond, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at Eurozone economic confidence improved, while German consumer price inflation remained subdued but slightly hotter than expected. The British pound was higher versus the U.S. dollar, while bond yields in the region were mostly lower.

Stocks in Asia finished mixed, following a two-session rally, with the markets digesting an expected unchanged monetary policy decision from the Bank of Japan (BoJ), some details of U.S. tax-reform plans, and economic data. Japanese equities declined, paring a four-day jump as the yen recovered some of a recent slide in the wake of the BoJ's decision, which included an increased economic forecast. South Korean stocks ticked higher after a report showing the nation's 1Q GDP growth accelerated more than expected. Shares trading in mainland China and Hong Kong gained ground on the heels of a report showing the country's industrial profits jumped, helping overshadow lingering concerns about regulatory crackdowns. Australian securities rose, while Indian listings decreased. The markets also continued to grapple with exacerbated U.S. trade relation uncertainty and festering geopolitical concerns toward North Korea. Schwab's Jeffrey Kleintop, CFA, offers timely commentary in his article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at, while he also delivers a look at the global landscape in his article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at

The international economic docket for tomorrow will yield a plethora of reports from Japan as the island nation is expected to deliver reads on its jobless rate, household spending, CPI, retail sales, industrial production, housing starts, construction orders and vehicle production. Additional releases will include private sector credit from Australia, consumer confidence and GDP from the U.K., retail sales and the import price index from Germany and CPI and PPI from Italy and France, while France will also report GDP.

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