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Thursday, June 22, 2017

Stocks Fade to a Flat Finish

Charles Schwab: On the Market
Posted: 6/22/2017 4:15 PM ET

Stocks Fade to a Flat Finish

U.S. equities closed the regular trading session mostly flat as markets were unable to hold gains that followed an afternoon surge in healthcare stocks on the heels of the Senate unveiling its bill to replace the Affordable Care Act. Treasuries were higher following economic reports that showed weekly jobless claims increased, leading indicators matched expectations and regional manufacturing activity was better than expected. Gold and crude oil prices moved higher and the U.S. dollar was flat.

The Dow Jones Industrial Average (DJIA) declined 13 points (0.1%) to 21,397, the S&P 500 Index decreased 1 point to 2,435, and the Nasdaq Composite gained 3 points to 6,237. In moderately-heavy volume, 841 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.21 to $42.74 per barrel and wholesale gasoline ticked $0.02 higher to $1.43 per gallon. Elsewhere, the Bloomberg gold spot price increased $3.53 to $1,250.01 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 97.55.

Accenture Plc (ACN $122) reported Q3 diluted earnings-per-share (EPS) of $1.05 or $1.52 ex-items, compared to the $1.52 FactSet estimate, while revenues increased 5.0% year-over-year (y/y) in U.S. dollars and 7.0% in local currency to $8.9 billion. The diluted EPS of $1.05 includes the impact of a previously disclosed settlement charge of $510 million in regard to the termination of its U.S. pension plan. Shares of ACN traded sharply lower.

After the closing bell yesterday, Oracle Corp. (ORCL $50) announced fiscal 2017 Q4 EPS of $0.76 or $0.89 ex-items versus the $0.78 FactSet estimate, while revenues topped estimates, increasing 2.8% y/y to $10.9 billion. CEO, Mark Hurd said the company is experiencing rapid adoption of the Oracle Cloud and is expecting EPS growth to accelerate in fiscal 2018. ORCL rallied.

Carnival Corp. (CCL $66) reported Q2 GAAP EPS of $0.52, compared to the FactSet estimate of $0.47, while revenues rose 5.4% y/y to $3.9 billion, mostly in line with expectations. The company also forecasted that changes in fuel prices and currency exchange rates are expected to decrease earnings by $0.35 per share for full-year 2017. EPS guidance for the current fiscal year was updated to be in the range of $3.60 to $3.70 compared to March guidance of $3.50 to $3.70. CCL ticked slightly to the downside.

Jobless claims higher than expected and leading indicators match projections

Weekly initial jobless claims (chart) increased by 3,000 to 241,000 last week, above the Bloomberg forecast of 240,000, with the prior week’s figure upwardly revised at 238,000. The four-week moving average increased by 1,500 to 244,750, while continuing claims increased by 9,000 to 1,944,000, north of estimates of 1,928,000.

The Conference Board's Index of Leading Economic Indicators (LEI) (chart) for May rose 0.3% month-over-month (m/m), matching projections and compared to last month's downwardly adjusted 0.2% increase. The biggest positive contributor to the index was interest rate spread, while the largest negative contributor was building permits.

The Kansas City Fed Manufacturing Activity Index for June increased to 11, from May's 8 reading, topping forecasts of a rise to 9, with a level north of zero depicting expansion.

Treasuries finished slightly higher with the yields on the 2-year note and the 30-year bond declining 1 basis point (bp) to 1.34% and 2.72%, respectively and the yield on the 10-year note decreasing 2 bps to 2.15%. In the Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer', Schwab's Chief Fixed Income Strategist, Kathy Jones informs us that the bond market continues to confound the experts. Each year since the end of the recession in 2009, consensus expectations have called for higher bond yields and the death of the 35-year bond bull market. Yet 10-year Treasury yields are now nearly 200 basis points lower than in 2010. For Schwab's viewpoint on the second half of 2017 be sure to read the whole article on the Fixed Income page at www.schwab.com and follow Kathy on Twitter: @kathyjones.

Tomorrow, the U.S. economic calendar will bring a look at the housing sector in the form of the May new home sales report, with economists expecting a 3.7% month-over-month (m/m) increase to a rate of 590,000 units after dropping by 11.4% m/m to 569,000 units in April, as well as Markit's preliminary Manufacturing and Services PMIs for June with the manufacturing index forecasted to inch higher to 53.0 from 52.7 and the services index expected to tick lower to 53.5 from 53.6. Readings above 50 for both indexes denote expansion in activity.

Europe and Asia finish mixed

European stocks finished trading mixed as healthcare issues received a late-session boost after the U.S. Senate released details of its bill aimed at replacing the Affordable Care Act. Markets in the region were initially weighed down as the recent pressure that pushed oil prices into bear market territory, declines in commodity-linked issues and political uncertainty fostered some caution among market participants. Amid the pullback in oil and other commodities, investors have been vigilant of potential downward pressure on inflation and how that may impact central bank policies. In other developments in the region, the Bank of England's chief economist said that it may be prudent to withdraw some stimulus in the second half of the year and that he is likely to vote for a rate hike as long as the economic data justifies it, per Bloomberg. Also, U.K. Prime Minister Theresa May arrived in Brussels where she is expected to discuss Brexit details with European Union leaders as a two-day European Council meeting commenced. In light regional economic news, business confidence figures from France were better than expected, while a read on manufacturing confidence was just shy of forecasts. The euro and British pound moved slightly lower versus the U.S. dollar, while bond yields in the region were mostly lower.

Global trade will likely garner some attention in the near future as the latest Schwab Market Perspective: Goldilocks…or the Three Bears?, informs us that the end of the month brings the end of the 90-day trade review ordered by President Trump to identify trade abuses. Our experts explain that trade growth can have a meaningful impact on corporate revenue growth and, as a result, drive earnings and stock price performance. Fortunately, global trade growth looks set for the highest pace in a decade, with the exception of the snapback in 2010-11. This is indicated by the export orders component of the Eurozone purchasing managers' index (PMI), which has done a good job of forecasting global trade growth in the months ahead. Read more on the Markets & Economy page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

Stocks in Asia finished mixed following yesterday's dip in crude oil prices, while technology companies advanced on the heels of gains for the group in U.S. trading. Mainland Chinese shares dipped after gaining ground in the previous session following the announcement that MSCI will include its A-shares in the company's emerging markets indexes after rejecting its prior three attempts to join. Stocks trading in Hong Kong were also lower. Japanese equities realized losses for a second-straight day following the decline in crude oil prices, while volatility for the Japanese Nikkei 225 Index was near the lowest levels in over a decade and the yen strengthened versus the U.S. dollar. Indian listings finished flat, though on Wednesday the Securities and Exchange Board of India relaxed takeover and restructuring rules for companies with stressed assets, per Bloomberg. Finally, South Korean equities advanced and Australian securities were led higher by a recovery in some energy and materials stocks after selling off the previous session. For a deeper dive into the global market landscape, see the video from Schwab's Jeffrey Kleintop, CFA, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com and be sure to follow Jeff on Twitter: @jeffreykleintop.

Major reports from the international economic docket for tomorrow will be limited to releases from across the pond with GDP from France and industrial orders from Italy, while we will also receive preliminary Markit Manufacturing and Services PMIs from the Eurozone, Germany and France.

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