Charles Schwab: On the MarketPosted: 8/14/2017 4:15 PM ET
Stocks Continue Rebound
U.S. equities continued to regain some of the losses suffered last week in the midst of the sell-off that came courtesy of heightened tensions between North Korea and the U.S. Treasury yields moved higher amid a dormant economic calendar, while news on the equity front was also limited. Crude oil prices lost ground, as did gold, while the U.S. dollar was nearly flat.
The Dow Jones Industrial Average (DJIA) advanced 135 points (0.6%) to 21,993, the S&P 500 Index was 25 points (1.0%) higher at 2,466, and the Nasdaq Composite jumped 84 points (1.3%) to 6,340. In moderate volume, 744 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.23 to $47.59 per barrel and wholesale gasoline was down $0.03 at $1.58 per gallon. Elsewhere, the Bloomberg gold spot price lost $7.80 to $1,281.51 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.43.
VF Corp. (VFC $64) announced an agreement to acquire privately-held workwear company, Williamson-Dickie Mfg. Co. for about $820 million. As a result of the expected impact of the deal, VFC raised its full-year guidance. VFC traded higher.
Sysco Corp. (SYY $51) posted fiscal Q4 earnings-per-share (EPS) of $0.57, or $0.72 ex-items, versus the $0.71 FactSet estimate, as revenues rose 5.7% year-over-year (y/y) to $14.4 billion, roughly in line with forecasts. The food distribution company's gross margin came in below expectations and its total case volume growth came under scrutiny and shares were lower.
VMware Inc. (VMW $98) preannounced that its Q2 EPS and revenues were higher than previously expected, while raising its full-year guidance. The cloud infrastructure and business mobility company said it expects continued broad-based strength across its product portfolio. Shares rallied.
Data light today but set to ramp up
Treasuries declined with the economic calendar void of any major releases today. The yields on the 2-year and 10-year notes, along with the 30-year bond, rose 2 basis points to 1.32%, 2.22% and 2.81%, respectively.
Treasury yields and the U.S. Dollar Index are looking to bounce back from a choppy week, as subdued inflation data fostered Fed uncertainty and met continued global market skittishness amid the flare-up geopolitical tensions. For analysis of the bond markets and the greenback see Schwab's Chief Fixed Income Strategist Kathy Jones' articles, Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' on the Fixed Income page at www.schwab.com and Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page. Follow Kathy on Twitter: @kathyjones.
This week, the retail sector will remain in focus as Dow members Wal-Mart Stores Inc. (WMT $81) and Home Depot Inc. (HD $154), along with Target Corp. (TGT $56), will put the finishing touches on earnings season. Moreover, the economic calendar will start with tomorrow's release of July retail sales, with the headline and ex-autos figures both forecasted to rise 0.3% month-over-month (m/m) after June's 0.2% declines. Stripping out autos and gas, sales are projected to grow 0.4% after the prior month's 0.1% dip. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, discusses our marketperform rating on the consumer discretionary sector in his Schwab Sector Views: Time to "Energize" Your Portfolio?, noting that the outlook for American consumer spending appears to be relatively stable, with consumer confidence strong and wages generally showing signs of trending higher. However, spending on traditional retail items has been cautious and competition among retailers may limit profitability.
As noted in the latest Schwab Market Perspective: Things are Looking Good … But are They Too Good?, the bull market should continue but the risk of a "melt-up" appears to be rising. The U.S. economy is growing modestly and the Federal Reserve is maintaining its slow pace of policy normalization—both supports for further equity market gains, but geopolitical risk remains elevated. While the weaker U.S. dollar is a benefit for U.S. companies, there is a downside internationally … but it may not be where you think. Read these articles on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.
The housing market will also garner attention beginning with tomorrow's release of the NAHB Housing Market Index, with economists anticipating August's reading to match the 64 posted in July, as well as housing starts and building permits later in the week. Rounding out the busy week, the Fed will deliver its industrial production and capacity utilization report and the minutes from its July meeting, while we will get our first look at the consumer for August in the form of the preliminary University of Michigan Consumer Sentiment Index.
Other items on tomorrow's docket include the Import Price Index, forecasted to have increased 0.1% m/m during July, as well as business inventories, expected to indicate a 0.4% increase m/m for June.
Europe and Asia rebound as global markets recover
European equities moved broadly higher, snapping a four-session losing streak, with the euro and British pound losing ground on the U.S. dollar, while the global markets recovered from last week's drop that stemmed from heightened tensions between the U.S. and North Korea. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA points out in his article, What are fund flows telling us about trends and risks in the global stock market?, that the money coming into ETFs is flowing into a broad range of stock markets featuring a preference for international stocks and revealing a surprising disconnect with the performance and geopolitical risk of the underlying markets. Read more on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop. Stocks shrugged off a larger-than-expected decline in eurozone industrial production for June. Bond yields in the region finished mixed.
Stocks in Asia finished mostly higher as recently exacerbated global sentiment appears to be easing after last week's ramp-up in geopolitical concerns as tensions rose between North Korea and the U.S. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors are best served when grim headlines are in the news by remembering that geopolitical risks are a regular part of investing and that a long history of geopolitical developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are most often the result. Investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com. However, Japan's Nikkei 225 Index fell sharply, with the market playing catch up after Friday's holiday that came when stocks ended the week broadly lower on the heightened uneasiness, which fostered a rally in the yen. The Japanese currency did give back some of the gains today as the nation reported a much stronger-than-expected preliminary estimate of Q2 GDP growth, which came as private consumption and business spending more than offset a negative contribution from the country's trade activity.
Mainland Chinese stocks and those traded in Hong Kong gained ground, as the global rebound overshadowed disappointing reads on the nation's retail sales, fixed asset investment and industrial production for July. Meanwhile, markets in Australia, South Korea and India all saw gains as well.
A slew of reports form the U.K. will dominate tomorrow's international economic calendar, with the island nation slated to report CPI, PPI, the Retail Price Index, and mortgage payments, while other releases from abroad will include retail sales and industrial production from Japan, and GDP from Germany.