Charles Schwab: On the MarketPosted: 9/8/2017 4:15 PM ET
Stocks Mixed as Storms Eyed
U.S. stocks traded mixed as the markets paid attention to developments pertaining to Hurricane Irma, while financials advanced as Treasury yields mostly rebounded from a recent drop. The U.S. dollar was again under pressure and a dip in crude oil prices pressured energy shares though tech listings led decliners. In other equity news, Equifax traded lower in the wake of its announced massive cybersecurity breach. Gold was lower.
The Dow Jones Industrial Average (DJIA) increased 13 points (0.1%) to 21,799, the S&P 500 Index was 4 points (0.1%) lower at 2,462, and the Nasdaq Composite decreased 38 points (0.6%) to 6,360. In moderate volume, 801 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.61 to $47.48 per barrel and wholesale gasoline lost $0.01 to $1.65 per gallon. Elsewhere, the Bloomberg gold spot price was $2.49 lower at $1,346.74 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.4% lower at 91.33. Markets were lower for the holiday-shortened week, as the DJIA decreased 0.9%, the S&P 500 Index lost 0.6% and the Nasdaq Composite fell 1.2%.
Equifax Inc. (EFX $123) announced a cybersecurity incident potentially impacting approximately 143 million U.S. consumers, occurring from mid-May through July 2017. Data accessed primarily includes names, Social Security numbers, birth dates, addresses and, in some instances, driver's license numbers. In addition, credit card numbers for approximately 209,000 U.S. consumers, and certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers, were accessed. The company added that it has found no evidence of unauthorized activity on Equifax's core consumer or commercial credit reporting databases. Shares finished sharply lower.
Kroger Co. (KR $21) reported Q2 earnings-per-share (EPS) of $0.39, in line with the FactSet estimate, as revenues grew 3.9% year-over-year (y/y) to $27.6 billion, above the projected $27.5 billion. Q2 same-store sales grew 0.7% y/y, versus the 0.4% rise that was anticipated. KR reaffirmed its full-year EPS outlook. Shares were under pressure, as analysts expressed concern about the heightened uncertainty in the food retail market as the company said it will no longer provide longer-term guidance "In this dynamic operating environment."
Target Corp. (TGT $57) found pressure after the retailer posted a blog about lowering prices on thousands of items in its stores.
Consumer credit and wholesale inventories rise
Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $18.5 billion during July, above the $15.0 billion forecast of economists polled by Bloomberg, while June's figure was adjusted slightly lower to an increase of $11.8 billion from the originally reported $12.4 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $15.9 billion y/y, while revolving debt, which includes credit cards, increased by $2.6 billion.
Wholesale inventories (chart) were revised higher to a 0.6% month-over-month (m/m) gain for July, versus the Bloomberg forecast of an unrevised preliminary 0.4% increase. This was the third-straight month posting a 0.6% increase. However, sales dipped 0.1% m/m, after June's downwardly revised 0.6% gain, and compared to the expected 0.5% rise. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—ticked higher to a 1.30 months pace from June's 1.29 rate.
Treasuries finished mostly lower, with the yield on the 2-year note nearly unchanged at 1.27%, while the yields on the 10-year note and the 30-year bond gained 2 bps to 2.06% and 2.67%, respectively.
Treasury yields rebounded from a recent bout of pressure that had taken them to levels not seen since November, while the U.S. dollar continued to drop to lows not seen in over two years. Fed rate hike expectations for this year have slipped and the European Central Bank signaled that it is likely to unveil plans to dial back its stimulus measures at its meeting next month. Moreover, geopolitical and U.S. political uncertainties remain, while last week's Hurricane Harvey is being followed by a plethora of storms in the Atlantic, with Hurricane Irma continuing to track toward Florida.
Schwab's Chief Fixed Income Strategist Kathy Jones notes in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, we think bond yields are likely to rise from current levels as the economy continues to improve and the Federal Reserve tightens policy, but we don’t see a bubble in the market. Read more on the Fixed Income page at www.schwab.com, and for analysis of investing styles, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?, on the Markets & Economy page. Follow Kathy and Liz Ann on Twitter: @kathyjones and @lizannsonders.
In the final hour of trading, the economic calendar will bring the release of consumer credit, expected to show consumer borrowing was $15.0 billion during July, up from the $12.4 billion posted the month prior.
Europe battles back as data and currencies in focus, Asia mixed following data
European equity markets overcame early losses and finished mostly higher, as financials gained ground with bond yields in the region rebounding from recent pressure. The euro was relatively calm after an extended rally to levels versus the U.S. dollar not seen in well over two years. The European Central Bank (ECB) and the markets have shown some concern regarding the euro's recent surge, which was amplified by yesterday's ECB monetary policy decision that signaled plans to scale back stimulus measures could come next month. Also, the outlook for the possibility of a Fed rate hike this year has become more cloudy to bolster gains for the euro. A mixed trade report out of China, softer-than-expected German export growth, mixed industrial/manufacturing production data out of France, and relatively favorable U.K. industrial/manufacturing production were also in focus. The British pound gained solid ground on the U.S. dollar, likely weighing on the U.K. markets. Amid this backdrop, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Vice President of Trading and Derivatives, Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.
Stocks in Asia finished mixed to close out the week, with data showing Chinese exports missed forecasts but imports—a potential sign of growth in domestic output—topped forecasts, while Japan's Q2 GDP growth was revised to a slower pace of acceleration from Q1. Also, currency volatility garnered attention, with the yen extending a rally as the U.S. dollar continued to drop, hitting the strongest level versus the greenback since November, while currencies in China strengthened to help developers and airlines, per Bloomberg. Global monetary policy uncertainty after yesterday's ECB decision and as Fed rate hike expectations slip is bolstering the volatility. Tensions toward North Korea continued to fester to keep sentiment on edge, along with the potential impact of a plethora of hurricanes in the Atlantic. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks 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.
Weekly gain streak ends as storms, currencies, and yields garner attention
U.S. stocks failed to extend a weekly winning streak to three as a plethora of sources of market anxiety stymied conviction. Financials came under pressure as Treasury yields fell to November lows, while the U.S. dollar tumbled to levels not seen since early 2015. Global monetary policy uncertainty lingered, as Fed rate hike expectations for this year continued to fade, the ECB hinted that detailed discussions regarding tapering are set to commence, and the Bank of Canada unexpectedly hiked rates. Just as the markets were recovering from Hurricane Harvey's impact, Irma crushed the Caribbean and tracked toward Florida.
Geopolitical concerns remained as North Korea detonated a hydrogen bomb and was reportedly preparing another ICBM test, while U.S. President Trump continued to push for global trade renegotiations. Dysfunction on the domestic political front persisted as President Trump backed a Democratic bill lumping a short-term debt limit extension to avoid a government shutdown with Hurricane relief, which passed through Congress but appeared to make some Republican Congressional members uneasy. Upbeat global economic data was overshadowed, with upbeat services sector reports out of China, the eurozone, U.K. and the U.S. having little impact. Healthcare issues led to the upside, bolstered by a plethora of upbeat experimental drug trial results, and energy stocks moved higher as crude oil prices paused from a recent tumble.
Next week, while assessing the impact of Irma and grappling with the aforementioned uncertainties, the economic calendar will likely regain some focus. Stubbornly low inflation, which has kept Fed rate expectations hamstrung, will be on display courtesy of the releases of the Consumer Price Index (CPI) and Producer Price Index (PPI) for August. The all-important U.S. consumer will also garner attention as the markets digest the August retail sales report and the preliminary September University of Michigan Consumer Sentiment Index. The docket will also bring the NFIB Small Business Optimism Index, JOLTS Job Openings, and industrial production and capacityutilization.
As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, action is about to heat up as summer comes to an end but investors should remain cool. Geopolitical threats, domestic politics, and Federal Reserve actions all have the potential to add to volatility and heightens the risk of a pullback or correction. But healthy economic growth and strong corporate earnings lead us to believe that the bull market has legs. Read more on the Markets & Economy page at www.schwab.com.
International reports due out next week that deserve a mention include: Australia—consumer confidence and employment change. China—CPI, PPI, lending statistics, retail sales and industrial production. India—trade balance, CPI, PPI and industrial production. Japan—machine orders and industrial production. Eurozone—industrial production, new car registrations and trade balance, along with German CPI. U.K.—CPI, PPI, employment change and Bank of England monetary policy decision.