Charles Schwab: On the MarketPosted: 10/25/2017 4:15 PM EDT
Stocks Scale Back from Recent Highs
The Dow Jones Industrial Average (DJIA) fell 112 points (0.5%) to 23,329, the S&P 500 Index decreased 12 points (0.5%) to 2,557, and the Nasdaq Composite declined 35 points (0.5%) to 6,564. In heavy volume, 909 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.29 to $52.18 per barrel and wholesale gasoline increased $0.02 to $1.69 per gallon. Elsewhere, the Bloomberg gold spot price rose $1.34 to $1,277.92 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 93.70.
Dow member Boeing Co. (BA $258) reported Q3 earnings-per-share (EPS) of $3.06, or $2.72 ex-items, versus the $2.65 FactSet estimate, as revenues rose 2.0% year-over-year (y/y) to $24.3 billion, compared to the expected $24.0 billion. The company said its saw strong deliveries, but announced an additional cost of $256 million for its KC-46 Tanker program. BA raised its full-year earnings outlook, due to a lower-than-expected tax rate, but it had a midpoint that missed analysts' expectations. Shares were lower.
Dow component Visa Inc. (V $110) posted fiscal Q4 EPS of $0.90, above the projected $0.85, with revenues rising 13.9% y/y to $4.9 billion, topping the forecasted $4.6 billion. The company said it achieved double-digit payments volume growth. V said it expects earnings growth in the high mid-teens. Shares gained solid ground.
Dow member Coca-Cola Co. (KO $46) announced Q3 earnings of $0.33 per share, or $0.50 ex-items, versus the estimated $0.49, as revenues fell 15.0% y/y to $9.1 billion, exceeding the forecasted $8.7 billion. The company said its revenues declined due to a headwind from the ongoing refranchising of bottling territories, and its case volume was flat y/y, amid macroeconomic challenges with developed markets negatively impacted by weather and the cycling of strong results the prior year. KO reaffirmed its full-year guidance, and shares were modestly lower.
Shares of Dow component Nike Inc. (NKE $55) reversed solidly to the upside as the Street cheered the apparel and footwear maker's updated projections announced at its investor day.
AT&T Inc. (T $34) reported Q3 EPS of $0.49, or $0.74 ex-items, compared to the projected $0.74, as revenues decreased 2.9% y/y to $39.7 billion, below the forecasted $40.1 billion. The company said it is amid a transformation in its wireless and video businesses, while its DIRECTV NOW had another strong quarter. T maintained its full-year guidance, and shares came under pressure.
Chipotle Mexican Grill Inc. (CMG $277) posted Q3 profits of $0.69 per share, or $1.46 ex-items, versus the estimated $1.64, as revenues increased 8.8% y/y to $1.1 billion, roughly in line with forecasts. Q3 same-store sales rose 1.0% y/y, compared to the expected 1.2% gain. Shares fell sharply.
Texas Instruments Inc. (TXN $96) announced Q3 EPS of $1.26, or $1.24 ex-items, versus the expected $1.12, with revenues rising 12.0% y/y to $4.1 billion, above the estimated $3.9 billion. TXN issued Q4 guidance with midpoints above the Street's estimates. Shares were lower.
Durable goods orders easily beat estimates, new home sales surprisingly jump
September preliminary durable goods orders (chart) were up 2.2% month-over-month (m/m), compared to the Bloomberg estimate of a 1.0% gain, and August's 2.0% rise was unrevised. Ex-transportation, orders were 0.7% higher m/m, versus forecasts of a 0.5% gain and compared to August's upwardly revised 0.7% rise. Orders for non-defense capital goods excluding aircraft,
considered a proxy for business spending, grew 1.3%, well above projections of a 0.3% increase, and following the positively-revised 1.3% rise posted in the month prior.
Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Pumped Up Kicks: Several Important Kickers for a Strong Capex Cycle, that U.S. business capital spending has already picked up; but an even sharper recovery could be in the cards for 2018.
New home sales (chart) surprisingly surged 18.9% m/m in September to an annual rate of 667,000 units, well above the forecasts calling for a decline to 554,000 units and the upwardly revised 561,000 unit pace in August. The median home price was up 1.6% y/y to $319,700. New home inventory fell to 5.5 months of supply at the current sales pace from 6.3 in August. Sales jumped m/m in the Northeast, South, and Midwest, and were up solidly in the West. New home sales are based on contract signings instead of closings. This was the highest pace of sales since October 2007 and the biggest monthly gain since January 1992.
The MBA Mortgage Application Index fell 4.6% last week, following the prior week's 3.6% rise. The drop came as a 3.0% decrease in the Refinance Index was met with a 6.1% fall in the Purchase Index. The average 30-year mortgage rate rose 4 basis points (bps) to 4.18%.
Treasuries finished modestly lower, as the yield on the 2-year note was flat at 1.59%, while the yields on the 10-year note and the 30-year bond ticked 1 bp higher to 2.43% and 2.95%, respectively.
Tomorrow's economic calendar will be a busy one, beginning with weekly initial jobless claims, forecasted to rise to a level of 235,000 from the prior week's 222,000, as well as the advance goods trade balance, with economists anticipating the deficit to widen to $64.0 billion during September. Pending home sales is also on the docket, expected to have increased 0.3% m/m during September following the 2.6% m/m drop in August. Wholesale inventories and the Kansas City Fed Manufacturing Activity Index will round out the day.
Europe lower despite upbeat economic data, Asia mixed as Japan ends winning streak
European equities traded lower amid the down session in the U.S. as the markets digested mixed earnings reports on both sides of the pond, while caution likely set in ahead of tomorrow's monetary policy decision by the European Central Bank. The markets shrugged off positive economic data in the region that preceded the stronger-than-expected housing and manufacturing reports in the U.S. German business confidence unexpectedly improved for October, while U.K. Q3 GDP quarter-over-quarter growth of 0.4% topped forecasts calling for it to match Q2's 0.3% rate of expansion. The euro was higher versus the U.S. dollar, while the British pound rallied to stymie the U.K. markets.
Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick, note in the video, Is An Optimistic Outlook for Global Equities Warranted?, all of the world's top 20 economies are growing this year—a rare occurrence over the last decade, underpinning our positive outlook for global earnings. Bond yields in the region finished mixed, with the Spanish political turmoil and Brexit uncertainty lingering.
Stocks in Asia finished mixed, with most markets gaining ground on the heels of yesterday's advance in the U.S. on a host of positive earnings reports, which appeared to boost global earnings economic optimism. Mainland Chinese stocks and those traded in Hong Kong rose, equities listed in South Korea and Australia nudged higher, with the latter posting a cooler-than-expected consumer price inflation report, while markets in India rallied. However, stocks in Japan declined, snapping a 16-day winning streak that has taken the index to highs not seen since 1996, with traders assessing the recent run that has contributed to the global market rally, and Schwab's Liz Ann Sonders discusses with Randy Frederick in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?, that there seems to be no end in sight to the bull market in equities, but that doesn’t mean there’s nothing to worry about.
In addition to tomorrow's European Central Bank monetary policy meeting, items on the international economic calendar will include: preliminary Q3 GDP from South Korea, import/export prices from Australia, consumer confidence from Germany, employment figures from Spain, and confidence data from Italy.