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Wednesday, November 08, 2017

Another Sluggish Day on the Street

Charles Schwab: On the Market
Posted: 11/8/2017 4:15 PM EST

Another Sluggish Day on the Street
With little in the way of news to sway the U.S. equity markets soundly in one direction or the other, stocks finished with modest gains, led again by the tech sector, after spending most of the day crowding the unchanged mark. Tax reform continued to garner attention as the Senate is expected to deliver its bill this week, while global trade was also in focus as President Trump continues his Asian tour and China posted mixed trade data. Crude oil prices came under pressure following a bearish government oil inventory report and gold was higher. Treasury yields ticked slightly higher and the U.S. dollar was little changed.

The Dow Jones Industrial Average (DJIA) gained 6 points to 23,548, the S&P 500 Index was 4 points (0.1%) higher at 2,594, and the Nasdaq Composite gained 21 points (0.3%) to 6,789. In moderate volume, 881 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.39 to $56.81 per barrel and wholesale gasoline was unchanged at $1.82 per gallon. Elsewhere, the Bloomberg gold spot price was $5.32 higher at $1,280.62 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 94.88.

Take-Two Interactive Software Inc. (TTWO $118) reported a fiscal Q2 loss of $0.03 per share, or earnings-per-share (EPS) of $1.61 ex-items, versus the FactSet estimate calling for EPS of $0.74, as net bookings grew 20.3% year-over-year (y/y) to $577 million, above the expected $516 million. The video game company raised its full-year outlook and issued net bookings guidance for the holiday season that easily topped expectations. Shares were sharply higher.

Humana Inc. (HUM $243) posted Q3 profits of $3.44 per share, or $3.39 ex-items, compared to the forecasted $3.26, on revenues of $13.3 billion, roughly in line with expectations, but premiums were a bit shy of expectations. HUM raised its full-year earnings outlook but offered little in terms of guidance for next year. Shares were sharply lower.

Snap Inc. (SNAP $13) announced a Q3 loss of $0.36 per share, compared to the $0.33 per share shortfall that the Street had anticipated, with revenues rising 62.0% y/y to $208 million, below the projected $236 million. The social media company's global daily active users and average revenue per user both missed expectations. Shares fell sharply. Separately, SNAP disclosed that China's Tencent Holdings Ltd. (TCEHY $50) has taken a 10% stake in the company.

Wendy's Co. (WEN $15) reported Q3 EPS of $0.06, or $0.09 ex-items, versus the projected $0.12, as revenues declined 15.4% y/y to $308 million, just shy of the expected $310 million, due to lower ownership of company-operated restaurants. The fast-food chain's North American same-store sales rose 2.0% y/y, south of the estimated 2.6% gain. WEN lowered its full-year profit outlook and shares were solidly lower.

Mortgage applications flat

The MBA Mortgage Application Index was flat last week, following the prior week's 2.6% decline. The unchanged reading came as a 0.5% decrease in the Refinance Index was offset by a 0.5% gain in the Purchase Index. The average 30-year mortgage rate fell 4 basis points (bps) to 4.18%.
Treasuries dipped, as the yields on the 2-year and 10-year notes, along with the 30-year bond, all inched 1 bp higher to 1.64%, 2.32% and 2.79%, respectively.

Treasury yields and the U.S. dollar remained subdued as a positive global economic backdrop continues to be met with looming Fed leadership changes, and market grappling with uncertainty regarding the long road to tax reform.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, One Thing Leads to Another: Productivity's Rebound, although there remains a long runway between the House bill put forth on tax reform and a bill that could pass through the Senate, a more competitive tax code would likely grow the capital stock, which should boost productivity.

Schwab's Chief Fixed Income Strategist Kathy Jones and Vice President of Trading and Derivatives, Randy Frederick discuss in the video, Should a Change in Fed Leadership Matter to Investors?, while Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest commentary, House Tax Reform Bill: What Investors Need to Know.

Tomorrow's economic calendar will remain light, beginning with weekly initial jobless claims, forecasted to rise modestly to 232,000 from the prior week's 229,000, followed by wholesale inventories, with economists expecting a 0.3% month-over-month increase for September, matching that seen in August.

Europe and Asia mixed on global trade focus and U.S. tax reform uncertainty
European equities finished mixed, with banking stocks being hamstrung by disappointing quarterly results from the sector in the region. The markets also grappled with global trade uncertainty as U.S. President Donald Trump remained on his tour of Asia and China posted a mixed trade report. U.S. tax reform scrutiny festered to keep conviction in check. The euro was little changed, while the British pound added to recent losses versus the U.S. dollar. Bond yields in the region traded mixed. In economic news, Spanish industrial output for September came in stronger than expected. With the global markets pausing from their rally, Schwab's Liz Ann Sonders and Randy Frederick note 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.

Stocks in Asia finished mixed as the markets focus on global trade relations as U.S. President Trump continued his tour of the region and as China's October trade data painted a divergent picture as exports missed expectations and imports continued to rise solidly. For a look at the global trade picture, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his article, Top Five Trade Issues Investors Should Be Watching. Japanese equities dipped, with the yen gaining some ground, while Australian securities finished flat. Mainland Chinese stocks ticked higher and those traded in Hong Kong declined, while listings in India were also lower and South Korean markets saw a modest gain.

More data from China will take center stage on tomorrow's international economic calendar, including the Asian nation's CPI, PPI, and lending statistics, while Germany and the U.K. will report trade figures.

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