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Monday, November 13, 2017

Markets Rebound to Post Slight Gains

Charles Schwab: On the Market
Posted: 11/13/2017 4:15 PM EST

Markets Rebound to Post Slight Gains
U.S. equities posted modest gains, bouncing off early lows that came on the heels of declines for international equities on concerns to the likelihood of a successful U.S. tax code overhaul. Treasuries were flat and the U.S. dollar inched higher amid a domestic economic docket void of any major releases today. Gold was slightly higher and crude oil prices diverged. News on the equity front was mixed, as Tyson Foods beat quarterly expectations and GE announced a cut to its quarterly dividend.

The Dow Jones Industrial Average (DJIA) rose 17 points (0.1%) to 23,439, the S&P 500 Index was 3 points (0.1%) higher at 2,585, and the Nasdaq Composite gained 3 points (0.1%) to 6,758. In moderate volume, 791 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.02 higher to $56.76 per barrel and wholesale gasoline was $0.02 lower at $1.79 per gallon. Elsewhere, the Bloomberg gold spot price rose $2.72 to $1,277.79 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.1% at 94.46.

Tyson Foods Inc. (TSN $76) announced Q4 GAAP earnings per share (EPS) of $1.07 or $1.43 ex-items, topping the $1.35 FactSet consensus estimate, while revenues rose 10.8% year-over-year (y/y) to $10.1 billion, beating expectations. The company announced that the adjusted EPS guidance range for 2018 is between $5.70 and $5.85, representing a 7-10% increase over fiscal 2017 adjusted EPS. Shares werenicely higher.

General Electric Company (GE $19) announced that its Board of Directors has determined to set the Company's quarterly dividend to a projected payout of $0.12, or a 50% reduction from the current quarterly dividend of $0.24. The company revealed 2018 EPS guidance of $1.00-$1.07, below the FactSet estimate, while GE is also addressing additional business and strategy updates at the GE Investor Update, currently in session. Shares of GE ae traded solidly lower.

Economic docket blank today

Treasuries were unchanged amid a dormant economic calendar, as the yields on the 2-year and 10-year notes, as well as the 30-year bond were flat at 1.68%, 2.40% and 2.87%, respectively.
Economic reports for the week will begin tomorrow, starting with the National Federation of Independent Business (NFIB) Small Business Optimism Index, forecasted to move higher to a level of 104.0 during October from the 103.0 posted the month prior, followed by the first look at inflation readings in the form of the Producer Price Index (PPI), with economists anticipating a 0.1% month-over-month (m/m) increase for October, while the core rate, which excludes food and energy, expected to have gained 0.2%.

More pricing data will come later in the week via the Consumer Price Index (CPI), while we will also receive a read on the consumer heading into the holiday season in the form Wednesday's retail sales release. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, informs us in his latest Schwab Sector Views: 'Tis the Season…Almost, that personal spending reported by the Commerce Department rose 1.0% in September, which was the largest monthly increase since August of 2009. Retail sales have also been increasing at a relatively steady rate, although there could have been some hurricane-induced volatility recently. Housing activity will also be on display as the NAHB Housing Market Index will be followed by housing starts and building permits, and the Fed's industrial production and capacity utilization report will round out the heavy dose of weekly data.

As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, the long-running bull market continues and has shown few signs of faltering. Even modest pullbacks have failed to gain any momentum and the uptrend has been largely intact throughout the course of 2017. But there are signs that the potential for a “melt up” is heightened. Additional support for the ongoing bull market could come from the holiday shopping season, which is shaping up to be a good one, as well as ramped up capital spending and productivity as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her articles, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle and One Thing Leads to Another: Productivity's Rebound.

Europe and Asia find pressure

European equities traded lower, with shares of banks and financial services companies declining as investors remained cautious about the future of tax reform policy in the U.S. In political developments in the region, German Chancellor Merkel entered the final stretch of preliminary talks to form a new government and U.K. Prime Minister May is under renewed pressure after the opposition party accused her of lacking support within her party to deliver the Brexit transition period she's proposed. Market participants will likely be paying close attention to tomorrow's ECB conference on monetary policy communication with central bank panel speakers to include Mario Draghi, Janet Yellen, Mark Carney and Haruhiko Kuroda. In economic news in the region, house prices in the U.K. unexpectedly dipped month-over-month (m/m), though they were higher compared to the same period last year and a report from Germany showed wholesale prices in the country decelerated m/m and y/y. The euro overcome some early weakness and was mostly flat versus the greenback, while the British pound lost ground versus the U.S. dollar and bond yields in the region were mixed. For a look at global stock investing, 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?.

Stocks in Asia finished the first trading session of the new week mostly lower with Japanese equities leading decliners, as stocks in the Asian nation extended their recent losing streak to four sessions after the country's benchmark index reached levels last week not seen in well over two decades. Separately, Japan released a producer price inflation report that came in hotter than anticipated.

Listings in Australia and South Korea traded lower, with the latter seeing pressure from manufacturing companies. Indian securities fell, as market participants speculated whether a plan to lower the tax rate on some goods could increase the country's fiscal deficit and as October consumer price inflation was higher than expected. Meanwhile, stocks in mainland China and Hong Kong bucked the trend by posting modest gains, as China's Ministry of Finance announced that it will extend a tax-exempt proceeds policy for transactions made through the Shanghai-Hong Kong Stock Connect to December 4, 2019. Additionally, the online shopping and spending bonanza in China known as Singles' Day, which took place on November 11, set another record in single day sales at an estimated $25 billion. With volatility relatively flaring up to hamper the global markets, Schwab's Jeffrey Kleintop, CFA, and Randy Frederick discuss in the video, Is An Optimistic Outlook for Global Equities Warranted?.

Tomorrow's international economic calendar will hold retail sales from China and Japan, business confidence from Australia, CPI and GDP from Germany, CPI from the U.K. and Spain, and GDP from Italy.

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