Stocks Advance Ahead of Jobs Report

Charles Schwab: On the Market

Posted: 12/7/2017 4:15 PM EST

Stocks Advance Ahead of Jobs Report

 

U.S. stocks traded higher with technology shares leading the advance on the heels of some upbeat results and guidance from Broadcom. Crude oil prices rose solidly and Treasury yields were mostly higher, while gold was lower and the U.S. dollar ticked to the upside to add to its recent gains. Market participants continued to assess the tax reform landscape amid the reconciliation process. Tomorrow, the morning release of the November labor report will likely garner much attention.

The Dow Jones Industrial Average (DJIA) increased 71 points (0.3%) to 24,211, the S&P 500 Index was 8 points (0.3%) higher at 2,637, and the Nasdaq Composite advanced 36 points (0.5%) to 6,813. In moderate volume, 824 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.73 to $56.69 per barrel and wholesale gasoline gained $0.04 to $1.70 per gallon. Elsewhere, the Bloomberg gold spot price moved $15.54 lower to $1,247.83 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% higher at 93.74.

Broadcom Limited (AVGO $264) reported fiscal Q4 earnings-per-share (EPS) of $1.50, or $4.59 ex-items, versus the $4.52 FactSet estimate, as revenues rose 17.0% year-over-year (y/y) to $4.9 billion, above the projected $4.8 billion. The chipmaker issued Q1 revenue guidance that had a midpoint above expectations. The company also announced a 72% increase to its quarterly dividend to $1.75 per share. Shares finished flat after initially trading higher.

Dollar General Corp. (DG $93) posted Q3 EPS of $0.93, versus the estimated $0.94, as revenues increased 11.0% y/y to $5.9 billion, topping the projected $5.8 billion. Q3 same-store sales grew 4.3% y/y, exceeding the forecasted 2.7% gain. DG narrowed its full-year earnings outlook, while increasing its sales guidance. Shares gained ground.

Dow member General Electric Co. (GE $18) announced that its GE Power group plans to reduce its global headcount by about 12,000 positions as part of its effort to reduce overall structural costs. GE traded to the upside.

Lululemon Athletica Inc. (LULU $72) announced Q3 EPS of $0.43, or $0.56 ex-items, versus the projected $0.52, with revenues rising 14.0% y/y to $619 million, north of the expected $610 million. Q3 same-store sales grew 8.0% y/y, above the estimated 5.3% gain. The company's gross and operating margins topped forecasts. LULU issued Q4 guidance that topped forecasts, while it raised its full-year outlook. Separately, the company authorized the repurchase of up to $200 million in its common shares. Shares gained solid ground.

Shares of SAGE Therapeutics Inc. (SAGE $156) rallied 70% after the company announced positive results regarding a trial of its treatment for major depressive disorder.

Consumer credit tops expectations, jobless claims surprisingly decline

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $20.5 billion during October, well above the $17.0 billion forecast of economists polled by Bloomberg, while September's figure was adjusted lower to $19.2 billion from $20.8 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $12.2 billion, a 5.3% increase y/y, while revolving debt, which includes credit cards, rose by $8.3 billion, a 9.9% y/y rise.

Weekly initial jobless claims (chart) decreased by 2,000 to 236,000 last week, versus the Bloomberg forecast of 240,000, as the prior week was unrevised at 238,000. The four-week moving average dipped by 750 to 241,500, while continuing claims dropped by 52,000 to 1,908,000, south of estimates of 1,919,000.

The upbeat report comes ahead of tomorrow's November nonfarm payroll report, with jobs projected to rise by 195,000, following October's 261,000 jump (economic calendar). Private sector employment is expected to grow 198,000 on the heels of the prior month's 252,000 gain. The unemployment rate is forecasted to remain at 4.1%. However, given the importance of the consumer on U.S. economic output and the subdued inflation outlook, tomorrow's wage component of the report is likely to garner the most attention as the markets try to project the pace of Fed rate hikes in 2018 after December's highly-expected increase. Average hourly earnings are anticipated to rise 0.3% month-over-month (m/m) after being disappointingly flat in October and the y/y pace of earnings is projected to accelerate to 2.7% from 2.4%.

As we head into 2018, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers his latest, Schwab Sector Views: 18 Thoughts Heading into '18. In our view, a repeat of 2017 is unlikely, and we’re expecting more sector changes in 2018 than there were in 2017. Brad adds that the Fed will be under new management and have several new members throughout the year, and we don’t currently expect major changes in the normalization process but the new makeup could change things.

Treasuries were mostly lower, with the yield on the 2-year note dipping 1 basis point (bp) to 1.80%, while the yield on the 10-year note increased 2 bps to 2.36%, and the 30-year bond rate advanced 3 bps to 2.76%.

The U.S. dollar slightly extended its weekly gain and Treasury yields dipped. Tax reform continues to be a main focus for the markets as the House and Senate grapple with key differences in their bills with the reconciliation process expected to be highly competitive.

Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of some likely changes, based on what we know about the current bills, in his article, Tax Reform: What Investors Should Know, though he cautions that it's hard to be certain what might be in the final bill.
We believe it would be premature for individual investors to make changes now, given the high degree of uncertainty over any eventual new tax law, but Hayden offers his Tax Reform: Frequently Asked Questions for investors wondering how the most sweeping tax overhaul effort in decades will affect them.

Additional economic reports expected tomorrow include wholesale inventories, forecasted to have declined 0.4% m/m in October, and the preliminary University of Michigan Consumer Sentiment Index, expected to have ticked higher for December's initial result to 99.0 from November's final read of 98.5.

Europe and Asia finish mixed

European equity markets finished mixed, following some divergent economic data in the region, while conviction remained stymied by policy uncertainty as the U.S. tax reform reconciliation process looms and U.K. Brexit concerns festered. The British pound turned slightly higher versus the U.S. dollar as U.K. Prime Minister May scrambles amid heightened political pressures to try to make progress on Brexit negotiations. The U.K. and EU have reportedly agreed on the future role of the European Court of Justice in British legal cases but the Irish border issues still remains a substantial sticking point as a deadline nears for the EU to deem if negotiations have progressed enough to move on to the next stage. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans. In economic news, German industrial production unexpectedly fell in October and the Q3 eurozone GDP growth rate was revised higher to a 2.6% y/y pace, from a previous estimate of a 2.5% gain, where it was expected to remain. The euro was little changed versus the U.S. dollar and bond yields in the region traded mixed.

Stocks in Asia finished mixed, with technology issues rebounding after a recent bout of pressure, while the focus on U.S. tax reform remained and the markets appear to be continuing to assess the year's strong advance. The global rally is discussed by Schwab's Jeffrey Kleintop, CFA, and Randy Frederick, in the video, It's All Relative: Why Stocks May Not Be Overvalued. Japanese equities almost overcame yesterday's entire drop, with the yen giving back yesterday's rise. Stocks trading in Hong Kong rebounded slightly from yesterday's slide, though mainland Chinese shares declined with banks seeing some pressure after a the IMF said lenders need more capital and the government proposed liquidity-management regulations. Australian securities traded higher, led by strength in banking stocks and Indian equities gained ground on the heels of yesterday's unchanged monetary policy decision by the Reserve Bank of India. South Korean stocks declined with the tech rebound being countered by weakness in manufacturing and energy issues.

The international economic docket for tomorrow will yield reports on Q3 GDP and bank lending from Japan, home loans from Australia, the trade balance and labor costs from Germany, and construction output, industrial and manufacturing production, and the trade balance from the U.K.

Stocks Little Changed Following Two-Day WobbleStocks Mostly Flat After Overcoming Morning Lows

Charles Schwab: On the Market

Posted: 12/6/2017 4:15 PM EST

Stocks Little Changed Following Two-Day WobbleStocks Mostly Flat After Overcoming Morning Lows

 

U.S. stocks overcame some early weakness to finish the regular trading session fairly flat. U.S. tax reform continued to garner attention as the reconciliation process has begun. Treasury yields were lower and crude oil prices fell, while the U.S. dollar extended recent gains and gold was higher. Dow member Home Depot traded to the downside after announcing an accelerated business investment plan and the kidney dialysis services company DaVita agreed to sell its medical group to a unit of Dow component UnitedHealth for approximately $4.9 billion. 

The Dow Jones Industrial Average (DJIA) declined 40 points (0.2%) to 24,141, the S&P 500 Index was nearly unchanged at 2,629, and the Nasdaq Composite traded 14 points (0.2%) higher to 6,776. In moderate volume, 801 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $1.66 to $55.96 per barrel and wholesale gasoline fell $0.06 to $1.66 per gallon. Elsewhere, the Bloomberg gold spot price ticked $1.39 higher to $1,267.79 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.2% higher at 93.55.

DaVita Inc (DVA $69) announced an agreement to sell its DaVita Medical Group to Optum, a unit of Dow member UnitedHealth Corp. (UNH $220), for about $4.9 billion in cash. DVA rallied and UNH dipped.

Dow member Home Depot Inc. (HD $181) reaffirmed its full-year guidance and announced a new $15 billion share repurchase program, along with providing an update on its strategic priorities including its intent to accelerate business investment over the next three years. The boosted investment plans pressured shares of HD due to concerns about margin expansion as it issued its long-term goal for operating margins that missed expectations.

Dave & Buster's Entertainment Inc. (PLAY $53) reported Q3 earnings-per-share (EPS) of $0.29, or $0.27 ex-items, versus the $0.24 FactSet estimate, as revenues rose 9.3% year-over-year (y/y) to $250 million, compared to the forecasted $256 million. Q3 same-store sales declined 1.3% y/y, versus the expected 1.0% decrease. PLAY raised its full-year earnings guidance, but lowered its sales outlook, while its longer-term guidance appeared to please the Street. Shares traded solidly higher.

ADP private sector payroll report matches forecasts

The ADP Employment Change Report showed private sector payrolls rose by 190,000 jobs in November, matching the Bloomberg forecast, while October's increase of 235,000 jobs was unrevised. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday's broader November nonfarm payroll report, expected to show jobs grew by 195,000 and private sector payrolls rose by 200,000 (economic calendar). The unemployment rate is forecasted to remain at 4.1% and average hourly earnings are projected to rise 0.3% month-over-month (m/m).

Final Q3 nonfarm productivity (chart) was unrevised at the preliminary estimate of a 3.0% rate of growth on an annualized basis, versus expectations of a revised 3.3% rise. Q2 productivity was unrevised at a 1.5% gain. Unit labor costs were adjusted to 0.2% decrease, from the initial report of a 0.5% increase, and versus the forecast calling for an adjustment to a 0.2% rise. Q2 labor costs were revised lower to a 1.2% drop.

The MBA Mortgage Application Index rose 4.7% last week, following the prior week's 3.1% decline. The increase came as a 9.0% jump in the Refinance Index was met with a 2.4% increase in the Purchase Index. The average 30-year mortgage rate dipped 1 basis point (bp) to 4.19%.
Treasuries traded higher, with the yields on the 2-year and 10-year notes dipping 2 bps to 1.80% and 2.33%, respectively while the 30-year bond rate decreased 1 bp to 2.72%.

The U.S. dollar added to its recent gains with European currencies seeing pressure, while Treasury yields dipped from levels near the top end of the year's trading range. The markets continue to await the expected competitive tax reform reconciliation process between the House and Senate as they try to find compromises on some key differences of their bills.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Bill Passes Senate, Clearing Key Hurdle, reaching consensus between the two chambers won’t be easy; there are significant differences between the two bills that will need to be resolved. The conference process will begin this week and Republican leaders are optimistic that a deal can be struck within a matter of days. Complicating matters, the two chambers also must find time this week to avert a government shutdown and approve legislation that extends funding to keep the government open and operating.

The tech sector has seen some volatility as of late with the prospects of tax reform improving and fostering some noticeable sector rotation, which Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, I Melt with You: Anatomy of a Market Melt Up, is a healthy occurrence, for now.

The U.S. economic calendar for tomorrow will be light, starting with weekly initial jobless claims, forecasted to have ticked higher to a level of 240,000 from 238,000. Consumer Credit will be released in the final hour of trading to round out the day, expected to have increased by $17.0 billion in October, after expanding $20.8 billion in September.

Europe mixed on data, Asia falls amid global retreat

European equity markets finished mixed in the wake of the recent global market pullback recently after a strong year, while the euro lost some ground on the U.S. dollar and technology issues remained under pressure. Financials were also lower along with bond yields in the region. The economic calendar delivered a surprising rise in German factory orders. The British pound lost ground versus the greenback, amid ramped up uncertainty as Brexit negotiations remain deadlocked and British Prime Minister May faces political pressures regarding her stance during the talks on how to resolve the Irish border issue. May has only a few days left to reach a deal on the Irish border issue as the European Union is due to decide on whether Brexit talks can move to the next stage. The markets also grappled with the looming highly expected contested U.S. tax reform reconciliation process. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans.

Stocks in Asia finished decisively lower amid a global market retreat as of late, with technology issues leading the slide, while traders assess the strong global rally this year and U.S. tax reform heads for a likely contested reconciliation process. The global rally and recent volatility is discussed by Schwab's Jeffrey Kleintop, CFA, and Randy Frederick, in the video, It's All Relative: Why Stocks May Not Be Overvalued. The yen showed some strength as risk aversion nudged higher, weighing on Japanese equities. Stocks trading in mainland China and Hong Kong declined, with the markets giving back some of the year's strong gains and concerns about government regulations lingered. South Korean shares traded lower. Australian securities slipped after the nation reported softer-than-expected Q3 GDP growth. Indian stocks finished lower ahead of today's monetary policy decision by the Reserve Bank of India (RBI). After the closing bell, the RBI left its monetary policy and benchmark interest rates unchanged as expected.

The international economic docket for tomorrow will include the trade balance from Australia, the Leading Index from Japan, industrial production from Germany, and house prices from the U.K.

Stocks Add to Losses Amid Continued Uncertainty

Charles Schwab: On the Market

Posted: 6/6/2017 4:15 PM ET

Stocks Add to Losses Amid Continued Uncertainty

U.S. equities added to yesterday's losses, as uncertainty continued to plague investors ahead of this week's U.K. election and monetary policy decision in Europe, while also contending with gnawing geopolitical uncertainty. However, technology issues continued their rally and energy stocks got a boost amid a rise in crude oil prices. Meanwhile, Treasury yields fell and the U.S. dollar was lower, but gold was higher.

The Dow Jones Industrial Average (DJIA) declined 48 points (0.2%) to 21,136, the S&P 500 Index decreased 7 points (0.3%) to 2,429, and the Nasdaq Composite lost 21 points (0.3%) to 6,275. In moderate volume, 832 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.79 to $48.19 per barrel and wholesale gasoline was $0.01 higher at $1.55 per gallon. Elsewhere, the Bloomberg gold spot price increased $13.59 to $1,293.39 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 96.62.

Microchip Technology Inc. (MCHP $85) raised its Q1 revenue outlook and narrowed its earnings-per-share (EPS) guidance, which came in slightly above the FactSet estimate. The analog and Flash-IP solutions provider said its business for the first two months of the quarter is tracking higher and the increased guidance reflects the strength of its business that it is experiencing. Shares were higher. 

Casey's General Stores Inc. (CASY $107) reported fiscal Q4 EPS of $0.76, versus the projected $0.84, as revenues increased 16.6% year-over-year (y/y) to $1.9 billion, roughly in line with estimates. CASY increased its current year same-store sales outlook. Separately, the company announced an 8.3% increase of its quarterly dividend to $0.26 per share. Shares were solidly lower.

Thor Industries Inc. (THO $104) posted fiscal Q3 profits of $2.11 per share, above the forecasted $1.87, with revenues jumping 56.9% y/y to $2.0 billion, including results from last year's acquisition of Jayco, roughly in line with expectations. The company said it has seen a significant increase in demand for its recreational vehicle (RV) products, amid surging popularity in the general RV lifestyle. Shares rallied nearly 10%.

HD Supply Holdings Inc. (HDS $34) announced Q1 EPS of $0.42, or $0.63 ex-items, below the forecasted $0.65, as revenues rose 5.2% y/y to $1.9 billion, roughly in line with forecasts. Gross margins and operating profit came in south of expectations. Separately, the company announced the sale of its Waterworks business to Clayton, Dubilier & Rice for about $2.5 billion in cash and the authorization of up to $500 million in share repurchases. Shares fell sharply.

Job openings jump to record high

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, rose to a record high level of 6.04 million jobs available to be filled in April, from March's upwardly revised 5.79 million level, and north of forecasts of 5.75 million. The hiring rate dipped to 3.5% from March's 3.6% pace, while the separation rate declined to 3.4% from 3.6%.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Turn Down For What: Why is Job Growth Slowing?, that last Friday’s weak jobs report raised alarm bells about slowing job growth, but perhaps it's natural at this stage in the cycle. She concludes that the pace of job growth has slowed, but it's likely not because the economy is weakening. It may even be because the economy is strengthening. Read more on the Markets & Economy page at www.schwab.com.

Treasuries were higher, as the yield on the 2-year note declined 2 basis points (bps) to 1.29%, the yield on the 10-year note dropped 4 bps to 2.14%, and the 30-year bond rate fell 3 bps to 2.80%.

Bond yields have been seeing some pressure ahead of this week's U.K. election and monetary policy decision from the European Central Bank (ECB), while the markets continue to grapple with potential Fed policy changes. This comes as next week's Fed monetary policy decision looms and is highly expected to deliver a rate hike, while the potential beginning of the process of the Fed shrinking its bloated balance sheet later this year is also garnering attention.

Schwab's Chief Fixed Income Strategist, Kathy Jones discusses in her article, Will the Fed Reduce Its Balance Sheet? What Bond Investors Should Know on the Fixed Income page at www.schwab.com. Follow Kathy on Twitter: @kathyjones. Also, Schwab’s Liz Ann Sonders notes in her article, Gimme Three Steps … and a Stumble?, that reducing the gargantuan balance sheet is a form of tightening and the transition from quantitative easing (QE) to quantitative tightening (QT) begs the question whether we are heading into another period of heightened volatility. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Tomorrow's economic calendar will be light, with MBA Mortgage Applications expected before the opening bell, while in the final hour of trading, consumer credit will be reported.

Europe mostly lower, Asia mixed as the markets await events later in the week

European equities finished mostly lower, as markets in Germany and Switzerland returned to action following yesterday's holidays, while the global markets awaited this week's election in the U.K. and the ECB monetary policy decision. Polls continue to show a narrowing of the race in the U.K., fostering some uncertainty as Brexit negotiations roll on and votes loom in Germany and Italy later this year. For commentary on the political front check out Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Moreover, for a look at the global economic front, see Jeff's video, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com. In economic news, eurozone retail sales rose by a smaller amount than expected month-over-month, while economic sentiment improved. The euro ticked higher and the British pound was lower versus the U.S. dollar, and bond yields in the region traded mostly to the downside.

Stocks in Asia finished mixed following the slight declines in the U.S. and Europe yesterday as the global markets await this week's U.K. election and monetary policy decision from the ECB, while the Fed is expected to come next week. Geopolitics remained in focus after several countries in the Middle East cut ties with Qatar. For analysis of the global front amid the backdrop of trade and geopolitical uncertainty, see Schwab's Jeffrey Kleintop's, CFA, articles, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, as well as, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Japanese equities fell, despite a relatively upbeat read on the nation's wage growth, with the yen gaining ground, while markets in Australia dropped in the wake of the expected unchanged monetary policy decision by the Reserve Bank of Australia. Indian securities declined, pulling back from record high territory, but mainland Chinese stocks and those traded in Hong Kong advanced amid improved sentiment in the region, and as the People's Bank of China injected more cash into the market to help alleviate liquidity concerns. Markets in South Korea were closed for a holiday.

For tomorrow, investors can expect the following economic reports from the international front: GDP from Australia, Japan's trade balance and Leading Index, manufacturing orders from Germany, industrial production from Spain, housing prices from the U.K., and retail sales from Italy. In central bank action, the Reserve Bank of India will meet, with no change to its monetary policy expected.

Choppy Action to Start Week

Charles Schwab: On the Market

Posted: 6/5/2017 4:15 PM ET

Choppy Action to Start Week

U.S. equities finished the first trading day of the week by posting only modest losses, as a plethora of political and geopolitical uncertainty appeared to keep investors in wait-and-see mode, including the upcoming election in the U.K. and European Central Bank monetary policy decision. Treasury yields and the U.S. dollar were slightly higher, along with gold, while crude oil prices were lower. Reports that U.S. services sector activity slowed but continued to show growth also may have also contributed to keeping investors on the sidelines.

The Dow Jones Industrial Average (DJIA) declined 21 points (0.1%) to 21,184, the S&P 500 Index decreased 3 points (0.1%) to 2,436, and the Nasdaq Composite lost 10 points (0.2%) to 6,296. In moderate volume, 699 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.26 to $47.40 per barrel and wholesale gasoline was $0.04 lower at $1.54 per gallon. Elsewhere, the Bloomberg gold spot price added $0.64 to $1,279.81 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 96.81.

D.R. Horton Inc. (DHI $33) announced that it has submitted a proposal to acquire 75.0% of the currently outstanding shares of Forestar Group Inc. (FOR $16) for $16.25 per share in cash. DHI said the proposal provides superior value to the existing merger agreement between Forestar and affiliates of Starwood Capital Group. DHI was lower, while FOR was up sharply.

Herbalife Ltd. (HLF $69) issued Q2 and full-year earnings-per-share (EPS) guidance that came in below estimates, despite raising its outlook for these periods, while lowering its sales outlook for the current quarter as it transitions to new Federal Trade Commission (FTC) rules. Shares were noticeably lower.

The markets payed close attention to the American Society of Clinical Oncology meeting, and Loxo Oncology Inc. (LOXO $70) surged after the company announced upbeat results from a clinical trial of its cancer treatment. However, Bristol-Myers Squibb Co. (BMY $52) came under pressure amid mixed results from the company's treatment for various types of cancer.

Growth in services sector activity slows slightly, factory orders dip

The May Institute for Supply Management (ISM) non-Manufacturing Index (chart) declined to 56.9 from April's unrevised 57.5 level, and compared to the Bloomberg forecast of a decline to 57.0. A reading above 50 denotes expansion. New orders and business activity slowed month-over-month (m/m) but remained solidly in expansion territory, while employment jumped 6.4 points to 57.8. Prices fell 8.4 points to 49.2. The ISM said comments from respondents continue to indicate optimism about business conditions and the overall economy.

The final Markit U.S. Services PMI Index was revised to 53.6 in May from the preliminary 54.0 level, where it was expected to remain, but was up compared to the 53.1 figure posted in April. The release is independent and differs from ISM's report, as it has less historic value and Markit weights its index components differently.

Services sector activity, which accounts for a majority of U.S. economic growth, continues to suggest expansion despite the festering political and monetary policy uncertainty. As noted in the latest Schwab Market Perspective: Unprecedented! Or Maybe Not?, both political uncertainty and Fed policy changes could contribute to increased volatility, but solid economic and earnings growth—both in the United States and globally—should help the bull market to continue. We suggest looking past the political rhetoric for the most part and focusing on economic developments and the long-term stability the United States provides. Read more on the Markets & Economy page at www.schwab.com.

Factory orders (chart) declined 0.2% m/m in April, in line with expectations, while March's figure was upwardly revised to a 1.0% increase. April durable goods orders—preliminarily reported two weeks ago—were adjusted to a 0.8% decrease from the preliminarily-reported 0.7% decline.

Final Q1 nonfarm productivity (chart) came in flat on an annualized basis, versus expectations of a 0.2% decline. Also, unit labor costs rose 2.2%, versus the forecast calling for a 2.6% gain.

Treasuries finished lower, as the yield on the 2-year note ticked 1 basis point (bp) higher to 1.30%, the 10-year note was up 2 bps to 2.18%, and the 30-year bond rate increased 3 basis points to 2.83%.

Today's data comes ahead of next week's Fed monetary policy decision, which is highly expected to deliver a Fed rate hike, while the potential beginning of the process of the Fed shrinking its bloated balance sheet later this year is also being eyed. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses in her article, Will the Fed Reduce Its Balance Sheet? What Bond Investors Should Know on the Fixed Income page at www.schwab.com. Follow Kathy on Twitter: @kathyjones. Also, Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, Gimme Three Steps … and a Stumble?, that reducing the gargantuan balance sheet is a form of tightening and the transition from quantitative easing (QE) to quantitative tightening (QT) begs the question whether we are heading into another period of heightened volatility. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Tomorrow's economic calendar will be light, with the only report of note being the Labor Department's Job Openings and Labor Turnover Survey (JOLTS), with economists forecasting that the measure of unmet demand for labor showed 5.73 million jobs were available to be filled during April, down slightly from the 5.74 million posted the month prior.

Europe, Asia lower on U.S. data and political and geopolitical uncertainty

European equities finished lower, though volume was lighter than usual as several markets were closed for holidays, including in Germany and Switzerland. The global markets continued to grapple with lingering geopolitical uncertainty in the wake of the weekend's deadly attack in London, while the political front also garnered attention ahead of this week's U.K. election as Brexit negotiations continue and votes loom in Italy and Germany later this year. Recent polls have showed the U.K. race tightening, causing some of the uncertainty to flare-up. For commentary on the political front check out Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?., as well as another of Jeff's videos, What's the Current State of the Global Economy? The markets also await this week's monetary policy meeting by the European Central Bank. In economic news, U.K. auto sales and services sector output both disappointed the markets. The euro was lower and the British pound was higher versus the U.S. dollar, while bond yields in the region were mixed.

Stocks in Asia finished mostly lower as the markets digest Friday's softer-than-expected employment report in the U.S., which weighed on the U.S. dollar, while political and geopolitical uncertainty lingered. The U.K. is set for an election this week, on the heels of this weekend's deadly attack in London, while several Middle East countries cut ties with Qatar, citing terrorism-related issues. For analysis of the global front amid the backdrop of trade and geopolitical uncertainty, see Schwab's Jeffrey Kleintop's, CFA, articles, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, as well as, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com.

Japanese stocks finished flat, as the yen pared Friday's gain on the U.S. labor report, though financials weighed on markets in Australia ahead of today's Reserve Bank of Australia monetary policy decision. Mainland Chinese equities and those in Hong Kong declined, despite a relatively favorable read on the nation's key services sector output. Meanwhile, Indian securities ticked higher, continuing its record high run, while listings in South Korea dipped slightly.

Economic reports slated for release internationally tomorrow include retail sales from the U.K. and the Eurozone, as well as the Markit Services PMIs from across Europe.

Markets Break Out of Two-Day Slide

Charles Schwab: On the Market

Posted: 6/1/2017 4:15 PM ET

Markets Break Out of Two-Day Slide

Upbeat manufacturing, auto sales, and employment reports helped the U.S. equity markets to escape a two-day losing streak, ahead of tomorrow's highly-anticipated nonfarm payroll report. Treasury yields and the U.S. dollar gained modest ground, while gold saw slight pressure. Crude oil prices finished nearly flat, as gains that came amid some bullish oil inventory data were tempered in late-day action. Meanwhile, Deere & Co agreed to acquire Wirtgen Group for about $5.2 billion, while Hewlett Packard Enterprise disappointed with its guidance.

The Dow Jones Industrial Average (DJIA) rose 136 points (0.7%) to 21,144, the S&P 500 Index increased 18 points (0.8%) to 2,430, and the Nasdaq Composite moved 48 points (0.8%) higher to 6,247. In heavy volume, 973 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.04 higher to $48.36 per barrel and wholesale gasoline was unchanged at $1.60 per gallon. Elsewhere, the Bloomberg gold spot price declined $1.16 to $1,267.76 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 97.20.

Deere & Co. (DE $125) announced an agreement to acquire German-based privately-held road construction equipment company, Wirtgen Group in an all-cash transaction totaling about $5.2 billion. DE gained solid ground.

Hewlett Packard Enterprise Co. (HPE $18) reported a Q2 loss of $0.37 per share, or earnings-per-share (EPS) of $0.25 ex-items, compared to FactSet's projected profit of $0.35, on revenues of $9.9 billion, above the projected $9.7 billion. The company said it faced margin pressure during the quarter, though it expects improvement through the remainder of the year as it mitigates commodities cost pressure and eliminates costs associated with spin-mergers and acquisitions. HPE issued Q3 EPS guidance that was below forecasts, while reaffirming its full-year profit outlook. Shares finished lower.

Dollar General Corp. (DG $78) reported Q1 earnings of $1.02 per share, or $1.03 ex-items, versus the expected $1.00, as revenues increased 6.5% year-over-year (y/y) to $5.6 billion, roughly in line with estimates. Q1 same-store sales gained 0.7% y/y, matching projections. DG reaffirmed its full-year earnings and same-store sales outlook, while raising its revenue forecast. Shares were nicely higher.

The major automakers reported May's sales today, with General Motors Co's (GM $34) sales declining 1.3% y/y, compared to FactSet's projected 4.2% increase, while noting that it remains on track to achieve its year-end guidance. Fiat Chrysler Automobiles NV's (FCAU $11) Chrysler sales were 0.9% lower, compared to the expected 4.2% fall. Ford Motor Co (F $11) reported a 2.2% rise in sales, versus the expected decline of 0.5%. Toyota Motor Corp (TM $108) announced a 0.5% decrease in sales, compared to the 1.0% drop that was expected. There was one more selling day this year compared to the prior year. Shares of all four automakers were higher.

Manufacturing activity tops forecasts, ADP payroll report jumps

The Institute for Supply Management (ISM) Manufacturing Index (chart) for May unexpectedly ticked further into expansion territory (above 50) after rising to 54.9 from 54.8 in April, where the Bloomberg forecast called for it to remain. New orders and employment growth both accelerated, while expansion in production and new export orders decelerated. The ISM said comments from the survey generally reflected stable to growing business conditions.

The final Markit U.S. Manufacturing PMI Index was revised to 52.7 for May from the preliminary reading of 52.5 for April, where it was expected to remain, but was slightly lower from the 52.8 level posted in April. A reading above 50 denotes expansion. The release is independent and differs from ISM's manufacturing report, as it has less historic value and Markit weights its index components differently.

Weekly initial jobless claims (chart) increased by 13,000 to 248,000 last week, above the Bloomberg forecast of 238,000, with the prior week’s figure being revised higher by 1,000 to 235,000. The four-week moving average rose by 2,500 to 238,000, while continuing claims declined by 9,000 to 1,915,000, south of estimates of 1,920,000.

The ADP Employment Change Report showed private sector payrolls rose by 253,000 jobs in May, well above forecasts of a 180,000 gain, while April's increase of 177,000 jobs was revised to a gain of 174,000.

Construction spending (chart) fell 1.4% month-over-month (m/m) in April, versus projections of a 0.5% advance, but following March's solid upward revision to a 1.1% gain from the previously reported 0.2% decline. Residential spending declined 0.9%, while non-residential spending fell 1.7%.

Today’s plethora of mostly upbeat data, notably the ADP jobs report and the employment component of the ISM's release, comes ahead of tomorrow's broader May nonfarm payroll report, expected to show an increase of 180,000 jobs to the headline rate and 173,000 to private sector payrolls (economic calendar). The unemployment rate is forecasted to remain at 4.4%, and average hourly earnings are projected to rise 0.2% month-over-month (m/m). The only other item on tomorrow’s docket is the April trade balance, forecasted to show the deficit widened to $46.1 billion.

As noted in the latest Schwab Market Perspective: Unprecedented! Or Maybe Not?, leading indicators continue to show a growing economy, bouncing back from the weak first quarter, while the labor market continues to tighten, and globally, we are seeing improving growth. This should help the bull market continue. Read more on the Markets & Economy page at www.schwab.com.

Treasuries were lower, as the yields on the 2-year and 10-year notes, along with the 30-year bond, rose 2 basis points to 1.30%, 2.22% and 2.88%, respectively. For analysis of the bond markets amid the expected Fed interest rate action, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, as well as Schwab's Chief Fixed Income Strategist, Kathy Jones' article, Three Reasons to Own Bonds When the Fed is Raising Interest Rates on the Fixed Income page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

Amid elevated expectations of a Fed rate hike later this month and its potential beginning of the process of shrinking its bloated balance sheet later this year, Schwab’s Chief Investment Strategist Liz Ann Sonders offers her latest article, Gimme Three Steps … and a Stumble?, noting that reducing the gargantuan balance sheet is a form of tightening and the transition from quantitative easing (QE) to quantitative tightening (QT) begs the question whether we are heading into another period of heightened volatility. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Europe mostly higher, Asia mixed amid uncertainties and plethora of data 

European equities finished mostly higher, following upbeat economic data in the U.S., and as the euro lost ground versus the U.S. dollar. The markets showed some resiliency in the face of elevated political uncertainty on both sides of the Atlantic, as well as lingering uncertainty regarding the timing of when the European Central Bank may begin to rein in its highly accommodative monetary policy. Polls have suggested the race is narrowing in the U.K. ahead of next week's election as Brexit negotiations continue, while votes loom in Germany and Italy later this year. The British pound overcame early weakness and finished flat versus the greenback. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick offer the video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. Spanish stock markets lagged behind amid a flare-up in the country's banking sector uneasiness, amid a drop in Banco Popular Espanol SA (BPESY $2) on concerns it may need to be wound down if it does not find a buyer. In economic news, the final Markit Eurozone Manufacturing PMI Index was unrevised at 57.0 in May, up from the 56.7 level posted in April, with a reading above 50 denoting expansion. Bond yields in the region traded mixed.

Stocks in Asia finished mixed as the markets digested a flood of economic data, while continuing to grapple with festering political uncertainty in the U.S. and Europe. Japanese securities rose sharply, with the yen giving back some recent gains, while reports showed the nation's Q1 capital spending rose more than expected and manufacturing output continued to expand in May. Mainland Chinese stocks and those traded in Hong Kong also gained ground, as the yuan was set at the strongest level in seven months, per Reuters, while the Caixin China PMI Manufacturing Index fell to a level depicting contraction in May for the first time in 11 months. The report contrasted yesterday's official government manufacturing release, which showed continued expansion out of the sector. Meanwhile, Australian equities advanced modestly on the heels of a stronger-than-expected April retail sales report, while South Korean stocks dipped after the nation reported a larger-than-forecasted deceleration in export growth for last month, and India's markets finished flat in the wake of late-yesterday's Q1 GDP report that showed growth unexpectedly slowed.

For a look at the global markets and economy, see Schwab's Jeffrey Kleintop's, CFA, article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the Markets & Economy page at www.schwab.com, as well as his video, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com.

Tomorrow’s international economic calendar will be fairly light, with reports slated for release to include GDP from South Korea, consumer confidence from Japan, employment data from Spain, and PPI from the Eurozone.

Lackluster Reports Pressure Equities for Second Day

Charles Schwab; On the Market

Posted: 5/31/2017 4:15 PM ET

Lackluster Reports Pressure Equities for Second Day

U.S. equities finished lower for a second session with financials taking the brunt of the losses following some trading revenue warnings from within the sector, while the Fed's Beige Book noted some districts saw some slowing in growth. Crude oil's continued descent pressured the energy sector, and domestic economic data was less-than-stellar. Meanwhile, Treasury yields lost ground and gold was higher, while the U.S. dollar was flat.

The Dow Jones Industrial Average (DJIA) declined 21 points (0.1%) to 21,009, the S&P 500 Index decreased 1 point (0.1%) to 2,412, and the Nasdaq Composite moved 5 points (0.1%) lower to 6,199. In heavy volume, 1.5 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.34 to $48.32 per barrel and wholesale gasoline lost $0.02 to $1.60 per gallon. Elsewhere, the Bloomberg gold spot price increased $5.57 to $1,268.66 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 97.09.

Michael Kors Holdings Ltd. (KORS $33) reported a fiscal Q4 loss of $0.17 per share, or earnings-per-share (EPS) of $0.73 ex-items, versus the $0.70 FactSet estimate, as revenues dropped 11.2% year-over-year (y/y) to $1.1 billion, roughly in line with forecasts. Q4 same-store sales fell 14.1% y/y, compared to the projected 12.8% decrease. The company noted a challenging year as it continued to operate in a difficult retail environment with elevated promotional levels. KORS issued Q1 and full-year guidance that was below the Street's expectations, as it characterized the current year as "a transition year." Separately, the company announced a new $1.0 billion stock repurchase program. Shares were sharply lower.

Bank of America Corp. (BAC $22) and Dow member JPMorgan Chase & Co. (JPM $82) lead the financial sector lower after executives from the two companies at separate conferences in New York City warned that trading revenues in Q2 are lower y/y.

Regional manufacturing growth slows, Fed report shows moderating growth

The Chicago Purchasing Managers Index (chart) slowed but remained at a level depicting expansion (above 50), after declining to 55.2 in May, from 58.3 in March, which was the highest level since January 2015, and versus the Bloomberg expectation of a decrease to 57.0.

Pending home sales fell 1.3% month-over-month (m/m) in April, versus projections of a 0.5% increase, and following the downwardly revised 0.9% decline registered in March. Compared to last year, sales were 5.4% lower. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which fell more than expected in April.

The MBA Mortgage Application Index decreased 3.4% last week, following the previous week's 4.4% gain. The drop came as a 5.6% fall in the Refinance Index was met with a 1.4% decline for the Purchase Index. The average 30-year mortgage rate remained at 4.17%.

The Federal Reserve's Beige Book, a look at business activity across the nation used as a preparation tool for the Fed's next two-day monetary policy meeting set to conclude on June 14th, was released in afternoon action. The report showed that the U.S. economy as a whole continued to grow at a "modest to moderate" pace, but the districts of Boston and Chicago noted slowing growth, while New York "indicated that activity had flattened out." Meanwhile, the report indicated that "labor market conditions continued to tighten, with most districts citing shortages", while prices overall "were little changed from the previous report, with most districts reporting modest increases."

Expectations are elevated that the Fed will raise interest rates following its June meeting, though the frequency of further hikes this year is in question as the Central Bank looks to begin the process of shrinking its bloated balance sheet, a move that Schwab’s Chief Investment Strategist Liz Ann Sonders notes is a form of tightening. Liz Ann discusses this in her latest article, Gimme Three Steps … and a Stumble?, noting that the transition from quantitative easing (QE) to quantitative tightening (QT) begs the question whether we are heading into another period of heightened volatility. She concludes that although stocks tend to fare well during rate hike cycles, the unprecedented nature of this tightening cycle suggests bouts of volatility are likely. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Treasuries finished modesly higher, as the yields on the 2-year and 10-year notes, along with the 30-year bond, dipped by 1 basis point to 1.28%, 2.20% and 2.87%, respectively. For analysis of the bond markets amid the expected Fed interest rate action, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, as well as Schwab's Chief Fixed Income Strategist, Kathy Jones' article, Three Reasons to Own Bonds When the Fed is Raising Interest Rates on the Fixed Income page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

Tomorrow's economic calendar will heat up with a plethora of key reports for the markets to digest ahead of Friday's labor report, beginning with ADP's private sector payroll release and weekly initial jobless claims. However, the following releases of the ISM Manufacturing Index and May auto sales figures are likely to garner the most scrutiny. ISM is expected to show manufacturing activity is expected to slow slightly to 54.6 in May from 54.8 April but remain solidly in expansion territory a depicted by a reading above 50. According the FactSet, adjusted auto sales are projected to post another y/y decline, likely preserving concerns about the divergence between hard and soft data.

As noted in the latest Schwab Market Perspective: Unprecedented! Or Maybe Not?, leading indicators continue to show a growing economy, bouncing back from the weak first quarter, while the labor market continues to tighten, and globally, we are seeing improving growth. This should help the bull market continue. Read more on the Markets & Economy page at www.schwab.com. Other reports on tomorrow's calendar include the final Markit Manufacturing PMI Index and construction spending.

Europe and Asia mixed in the face of heightened political uncertainty

European equities finished mixed amid elevated political uncertainty in the region. Recent polls suggested U.K. Prime Minister Theresa May's Conservative Party could lose seats in Parliament and may not win an overall majority in next week's election. This came against the backdrop of the nation's ongoing Brexit negotiations to foster some increased political uncertainty, while elections loom in Italy and Germany later this year. The British pound overcame early losses and was higher versus the U.S. dollar. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick offer the video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. In economic news, the eurozone consumer price inflation estimates for May came in cooler than expected, while the region's unemployment rate unexpectedly dipped to 9.3%. Also, Germany's unemployment change declined by a slightly smaller amount than anticipated and the nation's retail sales surprisingly slipped. The euro was higher versus the greenback and bond yields in the region finished mixed. Healthcare stocks gained solid ground, though the oil & gas sector came under pressure as crude oil prices extended losses. Basic materials were lower despite some relatively upbeat Chinese manufacturing and services data, while financials were hampered by a flare-up in Italian banking concerns and warnings about trading revenues out of the U.S. banking sector.

Stocks in Asia finished mixed amid lingering political uncertainty in the U.S. and Europe, while the markets digested some divergent reads on economic activity in the region. Japanese equities dipped slightly, with the yen choppy after paring gains late in the session, while a report showed the nation's industrial production rebounded solidly in April, but at a pace that was just shy of expectations. Stocks in mainland China advanced, but those traded in Hong Kong declined, as traders grappled with a recent credit rating downgrade of the nation, festering regulatory crackdown concerns, and the aforementioned political uncertainty. Also, the markets digested China's official May business activity reports, which showed growth in manufacturing output held steady, slightly above forecasts, while its expansion in its key services sector accelerated slightly. Meanwhile, markets in Australia and South Korea gained modest ground, while securities in India finished flat ahead of the release of its Q1 GDP report. After the markets closed, India reported that its Q1 GDP growth slowed to a 6.1% y/y pace of expansion, from a 7.0% pace in Q4, and compared to the projected acceleration to a rise of 7.1%.

For a look at the global markets and economy, see Schwab's Jeffrey Kleintop's, CFA, article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the Markets & Economy page at www.schwab.com, as well as his video, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com.

Reports on tomorrow's international economic calendar include: the Markit Manufacturing PMIs from across the globe, CPI from South Korea, and GDP from Italy.

Markets Lower in Return to Action

Charles Schwab: On the Market

Posted: 5/30/2017 4:15 PM ET

Markets Lower in Return to Action

U.S. equities fell modestly in their return to action from the long holiday weekend, amid some mixed economic news, and festering global political and geopolitical uncertainty. Treasuries rose amid reports showing personal income and spending matched expectations, but Consumer Confidence slipped slightly. The U.S. dollar, crude oil and gold were all slightly lower.

The Dow Jones Industrial Average (DJIA) declined 51 points (0.2%) to 21,029, the S&P 500 Index fell 3 points (0.1%) to 2,413, and the Nasdaq Composite moved 7 points (0.1%) lower to 6,203. In moderate volume, 768 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.14 lower to $49.66 per barrel and wholesale gasoline lost $0.01 to $1.62 per gallon. Elsewhere, the Bloomberg gold spot price decreased $5.26 to $1,262.84 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 97.29.

Citigroup Inc. (C $62) announced an agreement to sell its Fixed Income Analytics and Index Businesses to London Stock Exchange Group PLC (LNSTY $11) for total cash consideration of $685 million. C traded modestly lower, while LNSTY gained ground.

Ensco PLC (ESV $6) announced an agreement to acquire Atwood Oceanics Inc. (ATW $10) in an all-stock transaction valued at about $863 million. Under the terms of the deal, Atwood shareholders will receive 1.60 shares of Ensco for each share owned, valuing Atwood at $10.72 per share. ATW jumped over 20%, while ESV was lower.

Personal income and spending in line with forecasts, Consumer Confidence dips

Personal income (chart) was up 0.4% month-over-month (m/m) in April, matching the Bloomberg forecast, and compared to March's unrevised 0.2% increase. Personal spending also rose 0.4% last month, in line with expectations and March's favorably revised 0.3% gain, from an initial flat reading. The April savings rate as a percentage of disposable income was 5.3%. The PCE Deflator was up 0.2%, matching expectations, after the prior month's 0.2% decline. Compared to last year, the deflator was 1.7% higher, in line with estimates. March's y/y figure was upwardly revised to a 1.9% increase. Excluding food and energy, the PCE Core Index was up 0.2% m/m, versus expectations of a 0.1% increase, and the index was 1.5% higher y/y, matching estimates. March's y/y figure was unrevised at a 1.6% increase.

The Consumer Confidence Index (chart) declined to 117.9 in May from the downwardly revised 119.4 in April, and compared to estimates of a 119.9 reading. Sentiment toward the present situation increased slightly, though the expectations of business conditions for the next six months decreased. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 11.7 from the downwardly revised 10.9 level posted in April.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.9% gain in home prices y/y in March, versus expectations of a 5.8% increase. M/M, home prices were up 0.9% on a seasonally adjusted basis for March, above forecasts of a 0.8% gain.

The Dallas Fed Manufacturing Activity Index unexpectedly moved further to a level depicting expansion (a reading above zero). The index rose to 17.2 in May, from 16.8 in April, and compared to the expected decline to 15.4.

Treasuries finished higher, as the yield on the 2-year note dipped 1 basis point (bp) to 1.29%, while the yields on the 10-year note and the 30-year bond declined 3 bps to 2.22% and 2.89%, respectively. For analysis of the bond markets, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, where you can also find Schwab's Vice President of Trading and Derivatives, Randy Frederick's and Chief Fixed Income Strategist, Kathy Jones' video, Fed Rate-Hike Cycle: How Can Bond Investors Prepare? Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones. Also, for more on the Fed as it tries to walk the fine line between raising interest rates and reducing its bloated balance sheet, see Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, Gimme Three Steps … and a Stumble?, where she discusses the transition from quantitative easing (QE) to quantitative tightening (QT) on the Markets & Economy page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

Although this week's economic calendar will be truncated by Monday's holiday, it will bring plenty of data to digest ahead of the Fed's monetary policy meeting later in June. Tomorrow’s Fed Beige Book, the ISM Manufacturing Index and monthly auto sales are some highlights from the docket, but the week will culminate with Friday's key May nonfarm payroll report. Other reports slated for release tomorrow include the Chicago PMI Index, forecasted to decline to 57.5 this month from April’s 58.3, as well as pending home sales, with economists anticipating the pipeline of existing home sales to have increased 0.5% m/m in April following the prior month’s 0.8% decline, and MBA Mortgage Applications.

As noted in the latest Schwab Market Perspective: Unprecedented! Or Maybe Not?, U.S. markets were roiled by so-called "unprecedented" political issues but bounced back quickly. Investing based on political winds is not likely to be a successful strategy and we urge focus on economic and earnings fundamentals. The U.S. economy is bouncing back from the weak first quarter while the labor market continues to tighten. A June rate hike by the Federal Reserve remains on the table for now. Global growth has picked up, but the recent slowdown and inversion of the yield curve in China are causing some concerns. Read more on the Markets & Economy page at www.schwab.com.

Europe mostly lower, Asia mixed as global markets set to get back to action

European equities finished mostly lower with some markets returning to action following yesterday's holiday, while political uncertainty flared up ahead of next week's election in the U.K. as Brexit negotiations continue. Also, Italian election risk gained ground after Democratic Party leader Renzi pushed for an early election, while Germany is set to hold an election later this year. For analysis, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Geopolitical uncertainty also festered amid rhetoric between the U.S. and Germany regarding trade and defense. In economic news, France's Q1 GDP growth topped forecasts, while eurozone consumer, economic and business sentiment all deteriorated. The euro and British pound ticked higher versus the U.S. dollar, while bond yields traded mostly to the downside. The markets also digested some comments from European Central Bank (ECB) President Mario Draghi, which appeared to foster a dovish reaction, as he reiterated that it is still too early to consider pulling back its highly accommodative monetary policy stance. Oil & gas issues declined as crude oil prices extended last week's drop, while financials also saw some pressure on the lower bond yields, comments from the ECB's Draghi and the flared up political and geopolitical uneasiness.

Stocks in Asia finished mixed as the U.S. and some European markets returned to action following yesterday's holiday, though Chinese markets remained closed for a holiday. The markets are grappling with political uncertainty in the U.S. and Europe, along with geopolitical concerns as North Korea continued to conduct missile tests and rhetoric out of Germany toward the U.S. For analysis see, Schwab's Jeffrey Kleintop's, CFA, articles, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, as well as, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Stocks in Japan finished little changed, as traders digested data showing the nation's household spending fell more than expected but retail sales grew by a larger amount than projected, while the yen gained some ground. South Korean equities declined, while those traded in Australia overcame early weakness to finish higher, and Indian listings advanced, remaining at record high levels.

International reports for tomorrow include manufacturing and services PMIs from China, business confidence from Australia, housing data from Japan, GDP from India, employment figures and retail sales from Germany, PPI and CPI from France, as well as CPI and employment data from the Eurozone.

Stocks Finish Flat Ahead of Holiday Weekend

Charles Schwab: On the Market

Posted: 5/26/2017 4:15 PM ET

Stocks Finish Flat Ahead of Holiday Weekend

U.S. stocks finished trading mostly flat on light volume, ending the recent six-session winning streak ahead of the extended Memorial Day holiday weekend. Traders digested mixed Q1 GDP and durable goods orders reports, while Costco and Ulta Beauty announced some upbeat earnings data. Crude oil prices rebounded somewhat from yesterday's tumble, Treasury yields dipped and the U.S. dollar and gold gained ground. Overseas, equities in Asia and Europe finished mixed.

The Dow Jones Industrial Average (DJIA) decreased 3 points to 21,080, the S&P 500 Index added 1 point to 2,416, and the Nasdaq Composite ticked 5 points (0.1%) higher to 6,210. In light volume, 683 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.90 to $49.80 per barrel and wholesale gasoline was $0.03 higher at $1.63 per gallon. Elsewhere, the Bloomberg gold spot price increased $11.76 to $1,267.44 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 97.45. Markets were solidly higher for the week, as the DJIA jumped 1.3%, the S&P 500 Index rallied 1.4%, and the Nasdaq Composite surged 2.1%.

Costco Wholesale Corp. (COST $178) reported fiscal Q3 earnings-per-share (EPS) of $1.59, or $1.40 ex-items, compared to the $1.31 FactSet estimate, as revenues increased 8.0% year-over-year (y/y) to $28.9 billion, above the projected $28.6 billion. Q3 same-store sales rose 5.0% y/y, north of the expected 4.7% increase. Shares were nicely higher.

Ulta Beauty Inc. (ULTA $302) posted Q1 EPS of $2.05, or $1.91 ex-items, versus the forecasted $1.80, with revenues growing 22.5% y/y to $1.3 billion, roughly in line with expectations. Q1 same-store sales jumped 14.3% y/y, exceeding the estimated 11.0% gain. ULTA issued Q2 guidance that was a bit shy of expectations, while raising its full-year EPS and same-store sales outlooks. Shares gained solid ground.

GameStop Corp. (GME $22) announced Q1 earnings of $0.58 per share, or $0.63 ex-items, versus the forecasted $0.53, as revenues increased 3.8% y/y to $2.1 billion, above the projected $2.0 billion. Q1 same-store rose 2.3% y/y, compared to the expected 4.2% decline. The company reaffirmed its full-year EPS outlook, while issuing same-store sales guidance that was just below estimates. Shares traded lower as the Street showed some concern regarding GME's y/y decline in new video game software sales, a lower gross margin and lackluster mobile revenues.

Big Lots Inc. (BIG $50) reported Q1 EPS of $1.15, topping the expected $0.99, as revenues declined 1.2% y/y to $1.3 billion, roughly in line with estimates. Q1 same-store sales declined 0.9% y/y, versus projections of a 0.9% gain. BIG issued Q2 EPS guidance that exceeded estimates and raised its full-year profit outlook. Shares traded higher.

Amid the plethora of earnings reports from the consumer discretionary sector, check out Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Don't Cut the Cord Just Yet, on the Markets & Economy page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

Durable goods orders miss, Q1 GDP growth revised higher

April preliminary durable goods orders (chart) declined 0.7% month-over-month (m/m), compared to the Bloomberg estimate of a 1.5% decline, though March's 1.7% gain was revised to a 2.3% rise. Ex-transportation, orders were 0.4% lower m/m, compared to forecasts of a 0.4% gain and versus March's upwardly revised 0.8% increase. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, came in flat, versus projections of a 0.5% increase, and matching the downwardly revised reading in the month prior.

Orders for the volatile component of transportation weighed on the headline figure as a slight gain in autos and a solid rise in defense aircraft and parts were more than offset by a drop in nondefense aircraft and parts. Weakness was also seen in demand for machinery, electrical equipment and appliances, and fabricated metals. However, a bright spot was a solid gain in orders for computers and electronic products.

The data, notably the back-to-back flat readings for the proxy for business spending in the durable goods report, may have fostered concerns about whether Q1's soft patch was transitory as recent history and the Fed have suggested. Schwab’s Chief Investment Strategist Liz Ann Sonders discusses this in her article, ½ Full: Seeing Through a Weak Q1, pointing out that the average GDP growth for the subsequent quarters over the past 10 years has been 1.8%, but hard data has been stubbornly weak relative to soft data. So for now, Liz Ann is seeing the glass half full, concluding that we are likely just experiencing yet another "soft patch" in an ongoing expansion. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

The second look (of three) at Q1 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 1.2%, up from the first release's 0.7% gain. Forecasts called for an adjusted 0.9% pace of expansion. Q4 GDP grew by an unrevised 2.1% rate. Personal consumption came in at a 0.6% gain for Q1, up from the preliminary estimate of a 0.3% increase, and compared to the expectations of a 0.4% increase. Personal consumption grew by an unrevised 3.5% in Q4.

On inflation, the GDP Price Index was revised to a 2.2% gain, versus forecasts of an unrevised 2.3% increase, while the core PCE Index, which excludes food and energy, was adjusted to a 2.1% rise, compared to expectations of an unrevised 2.0% gain.

The final May University of Michigan Consumer Sentiment Index (chart) was revised to 97.1 from the preliminary level of 97.7, versus forecasts of 97.5. However, the index was up slightly compared to April's level of 97.0. Compared to last month, the expectations component improved, while the current conditions component declined. The 1-year inflation outlook remained at April's 2.6% rate, while the 5-10 year forecast ticked higher to 2.4% from 2.3%.

Treasuries were mostly higher in an abbreviated session, with the yield on the 2-year note flat at 1.29%, while the yields on the 10-year note and the 30-year bond dipped 1 basis point to 2.25% and 2.91%, respectively. For analysis of the bond markets, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, where you can also find Schwab's Vice President of Trading and Derivatives, Randy Frederick's and Chief Fixed Income Strategist, Kathy Jones' video, Fed Rate-Hike Cycle: How Can Bond Investors Prepare? Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones. Also, for more on the Fed, see Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, Gimme Three Steps … and a Stumble?, where she discusses the transition from quantitative easing (QE) to quantitative tightening (QT) on the Markets & Economy page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

Please note: All U.S. markets will be closed on Monday in observance of the Memorial Day holiday.

Europe and Asia mixed amid political uncertainty and continued energy weakness

European equities finished mixed, with oil & gas issues remaining a drag on the markets as crude oil prices tumbled yesterday amid apparent disappointment from the highly-anticipated extension of production cuts by OPEC. Political and geopolitical uncertainty lingered to hamper conviction, with polls showing U.K. Prime Minister Theresa May losing ground ahead of next month's election as Brexit negotiations continue. However, the British pound fell to help buoy the U.K. markets. Also, the markets eyed U.S. President Trump's first international trip as he wraps up in Europe with G-7 leaders gathering in Italy. For analysis, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, as well as Jeff's article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop. The euro declined versus the U.S. dollar and bond yields in the region lost ground. In light economic news, Italian economic, manufacturing and consumer sentiment reports all declined for May.

Stocks in Asia finished mixed with the energy sector getting pressured as oil prices tumbled yesterday in reaction to the highly-expected extension of production cuts by OPEC. Japanese equities declined, with the yen gaining ground late in the session, while a read on the nation's core consumer price inflation came a bit cooler than expected. Chinese shares took a breather after a strong weekly advance and stocks in Hong Kong finished flat. Australian securities fell amid a drop in oil & gas issues and weakness out of the basic materials sector. However, South Korean and Indian equities hit record highs for a second session. Schwab's Director of International Research, Michelle Gibley CFA, offers some timely commentary of the global markets in her latest article, Different Drivers: Why Emerging Market Stocks Aren't All the Same on the Insights & Ideas page at www.schwab.com.

Stocks string together gains to post weekly rally

U.S. stocks posted a six-session winning streak before Friday's pause, extending a rebound from last week's selloff and spike in volatility on Wednesday that stemmed from a flare-up in domestic political concerns that called pro-growth policy pledges into question. President Trump embarked on his first trip overseas, which appeared to take some of the focus off domestic political issues, likely helping foster the rebound. Also, he struck some defense and aerospace deals in Saudi Arabia to boost the stocks in the sector. Technology stocks continued to rally, while some relative upside surprises by retailers, headlined by Best Buy Co. Inc. (BBY $60), boosted the consumer discretionary sector. The Fed's May meeting minutes seemed to foster a dovish takeaway to help ease concerns about the pace of future rate hikes after June's highly-anticipated move. However, the energy sector took a hit as crude oil prices gave back a rally that led up to this week's widely-expected OPEC extension of production cuts that looked to disappoint the markets. The divergence between hard and soft economic data also festered, with new and existing home sales both falling more than expected in April to exacerbate concerns about the impact of demand easily outstripping supply. Treasury yields nudged higher, along with the U.S. dollar.

Although next week's economic calendar will be truncated by Monday's holiday, the docket will bring plenty of data to digest ahead of the Fed's monetary policy meeting later in June. Personal income and spending, and Consumer Confidence will get the ball rolling, followed by the Fed's Beige Book, the ISM Manufacturing Index and monthly auto sales. The week will culminate with Friday's key May nonfarm payroll report.

As noted in the latest Schwab Market Perspective: Unprecedented! Or Maybe Not?, U.S. markets were roiled by so-called "unprecedented" political issues but bounced back quickly. Investing based on political winds is not likely to be a successful strategy and we urge focus on economic and earnings fundamentals. The U.S. economy is bouncing back from the weak first quarter while the labor market continues to tighten. A June rate hike by the Federal Reserve remains on the table for now. Global growth has picked up, but the recent slowdown and inversion of the yield curve in China are causing some concerns. Read more on the Markets & Economy page at www.schwab.com.

Next week's international economic reports worth noting include: Australia—building approvals and retail sales. China—industrial profits and Manufacturing and non-Manufacturing PMIs. India—Q1 GDP. Japan—household spending, retail sales, and industrial production. Eurozone—consumer price inflation and consumer confidence, along with German retail sales and unemployment change. U.K.—Markit's PMI Manufacturing Index.