Stocks Stretch Record Runs Despite Data

Charles Schwab: On the Market

Posted: 9/15/2017 4:15 PM ET

Stocks Stretch Record Runs Despite Data

U.S. stocks added to strong weekly gains after shrugging off softer-than-expected retail sales and industrial production reports and showing some resiliency in the face of a terror attack in London and another North Korean missile test. Quadruple witching likely added to the day's volatility and volume. Treasury yields modestly extended their weekly advance and the U.S. dollar pared its weekly gain as the euro and British pound extended recent gains. Crude oil was little changed and gold was lower.

The Dow Jones Industrial Average (DJIA) increased 65 points (0.3%) to 22,268, the S&P 500 Index gained 5 points (0.2%) to 2,500, and the Nasdaq Composite increased 19 points (0.3%) to 6,448. In heavy volume, 2.1 billion shares were traded on the NYSE and 2.7 billion shares changed hands on the Nasdaq. WTI crude oil was flat at $49.89 per barrel and wholesale gasoline moved $0.03 higher to $1.66 per gallon. Elsewhere, the Bloomberg gold spot price declined $8.67 to $1,321.07 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 91.87. Markets were nicely higher for the week, as the DJIA rallied 2.2%, the S&P 500 Index jumped 1.6% and the Nasdaq Composite gained 1.4%.

Oracle Corp. (ORCL $49) reported fiscal Q1 earnings-per-share (EPS) of $0.52, or $0.62 ex-items, versus the $0.60 FactSet estimate, as revenues grew 7.0% year-over-year (y/y) to $9.2 billion, above the projected $9.0 billion. The company noted that the sustained "hyper-growth" of its cloud business continued to drive increased revenue and earnings. However, the company's Q2 guidance missed expectations. Shares fell solidly.

Retail sales miss to kick off heavy day of data

Advance retail sales (chart) for August declined 0.2% month-over-month (m/m), compared to the Bloomberg forecast of a 0.1% gain and compared to July's downwardly revised 0.3% gain. Last month's sales ex-autos grew by 0.2% m/m, versus expectations of a 0.5% gain, and following the negatively revised 0.4% increase seen in the previous month. Sales ex-autos and gas were down 0.1% m/m, compared to estimates of a 0.3% rise, and versus July's unrevised 0.5% rise. The retail sales control group, a figure used to help calculate GDP, decreased 0.2%, compared to the projected 0.2% rise, and the prior month's figure was unrevised at a 0.6% rise.

Auto activity fell solidly, along with clothing and online sales, while electronics and appliances, and building materials were also lower. Sales of furniture, and at restaurants, food and beverage stores and gas stations all moved higher. Commenting on the potential impact of Hurricanes Harvey and Irma on the data, the U.S. Census Bureau said overall response was within the range of the past 12 months even though collection in the impacted areas lagged behind recent months.

The preliminary University of Michigan Consumer Sentiment Index (chart) dipped to 95.3 in September from the prior month's 96.8 level, and compared to expectations for it to decline to 95.0. The current economic conditions component improved m/m, while the expectations measure dropped. The 1-year inflation forecast ticked higher to 2.7% from August's 2.6% rate, while the 5-10 year inflation outlook rose to 2.6% from 2.5%.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his article, Consumer Discretionary Sector Rating: Marketperform, the status of the all-important U.S. consumer looks to us to be solid and hasn't shown signs of diminishing to any great degree at this point, but the retail sector faces challenges that warrant our rating. We view the retail sector is "right sizing," which could ultimately help the group down the road. Read more on the Markets & Economy page and follow us on Twitter: @schwabresearch.

Industrial production (chart) fell 0.9% m/m in August—after six-straight monthly gains—versus estimates calling for a 0.1% gain, and compared to July's upwardly revised 0.4% increase. Manufacturing and mining production both declined, while utilities output fell sharply. Capacity utilization declined to 76.1% from July's upwardly revised 76.9% rate, and compared to forecasts of a 76.7% rate. Capacity utilization is 3.8 percentage points below its long-run average. The Federal Reserve noted that Hurricane Harvey is estimated to have reduced the rate of change in total output by roughly ¾ percentage point.

The Empire Manufacturing Index showed output from the New York region remained solidly at a level depicting expansion (a reading above zero) for September. The index dipped to 24.4 from August's unrevised 25.2 level, with forecasts calling for a reading of 18.0.

Business inventories (chart) rose 0.2% m/m in July, matching forecasts, and versus June's unrevised 0.5% increase.

The impact of the hurricanes on incoming data will likely cloud the economic picture in coming months, but as Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", we expect to see a dip in economic activity in the short-term, followed by a boost associated with the recovery/rebuilding efforts, and the impact will unlikely dent the Fed's plans to continue monetary policy normalization. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Treasuries finished lower, with the yields on the 2-year and 10-year notes rising 2 basis points (bps) to 1.38% and 2.20%, respectively, while the 30-year bond rate was flat at 2.77%.

Bond yields are modestly extending this week's sharp rebound from a recent drop back to November lows that came despite upbeat economic data. Yesterday's acceleration in consumer price inflation appeared to bring the Fed back into focus, with expectations of a December rate hike nudging higher, per data compiled by Bloomberg. Schwab's Chief Fixed Income Strategist, Kathy Jones, and Vice President of Trading and Derivatives, Randy Frederick, provide analysis of the bond markets in the video, The Economy is Picking Up, But Bond Yields Are Falling—What's That About?, with Kathy noting that the disconnect between the fixed income markets and the economy is about inflation. Read more on the Insights & Ideas page and follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

The U.S. dollar pared its weekly gain, amid flared-up North Korean tensions and another terrorist attack in London. Also, the British pound extended a jump that came from boosted U.K. rate hike expectations. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks, investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com.

Europe lower as pound and euro rally

European equity markets finished lower, with the euro trading higher versus the U.S. dollar, while the British pound extended its surge to levels not seen in over a year. The pound has jumped on increased rate hike expectations in the wake of yesterday's Bank of England (BoE) monetary policy decision and bolstered hawkish commentary today from a BoE member that had been labeled as dovish. Another missile test over Japan by North Korea and another reported terrorist attack in London likely hampered sentiment, but the reaction appeared limited. Bond yields moved higher, led by the U.K., amid the heightened BoE expectations. In economic news, the eurozone trade surplus narrowed more than expected in July and the region's wage growth posted the fastest pace in two years.

For a look at global investing, see Schwab's Jeffrey Kleintop's, CFA, article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page.

Stocks in Asia finished mixed after overcoming a brief bout of risk aversion as North Korea conducted another missile test over Japan. The yen reversed to the downside after an early boost on the North Korean missile launch news, helping Japanese equities gain ground, while South Korean stocks also advanced to display some resiliency. Shares trading in India and Hong Kong ticked higher. Mainland Chinese stocks declined on the heels of yesterday's disappointing retail sales and industrial production reports, which continued to weigh on materials issues, leading to a move to the downside for Australian securities. However, after the closing bell, China reported stronger-than-expected lending statistics for August. Amid the backdrop of the resiliency in the global markets, check out Schwab's Jeffrey Kleintop's, CFA, article, What are fund flows telling us about trends and risks in the global stock market?, as well as his commentary, An important benefit to global investors is back after 20 years, on the Markets & Economy page at www.schwab.com.

Stocks back on the weekly winning track

U.S. stocks got back to their weekly winning ways, rallying to fresh record highs amid reversals in the currency and bond markets, which contributed to last week's snapped winning streak. Early estimates suggesting Hurricane Irma's economic cost impact could be less than feared underpinned sentiment. Texas refining activity recovered from Hurricane Harvey's blow to boost crude oil prices to the best weekly performance since late July, per Bloomberg. The energy sector led the equity market's weekly jump. Tech stocks posted a respectable gain, bolstered by a rally leading up to Dow member Apple Inc's(AAPL $160) new iPhone unveiling. Consumer price inflation showed signs of accelerating against the favorable economic backdrop—small business optimism unexpectedly improved and the JOLTS' job openings surprisingly posted a record high—to appear to bring the Fed back in focus. The U.S. dollar rebounded from levels not seen in well over two years—though it pared gains on the pound's surge—and Treasury yields jumped off of multi-month lows to boost the financial sector.

This sets the stage for next week's economic calendar that will bring the Federal Open Market Committee's (FOMC) monetary policy decision, which is not expected to deliver a rate hike but could bring the commencement of the slow winding down of the Fed's behemoth $4.5 trillion balance sheet. Housing data will also be in focus, with the releases of the NAHB Housing Market Index, housing starts and building permits and existing home sales. Markit's September preliminary business activity reports and the Leading Index will round out the docket.

As noted in the latest Schwab Market Perspective: A Cat and Mouse Fall, U.S. stocks remain near all-time highs, but we expect some continued churn as fall is shaping up to bring a series of political, geopolitical and monetary policy conflicts which could contribute to greater volatility. Ample global liquidity, healthy economic growth combined with a solid earnings outlook should ultimately allow the bull market to continue. Global economic growth is looking good and is helping to fuel investor optimism over further gains in international stock markets. Read more on the Markets & Economy page at www.schwab.com.

International reports due out next week that deserve a mention include: China—property prices. Japan—trade balance and the Bank of Japan monetary policy decision. Eurozone—Consumer Price Index and Markit's September business activity reports, as well as German investor confidence. U.K.—retail sales.

Eased Anxieties Help Stocks Rally

Charles Schwab: On the Market

Posted: 9/11/2017 4:15 PM ET

Eased Anxieties Help Stocks Rally

The U.S. equity markets rallied, courtesy of eased geopolitical concerns amid a pause in North Korean missile tests, and as early economic assessments of losses in the aftermath of Hurricane Irma are less than feared. Treasury yields continued to recover from multi-month lows, giving financials a boost, while the U.S. dollar also rebounded from multi-year lows. Crude oil prices were higher, while gold was solidly lower.

The Dow Jones Industrial Average (DJIA) jumped 260 points (1.2%) to 22,057, the S&P 500 Index was 27 points (1.1%) higher at 2,488, and the Nasdaq Composite rallied 72 points (1.1%) to 6,432. In moderate volume, 795 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.59 to $48.07 per barrel and wholesale gasoline lost $0.02 to $1.63 per gallon. Elsewhere, the Bloomberg gold spot price dropped $18.97 to $1,327.62 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 91.87.

Insurance stocks got a boost as the markets assessed the impact of Hurricane Harvey in Texas two weeks ago and Hurricane Irma that hammered the Caribbean and made landfall in Florida over the weekend. Early reports are suggesting Irma's costs will likely be less than feared as the storm has been downgraded to a tropical storm. Airlines and travel companies also found support.

Pilgrim's Pride Corp. (PPC $28) announced an agreement to acquire poultry and prepared foods supplier Moy Park from Brazil's JBS SA (JBSAY $5) for about $1.0 billion. PPC said the acquisition is expected to be immediately accretive to earnings per share. PPC finished lower.

Teva Pharmaceutical Industries Ltd. (TEVA $19) rallied nearly 20% after the generic drug company named Kare Schultz as its new Chief Executive Officer (CEO), the former CEO of Danish drugmaker H. Lundbeck (HLUYY $57). HLUYY was sharply lower.

Treasury yields and the U.S. dollar regaining footing

Treasuries were lower amid a dormant economic calendar, as the yield on the 2-year note increased 6 basis points (bps) to 1.32%, while the yields on the 10-year note and the 30-year bond gained 8 bps to 2.13% and 2.75%, respectively. For analysis of the bond markets, see Schwab's Chief Fixed Income Strategist Kathy Jones' article, What's the Bigger Risk: Bond Market Bubble or Complacency?, on the Fixed Income page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

Treasury yields and the U.S. dollar rebounded from recent weakness that took the former to levels not seen since November and the latter to well over a two-year low, as risk aversion eases with North Korea holding off on another missile test and the impact of Hurricane Irma appears to less than feared. Downside pressure on bond yields and the greenback has come amid fading expectations of another Fed rate hike this year and as the euro surged in the wake of the European Central Bank's signal that it will likely begin discussions of tapering stimulus measures at its meeting next month

This sets the stage for this week's economic calendar to likely regain some focus, beginning with tomorrow's NFIB Small Business Optimism Index, forecasted to show a slight downtick to a level of 104.8 for August from the 105.2 posted in July, as well as the Job Openings and Labor Turnover Survey (JOLTS) report, with economists expecting the measure of unmet demand for labor to have fallen to 5.8 million jobs available to be filled in July from the 6.2 million registered in June. Stubbornly low inflation, which has kept Fed rate expectations hamstrung, will also be on display this week, courtesy of the releases of the Consumer Price Index (CPI) and Producer Price Index (PPI) for August. The all-important U.S. consumer will also garner attention as the markets digest the August retail sales report and the preliminary September University of Michigan Consumer Sentiment Index. The docket will also bring industrial production and capacity utilization.

As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, action is about to heat up as summer comes to an end but investors should remain cool. Geopolitical threats, domestic politics, and Federal Reserve actions all have the potential to add to volatility and heightens the risk of a pullback or correction. But healthy economic growth and strong corporate earnings lead us to believe that the bull market has legs. Read more on the Markets & Economy page at www.schwab.com.

Europe and Asia higher as geopolitical concerns fade and Irma downgraded

European equity markets gained solid ground, with the lack of another missile test by North Korea easing geopolitical concerns, while assessments of the U.S. economic impact of Hurricane Irma were preliminarily reported to be less than estimated as it was downgraded to a tropical storm. Insurance and travel companies got a boost, while sentiment also found some support from upbeat data out of China and Japan. The euro gave back some of a recent surge to near a three-year high versus the U.S. dollar, while bond yields recovered to also bolster the financial sector. The British pound dipped versus the greenback ahead of this week's Bank of England monetary policy decision. In economic news, Italian industrial production rose more than expected. For a look at global 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?, on the Markets & Economy page at www.schwab.com, and his video with Vice President of Trading and Derivatives, Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished higher as North Korea held off on conducting another missile test, which is easing geopolitical concerns, while early reports of the impact of Hurricane Irma in the U.S. are suggesting the costs will be less than feared. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks, investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com. Moreover, Japan posted much stronger-than-expected machine orders—a gauge of capital spending—for July, while China's CPI and PPI figures topped forecasts. Japanese equities rallied, with the yen giving back some recent gains, while stocks in China and Hong Kong rose, as sentiment also gets a boost from reports that the People's Bank of China intends to ease requirements for financial institutions. Meanwhile, markets in South Korea, Australia and India also advanced.

Tomorrow's international economic calendar will mostly focus on reports out of the U.K., with the island nation set to release CPI, PPI, housing prices and the Retail Price Index.

Stocks Mixed as Storms Eyed

Charles Schwab: On the Market

Posted: 9/8/2017 4:15 PM ET

Stocks Mixed as Storms Eyed

U.S. stocks traded mixed as the markets paid attention to developments pertaining to Hurricane Irma, while financials advanced as Treasury yields mostly rebounded from a recent drop. The U.S. dollar was again under pressure and a dip in crude oil prices pressured energy shares though tech listings led decliners. In other equity news, Equifax traded lower in the wake of its announced massive cybersecurity breach. Gold was lower.

The Dow Jones Industrial Average (DJIA) increased 13 points (0.1%) to 21,799, the S&P 500 Index was 4 points (0.1%) lower at 2,462, and the Nasdaq Composite decreased 38 points (0.6%) to 6,360. In moderate volume, 801 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.61 to $47.48 per barrel and wholesale gasoline lost $0.01 to $1.65 per gallon. Elsewhere, the Bloomberg gold spot price was $2.49 lower at $1,346.74 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.4% lower at 91.33. Markets were lower for the holiday-shortened week, as the DJIA decreased 0.9%, the S&P 500 Index lost 0.6% and the Nasdaq Composite fell 1.2%.

Equifax Inc. (EFX $123) announced a cybersecurity incident potentially impacting approximately 143 million U.S. consumers, occurring from mid-May through July 2017. Data accessed primarily includes names, Social Security numbers, birth dates, addresses and, in some instances, driver's license numbers. In addition, credit card numbers for approximately 209,000 U.S. consumers, and certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers, were accessed. The company added that it has found no evidence of unauthorized activity on Equifax's core consumer or commercial credit reporting databases. Shares finished sharply lower.

Kroger Co. (KR $21) reported Q2 earnings-per-share (EPS) of $0.39, in line with the FactSet estimate, as revenues grew 3.9% year-over-year (y/y) to $27.6 billion, above the projected $27.5 billion. Q2 same-store sales grew 0.7% y/y, versus the 0.4% rise that was anticipated. KR reaffirmed its full-year EPS outlook. Shares were under pressure, as analysts expressed concern about the heightened uncertainty in the food retail market as the company said it will no longer provide longer-term guidance "In this dynamic operating environment."

Target Corp. (TGT $57) found pressure after the retailer posted a blog about lowering prices on thousands of items in its stores.

Consumer credit and wholesale inventories rise 

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $18.5 billion during July, above the $15.0 billion forecast of economists polled by Bloomberg, while June's figure was adjusted slightly lower to an increase of $11.8 billion from the originally reported $12.4 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $15.9 billion y/y, while revolving debt, which includes credit cards, increased by $2.6 billion.

Wholesale inventories (chart) were revised higher to a 0.6% month-over-month (m/m) gain for July, versus the Bloomberg forecast of an unrevised preliminary 0.4% increase. This was the third-straight month posting a 0.6% increase. However, sales dipped 0.1% m/m, after June's downwardly revised 0.6% gain, and compared to the expected 0.5% rise. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—ticked higher to a 1.30 months pace from June's 1.29 rate.

Treasuries finished mostly lower, with the yield on the 2-year note nearly unchanged at 1.27%, while the yields on the 10-year note and the 30-year bond gained 2 bps to 2.06% and 2.67%, respectively.

Treasury yields rebounded from a recent bout of pressure that had taken them to levels not seen since November, while the U.S. dollar continued to drop to lows not seen in over two years. Fed rate hike expectations for this year have slipped and the European Central Bank signaled that it is likely to unveil plans to dial back its stimulus measures at its meeting next month. Moreover, geopolitical and U.S. political uncertainties remain, while last week's Hurricane Harvey is being followed by a plethora of storms in the Atlantic, with Hurricane Irma continuing to track toward Florida.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, we think bond yields are likely to rise from current levels as the economy continues to improve and the Federal Reserve tightens policy, but we don’t see a bubble in the market. Read more on the Fixed Income page at www.schwab.com, and for analysis of investing styles, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?, on the Markets & Economy page. Follow Kathy and Liz Ann on Twitter: @kathyjones and @lizannsonders.

In the final hour of trading, the economic calendar will bring the release of consumer credit, expected to show consumer borrowing was $15.0 billion during July, up from the $12.4 billion posted the month prior.

Europe battles back as data and currencies in focus, Asia mixed following data 

European equity markets overcame early losses and finished mostly higher, as financials gained ground with bond yields in the region rebounding from recent pressure. The euro was relatively calm after an extended rally to levels versus the U.S. dollar not seen in well over two years. The European Central Bank (ECB) and the markets have shown some concern regarding the euro's recent surge, which was amplified by yesterday's ECB monetary policy decision that signaled plans to scale back stimulus measures could come next month. Also, the outlook for the possibility of a Fed rate hike this year has become more cloudy to bolster gains for the euro. A mixed trade report out of China, softer-than-expected German export growth, mixed industrial/manufacturing production data out of France, and relatively favorable U.K. industrial/manufacturing production were also in focus. The British pound gained solid ground on the U.S. dollar, likely weighing on the U.K. markets. Amid this backdrop, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Vice President of Trading and Derivatives, Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mixed to close out the week, with data showing Chinese exports missed forecasts but imports—a potential sign of growth in domestic output—topped forecasts, while Japan's Q2 GDP growth was revised to a slower pace of acceleration from Q1. Also, currency volatility garnered attention, with the yen extending a rally as the U.S. dollar continued to drop, hitting the strongest level versus the greenback since November, while currencies in China strengthened to help developers and airlines, per Bloomberg. Global monetary policy uncertainty after yesterday's ECB decision and as Fed rate hike expectations slip is bolstering the volatility. Tensions toward North Korea continued to fester to keep sentiment on edge, along with the potential impact of a plethora of hurricanes in the Atlantic. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com. 

Weekly gain streak ends as storms, currencies, and yields garner attention

U.S. stocks failed to extend a weekly winning streak to three as a plethora of sources of market anxiety stymied conviction. Financials came under pressure as Treasury yields fell to November lows, while the U.S. dollar tumbled to levels not seen since early 2015. Global monetary policy uncertainty lingered, as Fed rate hike expectations for this year continued to fade, the ECB hinted that detailed discussions regarding tapering are set to commence, and the Bank of Canada unexpectedly hiked rates. Just as the markets were recovering from Hurricane Harvey's impact, Irma crushed the Caribbean and tracked toward Florida.

Geopolitical concerns remained as North Korea detonated a hydrogen bomb and was reportedly preparing another ICBM test, while U.S. President Trump continued to push for global trade renegotiations. Dysfunction on the domestic political front persisted as President Trump backed a Democratic bill lumping a short-term debt limit extension to avoid a government shutdown with Hurricane relief, which passed through Congress but appeared to make some Republican Congressional members uneasy. Upbeat global economic data was overshadowed, with upbeat services sector reports out of China, the eurozone, U.K. and the U.S. having little impact. Healthcare issues led to the upside, bolstered by a plethora of upbeat experimental drug trial results, and energy stocks moved higher as crude oil prices paused from a recent tumble.

Next week, while assessing the impact of Irma and grappling with the aforementioned uncertainties, the economic calendar will likely regain some focus. Stubbornly low inflation, which has kept Fed rate expectations hamstrung, will be on display courtesy of the releases of the Consumer Price Index (CPI) and Producer Price Index (PPI) for August. The all-important U.S. consumer will also garner attention as the markets digest the August retail sales report and the preliminary September University of Michigan Consumer Sentiment Index. The docket will also bring the NFIB Small Business Optimism Index, JOLTS Job Openings, and industrial production and capacityutilization.

As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, action is about to heat up as summer comes to an end but investors should remain cool. Geopolitical threats, domestic politics, and Federal Reserve actions all have the potential to add to volatility and heightens the risk of a pullback or correction. But healthy economic growth and strong corporate earnings lead us to believe that the bull market has legs. Read more on the Markets & Economy page at www.schwab.com.

International reports due out next week that deserve a mention include: Australia—consumer confidence and employment change. China—CPI, PPI, lending statistics, retail sales and industrial production. India—trade balance, CPI, PPI and industrial production. Japan—machine orders and industrial production. Eurozone—industrial production, new car registrations and trade balance, along with German CPI. U.K.—CPI, PPI, employment change and Bank of England monetary policy decision.

Markets Mostly Flat, Discretionary Stocks Find Pressure

Charles Schwab: On the Market

Posted: 9/7/2017 4:15 PM ET

Markets Mostly Flat, Discretionary Stocks Find Pressure

U.S. stocks closed mostly flat as Dow member Walt Disney and Comcast announced warnings in regard to financial numbers this quarter and after the European Central Bank kept its monetary policy stance unchanged. The U.S. dollar touched on two-year lows and Treasury yields dropped. The potential destruction arising from Hurricane Irma added to the skittishness of the markets. Jobless claims jumped in the aftermath of Hurricane Harvey and Q2 productivity was revised higher. Crude oil and gold both rose.

The Dow Jones Industrial Average (DJIA) declined 23 points (0.1%) to 21,785, the S&P 500 Index was nearly unchanged at 2,465, and the Nasdaq Composite increased 5 points (0.1%) to 6,398. In moderate volume, 787 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.07 lower to $49.09 per barrel and wholesale gasoline lost $0.01 to $1.66 per gallon. Elsewhere, the Bloomberg gold spot price was $14.62 higher at $1,348.84 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% lower at 91.55.

Shares of GoPro Inc. (GPRO $10) jumped after the wearable action camera maker announced that it expects revenue and gross margin for Q3 to be at the high end of its previously reported guidance, citing strong demand for its GoPro products.

RH (RH $72), the furniture company formerly known as Restoration Hardware, reported a Q2 loss of $0.28 per share, or earnings-per-share (EPS) of $0.65 ex-items, versus the FactSet estimate calling for EPS of $0.47, as revenues grew 14.0% year-over-year (y/y) to $619 million, compared to the forecasted $606 million. Q2 same-store sales rose 7.0% y/y, above the projected 5.8% increase. RH boosted its full-year EPS outlook after issuing Q3 profit guidance that easily beat expectations. Shares surged over 45%.

Dow member Walt Disney Co. (DIS $97) was under solid pressure after the company noted at the Bank of America Merrill Lynch 2017 Media, Communications and Entertainment Conference that its full-year EPS will be roughly in line with the last year's $5.72, versus the Street's expectation of $5.89.

At the same conference, Comcast Corp. (CMCSA $38) said Hurricane Harvey and competition has resulted in a loss of some video subscribers that will hit its financial numbers this quarter.

Eli Lilly and Co. (LLY $82) announced steps to streamline its operations to focus better on developing new medicines and improve its cost structure, including the reduction of its workforce by 3,500 positions. Shares finished higher.

Cabela's Inc. (CAB $61) rallied after a subsidiary of Synovus Financial Corp. (SNV $41) received regulatory approval to acquire certain assets and assume certain liabilities of World's Foremost Bank, a subsidiary of the camping, hunting and fishing gear chain.

Jobless claims boosted by Hurricane Harvey, Q2 productivity revised higher

Weekly initial jobless claims (chart) surged by 62,000 to 298,000 last week, well above the Bloomberg forecast of 245,000, with the prior week’s figure being unrevised at 236,000. The jump is being mostly attributed to the impact of Hurricane Harvey. The four-week moving average rose by 13,500 to 250,250, while continuing claims declined 5,000 to 1,940,000, south of estimates of 1,945,000.

Final Q2 nonfarm productivity (chart) was revised to a 1.5% rate of growth on an annualized basis, from the preliminary estimate of a 0.9% increase, and versus expectations of a 1.3% rise. Q1 productivity was unrevised at a 0.1% gain. Unit labor costs were adjusted to a 0.2% gain, from the initial report of a 0.6% increase, and versus the forecast calling for a 0.3% rise. Q1 labor costs were revised lower to a 4.8% increase.

Treasuries rose, as the yield on the 2-year note fell 4 basis points (bps) to 1.27%, while the yields on the 10-year note and the 30-year bond dropped 6 bps to 2.05% and 2.66%, respectively. Bond yields and the U.S. dollar were back under pressure after yesterday's modest rebound, with the former falling back to lows not seen since November and the latter trading at more than a two-year low. Geopolitical and domestic political uncertainties are lingering, while the markets are grappling with global monetary policy uncertainty as Fed rate hike expectations slip and the European Central Bank (ECB) left its monetary policy stance unchanged but noted that currency volatility needs to be monitored. Also, the markets are eyeing Hurricane Irma, which is tracking toward Florida on the heels of last week's Hurricane Harvey that damaged the Texas Gulf and disrupted the oil & gas markets.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, we think bond yields are likely to rise from current levels as the economy continues to improve and the Federal Reserve tightens policy, but we don’t see a bubble in the market. Read more on the Fixed Income page at www.schwab.com, and for analysis of investing styles, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?, on the Markets & Economy page. Follow Kathy and Liz Ann on Twitter: @kathyjones and @lizannsonders.

Tomorrow, the U.S. economic calendar will deliver a read on wholesale inventories for July, expected to have increased 0.4% m/m, matching the rise seen in June, while in the final hour of trading, consumer credit will be reported and is expected to have expanded by $15.0 billion during July.

Europe mostly higher as ECB holds policy steady, Asia mixed amid China data

European equity markets traded mostly higher, despite the reaction in the currency markets after the ECB expectedly left its monetary policy stance unchanged. The euro jumped to highs not seen in over two years versus the U.S. dollar and bond yields in the region were lower to pressure financials and hamstring Italian and Spanish stocks. The markets scrutinized the customary press conference from ECB President Mario Draghi that followed the decision. He noted that the recent volatility in the currency markets is a source of uncertainty which requires monitoring for its impact on price stability, while reiterating that substantial policy accommodation is still needed. The ECB lowered its inflation outlooks for 2018 and 2019, while raising this year's GDP growth forecast and leaving its guidance for economic output in to following two years unchanged. As expected, he did not offer much on the timing of removing stimulus measures, noting that autumn may be when the groundwork for the process is detailed. The markets are anticipating next month's meeting to be the one when we get the ECB's plans for paring its stimulus measures. The euro's recent rally has been reported to be causing concern at the central bank and the markets appear to be surprised that Draghi did not offer more in terms stemming the euro's jump.

The British pound also gained ground on the greenback. In other economic news, German industrial production came in flat month-over-month in July, after falling 1.1% in June, and versus projections of a 0.5% gain. Eurozone Q2 GDP was revised higher to a 2.3% y/y pace, from the preliminary estimate of a 2.2% increase. 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?, on the Markets & Economy page at www.schwab.com, and his video with Vice President of Trading and Derivatives, Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mixed following yesterday's modest rebound in the U.S., aided by news that President Trump supported a package that included a short-term debt ceiling extension that appeared to ease political concerns somewhat. Market participants traded with some caution ahead of today's monetary policy decision from the ECB and with China expected to report trade and inflation data later this week. Japanese equities rose, with the yen paring a recent run, while South Korean stocks snapped a recent losing streak. Tensions toward North Korea had pressured the Korean markets but no new developments in the past couple days seems to be cooling concerns. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com. Shares trading in mainland China and Hong Kong traded lower. Australian securities finished flat after softer-than-expected reads on retail sales and the trade surplus, while Indian equities were little changed.

The international economic docket for tomorrow will include trade data, Q2 GDP and bank lending figures from Japan, home loans from Australia, trade data and labor costs from Germany and industrial and manufacturing production from the U.K. and France.

Markets Hardy In Face of Persistent Anxiety

Charles Schwab: On the Market

Posted: 9/6/2017 4:15 PM ET

Markets Hardy In Face of Persistent Anxiety

U.S. equities were higher, remaining durable in the face of continued uncertainty surrounding monetary policy, political and geopolitical issues, as well as the approaching Category 5 Hurricane Irma off the Florida coast following in the aftermath of Hurricane Harvey battering the Texas coast last week. Treasury yields and the U.S. dollar were higher after yesterday's drops, while crude oil prices were mixed and gold was lower.

The Dow Jones Industrial Average (DJIA) rose 54 points (0.3%) to 21,808, the S&P 500 Index gained 8 points (0.3%) to 2,466, and the Nasdaq Composite increased 18 points (0.3%) to 6,393. In moderate volume, 813 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.50 to $49.16 per barrel and wholesale gasoline lost $0.03 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price was $6.20 lower at $1,333.29 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—inched 0.1% higher to 92.29.

Hewlett Packard Enterprise Co. (HPE $14) reported fiscal Q3 earnings-per-share (EPS) of $0.15, or $0.31 ex-items, versus the $0.26 FactSet estimate, as revenues rose 3.0% year-over-year (y/y) to $8.2 billion, topping the forecasted $7.5 billion. HPE issued Q4 EPS guidance that was slightly below expectations, while its full-year profit outlook was mostly in line with estimates. Shares were lower.

Dave & Buster's Entertainment Inc. (PLAY $51) posted Q2 profits of $0.71 per share, or $0.59 ex-items, versus the $0.55 expectation, as revenues increased 14.9% y/y to $281 million, compared to the forecasted $282 million. Q2 same-store sales grew 1.1% y/y, compared to the 2.6% gain that was anticipated. PLAY raised its full-year net income outlook slightly, but it had a midpoint the missed forecasts, while it lowered its same-store sales forecast. Shares fell.

Sarepta Therapeutics Inc. (SRPT $47) jumped after announcing upbeat results from a trial of its treatment for Duchenne Muscular Dystrophy.

United Continental Holdings Inc. (UAL $60) came under pressure after the airline lowered its Q3 outlook, citing some impact from Hurricane Harvey, geopolitical tensions in the Korean Peninsula, pricing issues and higher fuel costs.

Services sector reports miss but show growth accelerated in August

The August Institute for Supply Management (ISM) non-Manufacturing Index (chart) rose to 55.3 from July's unrevised 53.9 level, and compared to the Bloomberg forecast of a gain to 55.6. A reading above 50 denotes expansion. New orders grew 2.0 points month-over-month (m/m) to 57.1, business activity rose 1.6 points to 57.5, and employment gained 2.6 points to 56.2. Prices increased 2.2 points to 57.9. The ISM said the majority of respondents are optimistic about business conditions going forward.

The final Markit U.S. Services PMI Index was revised to 56.0 in August from the preliminary 56.9 level, where it was expected to remain, and up from July's level of 54.7. The release is independent and differs from ISM's report, as it has less historic value and Markit weights its index components differently.

The outlook for the services sector—the largest contributor to U.S. economic growth—appears positive with consumer starting to see wages move higher as one of the strongest areas of the economy continues to be the labor market as discussed in the latest Schwab Market Perspective: A Preview of Coming Attractions?. The limited risk of an economic recession keeps us in the bull market camp, notwithstanding near-term risks of fiscal and monetary uncertainties. Read more on the Markets & Economy page at www.schwab.com.

The trade balance (chart) showed that the deficit came in at $43.7 billion in July, compared to estimates of $44.7 billion. June's deficit was downwardly revised to $43.5 billion. Exports dipped 0.3% month-over-month (m/m) to $194.4 billion, while imports nudged lower by 0.2% to $238.1 billion.

The MBA Mortgage Application Index rose 3.3% last week, following the previous week's 2.3% drop. The increase came as a 5.1% rise in the Refinance Index was met with a 1.4% gain for the Purchase Index. The average 30-year mortgage rate declined 5 basis points (bps) to 4.06%.

In afternoon action, the Federal Reserve released its Beige Book, a summary of business activity across the nation used as a tool to prepare for this month's two-day monetary policy meeting ending on the 20th. The report indicated that the economy continued on a "modest to moderate" pace, with little in the way of inflation. Meanwhile, job growth slowed somewhat in some districts, and labor conditions continued to be characterized as "tight." Some items of note, however, were that some districts expressed concerns over a prolonged slowdown in the auto industry, particularly in Cleveland and Chicago, and the Atlanta and Dallas Fed banks reported wide-ranging disruptions in economic activity along the Gulf Coast as a result of Hurricane Harvey.

Treasuries finished lower, as the yield on the 2-year note ticked 1 bp higher to 1.31%, while the yields on the 10-year note and the 30-year bond rose 4 bps to 2.10% and 2.72%, respectively. Bond yields and the U.S. dollar fell yesterday, courtesy of some dovish commentary from Fed members and a return of risk aversion as North Korean tensions flared back up. The 10-year bond yield hit the lowest level since last November and the greenback fell back to levels not seen in over two years. Global monetary policy uncertainty remains a source of volatility ahead of tomorrow's decision by the European Central Bank (ECB) and as the Bank of Canada today unexpectedly raised rates.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, we think bond yields are likely to rise from current levels as the economy continues to improve and the Federal Reserve tightens policy, but we don’t see a bubble in the market. Read more on the Fixed Income page at www.schwab.com, and for analysis of investing styles, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?, on the Markets & Economy page. Follow Kathy and Liz Ann on Twitter: @kathyjones and @lizannsonders.

For our latest analysis of the political front, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's newest article, Congress Returns to Face Debt Ceiling, Government Shutdown Deadlines, on the Insights & Ideas page at www.schwab.com.

Tomorrow's economic calendar will be fairly light and include weekly initial jobless claims, forecasted to rise to a level of 241,000 from the prior week's 236,000, as well as final Q2 productivity and labor costs, with productivity expected to be upwardly revised to a 1.3% increase and labor costs to have been adjusted lower to a 0.6% rise.

Europe mixed as skittish mood lingers, Asia mixed

European equity markets finished mixed, with sentiment continuing to be a bit hamstrung by heightened North Korean tensions and U.S. political uneasiness, while monetary policy uncertainty festered ahead of tomorrow's decision from the ECB. The euro and British pound ticked higher versus the U.S. dollar, while bond yields in the region rebounded. German factory orders for July surprisingly dropped. Automakers led to the upside as the recently improved optimism toward the sector was bolstered by some upbeat analyst recommendations. However, insurance companies remained hamstrung in the aftermath of Hurricane Harvey in the U.S. and as another potential damaging Category 5 Hurricane Irma made landfall in the Caribbean. 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?, on the Markets & Economy page at www.schwab.com, and his video with Vice President of Trading and Derivatives, Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mostly lower on the heels of yesterday's drop in the U.S., as sentiment remained skittish in the face of exacerbated tensions toward North Korea, along with global monetary policy and U.S. political uncertainties. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com. Japanese equities dipped, with the yen holding onto recent gains despite a report that showed the nation's wages unexpectedly declined in July. Markets in South Korea, India, Hong Kong, and Australia all declined, with the latter posting a Q2 GDP report which showed growth was smaller than expected. Stocks in mainland China finished flat.

In addition to the European Central Bank's monetary policy decision, tomorrow's international economic calendar will offer retail sales from Australia, Japan's Leading Index, industrial production from Germany, and GDP from the Eurozone.

North Korea Tensions Rattle Markets

Charles Schwab: On the Market

Posted: 9/5/2017 4:15 PM ET

North Korea Tensions Rattle Markets

U.S. equities began the holiday-shortened week solidly lower, as risk appetites were severely limited following this weekend's claim that North Korea detonated a hydrogen bomb and reports that it may be preparing another ICBM launch. Treasury yields fell sharply on the uneasiness and the U.S. dollar lost ground, while gold rose and crude oil prices were mixed.

The Dow Jones Industrial Average (DJIA) tumbled 234 points (1.1%) to 21,753, the S&P 500 Index lost 19 points (0.8%) to 2,457, and the Nasdaq Composite declined 60 points (0.9%) to 6,376 In moderately heavy volume, 909 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.37 to $48.66 per barrel and wholesale gasoline lost $0.05 to $1.70 per gallon. Elsewhere, the Bloomberg gold spot price was $8.10 higher at $1,341.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.5% to 92.21.

Dow member United Technologies Corp. (UTX $111) announced an agreement to acquire Rockwell Collins Inc. (COL $131) for $140.00 per share in cash and UTX stock, for a total equity value of about $23.0 billion. Under the terms of the deal, each COL shareowner will receive $93.33 per share in cash and $46.67 in shares of UTX. United Technologies said the deal is expected to be accretive to its earnings after the first full year following closing. UTX finished lower and COL ticked higher as the stock had jumped recently on speculation of the deal.

Insmed Inc. (INSM $27) surged nearly 120% after the company announced positive results from a late-stage trial of its treatment for certain lung diseases and that it intends to seek accelerated approval and request a priority review.

Factory orders mixed to kick off the week

Factory orders (chart) fell 3.3% month-over-month (m/m) in July, matching the Bloomberg expectation, while June's figure was positively revised to a 3.2% increase. However, stripping out the volatile transportation component, orders rose 0.5% and June's 0.2% decline was upwardly revised to a 0.1% gain. July durable goods orders—preliminarily reported two weeks ago—were unrevised at a 6.8% drop versus forecasts of an adjustment to a 2.9% decrease. Nondefense aircraft and parts fell sharply after June's surge, while electrical equipment, along with computers and electronic products, rose solidly.

Today's report kicked off the holiday shortened week that will bring a flood of key reports for the markets to digest, including the July trade balance, August ISM non-Manufacturing and Markit Services PMI Indexes, the Fed's Beige Book, and final Q2 productivity and labor costs. Also, the international calendar will bring a plethora of trade reports, and monetary policy decision from the European Central Bank (ECB).

Today's report kicked off the shortened week's economic calendar that will culminate with tomorrow's releases of MBA mortgage applications, the trade balance and the Fed's Beige Book, a summary of business activity across the nation used as a tool to prepare for this month's two-day monetary policy meeting ending on the 20th. However, the headlining data could be the August ISM non-Manufacturing and final Markit's Services PMI Indexes, on the heels of today's upbeat services sector reports in China and eurozone. ISM's report is projected to improve to 55.5 from 53.9 in July and Markit's release is forecasted to be unrevised at the preliminary level of 56.9, and up from July's 54.7 figure. Readings above 50 for both reports denote expansion.

As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, limited risk of an economic recession keeps us in the bull market camp, notwithstanding near-term risks of fiscal and monetary uncertainties. Read more on the Markets & Economy page at www.schwab.com.

Treasuries rallied, as the yield on the 2-year note decreased 6 basis points to 1.29%, the yield on the 10-year note fell 10 bps to 2.07%, and the 30-year bond rate was 9 bps lower at 2.69%. Risk aversion flared back up in the wake of claims that North Korea detonated a hydrogen bomb over the weekend, weighing on Treasury yields and the U.S. dollar. This continues to accompany lingering global monetary policy, trade and U.S. political uncertainties.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, we think bond yields are likely to rise from current levels as the economy continues to improve and the Federal Reserve tightens policy, but we don’t see a bubble in the market. We suggest managing the duration in your bond portfolio to mitigate the risk of rising rates. We also suggest managing your exposure to the higher risk parts of the fixed income markets where yields are low and the risk premium offered versus Treasuries is low. Read more on the Fixed Income page at www.schwab.com, and for analysis of investing styles, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?, on the Markets & Economy page. Follow Kathy and Liz Ann on Twitter: @kathyjones and @lizannsonders.

For our latest analysis of the political front, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's newest article, Congress Returns to Face Debt Ceiling, Government Shutdown Deadlines, on the Insights & Ideas page at www.schwab.com.

Europe declines, Asia mixed amid festering geopolitical concerns 

European equity markets finished mostly lower, with the euro and British pound gaining ground on the U.S. dollar, while the global markets remained skittish as tensions with North Korea continued to fester. Amid this backdrop, Schwab's Chief Investment Strategist Liz Ann Sonders offers her article, Twist and Shout: United States Takes on North Korea … Implications for Stocks on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders. Bond yields in the region lost ground, even as China posted favorable services sector data and a report from Markit showed eurozone manufacturing and services sectors continued to expand for August. This comes ahead of this week's monetary policy decision by the ECB. However, a separate report showed eurozone retail sales declined in July. Bucking the trend, Swiss markets ticked higher as today's subdued consumer price inflation data followed yesterday's disappointing Q2 GDP report to appear to ease concerns about the Swiss National Bank normalizing monetary policy. Also, German markets moved higher with automakers getting a boost from positive comments about diesel technology from Chancellor Merkel and yesterday's solid gain in August car registrations, while the aforementioned Markit report showed the nation's business activity grew more than expected.

For a look at global stock investing, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mixed as sentiment remained cautious after this weekend's claim that North Korea detonated a hydrogen bomb, while the markets digested a report that showed growth in China's key services sector activity accelerated. Japanese equities fell, with the yen extending gains, while those traded in South Korea gave up early gains and dipped, with media reports suggesting North Korea is preparing another intercontinental ballistic missile (ICBM) test. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com, as well as his 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks. Markets in Australia ticked higher, with the Reserve Bank of Australia holding its monetary policy stance steady as expected. Stocks in mainland China and Hong Kong were little changed after the Caixin PMI Services Index increased to 52.7 for August, from 51.5 in July, with a reading above 50 denoting expansion. Finally, Indian equities advanced modestly.

For tomorrow, the international economic calendar will offer GDP from Australia, manufacturing orders from Germany, and retail sales from Italy.

Markets Notch Fourth-Straight Gain

Charles Schwab: On the Market

Posted: 9/1/2017 4:15 PM ET

Markets Notch Fourth-Straight Gain

U.S. equities finished the week out on a high note amid lighter volume ahead of the three-day Labor Day holiday weekend. The ISM Manufacturing Index jumped to a six-year high to aid the advance, while automakers posted relatively upbeat monthly sales reports, helping to overshadow a softer-than-expected August nonfarm payroll report. Treasury yields rose and the U.S. dollar continued to rebound, while crude oil prices were mixed and gold was higher.

The Dow Jones Industrial Average (DJIA) rose 39 points (0.2%) to 21,988, the S&P 500 Index added 4 points (0.2%) to 2,476, and the Nasdaq Composite gained 7 points (0.1%) to 6,435. In light-to-moderate volume, 651 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.06 higher to $47.29 per barrel and wholesale gasoline lost $0.03 to $1.75 per gallon. Elsewhere, the Bloomberg gold spot price gained $3.58 to $1,325.01 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 92.83. Markets were higher for the week, as the DJIA increased 0.8%, the S&P 500 Index jumped 1.3% and the Nasdaq Composite soared 2.7%.

Lululemon Athletica Inc. (LULU $62) reported Q2 earnings-per-share (EPS) of $0.36, or $0.39 ex-items, versus the $0.35 FactSet estimate, as revenues grew 13.0% year-over-year (y/y) to $581 million, north of the projected $567 million. Q2 same-store sales rose 7.0% y/y, topping the expected 4.2% gain. The yoga and athletic apparel company raised its full-year guidance. Shares rallied.

Palo Alto Networks Inc. (PANW $147) posted a fiscal Q4 loss of $0.42 per share, or EPS of $0.92 ex-items, compared to the projected $0.79, with revenues rising 27.0% y/y to $509 million, above the estimated $488 million. The cybersecurity company issued full-year guidance that was mostly above expectations. Shares jumped over 10%.

The major automakers reported August sales today, with General Motors Co's (GM $37) sales rising 7.5% y/y, compared to FactSet's projected 3.7% increase. Fiat Chrysler Automobiles NV's (FCAU $16) Chrysler sales dropped 11.0%, compared to the expected 5.3% decrease. Ford Motor Co. (F $11) reported a 2.1% decline in sales, versus the expected drop of 3.1%. Shares of all three automakers were nicely higher.

August job growth misses forecasts, but manufacturing growth jumps to six-year high

Nonfarm payrolls (chart) rose by 156,000 jobs month-over-month (m/m) in August, compared to the Bloomberg forecast of a 180,000 increase. The rise of 209,000 seen in July was revised to a gain of 189,000 jobs. The total downward revision to the job gains in July and June was 41,000. Excluding government hiring and firing, private sector payrolls increased by 165,000, versus the forecasted gain of 172,000, after increasing by 202,000 in July, revised from the 205,000 rise that was initially reported. Job gains occurred in manufacturing, construction, professional and technical services, healthcare and mining.

The unemployment rate ticked higher to 4.4% from 4.3%, where it was forecasted to remain, while average hourly earnings rose 0.1% m/m, below projections of a 0.2% increase and July's unrevised 0.3% increase. Y/Y, wage gains were 2.5%, versus estimates of a 2.6% rise, and matching July's pace. Finally, average weekly hours dipped to 34.4 from July's unrevised 34.5 rate, where it was expected to remain.

The Institute for Supply Management (ISM) Manufacturing Index (chart) for August jumped to the highest level since April 2011, after rising to 58.8 from 56.3 in July, compared to forecasts calling for an increase to 56.5. A reading above 50 denotes expansion. New orders and production were little changed, holding onto levels above 60, while employment jumped to the highest level since June 2011. New export orders declined 2.0 points to 55.5 and inventories rose 5.5 points to 55.5, while prices paid was flat at 62.0. ISM said comments from the survey reflect expanding business conditions.

The final Markit U.S. Manufacturing PMI Index was revised to 52.8 for August from the preliminary reading of 52.5, where it was expected to remain, but below the 53.3 level posted in July. 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.

The final August University of Michigan Consumer Sentiment Index (chart) was revised lower to 96.8 from the preliminary level of 97.6, versus forecasts of 97.5. But the index is up solidly versus July's level of 93.4. Compared to last month, the expectations component of the report was higher, though the current conditions portion declined. The 1-year and 5-10 year inflation outlooks held at July's 2.6% and 2.5% rates, respectively.

Construction spending (chart) fell 0.6% m/m in July, versus projections of a 0.5% advance, and following June's downwardly revised 1.4% drop. Residential spending rose 0.8%, while non-residential spending fell 1.7%.

Despite being below expectations on most levels, today's jobs report—which is being discounted by economists due to seasonal factors—still suggests that the labor market is poised to continue to support economic prosperity. Also, the standout ISM Manufacturing Index, led by the jump in employment, likely bodes well for the broader economy as discussed by Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, in our article, Why the Industrial Sector Matters, on the Insights & Ideas page at www.schwab.com. Brad also discusses our outlook on all the major market sectors in his latest, Schwab Sector Views: Real Estate Roundup, on the Markets & Economy page. Follow us on Twitter: @schwabresearch.

Treasuries were lower following the plethora of data, as the yield on the 2-year note ticked 1 basis point (bp) higher to 1.33%, while the yields on the 10-year note and the 30-year bond rose 5 bps to 2.16% and 2.77%, respectively. Bond yields showed some relative signs of life after being quiet as of late, while the U.S. Dollar Index reversed to the upside, continuing to show signs of stabilization after recently hitting multi-year lows.

For our latest analysis of the political front, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's newest article, Congress Returns to Face Debt Ceiling, Government Shutdown Deadlines, on the Insights & Ideas page at www.schwab.com.

Schwab's Chief Fixed Income Strategist Kathy Jones offers a look at the bond markets in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, on the Fixed Income page at www.schwab.com, and for analysis of investing styles, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?, on the Markets & Economy page. Follow Kathy and Liz Ann on Twitter: @kathyjones and @lizannsonders.

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

Europe and Asia higher amid upbeat global manufacturing reports

European equities traded higher, as early strength in the euro relinquished following the upbeat U.S. manufacturing and auto sales reports, which accompanied favorable manufacturing reads in China, eurozone and U.K. The British pound remained higher versus the U.S. dollar but came off the best levels of the day. Bond yields in the region traded higher. The markets shrugged off the conclusion of the latest round of Brexit negotiations, with the European Union lead noting that talks failed to progress enough to move into a new phase set in October.

For a look at Brexit, see our article, Brexit Begins: What's Next for the U.K.? on the Insights & Ideas page. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA offers a look at a potential milestone for global profits in his latest article, Earnings may be about to do something they've never done before, on the Markets & Economy page at www.schwab.com and his video with Vice President of Trading and Derivatives, Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished out the week mostly to the upside, aided by an upbeat read on Chinese manufacturing output for August, while the markets treaded cautiously ahead of a plethora of U.S. data today, headlined by the key August nonfarm payroll report. Also, conviction may have been held in check as tensions with North Korea lingered and global monetary policy and U.S. political uncertainties remained. For analysis of this backdrop, see Schwab's Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks on the International Investing page at www.schwab.com, as well as his video with Randy Frederick, Political Risk: How Should Investors Respond?, on the Insights & Ideas page.

Stocks in Japan rose modestly, despite the yen regaining some recent losses yesterday and reports showing the nation's Q2 capital spending rose at a smaller pace than anticipated and growth in manufacturing output for August was revised lower. Mainland Chinese equities gained slight ground, but shares traded in Hong Kong gave up early gains and dipped, with the markets digesting recent earnings reports in the region and the aforementioned manufacturing report, which followed yesterday's data that showed growth in activity out of the key services sector decelerated last month. Securities in Australia and India advanced, with the latter showing some resiliency in the face of late-yesterday's softer-than-expected Q2 GDP report. Markets in South Korea finished lower.

Stocks show resiliency in the face of plethora of uncertainty

The U.S. stock markets followed a two-week losing streak with a back-to-back weekly gain to close out August, showing resiliency in the face of a plethora of volatility sources, led by healthcare and technology issues. U.S. political uncertainty remained though recently resurfaced optimism of tax reform helped ease some of the anxiety. Geopolitical concerns were exacerbated by North Korea's latest missile test—this time above Japan—and lingering global trade tensions. Global monetary policy uncertainty festered as last week's Jackson Hole speeches offered little in terms of policy signals, while stubbornly low inflation was countered by stronger-than-expected U.S. Q2 GDP growth and manufacturing activity in China, the U.S., the U.K. and eurozone showing accelerated output in August to lift industrial and materials stocks.

Consumer Confidence hit a five-month high and automakers rallied on Friday to help boost the consumer discretionary sector, and overshadow negative reactions to earnings reports from Best Buy Co. Inc. (BBY $54), Finish Line Inc. (FINL $9) and Dollar General Corp. (DG $72). Adding to the puzzle, the euro hit a more than two-year high against the U.S. dollar, making the European Central Bank a bit uncomfortable, but paused as the greenback rebounded modestly amid the market resiliency and data. Treasury yields were relatively quiet on the week. Even a spike in gas prices and volatile crude oil markets in the wake of Hurricane Harvey did not detour the markets.

Although a short week, next week's economic calendar will bring a flood of key reports for the markets to digest, courtesy of July factory orders, the July trade balance, August ISM non-Manufacturing and Markit Services PMI Indexes, the Fed's Beige Book, and final Q2 productivity and labor costs.

The international economic front will also be robust with reports including: Australia—Reserve Bank of Australia monetary policy decision, Q2 GDP, retail sales and trade balance. China—Caixin PMI Services Index, trade balance, CPI, and PPI. India—trade balance. Japan—trade balance, and Q2 GDP. Eurozone—European Central Bank monetary policy decision, retail sales, and Q2 GDP, along with German factory orders, industrial production, and trade balance. U.K.—industrial/manufacturing production, trade balance, and Bank of England inflation outlook.

As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, Volatility has ramped up a bit in the traditionally-slow final weeks of summer, which could be a preview of a bumpy fall for investors. Solid economic data and strong corporate earnings should allow the bull market to continue, but fiscal and monetary uncertainties present risks. August narrowly avoided the first loss for global stocks this year; but underlying fundamentals still look generally positive. Read more on the Markets & Economy page at www.schwab.com.