Stocks Mixed As Techs Take a Hit

Charles Schwab: On the Market

Posted: 11/29/2017 4:15 PM EST

Stocks Mixed As Techs Take a Hit

 

The U.S. equity markets diverged amid continued global economic optimism following an upward revision to Q3 GDP and optimistic signs of progress in the Senate's tax reform bill. Treasury yields rose on the heels of a favorable economic outlook from Fed Chair Yellen, to the benefit of financials, but technology stocks tumbled, severely pressuring the Nasdaq. Crude oil prices were lower, extending losses ahead of tomorrow's OPEC meeting and following mixed oil inventory data, while gold was lower and the U.S. dollar was little changed.

The Dow Jones Industrial Average (DJIA) rose 104 points (0.4%) to 23,940, the S&P 500 Index fell nearly a point to 2,626, and the Nasdaq Composite tumbled 88 points (1.3%) to 6,824 In heavy volume, 922 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.69 to $57.30 per barrel and wholesale gasoline lost $0.04 to $1.73 per gallon. Elsewhere, the Bloomberg gold spot price decreased $8.94 to $1,285.04 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 93.24.

Tiffany & Co. (TIF $93) reported Q3 earnings-per-share (EPS) of $0.80, compared to the $0.76 FactSet estimate, as revenues grew 3.0% year-over-year (y/y) to $976 million, exceeding the projected $958 million. Q3 same-store sales were flat y/y, versus the forecasted 0.2% dip. TIF reaffirmed its full-year guidance. Shares finished lower.

Marvell Technology Group Ltd. (MRVL $22) posted Q3 EPS of $0.30, or $0.34 ex-items, compared to the forecasted $0.33, as revenues decreased 1.2% y/y to $616 million, just above the estimated $615 million. The chip company issued Q4 guidance that topped expectations. Shares were lower despite the results with the markets appearing to rotate out of the tech sector on the heels of the group's strong run this year, with chip companies seeing noticeable pressure.

Chipotle Mexican Grill Inc. (CMG $302) announced that Chairman and Chief Executive Officer (CEO)—and the founder of the company in 1993—Steve Ells will step down as CEO but will become Executive Chairman following the completion of a search to identify a new CEO. Shares were higher.

Shares of Autodesk Inc. (ADSK $109) tumbled over 15% after the application software company's Q3 billings figure missed expectations, resulting in a lowered full-year subscriptions outlook, despite reporting slightly stronger-than-expected Q3 top-and-bottomline results. The company also announced restructuring measures including the reduction of 1,150 employees to its workforce.

Q3 GDP revised higher, Fed comes into focus

The second look (of three) at Q3 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 3.3%, up from the first release's 3.0% gain. The Bloomberg forecast called for an adjusted 3.2% pace of expansion. Q2 GDP grew by an unrevised 3.1% rate. Personal consumption came in at a 2.3% gain for Q3, lower than the preliminary estimate of a 2.4% increase, and compared to the expectations of a 2.5% increase. Personal consumption grew by an unrevised 3.3% in Q2.

On inflation, the GDP Price Index was revised to a 2.1% increase, versus expectations of an unrevised 2.2% gain, while the core PCE Index, which excludes food and energy, was adjusted to a 1.4% increase, compared to forecasts of an unrevised 1.3% rise.

Pending home sales rose 3.5% month-over-month in October, versus projections of a 1.0% rise, and following the negatively-revised 0.4% decline registered in September. Compared to last year, sales were 1.2% higher, versus estimates of a 3.0% gain. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which rose more than expected in October.

The MBA Mortgage Application Index declined 3.1% last week, following the prior week's 0.1% gain. The decrease came as a 7.7% drop in the Refinance Index more than overshadowed a 1.8% increase in the Purchase Index. The average 30-year mortgage rate remained at 4.20%.

Today the Fed is garnering attention as Chairwoman Janet Yellen delivered her U.S. economic outlook to the Joint Economic Committee of Congress, noting the economic expansion is increasingly broad-based and she continues to expect gradual adjustments in the stance of monetary policy. However, she pointed out that although recent lower readings on inflation likely reflect transitory factors, it is possible that this year's low inflation could reflect something more persistent.
In afternoon action, the Central Bank released its Beige Book, an anecdotal look at business activity across the nation used as a monetary policy preparation tool for the two-day meeting set to end December 13th. The report showed that economic activity progressed at "a modest to moderate pace," through mid-November, while also noting that "price pressures have strengthened since the last report" and that the labor market remains tight. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, President Trump's nomination of current Fed governor Jerome “Jay” Powell to replace Janet Yellen as Chairman of the Federal Reserve when her term ends early next year was largely expected and greeted relatively favorably by the market. He is, like Yellen, a relatively dovish consensus builder; and therefore will represent continuity as the Fed continues its monetary policy normalization process. Given strong economic data and the pickup in some measures of wage growth, we believe the Fed will hike rates for the third time this year next month.

Treasuries finished lower, as the yield on the 2-year note increased 2 basis points (bps) to 1.77%, the yield on the 10-year note gained 5 bps to 2.38%, and the 30-year bond rate rose 6 bps to 2.82%.
The yield curve has steepened somewhat after a recent bout of flattening that appeared to foster some market weariness, while the U.S. dollar dipped after a two-day rebound, extending a pullback as of late.

The markets shrugged off flared-up geopolitical concerns following yesterday's missile launch by North Korea, aided by the positive global backdrop and signs of progress regarding the Senate's tax reform bill, which is expected to be voted on later this week. The House passed its bill two weeks ago, with several key differences setting the stage for a complicated reconciliation process.
Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, we believe the prospects for a tax reform bill being signed into law before the end of the year are improving, but we still think it is too early for investors to take any drastic action. The bill is virtually certain to be changed many times in the weeks ahead. If and when a tax bill passes, there will be time to review the details and amend your tax and financial plans accordingly.

Personal income and spending will highlight tomorrow's economic calendar, with both measures forecasted to have gained 0.3% m/m during October following their respective 0.4% and 1.0% m/m gains the month prior, while weekly initial jobless claims will also be released, expected to tick higher to a level of 240,000 from the prior week's 239,000. The Chicago Purchasing Manager Survey will be released later in the morning, with economists anticipating a decline in the index to 63.0 for November from October's 66.2 reading.

Europe and Asia mixed ahead of data, North Korean missile launch has little impact

European equity markets traded mixed, with financials getting a boost as bond yields in the region gained solid ground. Global economic optimism remained elevated, bolstered by signs of progress in tax reform and today's upbeat revision to Q3 GDP out of the U.S., along with cooled political concerns on this side of the pond. In his latest article, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, addresses the question Are Stocks too Expensive?, noting that although world stock market valuations are above average, similar valuations have produced double-digit gains over the following 12 months during the past 50 years. Jeff concludes that valuations support a globally diversified portfolio offering the best diversification benefits in 20 years. However, the apparent rotation out of the tech sector that intensified in the U.S. made its way over to Europe late in the session to cause the markets to give up some solid early gains. Crude oil prices extended a weekly loss ahead of tomorrow's OPEC meeting and following some mixed inventory data in the U.S. The pound rallied against the U.S. dollar to hamstring the U.K. markets after Britain and the European Union reportedly agreed to reach a Brexit divorce bill, which could pave the way for negotiations of the exit to move forward. German consumer price inflation was mostly hotter than expected, French Q3 GDP rose at a pace that matched forecasts and eurozone economic confidence improved. The euro moved higher versus the greenback.

Stocks in Asia finished mixed, following the solid gains in the U.S. yesterday on further signs the economy is running healthy and progress toward tax reform. However, the markets likely treaded with some caution ahead of key economic data out of Japan and China tomorrow, which will coincide with the highly-anticipated OPEC production meeting and potential U.S. tax reform vote, and follow today's U.S. GDP revision and testimony from Fed Chief Yellen. The markets mostly shrugged off yesterday's latest missile launch by North Korea. 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, while offering analysis of the global stock market rally that has been bolstered by broad economic growth and is expected to continue in 2018 in his latest article, 5 Reasons Investors Should Give Thanks.

The yen gave back some recent gains to help lift Japanese equities and overshadow a softer-than-expected retail sales report, while markets in South Korea and India dipped. Mainland Chinese stocks ticked slightly higher, but those traded in Hong Kong fell and Australian listings saw modest gains.

A whole host of reports are slated for tomorrow's international economic calendar, including industrial production from South Korea and Japan, building approvals and consumer credit from Australia, manufacturing data out of China, retail sales and employment data from Germany, CPI and PPI from France and Italy, GDP from Spain, and CPI and employment figures from the Eurozone.

Tech Earnings Power Market Gains

Charles Schwab: On the Market

Posted: 10/27/2017 4:15 PM EDT

Tech Earnings Power Market Gains

 

U.S. equities finished out the week higher, as technology issues jumped on a number of favorable earnings reports, including Google's parent Alphabet and Dow members Microsoft and Intel. Meanwhile, the consumer discretionary sector got a boost from Amazon's strong report. Treasury yields were lower, with Fed leadership uncertainty overshadowing favorable reads on Q3 GDP and consumer sentiment. Crude oil and gold prices were higher, and the U.S. dollar added to its recent run. 

The Dow Jones Industrial Average (DJIA) rose 33 points (0.1%) to 23,434, the S&P 500 Index increased 21 points (0.8%) to 2,581, while the Nasdaq Composite soared 145 points (2.2%) to 6,701. In moderate-to-heavy volume, 892 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil jumped $1.26 to $53.90 per barrel and wholesale gasoline gained $0.02 to $1.72 per gallon. Elsewhere, the Bloomberg gold spot price rose $5.98 to $1,272.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 94.87. Markets were nicely higher for the week, as the DJIA increased 0.5%, the S&P 500 Index gained 0.2% and the Nasdaq Composite advanced 1.1%.

Amazon.com Inc. (AMZN $1,101) reported Q3 earnings-per-share (EPS) of $0.52, well above the $0.07 FactSet estimate, as revenues rose 34.0% year-over-year (y/y) to $43.7 billion, topping the expected $41.6 billion. The results included the contribution from its recent acquisition of Whole Foods. AMZN issued Q4 revenue guidance with a midpoint below expectations. Shares rallied.

Google parent Alphabet Inc. (GOOGL $1,034) posted Q3 EPS of $9.57, exceeding the projected $8.35, with revenues excluding traffic acquisition costs (TAC) growing 21.9% y/y to $22.3 billion, north of the forecasted $21.9 billion. Shares were decisively higher.

Dow member Microsoft Corp. (MSFT $84) announced fiscal Q1 earnings of $0.84 per share, versus the expected $0.71, as revenues rose 12.0% y/y to $24.5 billion, above the projected $23.5 billion. Shares were solidly higher.

Dow component Intel Corp. (INTC $44) reported Q3 EPS of $0.94, or $1.01 ex-items, compared to the forecasted $0.80, with revenues rising 2.0% y/y to $16.1 billion, topping the expected $15.7 billion. INTC issued Q4 guidance that bested estimates, while it raised its full-year outlook. INTC moved solidly higher.

With the flurry of key earnings reports from the tech sector, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers timely analysis of our outperform rating we have held for some time on the group in his latest, Schwab Sector Views: Technology Trick or Treat?. Brad notes that the technology sector’s strong run could continue, with improving global growth prospects and continued high consumer confidence providing support. But risks for the sector have risen and investors should be careful not to get overly concentrated in the tech sector.

Dow member Merck & Co. Inc. (MRK $58) posted a Q3 loss of $0.02 per share, or a profit of $1.11 per share ex-items, compared to the estimated $1.03, as revenues declined 2.0% y/y to $10.3 billion, below the forecasted $10.5 billion. MRK increased its full-year guidance. Shares of MRK came under heavy pressure.

Dow component Exxon Mobil Corp. (XOM $84) announced Q3 EPS of $0.93, north of the expected $0.86, on revenues of $66.2 billion, versus the projected $62.8 billion. Shares are ticked higher.

Dow member Chevron Corp. (CVX $114) achieved Q3 earnings of $1.03 per share, while excluding one-time items reflecting asset sales and write offs, EPS was $0.85, but it is unclear if it is comparable to the anticipated $0.98. Revenues were $36.2 billion, versus the forecasted $34.5 billion. Shares were lower.

First read on Q3 GDP tops forecasts, consumer sentiment remains at 13-year high

The first look (of three) at Q3 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 3.0%, after the unrevised 3.1% expansion in Q2, and above the 2.6% growth forecasted by Bloomberg. Personal consumption gained 2.4%, topping forecasts of a 2.1% rise and following the unadjusted 3.3% increase recorded in Q2.

Private inventory investment, nonresidential fixed investment, exports and federal government spending joined personal consumption to contribute to the stronger-than-expected growth, and more than offset negative contributions from residential fixed investment, as well as state and local government spending.

On inflation, the GDP Price Index came in at a 2.2% rise, well above expectations of a 1.7% gain and the unrevised 1.0% increase seen in Q2, while the core PCE Index, which excludes food and energy, moved 1.3% higher, matching expectations, and following the unadjusted 0.9% advance in Q2.

The GDP report suggests that business capital spending (capex) continues to gain steam and Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle, that an even sharper recovery could be in the cards for 2018, while tax reform—if we get it—would be an additional kicker. She adds that the pick-up in capex is a relatively new bright spot for the U.S. economy; and in 2018 it will likely be a shining characteristic of the latter innings of an economic expansion.

The final October University of Michigan Consumer Sentiment Index (chart) was revised lower to 100.7, matching forecasts, from the preliminary level of 101.1. The index was up solidly versus September's level of 95.1 and sits at a level not seen since January 2004. Compared to last month, the expectations and current conditions components of the survey both improved decisively. The 1-year inflation outlook fell to 2.4% from September's 2.7% rate, and the 5-10 year forecast remained at 2.5%.

Treasuries were higher as the data was met with Fed leadership speculation, as the yield on the 2-year note dropped 3 basis points (bps) to 1.60%, while the yields on the 10-year note and the 30-year bond fell 4 bps to 2.42% and 2.93%, respectively.

The U.S dollar continues to climb, bolstered by global economic and earnings optimism, along with the euro's extended drop following yesterday monetary policy decision by the European Central Bank and relative optimism of U.S. tax reform as it appears to be nudging down the long road to fruition.
Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend and Vice President of Trading and Derivatives, Randy Frederick, discuss tax reform in the video, Where Does Tax Reform Stand?, while Chief Fixed Income Strategist, Kathy Jones delivers the video with Randy about Should a Change in Fed Leadership Matter to Investors?.

Europe mixed on data and Spanish political turmoil, Asia higher

European equity markets finished mixed, with global earnings optimism rising in the wake of the host of upbeat results from U.S. tech sector heavyweights. Also, a positive global economic backdrop was bolstered by the stronger-than-expected U.S. Q3 GDP growth. The euro added to yesterday's drop that came courtesy of the European Central Bank's monetary policy decision to cut and extend its stimulus measures, which appeared to foster a dovish takeaway. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market, and talks with Randy Frederick in the video about Is An Optimistic Outlook for Global Equities Warranted?. The British pound also saw some pressure as Brexit uncertainty lingered, while bond yields in the region traded mixed. Spanish stocks fell amid ramped up political uncertainty as tensions with Catalonia remain elevated, with the Catalan parliament declaring independence from Spain.

Stocks in Asia finished mostly higher following the flood of upbeat earnings reports out of the U.S. tech sector after yesterday's close, while the markets continued to digest the dovish takeaway from the European Central Bank's monetary policy decision to trim and extend its stimulus measures. Japanese equities rallied to extend their recent run to highs not seen since 1996, with the yen losing ground and a report showing the nation's consumer price inflation rose in September. Improved global earnings sentiment helped lift mainland stocks in China and Hong Kong, while those traded in South Korea also gained solid ground. However, markets in Australia declined amid flared-up political uncertainty after Prime Minister Turnbull lost his parliamentary majority, and securities in India finished flat. Schwab's Liz Ann Sonders discusses with Randy Frederick in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?.

Stocks grind out another positive week

Stocks managed to squeak out a seventh-straight weekly gain, with upbeat Q3 GDP, durable goods, new home sales, and business activity reports preserving global economic optimism, though action was choppy as a ramped-up earnings season fostered mixed responses. The technology sector was a standout winner, buoying the markets amid a glut of positive earnings reports from heavyweights in the group, while telecommunications and healthcare issues fell solidly, bogged down by AT&T Inc's (T $34) results and guidance from Celgene Corp. (CELG $97). Energy stocks dipped as Dow member Chevron's results appeared to fail to live up to lofty expectations for the sector and offset the continued climb in crude oil prices. With earnings season more than half way done, of the 273 S&P 500 companies that have reported, 68% have topped revenue forecasts and 79% have bested profit projections, per data compiled by Bloomberg. Treasury yields climbed to support financials amid the improved economic sentiment, which also helped the U.S. dollar extend a rally, along with the euro tumbling in the wake of a seemingly dovish takeaway from the European Central Bank's monetary policy decision.

Next week, earnings season will remain robust, but a fully-loaded economic calendar will likely go a long way in shaping market direction, headlined by the midweek Federal Open Market Committee (FOMC) monetary policy decision, the ISM Manufacturing and non-Manufacturing Indexes, monthly auto sales, and the nonfarm payroll report. Other releases that deserve a mention include: personal income and spending, Consumer Confidence, Q3 nonfarm productivity and labor costs, the trade balance, and factory orders.

As noted in the latest Schwab Market Perspective: Stocks Aren't so Spooky, along with new records being set by stocks, investor sentiment measures are showing widespread optimism; yet households’ exposure to equities is not at an extreme. We believe the bull market will continue, and suggest investors remain at their target allocations, but worry a bit about complacency. Third quarter earnings season has been solid so far and economic growth has picked up. But the pick of the next Fed chair could cause an uptick in volatility. Globally earnings have been strong as well and are helping to support stocks, but geopolitical and trade issues could cause some consternation.

International reports due out next week to keep an eye on include: Australia—trade balance, building approvals and retail sales. China—Manufacturing and non-Manufacturing PMIs. India—Manufacturing and Services PMIs. Japan—retail sales, household spending, industrial production, and the Bank of Japan monetary policy decision. Eurozone—Q3 GDP and consumer price inflation, along with German unemployment change. U.K.—Bank of England monetary policy decision.

Gains Taper Near Close

Charles Schwab: On the Market

Posted: 10/26/2017 4:15 PM EDT

Gains Taper Near Close

 

After being higher for most of the day, the U.S. stock markets finished mixed, with gains in the tech sector on Twitter's quarterly results being tempered by health care issues following a disappointing outlook from Celgene. Treasury yields were higher amid mixed economic data, including a disappointing pending home sales report, while the U.S. dollar rallied with the euro seeing pressure in the wake of the European Central Bank's decision to cut and extend its stimulus measures. Crude oil prices were higher and gold was lower.

The Dow Jones Industrial Average (DJIA) rose 72 points (0.3%) to 23,401, the S&P 500 Index increased 3 points (0.1%) to 2,560, while the Nasdaq Composite was 7 points (0.1%) lower at 6,557. In moderate volume, 875 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil added $0.46 to $52.64 per barrel and wholesale gasoline gained $0.01 to $1.70 per gallon. Elsewhere, the Bloomberg gold spot price lost $11.30 to $1,266.23 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 1.1% higher at 94.70.

Twitter Inc. (TWTR $20) reported a Q3 net loss of $0.03 per share, or earnings-per-share (EPS) of $0.10 ex-items, versus the $0.06 FactSet estimate, as revenues declined 4.0% year-over-year (y/y) to $590 million, above the projected $587 million. The company said daily active users grew 14.0% y/y and monthly active users rose 4.0%. TWTR issued Q4 operating earnings guidance that topped forecasts. Shares rallied.

Comcast Corp. (CMCSA $36) posted Q3 earnings of $0.55 per share, or $0.52 ex-items, versus the projected $0.49, with revenues declining 1.6% y/y to $21.0 billion, compared to the forecasted $21.1 billion. CMCSA's video subscribers fell but by a slightly smaller amount than expected. The company said it increased operating earnings despite the impact of the severe storms and the uneven comparison due to the Rio Olympics. Shares finished lower.

Ford Motor Co. (F $12) announced Q3 EPS of $0.39, or $0.43 ex-items, compared to the expected $0.33, as automotive revenues rose 0.9% y/y to $33.6 billion, above the forecasted $33.0 billion. F raised the low end of its full-year EPS outlook. Shares were higher.

United Parcel Service Inc. (UPS $119) reported Q3 EPS of $1.45, in line with forecasts, as revenues grew 7.0% y/y to $16.0 billion, above the expected $15.6 billion. The company cited the impact of natural disasters, but said it saw balanced shipment growth and yield expansion, while its international profit rose solidly. UPS raised the low end of its full-year earnings outlook. Shares were higher.

Shares of Celgene Corp. (CELG $100) tumbled after the company lowered its 2017 revenue outlook and its long-term guidance for 2020, due to certain market dynamics and recent pipeline events. The updated guidance accompanied its Q3 earnings report, which showed revenues were softer than expected as sales of its psoriasis drug Otezla severely missed estimates. This also comes as the company announced last week that its highly-anticipated drug for Crohn's disease failed a late-stage trial.

In late-day action, the Wall Street Journal reported that CVS Health Corp. (CVS $73) was in talks to acquire Aetna Inc. (AET $179). Neither company commented on the headline. Shares of AET rallied on the news, while CVS was slightly lower.

Jobless claims rise

Weekly initial jobless claims (chart) rose by 10,000 to 233,000 last week, but below forecasts of an increase to 235,000, with the prior week’s figure being revised higher by 1,000 to 223,000. The four-week moving average dropped by 9,000 to 239,500, while continuing claims decreased 3,000 to 1,893,000, north of estimates of 1,890,000.

The advance goods trade deficit widened slightly more than expected to $64.1 billion in September, from the upwardly revised $63.3 billion in August, and compared to expectations of $64.0 billion.
Preliminary wholesale inventories increased 0.3% month-over-month (m/m) in September, versus forecasts for a 0.4% increase, and following August's downwardly revised 0.8% rise.

Pending home sales were flat m/m in September, versus projections of a 0.5% rise, and following the negatively-revised 2.8% drop registered in August. Compared to last year, sales were 5.4% lower, versus estimates of a 4.2% drop. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which unexpectedly rose in September.

The Kansas City Fed Manufacturing Activity Index for October unexpectedly showed growth (a reading above zero) accelerated, with the index rising to 23, versus forecasts for it to remain at September's 17 level.

Treasuries were lower, as the yields on the 2-year and 10-year notes, as well as the 30-year bond, were all 2 basis points higher at 1.62%, 2.45% and 2.96%, respectively.

The U.S. dollar rallied as the euro dropped in the wake of the monetary policy decision from the European Central Bank (ECB). Bond yields and the U.S. dollar have received some support from continued global economic and earnings optimism, most recently yesterday's solid gain in durable goods orders, as well as relative optimism regarding tax reform.

Tomorrow, the economic calendar will culminate with the first look (of three) at Q3 GDP, projected to show growth slowed a bit to a quarter-over-quarter (q/q) annualized rate of 2.6%, from the 3.1% pace seen in Q2, with personal consumption decelerating to a rise of 2.1% from 3.3%. Although the hurricanes are likely to have some impact, growth is projected to remain steady and post the best two-quarter performance since early 2015, per Bloomberg. The final University of Michigan Consumer Sentiment Index is also slated for release, with economists anticipating a reading of 101.1, matching the preliminary report, but above the 95.1 posted in September.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article, Trying to Reason With Hurricane Season: The Aftermath of "Harma," that we expect to see a boost in economic activity associated with the recovery/rebuilding efforts. Liz Ann also points out in her latest article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle, that U.S. business capital spending (capex) has already picked up; but an even sharper recovery could be in the cards for 2018, while tax reform—if we get it—would be an additional kicker courtesy of the proposed 100% depreciation allowance. She adds that the pick-up in capex is a relatively new bright spot for the U.S. economy; and in 2018 it will likely be a shining characteristic of the latter innings of an economic expansion.

Europe higher as ECB trims and extends stimulus measures

European equity markets traded higher, with the euro seeing solid pressure versus the U.S. dollar as the European Central Bank announced following its monetary policy meeting that it will cut its bond buying program in half in January. However, the ECB said it will extend the time frame for its purchases to September, with the possibility of another extension if needed, while committing to a substantial reinvestment of maturing debt in 2018 and for an extended period. The announcement came as the ECB left rates unchanged and the markets paid close attention to President Mario Draghi's customary press conference that followed the decision, in which he appeared to foster a dovish takeaway regarding his views on the inflation and eurozone economic growth. Schwab's Jeffrey Kleintop, CFA, offers analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market. Bond yields in the region were lower following the ECB's announcement. The British pound also saw some pressure. Spanish stocks led the way, rallying on eased concerns toward the Catalonia turmoil.

Stocks in Asia finished mixed following the declines in the U.S. yesterday, while the markets digested a flood of diverging earnings reports and awaited the monetary policy decision out of the eurozone from the ECB. Japanese equities gained modest ground, rebounding after snapping a 16-day winning streak yesterday, with some upbeat earnings reports helping overshadow strength in the yen. Schwab's Liz Ann Sonders discusses with Randy Frederick in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?. Stocks in mainland China advanced, but those traded in Hong Kong decreased, while a disappointing earnings report from the semiconductor sector weighed on South Korean securities, despite the nation reporting stronger-than-expected Q3 GDP growth. Finally, markets in Australia and India advanced.

Tomorrow’s international economic calendar will offer CPI and PPI from Japan, PPI from Australia, retail sales from Spain and housing prices from the U.K.

Stocks Trade Lower to Start Week

Charles Schwab: On the Market

Posted: 10/23/2017 4:15 PM EDT

Stocks Trade Lower to Start Week

 

U.S. stocks finished Monday's trading session lower ahead of a heavy dose of earnings and economic data set to be released this week. Treasury yields dipped and the U.S. dollar ticked higher. Crude oil prices diverged and gold was little changed. In equity news, Hasbro reported disappointing Q4 guidance and VF Corp posted upbeat quarterly results, while in M&A action, Dow member Cisco agreed to acquire BroadSoft for approximately $1.9 billion in cash.

The Dow Jones Industrial Average (DJIA) declined 55 points (0.2%) to 23,274, the S&P 500 Index lost 10 points (0.4%) to 2,565, and the Nasdaq Composite fell 42 points (0.6%) to 6,587. In moderate volume, 757 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.06 higher to $51.90 per barrel and wholesale gasoline was unchanged at $1.68 per gallon. Elsewhere, the Bloomberg gold spot price inched $2.02 higher to $1,282.49 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.84.

Hasbro Inc. (HAS $90) reported Q3 earnings-per-share (EPS) of $2.09, or $2.05 ex-items, versus the $1.94 FactSet estimate, as revenues grew 7.0% year-over-year (y/y) to $1.8 billion, roughly in line with expectations. The toy company said the quarter presented several obstacles, including challenging economic environments in the U.K. and Brazil and the Toys"R"Us bankruptcy filing in the U.S. and Canada, but it saw growth in franchise brands, and its gaming and emerging brands. HAS issued Q4 revenue guidance that missed expectations but said it is well positioned for the holiday period. Shares saw solid pressure.

Dow member Cisco Systems Inc. (CSCO $34) announced an agreement to acquire cloud calling and contact center solutions company BroadSoft Inc. (BSFT $55) for $55 per share in cash, or an aggregate purchase price of $1.9 billion net of cash. Shares of both companies traded higher.

VF Corp. (VFC $70) posted Q3 earnings of $0.97 per share, or $1.23 ex-items, versus the forecasted $1.12, with revenues rising 5.0% y/y to $3.5 billion, above the projected $3.4 billion. The apparel conglomerate's gross margin improved solidly, while it saw double-digit international revenue growth and revenue from its Vans brand jumped. VFC raised its full-year guidance and quarterly dividend. Shares rallied.

Earnings and economic data set to fly this week

Treasuries ticked higher with the economic calendar quiet today. The yields on the 2-year and 10-year notes, along with the 30-year bond, dipped 1 basis point to 1.56%, 2.37% and 2.89%, respectively.
This week, the tone for the markets will likely be set by the continued ramp-up of earnings season, and the economic calendar culminating with the first look (of three) at Q3 GDP. As noted in the latest Schwab Market Perspective: Preparing for the Latter Innings, U.S. stocks continue to grind higher, with little appearing able to knock them off course. The possibility of a pullback always exists but a melt up is also reemerging as a real possibility. Earnings tend to drive equity market direction, and the next few weeks should help set the tone for market action for the rest of the year. Expectations came down a bit as we entered reporting season and recent robust economic data gives support to the potential for companies to meet and/or beat estimates. Global economic growth continues to improve, which should help support both domestic and global stock markets. Read more on the Market Commentary page at www.schwab.com.

Treasury yields and the U.S. dollar have found some support amid speculation regarding who the next Fed Chief will be as the Central Bank heads toward a December rate hike and has begun reducing its massive balance sheet, while the Senate passed its budget resolution last week to nudge tax reform down the lengthy path to fruition.

Schwab's Chief Fixed Income Strategist, Kathy Jones offers analysis of the Fed in her article, Understanding the Federal Reserve's Shrinking Balance Sheet, and the video with Vice President of Trading and Derivatives, Randy Frederick, Should a Change in Fed Leadership Matter to Investors?. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend discusses the likely elongated journey of tax reform in the article, Tax Reform Framework Released, But The Road Ahead Is Long.

Check out these articles and video on the Market Commentary page at www.schwab.com and follow Jeff, Kathy, Randy and Schwab on Twitter: @jeffreykleintop, @kathyjones, @randyafrederick and @schwabresearch.

Treasuries ticked higher with the economic calendar quiet today. Tomorrow, the economic calendar will yield the release of preliminary Markit Manufacturing and Services PMI Indexes for October, with economists anticipating readings of 53.5 and 55.2, respectively, with manufacturing ticking higher and services inching lower from the final September prints. We'll also receive the Richmond Fed Manufacturing Index for October, expected to have declined to 17 from 19, though a reading above zero denotes expansion in activity.

Europe and Asia finish mixed 


European equity markets finished mixed as global economic optimism continued to support the markets, while Spanish banks weighed on the financial sector, along with pressure on bond yields in the region. Political uneasiness remained as Spain announced a decision to take control of Catalonia. For analysis of the political concerns in the region, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond?, on the Market Commentary page at www.schwab.com. Also, the global markets eyed the weekend's big victory for Japanese Prime Minister Abe, while U.K. business optimism fell sharply in October, with the deadlocked Brexit negotiations likely weighing on sentiment. For a look at Brexit, check out our article, Brexit Begins: What's Next for the U.K?, also on the Market Commentary page at www.schwab.com. The euro was down and British pound was little changed versus the U.S. dollar, which is extended recent gains on lingering global economic optimism and Fed leadership speculation.

Stocks in Asia finished mixed, with a landslide victory in a snap election in Japan for Prime Minister Abe, who secured a super majority pushing the Nikkei 225 Index to a record 15-straight sessions of gains at highs not seen since July 1996, bolstered by weakness in the yen as the election victory appeared to solidify expectations of continued fiscal spending and easy monetary policies, known as Abenomics. Japan's markets have contributed to the global rally and Schwab's Chief Investment Strategist Liz Ann Sonders talks with Schwab's Randy Frederick in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?, discussing that there seems to be no end in sight to the bull market in equities, but that doesn’t mean there’s nothing to worry about. See this video on the Market Commentary page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.
Stocks trading in mainland China ticked higher and shares trading in Hong Kong declined amid some disappointing earnings reports and as the nation's September property price report showed home prices slowed to weigh on developers. Australian securities decreased and South Korean equities finished flat. Indian stocks advanced, returning to action following a two-day holiday to end last week.

The international economic docket for tomorrow will offer the Nikkei Manufacturing PMI from Japan, consumer confidence from Australia and preliminary Markit Manufacturing and Services PMI reports from Germany, France and the Eurozone.

Stocks Trade Higher, Finish Q3 with Solid Gains

Charles Schwab: On the Market

Posted: 9/29/2017 4:15 PM EDT

Stocks Trade Higher, Finish Q3 with Solid Gains

 

U.S. stocks closed the last trading day of Q3 higher as shares added to weekly, monthly and quarterly advances. In economic developments, personal income and spending matched forecasts though the PCE deflator—a measure of consumer price inflation—was cooler-than-expected, and the Chicago Purchasing Managers Index unexpectedly jumped further into expansion territory. In equity news, KB Home topped earnings estimates and mostly matched revenue forecasts, while Tyson Foods increased its earnings outlook for the current year. Treasury yields diverged and the U.S. dollar was lower. Crude oil prices were mixed and gold traded lower.

The Dow Jones Industrial Average (DJIA) increased 24 points (0.1%) to 22,405, the S&P 500 Index was 9 points (0.4%) higher at 2,519, and the Nasdaq Composite advanced 43 points (0.7%) to 6,496. In moderate-to-heavy volume, 929 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq.

WTI crude oil added $0.11 to $51.57 per barrel and wholesale gasoline was $0.02 lower at $1.59 per gallon. Elsewhere, the Bloomberg gold spot price declined $6.66 to $1,280.64 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 93.06.

Markets were higher for the week, as the DJIA gained 0.3%, the S&P 500 Index added 0.7% higher and the Nasdaq Composite increased 1.1%.

KB Home (KBH $24) reported Q3 earnings-per-share (EPS) of $0.51, above the $0.46 FactSet estimate, as revenues rose 25.0% year-over-year (y/y) to $1.1 billion, roughly in line with forecasts. The homebuilder said deliveries, average selling price, net order value and operating margin all grew. KBH said it believes it is well positioned heading into the closing months of the year, with a backlog value of more than $2.0 billion and positive conditions in most of its served markets. Shares traded solidly higher.

Tyson Foods Inc. (TSN $70) raised its earnings outlook for the current year, due primarily to much better-than-expected profits in its beef segment. The protein producer also said all its segments will perform well in 2018. Shares jumped.

The consumer staples sector is the focus of Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Consumer Staples: More than Meets the Eye, on the Market Commentary page at www.schwab.com. Brad notes that the consumer staples sector is broader than most investors likely think it is and is often perceived as boring. But the group has had some real action lately, although not all of it positive. The staples group can be an important part of a portfolio, but without deteriorating economic conditions, a market weighting is the most we can justify. Follow us on Twitter: @schwabresearch.

Personal income and spending match forecasts, regional manufacturing activity jumps

Personal income (chart) was 0.2% higher month-over-month (m/m) in August, in line with the Bloomberg forecast, and compared to July's downwardly revised 0.3% increase. Personal spending ticked 0.1% higher last month, matching expectations, and versus July's unrevised 0.3% gain. The

August savings rate as a percentage of disposable income was 3.6%. The PCE Deflator was 0.2% higher, below expectations of a 0.3% gain and versus the prior month's unrevised 0.1% rise. Compared to last year, the deflator was 1.4% higher, south of estimates of a 1.5% increase and in line with July's unrevised rise. Excluding food and energy, the PCE Core Index was 0.1% higher m/m, below expectations of a 0.2% gain, and the index was up 1.3% y/y, versus estimates calling for it to match July's unrevised 1.4% increase.

The final September University of Michigan Consumer Sentiment Index (chart) was revised lower to 95.1 from the preliminary level of 95.3, where it was expected to remain. The index was down versus August's level of 96.8. Compared to last month, the expectations component of the report improved, though the current conditions portion slipped. The 1-year inflation outlook ticked higher to 2.7% from August's 2.6% rate, and the 5-10 year forecast remained at 2.5%.

The Chicago Purchasing Managers Index (chart) unexpectedly jumped further into expansion territory (above 50) for September, after rising to 65.2 from August's unrevised 58.9 level, and versus expectations calling for a dip to 58.7. The index moved back to near June's three-year high of 65.7 as new orders and production continued to grow, while employment moved back into expansion territory and order backlogs hit a 29-year high. However, prices paid increased significantly to the highest since July 2011, bolstered by elevated commodity prices and the hurricane(s)-induced materials shortage.

Treasuries were mixed, but tilted to the downside following the regional manufacturing report, with the yields on the 2-year and 10-year notes rising 3 basis points (bps) to 1.48% and 2.34%, respectively, while the 30-year bond rate dipped 1 bp to 2.86%.

Treasury yields and the U.S. dollar have rallied recently, with the rate on the 10-year note hitting multi-month highs and the greenback moving to a level not seen in over a month. These moves have been bolstered by heightened December Fed rate hike expectations and apparent cautious optimism regarding fiscal policy as the markets scrutinize this week's release of tax reform details.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market, on the Market Commentary page at www.schwab.com. Also, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend discusses the tax reform details his latest article, Tax Reform Framework Released, But The Road Ahead Is Long, on the Insights & Ideas page. Follow Jeff on Twitter: @jeffreykleintop.

The stock markets have shown some relative resiliency in the face of a plethora of things to worry about, as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her article, Comfortably Numb? An Update on Investor Sentiment, on the Market Commentary page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

Europe adds to weekly, monthly and quarterly gains, Asia mostly higher

European equity markets finished higher, adding to solid gains for the week, month and quarter, as a plethora of diverging economic data in the region was highlighted by an upbeat read on German unemployment and U.K. consumer data. The euro gained ground on the U.S. dollar but pared an upside move as the greenback found some support from a jump in regional manufacturing activity.

The British pound saw some pressure to help bolster the U.K. markets. The eurozone consumer price inflation estimate came in a bit cooler than expected for this month, while German retail sales unexpectedly declined last month. U.K. Q2 GDP growth was unrevised at a 0.3% quarter-over-quarter pace, but the 1.5% y/y expansion came in below estimates. Economists are pointing to the savings and income component of the GDP report, which showed the former rose and the latter outpaced inflation for the first time in a year to boost optimism regarding the health of the U.K. consumer, per Bloomberg. French consumer spending surprisingly declined last month, though Germany's unemployment fell more than forecasted for this month. In other economic news, U.K. business investment for Q2 and September home prices came in above estimates. Bond yields in the region moved to the downside. For a look at the global markets, see Schwab's Jeffrey Kleintop's, CFA, article, U.S. vs International: What Do Earnings Tell Us About What May Be Ahead?, on the Market Commentary page at www.schwab.com.

Stocks in Asia tilted to the upside to close out a mixed month, though conviction may have been held in check ahead of next week's plethora of holidays, notably in China where the markets will experience an extended break. Also, the markets digested a host of Japanese economic data. Japan's consumer price inflation rose mostly in line with forecasts in August, but a read on consumer inflation in Tokyo for September a bit cooler than expected. Also, the nation's household spending and retail sales for last month missed forecasts but its preliminary read on industrial production rose more than expected. Japanese equities finished flat, with the yen paring a recent drop that has fueled solid gains for the stock markets this month. Shares trading in mainland China and Hong Kong rose ahead of next week's holidays and tonight's reads on manufacturing and services sector activity.

Australian securities gained ground and South Korean stocks advanced, while Indian equities finished little changed. As the quarter comes to a close, Schwab's Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick offer the video, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick.

Stocks nudge higher on week to tack onto solid Q3 gains

U.S. stocks capped off a Q3 rally with a modest weekly advance. The business spending component of the August durable goods orders report posted a back-to-back monthly jump and Q2 GDP growth was unexpectedly revised higher to 3.1%, adding to an upbeat economic backdrop. This may have helped the markets shrug off elevated December Fed rate hike expectations, which were preserved by continued hawkish rhetoric from the Fed, headlined by Chairwoman Janet Yellen's speech. Financials were one of the best performers as Treasury yields extended a rally, along with the U.S. dollar. Energy issues continued their quarterly rally as crude oil prices remained in recovery mode. The release of the framework for tax reform also appeared to underpin sentiment even as the timing and potential areas of contention were highly scrutinized. Technology issues gained slightly, adding to their decisive quarterly outperformance. However, utilities finished lower on the week amid the upside move in interest rates and healthcare stocks saw some pressure as the sector continued to face regulatory uncertainty and fiscal policy concerns. The consumer staples sector, the worst quarterly performer, nudged higher on the week, along with consumer discretionary issues, despite Dow member Nike Inc's (NKE $52) disappointing outlook.

As Q4 begins next week, the economic calendar will be robust, beginning with the ISM Manufacturing Index, Markit's Manufacturing PMI Index and September auto sales. The ISM non-Manufacturing Index and Markit's Services PMI Index will follow, along with the trade balance and factory orders. However, the docket will culminate with Friday's September nonfarm payroll report, with the wage component likely poised to garner the heaviest attention.

As noted in the latest Schwab Market Perspective: Fourth Quarter Fun…or Folly?, the resiliency of stocks continues but risks of a pullback exist with signs of investor complacency and heightened political and geopolitical uncertainties. U.S. economic data will likely be skewed by the hurricanes' impact but the underlying trend should remain positive. Earnings reporting season will begin with elevated expectations, so the ability to hurdle the bar is getting tougher, but if surprises are biased to the upside, stocks should perform well. Non-U.S. stocks are about to hit multiple milestones, which typically shouldn't concern investors as underlying fundamentals continue to appear solid. Read more on the Market Commentary page at www.schwab.com.

International reports due out next week that deserve a mention include: Australia—the Reserve Bank of Australia monetary policy decision, building approvals and trade balance. China—Manufacturing and non-Manufacturing PMIs. India—Reserve Bank of India monetary policy decision and PMIs. Japan—Q3 Tankan Large Manufacturing Index and labor earnings. Eurozone—unemployment rate, Markit's business activity reports, retail sales, and the minutes from the European Central Bank's September meeting, as well as German factory orders. U.K.—Markit's business activity reports and new car registrations.

Politics in Focus in Today's Session

Charles Schwab: On the Market

Posted: 1/30/2017 4:15 PM ET

Politics in Focus in Today's Session

U.S. equities finished solidly lower in the midst of ramped-up political uncertainty after President Donald Trump issued an order over the weekend to temporarily ban refugees from seven Muslim-majority countries. Treasuries were mixed amid economic reports showing that personal income and spending rose mostly in line with forecasts, pending home sales topped forecasts and regional manufacturing activity jumped. Meanwhile, crude oil and the U.S. dollar were lower, while gold finished higher.

The Dow Jones Industrial Average (DJIA) declined 123 points (0.6%) to 19,971, the S&P 500 Index fell 14 points (0.6%) to 2,281, and the Nasdaq Composite tumbled 47 points (0.8%) to 5,614. In moderate volume, 873 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil decreased $0.54 to $52.63 per barrel and wholesale gasoline lost $0.02 to $1.53 per gallon. Elsewhere, the Bloomberg gold spot price rose $5.17 to $1,196.37 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 100.40.

Lowe's Companies Inc. (LOW $74) announced a new $5.0 billion share repurchase program, reflecting its "commitment to return excess cash to shareholders." Shares of LOW were modestly higher.

Citigroup Inc's (C $57) CitiMortgage unit announced that it will exit its mortgage servicing operations by the end of 2018 to focus on mortgage originations. Shares were lower.

Rite Aid Corp. (RAD $6) came under heavy pressure after its merger agreement with Walgreens Boots Alliance Inc. (WBA $81) was amended, resulting in WBA's purchase price to acquire RAD being reduced to between $6.50-7.00 per share, from $9.00 per share, cutting the deal value to $6.8-7.4 billion, from $9.4 billion. Also, WBA will be required to divest up to 1,200 RAD stores and certain additional related assets if required to obtain regulatory approval. Shares of WBA dipped after the announcement, and as the company lowered the high end of its full-year earnings outlook.

Personal income and spending rise

Personal income (chart) was up 0.3% month-over-month (m/m) in December, versus the Bloomberg forecast of a 0.4% rise, and compared to November's upwardly revised 0.1% gain. Personal spending increased 0.5% last month, matching expectations and versus November's unrevised 0.2% rise. The December savings rate as a percentage of disposable income was 5.4%. The PCE Deflator was up 0.2%, in line with expectations. Compared to last year, the deflator was 1.6% higher, versus of estimates of a 1.7% gain. Excluding food and energy, the PCE Core Index was up 0.1% m/m, matching expectations, and the index was 1.7% higher y/y, in line with estimates. November's y/y figure was upwardly revised to a 1.7% increase.

Pending home sales increased 1.6% m/m in December, versus projections of a 1.0% gain, and following the unrevised 2.5% drop registered in November. Compared to last year, sales were 2.0% lower. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which slipped in December but posted the highest annual gain since 2006.

The Dallas Fed Manufacturing Activity Index jumped further into a level depicting expansion (a reading above zero), rising to 22.1 in January—the highest since April 2010—from 15.5 in December and compared to the expected dip to 15.0.

Treasuries finished mixed, with the yield on the 2-year note 1 basis point (bp) lower at 1.21%, the yield on the 10-year note unchanged at 2.49%, while the 30-year bond rate rose 2 bps to 3.08%.

Treasury yields and the U.S. dollar remained in focus with the global markets continuing to grapple with the latest policy moves from President Donald Trump, notably on trade and immigration, and Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, 5 Themes to Watch as the Trump Era Begins, at www.schwab.com/insights. Follow Schwab on Twitter: @schwabresearch. Also, with the markets remaining near record highs, Schwab's Vice President of Trading and Derivatives, Randy Frederick and Chief Global Investment Strategist Jeffrey Kleintop, CFA, offer their latest video, Dow Jones Tops 20,000 Points: What Does This New Milestone Mean?, at www.schwab.com/insights. Follow Jeff on Twitter: @jeffreykleintop.

Tomorrow, 4Q earnings season will remain robust, while the domestic economic calendar will also be busy, with reports slated for release to include the 4Q Employment Cost Index, forecasted to match the 3Q's 0.6% quarter-over-quarter increase, and the Chicago Purchasing Managers’ Index, with economists expecting a slight uptick to 55.0 for January. Some housing data will also be in focus, with the S&P CoreLogic/Case-Shiller Home Price Index expected, anticipated to show prices in the 20-city composite increased 5.00% y/y in November, and 0.65% m/m on a seasonally-adjusted basis, while the calendar will round out with the release of Consumer Confidence, with forecasts calling for a slight decline to 112.8 for January.

Europe and Asia lower as U.S. political concerns remain

European equities finished lower, with the global markets grappling with U.S. President Donald Trump's decision to temporarily ban entry into the U.S. for refugees from seven predominantly Muslim countries. Meanwhile, the markets awaited monetary policy decisions this week from the Fed, Bank of England and Bank of Japan. Financials came under pressure amid lingering banking sector concerns, while energy issues dropped, exacerbated by a downside move in crude oil prices. In economic news, Spain's 4Q GDP matched 3Q's 0.7% quarter-over-quarter growth, while German consumer price inflation came in just shy of estimates for January and eurozone economic and consumer confidence improved for this month. The euro dipped and the British pound declined versus the U.S. dollar, while bond yields in the region finished mixed. For more on the global markets, see Schwab's Jeffrey Kleintop's, CFA, latest article, Five Reasons to Stay Invested Despite Heightened Uncertainty. Also, Jeff delivers his articles, The CURE for a calm Market: Four risks for 2017, and 5 Reasons International Stocks May Underperform In 2017. Read all these articles at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mostly lower on the heels of last week's softer-than-expected 4Q GDP report in the U.S., while the global markets grappled with heightened U.S. political uncertainty as President Trump announced a temporary ban on entry into the U.S. for refugees from seven predominantly Muslim countries. For more on Trump's trade policies, see Schwab's Jeffrey Kleintop's, CFA, article, President Trump and Global Trade: How Will Campaign Promises Play Out? at www.schwab.com/oninternational, where you can also find Schwab's Director of International Research, Michelle Gibley's, CFA, latest article, Currency Hedging: 5 Things You Need to Know. Japanese equities declined, with the yen choppy ahead of tomorrow's monetary policy decision from the Bank of Japan, while the nation's retail sales rose by a smaller amount than had been expected for December. Australian listings fell, with technology issues dropping sharply, while stocks in India also dipped. Schwab's Michelle Gibley, CFA, offers timely analysis of emerging markets in her latest article, Emerging Markets: Why They Deserve a Place in Your Portfolio at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights. Volume was lighter than usual, with markets in China, Hong Kong and South Korea closed for holidays.

Tomorrow's international economic calendar will hold household spending, industrial production, and employment data from Japan, as well as the Bank of Japan's monetary policy decision, confidence figures from Australia, GDP and CPI from France and the Eurozone, retail sales and labor statistics from Germany, as well as CPI from Spain and Italy.

Global Uncertainty Keeps Lid on Gains

Charles Schwab: On the Market

Posted: 11/29/2016 4:15 PM ET

Global Uncertainty Keeps Lid on Gains

U.S. equities finished modestly higher, as a favorable revision to 3Q GDP and a jump in Consumer Confidence was met with continued political uncertainty in Europe and a tumble in crude oil prices ahead of tomorrow's OPEC meeting. Meanwhile, news on the equity front was positive, with Tiffany & Co. beating expectations and Dow member UnitedHealth Group guiding higher. Treasury yields, the U.S. dollar and gold were all lower.

The Dow Jones Industrial Average (DJIA) rose 24 points (0.1%) to 19,122, the S&P 500 Index gained 3 points (0.1%) to 2,205 and the Nasdaq Composite added 11 points (0.2%) to 5,380. In moderately-heavy volume, 912 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil tumbled $1.85 to $45.23 per barrel and wholesale gasoline was down $0.03 at $1.38 per gallon. Elsewhere, the Bloomberg gold spot price traded $4.99 lower to $1,189.01 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.4% to 100.97.

Tiffany & Co. (TIF $81) reported 3Q earnings-per-share (EPS) of $0.76, above the $0.67 FactSet estimate, with revenues rising 1.0% year-over-year (y/y) to $949 million, topping the expected $924 million. 3Q same-store sales declined 2.0% y/y, versus the projected 4.1% decline. TIF maintained its full-year guidance, and shares were nicely higher.

Dow member UnitedHealth Group Inc. (UNH $158) was solidly higher after the company issued stronger-than-expected 2017 guidance, while maintaining its 2016 outlook.

First revision to 3Q GDP tops forecasts

The second look (of three) at 3Q Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 3.2%, revised up from the 2.9% expansion reported in the first report. The Bloomberg forecast called for an adjusted 3.0% pace of expansion. 2Q GDP grew by an unrevised 1.4% rate. Personal consumption came in at a 2.8% gain for 3Q, up from the preliminary estimate of a 2.1% increase, and compared to the expectations of a 2.3% increase. Personal consumption grew by an unrevised 4.3% in 2Q. The upward revision to GDP primarily reflected the stronger-than-initially reported personal consumption, which was partially offset by downward adjustments to nonresidential fixed investment and private inventory investment.

On inflation, the GDP Price Index was revised to a 1.4% gain, versus forecasts of an unrevised 1.5% increase, while the core PCE Index, which excludes food and energy, was adjusted at a 1.7% rise, matching expectations.

The Consumer Confidence Index (chart) jumped to the highest level since July 2007, surging to 107.1 in November from the upwardly revised 100.8 level in October, and compared to estimates of 101.5. Sentiment toward the present situation and expectations of business conditions both rose solidly. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—improved to 5.2 from the 3.6 posted in October.

Today's GDP and Consumer Confidence reports add credence to Schwab's Chief Investment Strategist Liz Ann Sonders' article, Emotional Rescue: What to make of the post-election surge?, where she points out that recent economic releases have also provided support for the post-election rally, suggesting that some of the lift in the economy was already happening, and isn't just a hope for next year under a Trump administration. Reflecting the better economic data and higher inflation, the Federal Open Market Committee (FOMC) is likely to raise rates at its December meeting. Liz Ann also addresses the question of whether the market has gone too far too fast, noting that perhaps in the short-term, but animal spirits—assuming they've awoken—can fuel rallies for an extended period, discussing that there is much about this rally so far to behold—and much which is also unique. She concludes that the secular bull market lives on, but some of next year's performance may get pulled into this year. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.1% gain in home prices y/y in September, versus expectations of a 5.2% increase. Month/month (m/m), home prices were up 0.4% on a seasonally adjusted basis for September, roughly in line with forecasts.

Treasuries finished higher, as the yield on the 2-year note was flat at 1.11%, the yield on the 10-year note lost 1 basis point (bp) 2.30%, and the 30-year bond rate fell 2 bps to 2.95%.

Bond yields are choppy following the sharp post-election rally, bolstered by elevated December Fed rate hike expectations, and Schwab's Director of Income Planning, Rob Williams notes in his article, Can Bond Funds Make Sense When Interest Rates Rise?, although the value of most bonds and bond funds fall when interest rates increase, not all bond funds react the same way. Rob offers a look at how various bond fund categories performed in prior rate-hike cycles can help your fixed income strategy at www.schwab.com/onbonds, where you can also find Rob and Senior Fixed Income and Planning Analyst, Cooper Howard's, CFA, latest article, Muni Bonds: Making Sense of the Post-Election Landscape. Follow Schwab on Twitter: @schwabresearch.

Tomorrow's economic calendar will bring a plethora of key reads, courtesy of weekly MBA mortgage applications, the ADP's November employment change report, October personal income and spending, which includes the Fed's favored inflation gauge of the PCE deflator, the Chicago PMI, and pending home sales. The day will culminate with the afternoon release of the Federal Reserve's Beige Book—an anecdotal look at national economic activity—used as a tool by the FOMC when it is widely expected to announce a rate hike on December 14. As noted in the latest Schwab Market Perspective: Is the Fog Starting to Lift?, "full" employment is at least in sight, housing is recovering, economic growth has improved and inflation is heating up. A December rate hike may remove some uncertainty, but questions will remain as to the path and frequency of rate hikes in 2017 and beyond. We continue to believe the Fed will be able to go slow in normalizing rates, as they have stated they want to do, but signs of rising inflation could force its hand. Read more at www.schwab.com/marketinsight.

Europe mostly higher on U.S. data, Asia mixed

European equities finished mostly higher on the heels of the upbeat economic and earnings data in the U.S., though oil & gas issues were lower with headlines ahead of tomorrow's OPEC meeting fostering supply change skepticism to put heavy pressure on crude oil prices. Political uncertainty continued to ramp up ahead of this weekend's key Italian referendum and other political events are nearing to exacerbate the uncertainty as discussed by Schwab's Director of International Research, Michelle Gibley, CFA, in her latest article, Europe Votes: Could More Countries Reject the EU?. Michelle notes that the near-term risks to European stocks are heightened by the uncertainty posed by these votes. However, the resulting political uncertainty isn't sufficient reason to abandon global diversification. We believe having a diversified portfolio can set you up to participate if and when the trends switch. Read more at www.schwab.com/oninternational. The European Central Bank has reportedly pledged to step up purchases of Italian government bonds to help calm the markets in the wake of the referendum result.

Financials gained modest ground after yesterday's drop on the political uncertainty in Italy, while the Bank of England is set to unveil its banking sector stress test results tomorrow. French preliminary 3Q GDP grew 1.1%, matching forecasts, but dipping from the 1.2% expansion in 2Q, German consumer price inflation ticked 0.1% higher m/m, in line with estimates, and U.K. figures on consumer credit and mortgage approvals topped projections. The euro was little changed and the British pound gained ground on the U.S. dollar, while bond yields in the region finished mixed. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Happy Unrecession: The Alice in Wonderland economy, noting that in our view, the modest gain in the stock market this year is not as misguided or illogical as it may at first seem. He adds that while volatility may lie ahead for stocks, a prolonged bear market and recession seem unlikely for 2017. Read more at www.schwab.com/oninternational. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed as the surprise U.S. election fallout continued to fade, opening the door for the global markets to grapple with uncertainty ahead of tomorrow's OPEC meeting and this weekend's referendum in Italy. Japanese securities declined, with the yen choppy in the wake of yesterday's rebound from a post-U.S. election drop that has come amid the U.S. dollar's rally. Losses may have been limited by stronger-than-expected reads on Japan's October household spending and retail sales. Mainland Chinese stocks nudged higher, continuing a rally to the highest level since January amid optimism that the recent crackdown on the real estate market may vector funds into the stock market, per Bloomberg, but markets in Hong Kong declined, giving back yesterday's advance that came amid the announcement that December 5 will commence the exchange link between Hong Kong and Shenzhen.

Australian equities dipped, with oil & gas and basic materials issues seeing pressure to overshadow gains in healthcare and financials, while those traded in India rose slightly, and stocks in South Korea finished flat after battling back from early losses as the nation's President said she is willing to step down after coming under pressure following an influence-peddling scandal. With the global markets choppy on flared-up global uncertainties and following the surprise U.S. election, Schwab's Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think at www.schwab.com/oninternational.

Similar to the domestic economic docket, tomorrow's international economic calendar will be busy, with reports slated for release to include industrial production, housing starts and construction orders from Japan, industrial production from South Korea, GDP from India, consumer confidence and housing prices out of the U.K., employment data and retail sales from Germany, CPI and PPI from France, retail sales out of Spain, and CPI from Italy and the Eurozone.