Stocks Advance Ahead of Jobs Report

Charles Schwab: On the Market

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

Stocks Advance Ahead of Jobs Report

 

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

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

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

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

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

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

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

Consumer credit tops expectations, jobless claims surprisingly decline

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

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

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

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

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

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

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

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

Europe and Asia finish mixed

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

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

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

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

Charles Schwab: On the Market

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

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

 

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

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

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

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

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

ADP private sector payroll report matches forecasts

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

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

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

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

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

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

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

Europe mixed on data, Asia falls amid global retreat

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

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

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

Stocks Rally Ahead of Senate Tax Vote

Charles Schwab: On the Market

Posted: 11/30/2017 4:15 PM EST

Stocks Rally Ahead of Senate Tax Vote

 

U.S. stocks traded nicely higher as market participants weighed the likelihood of the Senate passing its tax reform bill, with a vote expected to be held soon. Energy stocks rose as crude oil prices ticked higher and Treasury yields extended recent gains, while gold and the U.S. dollar traded lower. Domestic economic reports showed that personal income and spending in October rose and weekly jobless claims dipped. Kroger announced upbeat quarterly profits and Costco reported better-than-expected same-store sales growth. 

The Dow Jones Industrial Average (DJIA) rallied 332 points (1.4%) to 24,272, the S&P 500 Index advanced 22 points (0.8%) to 2,648, and the Nasdaq Composite gained 50 points (0.7%) to 6,874. In heavy volume, 1.5 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.10 higher to $57.40 per barrel and wholesale gasoline was unchanged at $1.73 per gallon. Elsewhere, the Bloomberg gold spot price decreased $8.30 to $1,275.34 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 93.07.

PVH Corp. (PVH $135) reported Q3 earnings-per-share (EPS) of $3.05, or $3.02 ex-items, versus the $2.91 FactSet estimate, as revenues increased 5.0% year-over-year (y/y) to $2.4 billion, above the projected $2.3 billion. PVH issued Q4 EPS guidance that was below expectations, though it raised its full-year profit outlook. The parent of Calvin Klein and Tommy Hilfiger projected Q4 and full-year revenues to be slightly above estimates. Shares declined.

Kroger Co. (KR $26) posted Q3 profits of $0.44 per share, compared to the forecasted $0.40, with revenues rising 4.5% y/y to $27.7 billion, above the expected $27.5 billion. The grocer's Q3 same-store sales grew 1.1% y/y, versus the estimated 0.9% gain. KR reaffirmed its full-year EPS outlook. Shares rallied.

Costco Wholesale Corp. (COST $184) moved nicely higher after the company said its November same-store sales grew 10.8% y/y, above the projected 7.9% increase. L Brands Inc. (LB $56) said its November same-store sales declined 1.0% y/y, versus the forecasted 0.2% gain, but noted that it sees December sales being flat to up low-single digits. LB rallied.

Personal income and spending rise, jobless claims dip

Personal income (chart) rose 0.4% month-over-month (m/m) in October, above the Bloomberg forecast of a 0.3% gain, and compared to September's unrevised 0.4% increase. Personal spending increased 0.3% last month, matching expectations, and versus September's downwardly revised 0.9% gain. The October savings rate as a percentage of disposable income was 3.2%. The PCE Deflator was 0.1% higher, in line with expectations and versus the prior month's unrevised 0.4% gain.

Compared to last year, the deflator was 1.6% higher, north of estimates of a 1.5% rise and compared to September's upwardly revised 1.7% gain. Excluding food and energy, the PCE Core Index was 0.2% higher m/m, matching expectations, and versus the prior month's upwardly revised 0.2% gain. The index was 1.4% higher y/y, in line with estimates, and compared to September's upwardly revised 1.4% increase.

Weekly initial jobless claims (chart) declined by 2,000 to 238,000 last week, versus forecasts calling for it to match the prior week’s upwardly revised 240,000 figure. The four-week moving average rose by 2,250 to 242,250, while continuing claims grew by 42,000 to 1,957,000, north of estimates of 1,890,000.

The Chicago Purchasing Managers Index (chart) declined in November to 63.9 from October's unrevised 66.2 level, and better than expectations calling for a decline to 63.0. The index remained solidly in expansion territory (above 50) and pulled back from the highest level since March 2011, adding to a long list of signs that the manufacturing sector remains solid.

Schwab's Chief Investment Strategist Liz Ann Sonders notes that U.S. business capital spending 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 in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle. Tomorrow, November manufacturing activity will be on display with the releases of the ISM Manufacturing Index and the final Markit Manufacturing PMI Index. The ISM index is projected to dip to 58.3 from 58.7 in October, while Markit's index is expected to be revised higher to 54.0 from the preliminary 53.8 reading, but slightly below October's 54.6 level. Readings above 50 for both reports denote expansion.

Treasuries traded lower, with the yield on the 2-year note rising 2 basis points (bps) to 1.78%, the yield on the 10-year note gaining 3 bps to 2.42%, and the 30-year bond rate ticking 1 bp higher to 2.83%.

Treasury yields added to yesterday's noticeable curve steepening after a recent bout of flattening that fostered some market weariness, while the U.S. dollar pared its modest weekly rebound.
The markets continued to grapple with the continued signs of broad-based global economic growth and mostly favorable earnings results, along with tax reform uncertainty. The Senate appears headed to vote later today or tomorrow on its bill with signs emerging the past couple days that it has been tweaked enough to find enough support to pass. This has fostered some optimism regarding tax reform becoming a reality this year, but has also resulted in some rotation in the stock market sectors, which helped lead yesterday's selloff in the tech sector.

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, if the bill passes the Senate, the House and Senate would need to convene a conference to negotiate and reconcile differences between the two bills to produce a single consensus bill. That bill would then need to be approved by both chambers before it could be sent to President Donald Trump for his signature.

Negotiations between the two chambers will likely be extremely challenging, given the differences between the two approaches. For investors, we still think it is too early to take any drastic action. If and when a tax bill passes, there will be time to review the details and amend your tax and financial plans accordingly. Regardless of the outcome of the tax bill, it’s always a good idea to meet with your tax and financial advisors before the end of the year to review your current financial situation and discuss your plans for the coming year.

Tomorrow, the U.S. economic calendar will give us a look at national manufacturing activity in November with the releases of the ISM Manufacturing Index, projected to dip to 58.3 from 58.7 in October, and the final Markit Manufacturing PMI Index, expected to be revised higher to 54.0, but down from October's 55.3 level. Readings above 50 for both depict expansion. Construction spending for October will also be reported, forecasted to have increased 0.5% after rising 0.3% in September.

Europe gives up gains as euro and pound rally, Asia mostly lower

European equity markets relinquished early gains and finished mostly lower, with the euro extending a rise amid a downside reversal for the U.S. dollar late in the session and the British pound jumping on signs of progress in deadlocked Brexit negotiations. Energy issues gave up an advance as crude oil prices were choppy ahead of today's OPEC production decision. OPEC is expected to deliver an extension of cuts to the end of 2018 but there were some uncertainties that lingered ahead of the decision. U.S. tax reform optimism continued but this fostered yesterday's noticeable rotation out of the technology sector, and the group remained under pressure on this side of the pond. In economic news, eurozone consumer price inflation estimates came in a bit cooler than expected for November, while the region's October unemployment rate dipped unexpectedly. German retail sales surprisingly fell last month. 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. Bond yields finished mostly lower to exacerbate pressure on financials.

Stocks in Asia finished mostly lower, with the global selloff in the tech sector weighing on markets, while optimism of U.S. tax reform lingered and a flood of data in the region was digested. Shares trading in mainland China and Hong Kong fell, with the weakness in tech more than offsetting the government's reports on manufacturing and the key services sectors showing growth accelerated for both, with the former surprisingly increasing. South Korean equities dropped as the tech pullback was met with an expected increase in the Bank of Korea's benchmark interest rate and an unexpected drop in the nation's industrial production. Australian securities moved lower with financials seeing some pressure after the government announced that it will launch an inquiry into the sector. Indian stocks also traded to the downside on the tech volatility and ahead of the nation's Q3 GDP report. After the closing bell, India's Q3 GDP accelerated to a 6.3% y/y pace of growth, but slightly below the projected 6.4% expansion.

However, Japanese equities rose with the yen extending yesterday's weakness and strength in financials helping counter the slide in the tech sector. Japan reported that industrial production rose at a smaller rate than expected but growth in vehicle production accelerated solidly in October. Despite the downside pressure on most markets, they remain nicely higher on the year, fostered by the broadest economic growth in a decade and is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, in his article, 5 Reasons Investors Should Give Thanks.

The international economic docket for tomorrow will yield a host of reports from Japan as the island nation reports its jobless rate, CPI, capital spending, company sales and vehicle sales. China, India and South Korea will deliver manufacturing PMI reads and the latter will also announce final Q3 GDP. Reports from across the pond will include Markit Manufacturing PMI reads from the U.K., Germany, France, Italy and the eurozone.

Stocks Mixed in Subdued Action Ahead of Thanksgiving

Charles Schwab: On the Market

Posted: 11/22/2017 4:15 PM EST

Stocks Mixed in Subdued Action Ahead of Thanksgiving 

 

U.S. stocks were mostly lower, though the Nasdaq was able to tick higher with volume subdued ahead of the Thanksgiving break. In equity action, a flood of mixed earnings reports were highlighted by Deere & Co, while in economic news, a drop in durable goods orders was met with upward revisions to the prior month's solid advance. Treasury yields and the U.S. dollar were lower. Gold and crude oil prices gained ground.

The Dow Jones Industrial Average (DJIA) declined 65 points (0.3%) to 23,526, the S&P 500 Index shed nearly 2 points (0.1%) to 2,597, and the Nasdaq Composite increased 5 points (0.1%) to 6,867. In light volume, 661 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.19 to $58.02 per barrel and wholesale gasoline was unchanged at $1.77 per gallon. Elsewhere, the Bloomberg gold spot price increased $11.02 to $1,291.63 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.7% to 93.28.

Deere & Co. (DE $145) reported Q4 earnings-per-share (EPS) of $1.57, versus the $1.47 FactSet estimate, as equipment sales rose 25.6% year-over-year (y/y) to $7.1 billion, topping the expected $6.9 billion. The company noted improving markets for farm and construction equipment. DE issued earnings guidance for next year that exceeded the Street's forecasts. Shares traded nicely higher.

Hewlett Packard Enterprise Co. (HPE $13) posted Q4 profits of $0.23 per share, or $0.29 ex-items, compared to the projected $0.28, as revenues grew 5.0% y/y to $7.7 billion, north of the estimated $7.3 billion. HPE issued Q1 EPS guidance that missed forecasts. The company announced that Antonio Neri will succeed Meg Whitman, who will step down as Chief Executive Officer, effective February 1, 2018. Shares were solidly lower.

HP Inc. (HPQ $21) announced Q4 EPS of $0.39, or $0.44 ex-items, versus the expected $0.44, with revenues rising 11.0% y/y to $13.9 billion, above the estimated $13.4 billion. The company issued Q1 profit guidance that had a midpoint just shy of projections, while its full-year earnings outlook had a midpoint that was north of expectations. Shares lost ground.

Salesforce.com Inc. (CRM $107) reported fiscal Q3 profits of $0.07 per share, or $0.39 ex-items, compared to the expected $0.37, as revenues increased 25.0% y/y to $2.7 billion, roughly in line with forecasts. The company issued Q4 EPS and billings guidance that was below expectations, overshadowing its revenue outlook that was slightly above estimates and its raised full-year guidance. Shares finished lower.

Durable goods orders mixed, Fed releases its recent meeting minutes

October preliminary durable goods orders (chart) were down 1.2% month-over-month (m/m), compared to the Bloomberg estimate of a 0.3% gain, and September's 2.0% rise was revised to a 2.2% increase. Ex-transportation, orders were 0.4% higher m/m, versus forecasts of a 0.5% gain and compared to September's favorably-revised 1.1% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, fell 0.5%, versus projections of a 0.5% increase, and following the upwardly-revised 2.1% rise posted in the month prior.

Weekly initial jobless claims (chart) dropped by 13,000 to 239,000 last week, versus forecasts of a decrease to 240,000, with the prior week’s figure being upwardly revised to 252,000. The four-week moving average rose by 1,250 to 239,750, while continuing claims increased 36,000 to 1,904,000, north of estimates of 1,880,000.

The final November University of Michigan Consumer Sentiment Index (chart) was revised higher to 98.5, above forecasts of 98.0, from the preliminary level of 97.8. The index is below October's level of 100.7. Compared to last month, the expectations and current conditions components of the survey both dipped. The 1-year inflation outlook ticked higher to 2.5% from October's 2.4% rate, and the 5-10 year forecast dipped to 2.4% from 2.5%.

The MBA Mortgage Application Index ticked 0.1% higher last week, following the prior week's 3.1% gain. The slight increase came as a 4.8% drop in the Refinance Index was met by a 5.3% jump in the Purchase Index. The average 30-year mortgage rate rose 2 basis points (bps) to 4.20%.

At 2:00 p.m. ET, the Federal Reserve released the minutes from its monetary policy meeting that ended on November 1st. The information contained in the report showed that labor market conditions generally continued to strengthen and that real GDP expanded at a solid pace in Q3 despite disruptions from Hurricanes Harvey and Irma. Also, several participants indicated that an increase in the target range for the federal funds rate in the near term "would depend importantly on whether the upcoming economic data boosted their confidence that inflation was headed toward the Committee's objective." And participants "agreed that they would continue to monitor closely and assess incoming data before making any further adjustment to the target range for the federal funds rate."

As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, the selection of the new head of the Fed is seen as representing continuity as the Central Bank continues its policy normalization and given the strong economic backdrop, along with signs of wage growth picking up, we believe the Fed will hike rates for the third time this year next month.

Treasuries were higher with the yield on the 2-year note falling 5 bps to 1.73% and the yield on the 10-year note dropping 4 bps to 2.32%, while the 30-year bond rate was 2 bps lower at 2.74%.
Treasury yields and the U.S. dollar found some pressure as the markets grappled with Fed Chief Yellen's comments, as well as U.S. tax reform uncertainty ahead of next week's expected Senate vote on its plan that differs significantly from the House's that passed last week. This is being countered by Q3 earnings season that is winding down and mostly above expectations against a positive global economic backdrop.

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 a number of tricky steps must still be overcome. Schwab's Chief Investment Strategist Liz Ann Sonders points out in her newest article, Green Grass and High Tides: Earnings Stellar But Not Without Risk, both earnings and revenues were strong; and importantly, the "beat rates" were well above average. The outlook for 2018 is bright, but we are on watch for an expectations bar that gets set too high.

Please note: All U.S. markets will be closed tomorrow in observance of the Thanksgiving Day holiday, and will close early on Friday.

The U.S. economic calendar will round out the week on Friday with the release of the preliminary Markit Manufacturing and Services PMI Indexes for November, with economists forecasting readings of 55.0 and 55.3, respectively, with manufacturing ticking higher and services unchanged from the final October prints.

Europe gives up early advance as euro gains ground, Asia advances 

European equity markets relinquished early gains and finished mostly lower, with the euro moving higher versus the U.S. dollar, ahead of the release of the Fed minutes and following comments about inflation from Chairwoman Yellen. The British pound also rose compared to the greenback after overcoming a brief drop as the markets digested the nation's budget release, which included a lowered economic growth forecast. Bond yields in the region finished mixed. Energy issues managed to eke out gains as crude oil prices recovered somewhat from a recent bout of weakness as the markets awaited next week's OPEC meeting. Stocks in Germany led to the downside with focus still on the flared-up political uncertainty as nation may face a snap election following the recently failed coalition talks, which joined continued scrutiny of the possibility for U.S. tax reform. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans.

Stocks in Asia finished higher on the heels of the back-to-back gains registered in the U.S. yesterday, with global economic optimism appearing to overshadow flared-up political concerns in Germany and lingering tax reform uncertainty in the U.S. Japanese equities rose ahead of tomorrow's holiday, even as the yen regained some of yesterday's drop. Stocks trading in mainland China and Hong Kong finished higher. South Korean and Australian securities traded to the upside, while Indian equities also advanced. Schwab's Jeffrey Kleintop, CFA, offers a look at the global market rally seen this year that has been fostered by the broadest economic growth in a decade and is expected to continue in 2018 in his latest article, 5 Reasons Investors Should Give Thanks.

Tomorrow, the international economic docket will yield Markit Manufacturing and Services PMI reads for Germany, France and the Eurozone, while Germany will also release Q3 GDP and the U.K. will report Q3 GDP and total business investment. On Friday, reports will include leading indicators from Japan, the Ifo Business Climate Survey from Germany and industrial orders from Italy.

Shortened Holiday Week Begins Positive

Charles Schwab: On the Market

Posted: 11/20/2017 4:15 PM EST

Shortened Holiday Week Begins Positive

 

U.S. equities began the week modestly higher, getting a lift from a jump in Leading Indicators, but volume and conviction seemed subdued ahead of this week’s Thanksgiving holiday break. Festering U.S. tax reform uncertainty and collapsed German coalition talks also kept a lid on gains. Treasury yields were mostly higher and the U.S. dollar gained ground, but crude oil and gold finished lower. News on the equity front was sparse, with Marvell Technology's $6.0 billion agreement to acquire rival chipmaker Cavium garnering some attention. 

The Dow Jones Industrial Average (DJIA) rose 72 points (0.3%) to 23,430, the S&P 500 Index added 3 points (0.1%) at 2,582, and the Nasdaq Composite gained 8 points (0.1%) to 6,791. In moderate volume, 732 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.29 to $56.42 per barrel and wholesale gasoline was unchanged at $1.74 per gallon. Elsewhere, the Bloomberg gold spot price tumbled $15.12 to $1,277.30 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—increased 0.4% to 94.04.

Marvell Technology Group Ltd. (MRVL $21) announced an agreement to acquire rival chipmaker Cavium Inc. (CAVM $84) for $80.00 per share in cash and stock, in a transaction valued at about $6.0 billion. Under the terms of the deal, CAVM stockholders will receive $40.00 in cash and 2.1757 shares of MRVL for each share owned. MRVL was higher and CAVM rallied over 10%.

Leading Index jumps to kick off holiday-shortened week

The Conference Board's Index of Leading Economic Indicators (LEI) (chart) for October jumped 1.2% month-over-month (m/m), well above the Bloomberg projection of a 0.8% rise, and versus September's upwardly revised 0.1% gain. With the upward revision to September this was the fourteenth-straight monthly gain, bolstered by jobless claims, ISM new orders, the yield curve and consumer expectations. Nondefense capital goods orders excluding aircraft was the lone component that was negative.

Tomorrow, the holiday-shortened week will roll on with the economic calendar delivering the release of October existing home sales, projected to tick 0.2% higher m/m to an annual rate of 5.4 million, following September's 0.7% rebound from the hurricane-impacted drop in August. The rebound in housing and today's LEI after the hurricanes suggests the impact on GDP could be limited as a dip in economic activity appears to be followed by a boost associated with the recovery/rebuilding efforts as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her article, Trying to Reason With Hurricane Season: The Aftermath of "Harma."

Treasuries finished lower, as the yield on the 2-year note rose 3 basis points (bps) to 1.75%, the yield on the 10-year note gained 1 bp to 2.36%, and the 30-year bond rate was flat at 2.78%.

Treasury yields and the U.S. dollar have moved higher with the markets continuing to focus on the global political front as coalition talks in Germany collapsed, though uncertainty regarding U.S. tax reform remains the main source of attention. Last week the House passed its version of tax reform, which has significant differences from the Senate's version, which is expected to vote next week, opening the door for what could be a complicated reconciliation process.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, noting that we believe the prospects for a tax reform bill being signed into law before the end of the year are improving, but a number of tricky steps must still be overcome. For investors, we still think it is too early 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.

Europe shrugs off German political anxiety, Asia mixed amid U.S. tax reform uncertainty 

European equity markets moved higher, with the markets overcoming early losses and shrugging off flared-up political concerns as German government coalition talks collapsed. The euro remained lower versus the U.S. dollar. The British pond gained modest ground on the greenback even as Brexit talks remain at a standoff. The political focus joins festering U.S. tax reform uncertainty and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick offer the video, Political Risk: How Should Investors Respond?. Bond yields in the region mostly dipped.

Stocks in Asia finished mixed on the heels of Friday's declines in the U.S. on tax-reform uncertainty, while volatility that ramped up in the bond markets in India and Japan continued a retreat from recent multi-decade highs. Japanese equities declined, extending a pullback from highs not seen since 1992 hit earlier this month, with the yen choppy and as the island nation reported that exports rose solidly in October but slightly below expectations. Securities in Australia and South Korea also saw declines. However, stocks in India ticked higher, with focus on a flare-up in volatility in the nation's bond market after last week's credit rating upgrade by Moody's and as the Reserve Bank of India said late Friday that it will scrap a debt sale. Indian bonds jumped the most in a year, per Bloomberg. For analysis of emerging market bond investing, check out Schwab's Chief Fixed Income Strategist, Kathy Jones' latest article, Emerging Market Bonds: Time for Caution. Elsewhere, listings in mainland China and Hong Kong gained ground, with both markets overcoming some heavy early losses stemming from government measures to clamp down on the shadow banking system.

Tomorrow’s international economic calendar will include the minutes from the Reserve Bank of Australia’s last monetary policy meeting, the All Industry Index from Japan, industrial orders and the trade balance from Spain, and public sector net borrowing from the U.K.

Stocks Trade in Red Shade as Success for Tax Proposal Weighed

Charles Schwab: On the Market

Posted: 11/17/2017 4:15 PM EST

Stocks Trade in Red Shade as Success for Tax Proposal Weighed

 

U.S. stocks finished the trading session lower and the week mixed as investors appeared to exercise caution amid the developing path of proposed tax policy, some disappointing Chinese economic data and a flattening yield curve. Treasury yields were mixed and the U.S. dollar was lower, while crude oil prices rebounded from a recent decline and gold was also higher. Shares of GAP, Abercrombie & Fitch, and Foot Locker traded solidly higher following the release of the companies Q3 earnings results. 

The Dow Jones Industrial Average (DJIA) declined 100 points (0.4%) to 23,358, the S&P 500 Index declined 7 points (0.3%) at 2,579, and the Nasdaq Composite slipped 11 points (0.2%) to 6,783. In moderate volume, 875 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil rallied $1.36 to $56.71 per barrel and wholesale gasoline was $0.03 higher at $1.74 per gallon. Elsewhere, the Bloomberg gold spot price gained $15.46 to $1,294.04 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.3% to 93.63. Markets were mixed for the week, as the DJIA decreased 0.3% and S&P 500 Index ticked 0.1% lower, while the Nasdaq Composite advanced 0.5%.

Gap Inc. (GPS $29) reported Q3 earnings-per-share (EPS) of $0.58, versus the $0.54 FactSet estimate, as revenues rose 1.1% year-over-year (y/y) to $3.8 billion, roughly in line with forecasts. Q3 same-store sales grew 3.0% y/y, above the expected 1.3% gain. GPS raised its full-year guidance. Shares finished nicely higher.

Applied Materials Inc. (AMAT $56) posted fiscal Q4 EPS of $0.91, or $0.93 ex-items, compared to the forecasted $0.91, with revenues rising 20.0% y/y to $4.0 billion, above the estimated $3.9 billion. The chip equipment maker issued Q1 guidance that exceeded projections. AMAT traded lower.

Abercrombie & Fitch Co. (ANF $16) announced Q3 earnings of $0.15 per share, or $0.30 ex-items, topping the forecasted $0.22, as revenues increased 5.0% y/y to $859 million, north of the estimated $820 million. Q3 same-store sales rose 4.0% y/y, above the expected 0.4% gain. Shares rallied as ANF also issued a Q4 outlook that bested the Street's expectations.

Williams-Sonoma Inc. (WSM $46) reported Q3 EPS of $0.84, matching forecasts, as revenues rose 4.3% y/y to $1.3 billion, rough in line with expectations. Q3 same-store sales grew 3.3% y/y, just above the estimated 3.0% increase. WSM issued Q4 profit guidance that missed expectations. Separately, the company announced the acquisition of home furnishings and décor industry 3-D imaging and augmented reality platform Outward Inc. WSM traded solidly lower.

Foot Locker Inc. (FL $41) posted Q3 profits of $0.81 per share, or $0.87 ex-items, versus the expected $0.80, as revenues decreased 0.8% y/y to $1.9 billion, topping the forecasted $1.8 billion. Q3 same-store sales declined 3.7% y/y, compared to the projected 4.6% drop. FL said despite a continued highly promotional environment, it believes it can exceed its Q4 guidance issued in August. Shares surged nearly 30%.

Housing construction activity stronger than expected

Housing starts (chart) for October jumped 13.7% month-over-month (m/m) to an annual pace of 1,290,000 units, well above the Bloomberg forecast of a 1,190,000 unit rate. September starts were upwardly revised to an annual pace of 1,135,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, grew 5.9% m/m in October to an annual rate of 1,297,000, after September's favorably revised 1,225,000 rate, and north of the expected annual pace of 1,250,000 units.

The Kansas City Fed Manufacturing Activity Index for November showed growth decelerated more than expected, with the index dipping to 16 from 23 in October, compared to the forecasted 21, though a reading above zero denotes expansion in activity.

Treasuries finished mixed, with the yield on the 2-year note ticking 1 basis point (bp) higher to 1.72%, while the yield on the 10-year note declined 3 bps to 2.35%, and the 30-year bond dropped 5 bps to 2.78%.

The markets continued to grapple with the ongoing flattening of the yield curve and the recent soft data out of China that came amid a relatively positive global economic backdrop. Also, U.S. tax reform uncertainty remained as yesterday's bill passing in the House opened the door for scrutiny and concerns about the reconciliation process with the Senate's plan that differs significantly on some key areas and is expected to be voted on the week after the Thanksgiving holiday. As such, check out our article, Does Low Market Volatility Portend a Market Tumble?, as well as Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest commentary, Tax Reform: Key Differences Between the Senate and House Plans.

Europe mostly lower and Asia mixed to close out the week 

European equity markets traded mostly lower after breaking a string of losses yesterday that came amid what seemed to be a flare-up in global market risk aversion. With U.S. tax reform uncertainty lingering despite yesterday's House bill passing, coalition talks in Germany ramped up and the Brexit stalemate remained. For analysis of the uncertainty political front in the region, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives Randy Frederick's video, Political Risk: How Should Investors Respond?. The British pound and the euro ticked slightly higher versus the U.S. dollar as the markets continued to digest comments from European Central Bank President Mario Draghi, who offered an upbeat outlook for the economy, but said the central bank needs to be patient in normalizing policy as inflation remains subdued. Schwab's Jeffrey Kleintop provides analysis of the changing global monetary policy landscape in his article, How the Shift by Central Banks May Affect the Stock Market. Bond yields in the region were mostly lower, while energy issues recovered modestly as crude oil prices rebounded after a recent drop.

Stocks in Asia finished mixed to close out a week that saw some increased downside pressure as the global markets appeared to shift to a de-risking mood on the heels of a global rally. Schwab's Jeffrey Kleintop, CFA, offers a look at the global market rally seen this year that has been fostered by the broadest economic growth in a decade in his latest article, 5 Reasons Investors Should Give Thanks. Some support came from yesterday's rebounds in the U.S. and Europe, but the markets continued to be cautious as U.S. tax reform uncertainty lingered, crude oil prices sold off, and recent Chinese economic data has disappointed. Japanese equities pared solid early gains as the yen gained ground late in the day. Mainland Chinese shares declined with sentiment being exacerbated by local media reports warning of high valuations in some stocks that have rallied as of late, per Bloomberg. Equities trading in Hong Kong and India advanced, while Australian securities were also higher and South Korean shares finished flat.

Stocks bounce back to finish week mixed

U.S. stocks finished the trading week mixed as a strong rally on Thursday, led by tech issues, was able to offset losses that developed early in the week as the uncertainty surrounding the likelihood of a successful domestic tax policy overhaul intensified. The House passed its bill to reduce taxes and focus is now tuned to the Senate and its legislative process with a floor vote expected shortly after the Thanksgiving holiday break. Economic data was mostly positive as an advance read on retail sales unexpectedly increased m/m, showing widespread sales gains, but also revealing a dip in online shopping. A separate report showed small business optimism rose and consumer inflation was mostly in line with expectations. Market participants were also treated to hotter-than-expected producer price inflation figures, slowing in some regional manufacturing output and an unexpected rise in weekly jobless claims.

In earnings news, Wal-Mart Stores (WMT $97) surged to a record high after it revealed its Q3 results, while Home Depot (HD $167), Tyson Foods (TSN $78), and Dick's Sporting Goods (DKS $29) also topped analysts' quarterly projections. Target (TGT $57) disappointed with its quarterly marks and General Electric (GE $18) cut its quarterly dividend in half. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, third quarter earnings season is largely complete and can be characterized as a positive one—with strong “beat rates” for both top- and bottom-line results; while economic data continues to indicate solid growth.

Although next week will be shortened by Thursday's Thanksgiving holiday, during which the U.S. markets will be closed, the economic calendar will still deliver a feast of key reports that could provide sustenance for market action. Housing will remain in focus, with the release of existing home sales, along with manufacturing demand in the form of the preliminary durable goods report. The Leading Index will give us a look at how many cylinders the economy is firing on, while the minutes from the Fed's Oct/Nov monetary policy meeting will provide us discussion details as the highly-expected December rate hike decision looms. We will get a look at the psyche of the consumer, courtesy of the final University of Michigan Consumer Sentiment Index for this month. The week will come to a close with Markit's November business activity reports, illustrating the pace of growth in output from the manufacturing and services sectors.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest, Schwab Sector Views: 'Tis the Season…Almost, much of the U.S. economy arguably comes down to how the consumer is faring as businesses make hiring and investing decisions based on their expectations of consumer demand. Brad adds that it would be difficult to view the status of the consumer as anything less than mostly positive with unemployment historically low, wages trending higher and still low interest rates conspiring to boost consumer confidence.

International reports due out next week that deserve a mention include: Australia—Leading Index. Japan—trade balance and the All Industry Activity Index. Eurozone—Markit Manufacturing and Service PMIs and consumer confidence, along with German Q3 GDP and PPI. U.K.—public sector net borrowing, Q3 GDP and business investment.

Stocks Rally as Bulls Come Charging Back

Charles Schwab: On the Market

Posted: 11/16/2017 4:15 PM EST

Stocks Rally as Bulls Come Charging Back

 

U.S. stocks rallied during Thursday's trading session, bouncing back from a two-day slide as European shares also snapped a string of losses. Favorable earnings reports from Dow members Wal-Mart and Cisco Systems, along with upbeat industrial production and homebuilder sentiment reads aided in boosting equity gains. Treasury yields rebounded and the U.S. dollar ticked slightly higher, along with gold, while crude oil prices were lower. 

The Dow Jones Industrial Average (DJIA) advanced 187 points (0.8%) to 23,458, the S&P 500 Index jumped 21 points (0.8%) at 2,586, and the Nasdaq Composite rallied 87 points (1.3%) to 6,793. In moderate volume, 776 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.19 to $55.14 per barrel and wholesale gasoline was $0.03 lower at $1.71 per gallon. Elsewhere, the Bloomberg gold spot price ticked $0.59 higher to $1,278.66 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—advanced 0.1% to 93.93.

Dow member Wal-Mart Stores Inc. (WMT $100) reported Q3 earnings-per-share (EPS) of $0.58, or $1.00 ex-items, versus the $0.97 FactSet estimate, as revenues rose 4.2% year-over-year (y/y) to $123.2 billion, above the projected $121.1 billion. Q3 same-store sales at Walmart grew 2.7% y/y, topping the expected 1.9% gain. The company raised its Q4 EPS outlook and issued same-store sales guidance that was slightly above expectations. Shares traded sharply higher.

Dow component Cisco Systems Inc. (CSCO $36) posted fiscal Q1 earnings of $0.48 per share, or $0.61 ex-items, with revenues decreasing 2.0% y/y to $12.1 billion, roughly in line with expectations. CSCO issued Q2 guidance that exceeded forecasts. Shares rallied.

Best Buy Co. Inc. (BBY $55) announced Q3 EPS of $0.78, matching projections, as revenues rose 4.2% y/y to $9.3 billion, below the expected $9.4 billion. Q3 same-store sales increased 4.4% y/y, below the forecasted 4.9%. BBY issued Q4 earnings guidance that was below estimates, while its sales outlook was mostly in line with expectations. The company raised its full-year guidance. Shares fell.

Homebuilder sentiment and industrial production top forecasts

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month unexpectedly improved to an eight-month high of 70, versus the Bloomberg forecast calling for a dip to 67 from October's unrevised 68 level. The index sits decisively above the 50 mark, the point of separation for good versus poor conditions. The NAHB said builder confidence is close to a post-recession high—a strong indicator that the housing market continues to grow steadily—but its members still face supply-side constraints, such as lot and labor shortages and ongoing building material price increases.

Tomorrow, the economic calendar will bring a look at housing construction activity in the form of housing starts and building permits, with starts projected to rise 5.6% month-over-month (m/m) to an annual rate of 1,190,000 units and permits expected to increase 2.0% to a 1,250,000 unit rate. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest, Schwab Sector Views: 'Tis the Season…Almost, mortgage demand appears to be healthy, while interest rates continue to be relatively low and the high rental rates in some areas of the country provide incentive for home buying.

Industrial production (chart) rose 0.9% month-over-month (m/m) in October, above estimates of a 0.5% gain, after September's upwardly revised 0.4% increase. Manufacturing and utilities production both grew solidly, while mining output dropped. Capacity utilization rose to 77.0% from the prior month's upwardly revised 76.4% rate, and compared to forecasts of 76.3%. Capacity utilization is 2.9 percentage points below its long-run average. Industrial production has gained 2.9% over the past 12 months, and Schwab's Chief Investment Strategist Liz Ann Sonders notes that capex may be in for an even sharper recovery in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle. 

Weekly initial jobless claims (chart) surprisingly rose by 10,000 to 249,000 last week, versus the Bloomberg forecast of a decrease to 235,000, with the prior week’s figure being unrevised at 239,000. The four-week moving average grew by 6,500 to 237,750, while continuing claims fell 44,000 to 1,860,000, south of estimates of 1,900,000.

The Philly Fed Manufacturing Index (chart) in November declined more than expected to 22.7 from 27.9 in October, but a reading above zero indicates expansion. This compared to estimates of a decline to 24.6.

The Import Price Index (chart) rose 0.2% m/m for October, below projections of a 0.4% gain, following September's upwardly revised 0.8% rise. Compared to last year, prices were up by 2.5%, in line with forecasts and compared to September's unrevised 2.7% increase.

Treasuries finished lower, with the yield on the 2-year note gaining 3 basis points (bps) to 1.71%, the yield on the 10-year note increasing 5 bps to 2.37%, and the 30-year bond rate advancing 6 bps to 2.82%.

Treasury yields and the U.S. dollar rebounded somewhat from recent pressure that came from a flare-up in global risk aversion on the heels of the world stock market rally as of late. Festering U.S. tax reform uncertainty—today the House passed its bill to overhaul the tax code, which has some significant differences from the Senate's version—has fostered the change in conviction. This has countered a relatively positive economic landscape, while recent soft Chinese economic data and market skittishness as the yield curve has flattened have exacerbated sentiment. As such, check out our article, Does Low Market Volatility Portend a Market Tumble?, as well as Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest commentary, Tax Reform: Key Differences Between the Senate and House Plans.

Tomorrow's domestic docket will also yield the November Kansas City Fed Manufacturing Index, forecasted to dip to 21 from 23 in October, though a reading above 0 indicates growth in activity.

Europe recovers on data, Asia rebounds from recent slide

European equity markets traded higher, rebounding from the recent string of losses that has come from an apparent change in global sentiment to de-risking, while disappointing Chinese economic data as of late has weighed on commodity-related stocks. Some upbeat earnings data in the region teamed up with a rebound in eurozone new car registrations to support the recovery in the markets, while the energy sector remained under pressure as crude oil prices extended a recent selloff. Eurozone consumer price inflation rose in line with forecasts. The euro declined versus the U.S. dollar and the British pound rose following a better-than-expected U.K. retail sales report, while bond yields in the region finished mixed. Gains for Italian stocks and Europe's financial sector were limited by a drop in shares of Italy's banks. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, momentum favors the bulls for the foreseeable future, but elevated valuations and growing investor complacency pose risks that could lead to a long-awaited pullback and/or a pickup in volatility from today’s extremely low base.

Asian stocks mostly rebounded from the recent pullback, with the yen giving back some of its gains seen as of late as the global markets have stumbled amid a flare-up in risk aversion, while overnight stabilization in crude oil prices helped the energy sector recover somewhat. Japanese equities rallied, while Australian securities were also higher, with a softer-than-expected read on the nation's employment growth limiting gains. Mainland Chinese shares dipped and stocks trading in Hong Kong advanced with the recent soft economic data being met with some upbeat earnings results. Indian equities gained ground and South Korean shares advanced. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers a look at the global market rally seen this year that has been fostered by the broadest economic growth in a decade in his latest article, 5 Reasons Investors Should Give Thanks.

International economic releases for tomorrow will be light, with new vehicle sales from Australia and the current account and construction output from the Eurozone.

Equities take a Ride on the Global Stock Slide

Charles Schwab: On the Market

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

Equities take a Ride on the Global Stock Slide

 

Domestic stocks traded lower, joining a global equity slump as global market participants remain uncertain about the prospect of a successful overhaul of U.S. tax policy. Treasury yields were lower and the U.S. dollar was mostly flat after recovering from some early pressure. In equity news, tech stocks led the decline and a cautious outlook from Target weighed on consumer discretionary listings. Crude oil prices added to a recent selloff and gold reversed to the downside. 

The Dow Jones Industrial Average (DJIA) fell 138 points (0.6%) to 23,271, the S&P 500 Index lost 14 points (0.6%) at 2,565, and the Nasdaq Composite declined 32 points (0.5%) to 6,706. In moderate volume, 844 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.37 to $55.33 per barrel and wholesale gasoline was $0.02 lower at $1.74 per gallon. Elsewhere, the Bloomberg gold spot price ticked $1.79 lower to $1,278.46 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.79.

Target Corp. (TGT $54) reported Q3 earnings-per-share (EPS) of $0.87, or $0.91 ex-items, versus the $0.86 FactSet estimate, as revenues increased 1.4% year-over-year (y/y) to $16.7 billion, above the projected $16.6 billion. Q3 same-store sales rose 0.9% y/y, topping the expected 0.4% gain. TGT said it was pleased with its Q3 performance, including traffic and sales growth that demonstrate it is building on the progress it saw in the first half of the year. The retailer issued Q4 EPS guidance with a midpoint below estimates, while its same-store sales outlook had a midpoint above expectations, as it added that it expects the Q4 environment to be highly competitive but it is confident in its holiday season plans. TGT raised its full-year guidance. Shares traded sharply lower.

Shares of Acorda Therapeutics Inc. (ACOR $17) tumbled after the company announced that some patients had developed a severe blood infection called sepsis and some died during a late-stage trial of its treatment for Parkinson's disease.

Retail sales and consumer price inflation roughly match expectations

Advance retail sales (chart) for October rose 0.2% month-over-month (m/m), compared to the Bloomberg forecast of a flat reading and compared to September's upwardly revised 1.9% increase. Last month's sales ex-autos were up by 0.1% m/m, versus expectations of a 0.2% gain, and following the favorably revised 1.2% increase seen in the previous month. Sales ex-autos and gas gained 0.3% m/m, in line with estimates, and versus September's upwardly revised 0.6% gain. The retail sales control group, a figure used to help calculate GDP, increased 0.3%, matching projections, and versus the prior month's favorably revised 0.5% gain.

Sales gains were widespread, led by activity at sporting goods, hobby, book and music stores, food services and drinking places, clothing stores, and auto dealers. However, sales declined at gasoline stations, building material and garden equipment stores, and at nonstore retailers, which includes on line shopping.

Today's report, highlighted by the positive upward revisions to September's figures, suggests the consumer remains relatively healthy heading into the key holiday shopping season. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest, Schwab Sector Views: 'Tis the Season…Almost, much of the U.S. economy arguably comes down to how the consumer is faring. Brad adds that it would be difficult to view the status of the consumer as anything less than mostly positive with unemployment historically low, wages trending higher and still low interest rates conspiring to boost consumer confidence. He concludes that this holiday season could shape up to be a solid one but offers some headwinds facing retailers that lead us to maintain our marketperform rating for the consumer discretionary sector.

The Consumer Price Index (CPI) (chart) ticked 0.1% higher m/m in October, matching estimates, while September's 0.5% rise was unrevised. The core rate, which strips out food and energy, was up 0.2% m/m, in line with expectations and compared to September's unrevised 0.1% rise. Y/Y, prices were 2.0% higher for the headline rate, matching forecasts, while the core rate was up 1.8%, above of projections of a 1.7% increase. September's y/y figures showed unrevised 2.2% and 1.7% rises for the headline and core rates, respectively.

The Empire Manufacturing Index showed output from the New York region slowed but remained solidly at a level depicting expansion (a reading above zero) for November. The index decreased to 19.4 from October's unrevised 30.2 level—which was the highest since 2014—with forecasts calling for a decline to 25.1.

The MBA Mortgage Application Index rose 3.1% last week, following the prior week's flat reading. The increase came as a 6.3% jump in the Refinance Index was accompanied by a 0.4% gain in the Purchase Index. The average 30-year mortgage rate remained at 4.18%.

Business inventories (chart) were flat m/m in September, matching forecasts, and versus August's downwardly revised 0.8% increase.

Treasuries finished mostly higher, with the yield on the 2-year note little changed at 1.68%, while the yield on the 10-year note declined 5 basis points (bps) to 2.32% and the 30-year bond rate decreased 6 bps to 2.77%.

Treasury yields and the U.S. dollar remain under pressure as risk aversion appears to be continuing, with the global stock markets pulling back from the recent rally. Fiscal and monetary policy uncertainties are countering a relatively positive economic landscape, though caution has ramped up following soft Chinese economic data as of late. As such, check out our article, Does Low Market Volatility Portend a Market Tumble?, as well as Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest commentary, Tax Reform: Key Differences Between the Senate and House Plans.

Tomorrow, the U.S. economic calendar will offer the Import Price Index for October, expected to have increased 0.4% m/m, after rising 0.7% in September and weekly initial jobless claims, forecasted to have dipped to 235,000 from the previous week's level of 239,000. Additionally, we'll receive the Fed's October industrial production and capacity utilization report, forecasted to show production advanced 0.5% m/m and utilization ticked higher to 76.3%. The housing market will also garner attention with tomorrow's release of the NAHB Housing Market Index, with economists anticipating November's reading to inch lower to 67 from the 68 posted in October, where the 50 mark represents the point of separation for good versus poor conditions.

Europe sees pressure and Asia falls as global markets turn cautious

Most European equity markets traded to the downside, with energy and commodity-related issues seeing pressure amid the continued risk aversion in the markets, exacerbated by festering U.S. tax reform skepticism, recent disappointing Chinese economic data and the pullback in crude oil prices. However, Spanish stocks bucked the trend, bolstered by solid gains in the country's banking sector, which helped the European financial sector overcome early losses. The euro and the British pound were little changed versus the U.S. dollar, while bond yields in the region finished mixed. In economic news, the September eurozone trade surplus widened more than expected, while U.K. employment unexpectedly declined. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, momentum favors the bulls for the foreseeable future, but elevated valuations and growing investor complacency pose risks that could lead to a long-awaited pullback and/or a pickup in volatility from today’s extremely low base.

Stocks in Asia finished broadly lower as the global markets appear to be skittish following the recent rally as U.S. tax reform uncertainty lingers and Chinese economic data has been softer than expected as of late. Japanese equities fell, with the yen gaining ground, while the nation reported Q3 GDP growth of 1.4% on a quarter-over-quarter annualized basis, missing the 1.5% projection and compared to the upwardly revised 2.6% expansion posted in Q2. Shares trading in mainland China and Hong Kong dropped, while stocks in Australia and South Korea also traded lower. Indian securities moved to the downside, on the heels of late-yesterday's disappointing October trade report.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his latest article, 5 Reasons Investors Should Give Thanks, the record breaking streak of gains in the global stock market this year has been supported by the broadest global economic growth in a decade. Stocks appear to closely track earnings growth, even where risks are most intense. Broad economic and earnings growth is expected to continue in 2018.

The international economic docket for tomorrow will include housing loans and machine tool orders from Japan, inflation expectations and employment data from Australia, the unemployment rate from France and retail sales from the U.K.

U.S. Stocks Join Global Market Decline

Charles Schwab: On the Market

Posted: 11/14/2017 4:15 PM EST

U.S. Stocks Join Global Market Decline

 

U.S. equities followed their foreign counterparts lower, as conviction waned amid continued U.S. tax reform uncertainty. Commodity issues also saw pressure on some disappointing Chinese economic data and a lowered demand forecast from the IEA, which weighed on crude oil and the energy sector. Treasury yields and the dollar were lower despite a hotter-than-expected wholesale inflation report and still-robust small business optimism, while gold was higher.

The Dow Jones Industrial Average (DJIA) fell 30 points (0.1%) to 23,410, the S&P 500 Index was 6 points (0.2%) lower at 2,579, and the Nasdaq Composite lost 20 points (0.3%) to 6,738. In moderate volume, 842 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil tumbled $1.06 to $55.70 per barrel and wholesale gasoline was $0.03 lower at $1.76 per gallon. Elsewhere, the Bloomberg gold spot price rose $2.97 to $1,281.28 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.7% at 93.80.

Dow member Home Depot Inc. (HD $168) reported Q3 earnings-per-share (EPS) of $1.82, or $1.84 ex-items, versus the $1.82 FactSet estimate, with revenues growing 8.1% year-over-year (y/y) to $25.0 billion, compared to the projected $24.5 billion. Q3 same-store sales rose 7.9% y/y, above the 5.7% gain that was expected. The company raised its full-year guidance. The world's largest home improvement retailer said though the quarter was marked by an unprecedented number of natural disasters, the underlying health of its core business remains solid. Shares were higher.

Dick's Sporting Goods Inc. (DKS $26) posted Q3 earnings of $0.35 per share, or $0.30 ex-items, compared to the expected $0.26, as revenues increased 7.4% y/y to $1.9 billion, roughly in line with forecasts. Q3 same-store sales declined 0.9% y/y, versus the projected 2.7% drop, while its gross margin was well below expectations and its inventories increased y/y. DKS issued Q4 and full-year EPS guidance that topped estimates but reaffirmed its same-store sales outlook for the year and noted that next year's earnings are expected to fall solidly. Shares were solidly lower.

TJX Companies Inc. (TJX $68) announced Q3 profits of $1.00 per share, or $1.03 ex-items, versus the forecasted $1.00, as revenues grew 6.0% y/y to $8.8 billion, below the expected $8.9 billion. Q3 same-store sales were flat y/y, compared to the estimated 2.4% gain. The parent of TJ Maxx, Marshalls and HomeGoods stores said Q4 is off to a strong start and it sees numerous opportunities for the holiday selling season, though it issued EPS guidance for the quarter that had a midpoint below estimates. Shares were lower.

Wholesale price inflation comes in hotter than expected

The Producer Price Index (PPI) (chart) showed prices at the wholesale level in October were up 0.4% month-over-month (m/m), above the Bloomberg expectation of a 0.1% gain, after matching September's unrevised increase. The core rate, which excludes food and energy, rose 0.4%, compared to forecasts of a 0.2% advance and in line with September's unrevised rise. Y/Y, the headline rate was 2.8% higher, above projections of a 2.4% gain, and the core PPI rose 2.4% last month, north of estimates of a 2.2% gain. In September, producer prices were 2.6% higher and up 2.2% for the headline and core rates, respectively.

Tomorrow, the economic docket will complete the inflation picture with the Consumer Price Index (CPI), projected to be up 0.1% m/m in October, after September's 0.5% gain, while the core CPI is expected to rise 0.2% after the prior month's 0.1% increase. Compared to last year, the CPI is forecasted to be 2.0% higher on the heels of September's 2.2% gain, while the core CPI is projected to remain at the prior month's 1.7% increase.

Also, we will get a glimpse at the consumer's propensity to spend heading into the holiday season, with the release of October retail sales, expected to be flat m/m, after September's 1.6% jump. Excluding autos, sales are forecasted to rise 0.2% after the prior month's 1.0% increase. Stripping out autos and gas, sales are estimated to grow 0.3% in the wake of September's 0.5% gain. The retail sales control group, the figure used to calculate GDP, is projected to be 0.3% higher after the prior month's 0.4% increase. Business inventories and MBA Mortgage Applications will also be released.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers timely analysis of the all-important consumer in his latest, Schwab Sector Views: 'Tis the Season…Almost. Brad notes that at this point in the economic expansion, it would be difficult to view the status of the consumer as anything less than mostly positive. For sure, there are still problems, but with unemployment historically low, wages trending higher and still low interest rates conspiring to boost consumer confidence, the picture is looking pretty positive to us.

The National Federation of Independent Business (NFIB) Small Business Optimism Index for October rose to 103.8, from September's unrevised 103.0 level, versus expectations of a gain to 104.0.

Treasuries finished higher despite the inflation data, as the yield on the 2-year note was flat at 1.68%, while the yield on the 10-year note decreased 3 basis points (bps) to 2.38% and the 30-year bond rate declined 4 bps to 2.83%.

The yield curve continues to flatten and the U.S. dollar has seen some pressure as of late as the markets grapple with the recent global market rally on a favorable economic backdrop, while fiscal and monetary policy uncertainties continue to linger. However, volatility remains subdued despite a flare-up last week as the House and Senate unveiled tax reform bills that differed in some key areas.
Amid this backdrop, check out our article, Does Low Market Volatility Portend a Market Tumble?, as well as Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest commentary, Tax Reform: Key Differences Between the Senate and House Plans.

Europe mostly lower despite upbeat data in the region, Asia mostly lower 

European stocks traded mostly lower, with the euro rallying and some Chinese economic data disappointing to weigh on commodity-related issues. The markets lost ground despite some favorable earnings and economic data in the region. German Q3 GDP growth came in at a 0.8% quarter-over-quarter pace, above projections to match the 0.6% expansion seen in Q2. Eurozone Q3 GDP expanded at a 2.5% y/y pace to match expectations. Moreover, German investor confidence was mixed on a current view and expectation standpoint, with the former topping estimates but the latter missing forecasts. U.K. inflation statistics for October came in widely cooler than anticipated. The British pound reversed modestly to the upside and bond yields in the region finished mixed.
As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, earnings season, both in the U.S. and globally, has been solid, while economic growth has accelerated across much of the globe—all supportive of an ongoing global bull market. Elevated optimism and complacency could lead to pullbacks, but we believe it would be in the context of an ongoing bull market.

Stocks in Asia finished mostly lower, with yesterday's subdued moves in the U.S. offering little to shape market direction, while some softer-than-expected Chinese economic data stymied conviction. China reported growth in retail sales and industrial production that missed forecasts for October, though its foreign direct investment and fixed asset investment both slowed last month, pressuring stocks in the mainland as well as Hong Kong. Markets in Australia were also underwater, despite an upbeat read on the nation's business confidence. Indian securities traded lower, on the heels of the data and late-yesterday's hotter-than-expected read on consumer price inflation. After the closing bell, India reported that its exports declined 1.1% y/y last month, after surging 25.7% in September. South Korea equities declined and those traded in Japan finished flat as the yen gave back some of yesterday's gains. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his latest article, 5 Reasons Investors Should Give Thanks, the record breaking streak of gains in the global stock market this year has been supported by the broadest global economic growth in a decade. Stocks appear to closely track earnings growth, even where risks are most intense. Broad economic and earnings growth is expected to continue in 2018.

Tomorrow's international economic calendar will be fairly busy, beginning with GDP and industrial production from Japan, wage data and vehicle sales from Australia, followed by CPI from France, employment figures from the U.K., and the trade balance from the Eurozone.