Stocks Add to Record Highs

Charles Schwab: On the Market

Posted: 9/18/2017 4:15 PM ET

Stocks Add to Record Highs

U.S. equities extended recent record highs, continuing to show resiliency against lingering geopolitical and political concern, as well as monetary policy uncertainty ahead of decisions from the Fed and Bank of Japan this week. Treasury yields extended last week's run and the U.S. dollar was higher amid softer-than-expected home-builder sentiment, while gold was lower and crude oil prices gained slight ground.

The Dow Jones Industrial Average (DJIA) increased 63 points (0.3%) to 22,331, the S&P 500 Index gained 4 points (0.2%) to 2,504, and the Nasdaq Composite increased 6 points (0.1%) to 6,455. In moderate volume, 821 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.02 higher to $49.91 per barrel and wholesale gasoline gained $0.01 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price declined $11.73 to $1,308.46 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 92.08.

Northrop Grumman Corp. (NOC $262) announced an agreement to acquire aerospace and defense technology company, Orbital ATK Inc. (OA $132), for $134.50 per share or about $7.8 billion in cash plus the assumption of $1.4 billion in net debt. NOC said the deal is expected to be accretive to earnings-per-share (EPS) in the first full year after the deal closes, which is expected in the first half of 2018. NOC was nicely higher and OA rallied sharply.

Home-builder sentiment drops to kick off economic week headlined by Fed

The National Association of Home Builders (NAHB) Housing Market Index showed home-builder sentiment this month fell to 64, versus the Bloomberg forecast calling for it to match August's downwardly-revised 67 level. However, the index sits well above the 50 mark, the point of separation for good versus poor conditions. The NAHB said the recent hurricanes have intensified its members' concerns about the availability of labor and the cost of building materials, but once the rebuilding process is underway builder confidence is expected to return to the high levels seen this spring.

Tomorrow, we will get a look at August housing construction activity in the form of housing starts and building permits, with starts projected to rebound 1.7% month-over-month (m/m) to an annual rate of 1,174,000 units after July's 4.8% drop (economic calendar). Permits are expected to dip 0.8% to an annual rate of 1,220,000 units following the prior month's 4.1% fall. Also on tap is the Import Price Index, forecasted to have increased 0.4% m/m during August following the 0.1% rise seen in July.

Schwab's Chief Investment Strategist Liz Ann Sonders points out in her article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", that we expect to see a dip in economic activity in the short-term, followed by a boost associated with the recovery/rebuilding efforts. She adds that real estate has been one of most consistent beneficiaries in the subsequent three-to-twelve months following the 10 costliest U.S. hurricanes. We believe the impact will unlikely dent the Fed's plans to continue monetary policy normalization. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter:@lizannsonders.

Treasuries were lower, as the yield on the 2-year note ticked 1 basis point (bp) higher to 1.39%, while the yields on the 10-year note and the 30-year bond gained 3 bps to 2.23% and 2.80%, respectively.

Bond yields rebounded sharply last week after hitting levels not seen since November and the U.S. dollar recovered modestly from multi-year lows, as an ongoing positive economic backdrop was met with consumer price inflation accelerating in August to keep the possibility of a December Fed rate hike in play. Also, The Bank of England (BoE) and European Central Bank (ECB) has signaled they may start to tighten highly accommodative monetary policy, the markets shrugged off another missile test by North Korea, and economic cost estimates of Hurricane Irma appeared to be less than feared.

Schwab's Chief Fixed Income Strategist, Kathy Jones, and Vice President of Trading and Derivatives, Randy Frederick, provide analysis of the bond markets in the video, The Economy is Picking Up, But Bond Yields Are Falling—What's That About?, on the Insights & Ideas page and follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks, investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com.

This sets the stage for Wednesday's monetary policy decision from the Federal Open Market Committee (FOMC) (economic calendar). As noted in the latest Schwab Market Perspective: A Cat and Mouse Fall, the Fed is playing their own internal cat and mouse game with some officials citing low inflation as a reason to delay further tightening; while others want to stay on the steady path toward normalization, due to the tighter labor market. We continue to believe that the start to the slow winding down of the Fed's massive balance sheet will be announced this week; but that an additional rate hike before year end remains in question. We continue to believe the Fed's "quantitative tightening" (QT) could be the cause of some heightened volatility. Read more on the Markets & Economy page at www.schwab.com.

Europe and Asia move higher to begin the week

European equity markets traded higher, continuing to shrug off lingering geopolitical concerns, while monetary policy decisions from the Fed and Bank of Japan this week were in focus but appeared to not stymie conviction. The British pound gave back some of last week's surge against the U.S. dollar as the Bank of England (BoE) signaled that it may raise rates in the coming months. The pound lost ground despite BoE Governor Carney reiterating that a rate hike could be in the offing. The euro gave up modest gains and dipped late in the session even as the European Central Bank is expected to announce the start of dialing back its stimulus measures this fall. Bond yields in the region were mostly higher, except for in Portugal, which fell sharply after the nation received an upgrade of its credit rating to investment grade by Standard & Poor's. In economic news, eurozone consumer price inflation rose in line with expectations for August.

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

Stocks in Asia finished higher amid the recent global market resiliency in the face of festering North Korean tensions and monetary policy uncertainty, though attention on this week's Fed and Bank of Japan decisions ramped up. The yen continued to lose ground on the U.S. dollar, but markets in Japan were closed for a holiday. Mainland Chinese stocks rose modestly and those traded in Hong Kong rallied, as late-Friday's stronger-than-expected lending statistics were met with today's report showing August home prices cooled to ease concerns about further government efforts to curb housing activity. Markets in Australia advanced, led by financials, South Korean listings jumped and Indian equities gained ground in the wake of the nation's upbeat August trade report after Friday' close. Both South Korean and Indian markets moved back to near record highs and Schwab's Jeffrey Kleintop, CFA, offers his article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over, on the Markets & Economy page at www.schwab.com. 

Stocks Dipping After Data and BoE

Charles Schwab: On the Market

Posted: 9/14/2017 9:00 AM ET

Stocks Dipping After Data and BoE

U.S. stocks are lower in early action, coming off another record high run, following a hotter-than-expected read on consumer price inflation that may be bringing the Fed back in focus, while the Bank of England's expected unchanged monetary policy decision hinted at a potential rate hike in the coming months. Treasury yields are mixed and the U.S. dollar is paring losses. Crude oil prices and gold are higher. Asia finished mixed and Europe is mostly lower on the BoE's decision and following some disappointing Chinese economic data.

As of 8:55 a.m. ET, the December S&P 500 Index future is 8 points below fair value, the DJIA future is 32 points below fair value, and Nasdaq 100 Index future is 29 points south of fair value. WTI crude oil is increasing $0.53 to $49.83 per barrel and Brent crude oil is gaining $0.42 to $55.58 per barrel. The Bloomberg gold spot price is trading $2.84 higher at $1,326.05 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is dipping 0.1% to 92.45.

Tenet Healthcare Corp. (THC $16) is getting a boost from a report by the Wall Street Journal suggesting the hospital operator was exploring strategic options, including the possible sale of the company, citing sources familiar with the matter. THC has not commented on the report.

Lattice Semiconductor Corp. (LSCC $6) is in focus after President Donald Trump blocked Chinese-backed investor, Canyon Bridge Capital Partners LLC's $1.3 billion bid to acquire the company. The White House and Treasury Department said President Trump acted on the recommendation of a multi-agency panel, per Bloomberg.

Consumer price inflation tops forecasts, jobless claims decline

The Consumer Price Index (CPI) (chart) rose 0.4% month-over-month (m/m) in August, versus the Bloomberg estimate calling for a 0.3% gain, while July's 0.1% rise was unrevised. The core rate, which strips out food and energy, was up 0.2% m/m, matching expectations and compared to July's unrevised 0.1% rise. Y/Y, prices were 1.9% higher for the headline rate, above forecasts of a 1.8% rise, while the core rate was up 1.7%, topping projections of a 1.6% increase. July y/y figures showed an unrevised 1.7% rises for both the headline and core rates.

Treasuries are mixed, with the yield on the 2-year note ticking 1 basis point (bp) higher to 1.36%, while the yields on the 10-year note and the 30-year bond are dipping 1 bp to 2.18% and 2.77%, respectively.

Bond yields are modestly extending this week's sharp rebound from a recent drop back to November lows that came despite upbeat economic data and record highs for the stock markets. Schwab's Chief Fixed Income Strategist, Kathy Jones, and Vice President of Trading and Derivatives, Randy Frederick, provide analysis of the conundrum in the video, The Economy is Picking Up, But Bond Yields Are Falling—What's That About?, with Kathy noting that the disconnect between the fixed income markets and the economy is about inflation. Read more on the Insights & Ideas page and follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Weekly initial jobless claims (chart) declined by 14,000 to 284,000 last week, below forecasts of 300,000, with the prior week’s figure being unrevised at 298,000. The four-week moving average rose by 13,000 to 263,250, while continuing claims decreased 7,000 to 1,944,000, south of estimates of 1,965,000.

The jobless claims figures likely continued to be distorted by the impacts of Hurricanes Harvey and Irma, discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her latest article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", on the Markets & Economy page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

The U.S. dollar is giving back some of its solid recovery seen this week in the wake of the Bank of England's (BoE) expected unchanged monetary policy stance, where it suggested that it may tighten policy in coming months. The greenback's rally this week has come amid relatively eased geopolitical and U.S. political concerns, as well as reduced economic cost estimates of Hurricane Irma. However, the greenback is paring losses in the wake of the inflation data.

For commentary on the geopolitical and domestic political fronts, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks, on the International Investing page at www.schwab.com as well as Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's article, Debt Ceiling Deal Pushes Showdown in Congress to December, on the Insights & Ideas page. Follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch.

Europe mostly lower on mixed BoE decision

Most European equity markets are trading lower in afternoon action, with the British pound rallying versus the U.S. dollar after the Bank of England (BoE) held its monetary policy stance steady as expected, but noted that it may need to raise rates in the coming months. The markets are also eyeing more threatening rhetoric from North Korea, while digesting some disappointing Chinese economic data. However, Next Plc. (NXGPY $29) is a bright spot, rallying after the British retailer lifted its full-year profit outlook. In other central bank news, the Swiss National Bank kept its monetary policy unchanged, in line with forecasts. Growth in EU new car registrations for August accelerated in August. The euro is higher versus the U.S. dollar and bond yields in the region are mixed.

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

The U.K. FTSE 100 Index is down 0.9%, France's CAC-40 Index is ticking 0.1% higher, Germany's DAX Index is declining 0.3%, Italy's FTSE MIB Index is rising 0.2%, Spain's IBEX 35 Index is declining 0.4%, and Switzerland's Swiss Market Index is dipping 0.1%.

Asia mixed following data and ahead of monetary policy decisions

Stocks in Asia finished mixed on the heels of the continued gains in the U.S. to record highs, while the markets digested some disappointing Chinese economic data and awaited monetary policy decisions out of the U.K. and Switzerland. China's Shanghai Composite Index and the Hong Kong Hang Seng Index declined 0.4% after August reports on retail sales, industrial production and fixed asset investment all rose at smaller-than-expected amounts. Japan's Nikkei 225 Index decreased 0.3%, despite the yen weakening. South Korea's Kospi Index overcame early losses and finished 0.7% higher and India's S&P BSE Sensex 30 Index nudged 0.2% higher. Australia's S&P/ASX 200 Index dipped 0.1%, even as the nation reported upbeat August employment figures. For more on the global markets, see Schwab's Jeffrey Kleintop's, CFA, articles, What are fund flows telling us about trends and risks in the global stock market?, and An important benefit to global investors is back after 20 years, on the International Investing page at www.schwab.com.

Financial Review

Sunshine

Sinclair Noe — June 15, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

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DOW – 14 = 21,359
SPX – 5 = 2432
NAS – 29 = 6165
RUT – 7 = 1410
10 Y + .02 = 2.16%
OIL – .47 = 44.26
GOLD – 6.40 = 1254.70
BITCOIN – 1.86% = 2411.30 USD
ETHEREUM – 3.44% = 348.76

The Dow could not hang on to record highs and the S&P 500 and Nasdaq Composite continued to slip. A selloff in technology stocks that began last Friday has clipped 4.1 percent off the S&P 500 information technology index as investors worry about stretched valuations in 2017’s top-performing sector.

During that time, Alphabet has lost 5.8 percent, Amazon is down 5.2 percent and Facebook is off 4 percent. Apple has declined more than 7 percent in the past five days. Valuations of the mega-tech stocks have moved to lofty levels and there is reasonable concern that valuations have grown too large relative to earnings forecasts.

The question is whether this is just a healthy pullback or the beginning of something more ominous. You must to decide for yourself, but it certainly means you should be paying closer attention to any holdings in these big tech names.

Factory production slipped 0.4 percent in May, as manufacturers cranked out fewer cars, computers and semiconductors, a sign that economic growth remains sluggish. The drop follows a big 1.1 percent gain the previous month, so we might be looking at a little statistical noise.

Overall industrial production, which includes mining and utilities, was unchanged in May. Mining activity posted a large gain for the second straight month, rising 1.6 percent. Much of that increase has been driven by greater oil and gas drilling. Utility production rose 0.4 percent.  Americans are buying fewer cars, after sales reached record levels last year. They have now fallen for five straight months. Automakers responded by slicing output 2 percent in May.

The Empire State manufacturing index climbed to 19.8 in June after falling to minus-1 in May. Readings above zero show that factories are expanding. The Empire State index only measures sentiment in New York, but economists track it because it provides an early read on factory output nationwide. It has risen seven of the last eight months.

The number of Americans applying for unemployment benefits fell for a second straight week. The Labor Department said claims for jobless benefits last week dropped by 8,000, to a seasonally adjusted 237,000. The less-volatile four-week average rose by 1,000 to 243,000. Overall, 1.94 million people were collecting unemployment checks, down 10.2 percent from a year ago.

Applications for unemployment benefits have come in below 300,000, a historically low figure, for 119 straight weeks, the longest such stretch since 1970. And while it is an impressive streak, it also reminds us that fewer people are eligible for unemployment benefits.

The national jobs report is issued the first Friday of each month and each state then reports on non-farm payrolls around the middle of the month. Today, Arizona reported the statewide unemployment rate slightly increased from 5.0% in April to 5.1% in May; still better than 5.3% a year ago, but not as strong as the 4.3% national rate.

Arizona lost 14,700 Nonfarm jobs in May. The private sector lost 5,500 jobs, and government cut 9,200 jobs. Arizona Nonfarm employment grew by 1.8% (48,200 jobs) over the year in May.

President Trump today signed an executive order to expand federally funded apprenticeship programs. The order takes $100 million away from other federally funded job training programs to fund the new apprenticeships. And while apprentice programs seem like a good way to close the skills gap, some economists say the skills gap is not the problem, or at least no more of a problem today than in years past.

Instead they point to a slowdown in startup businesses and new technology that has allowed employers to conduct more thorough research on an applicant before hiring. The proportion of middle-skill jobs in the economy (jobs that might benefit from an apprentice program) has declined since the 1980s, while relative job growth has been concentrated at either the low end of the spectrum, like retail, or the high end, like software development.

In other words, jobs that don’t need extensive training or jobs that need more training than an apprenticeship.

The Senate voted 98-2 approving legislation to impose new sanctions on Russia, and to force President Donald Trump to get Congress’ approval before easing any existing sanctions on Russia. The measure is intended to punish Russia for meddling in the 2016 U.S. election, annexation of Ukraine’s Crimea region and support for Syria’s government in the six-year-long civil war.

The bill also includes new sanctions on Iran over its ballistic missile program and other activities not related to the international nuclear agreement reached with the United States and other world powers. The bill now goes to the House of Representatives.

The Washington Post reported late Wednesday that the special counsel investigating Russian influence in the presidential campaign is now examining whether President Trump tried to obstruct justice. Allegations of obstruction arose last month when he fired FBI Director James Comey.

Meanwhile, the Senate is continuing work on legislation to repeal the Affordable Care Act. If you are not familiar with the Senate version of the repeal, you are not alone. Senate republicans are keeping it a secret. In theory, the bill is open to any of the 52 republican senators, but few seem to know about any of the details.

Democrats have been locked out of the process, along with the rest of the public. Tom Price, the secretary of health and human services, said that he, too, had not seen the Senate bill. The legislation will be considered in the Senate under an expedited procedure that precludes a Democratic filibuster and allows passage by a simple majority. Sunshine is always the best disinfectant.

The Bank of England met today and left interest rates unchanged at a record low of 0.25 percent, but a surprisingly large number of the members of its Monetary Policy Committee, three out of eight, opted for a quarter-point increase. The main concern appears to be inflation, which at 2.9 percent is running hot; but any attempts to curb inflation by hiking rates also runs the risk of slowing the economy, which is already sluggish.

The Bank of Japan concludes a two-day board meeting Friday that isn’t expected to bring any change in policy. The focus will be on Governor Kuroda’s press conference and any clues he gives about possible adjustments to his monetary program and an eventual exit from stimulus.

Yesterday, the Federal Reserve raised interest rates again, and said more increases are on the way, on the belief that the recent slowdown in inflation is transitory. Don’t tell Kroger. Grocery chain Kroger took its biggest one-day loss since 1999.

The company cut its annual profit outlook as it deals with growing competition from discount chain Aldi and from Lidl, a German chain opening its first locations in the US. Kroger’s stock plunged $5.72, or 18.9 percent, to $24.56. Kroger said lower food prices were hurting its profits, sparking a sell-off among its competitors, including Whole Foods and even Wal-Mart.

And while wheat prices have been moving higher on weather related news, most other commodities are significantly lower. Look at oil, now trading below $45 a barrel. Lower oil prices ripple through the economy, putting a lid on inflation. And the lid, or resistance level, for oil seems to be around $55 a barrel; that’s the price that spurs US shale producers to ramp up production.

Meanwhile, bond traders do not seem to share the Fed’s enthusiasm for economic growth. The spread between the yields on two-year and 10-year Treasuries fell to 80 basis points today. The spread is currently within a few hundredths of a percentage point of being the tightest it has been since 2007. A flattening yield curve points to slower economic growth.

Wells Fargo has stepped in it again. The bank has been dealing with a scandal involving opening over 2 million bogus accounts without customer consent. Now Wells Fargo faces a new round of lawsuits accusing the bank of modifying mortgages without customers’ consent.

Any change to a payment plan for a person in bankruptcy is subject to approval by the bankruptcy court and the other parties involved. The changes are part of a trial loan modification process from Wells Fargo and typically resulted in lower monthly loan payments, which would seem to benefit borrowers, particularly those in bankruptcy.

But deep in the details was this fact: Wells Fargo’s changes would extend the terms of borrowers’ loans by decades, meaning they would have monthly payments for far longer and would ultimately owe the bank much more. They put borrowers in bankruptcy at risk of defaulting on the commitments they have made to the courts, and could make them vulnerable to foreclosure in the future.

According to court documents, Wells Fargo has been putting through unrequested changes to borrowers’ loans since 2015. Wells Fargo stood to profit from the new loan terms it set forth, and, under programs designed to encourage loan modifications for troubled borrowers, the bank receives as much as $1,600 from government programs for every such loan it adjusts.

This is not the first time Wells Fargo has been accused of wrongdoing related to payment change notices on mortgages it filed with the bankruptcy courts. Under a settlement with the Justice Department in November 2015, the bank agreed to pay $81.6 million to borrowers in bankruptcy whom it had failed to notify on time when their monthly payments shifted to reflect different real estate taxes or insurance costs.

Maybe you are starting to sense a pattern of bad behavior. They just reach into your pocket and take your money because they can. And because nobody stops them.

Tech Decline Continues to Weigh on Equities

Charles Schwab: On the Market

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

Tech Decline Continues to Weigh on Equities

U.S. stocks traded lower, with technology stocks again leading the decline, while market participants appeared cautious ahead of this week's monetary policy decisions from the Federal Reserve, Bank of England, Bank of Japan and Swiss National Bank. Treasury yields ticked higher, crude oil prices recovered a bit of ground and the U.S. dollar and gold were little changed. In equity news, Dow member General Electric announced its CEO Jeff Immelt will retire.

The Dow Jones Industrial Average (DJIA) decreased 36 points (0.2%) to 21,236, the S&P 500 Index lost 2 points (0.1%) to 2,429, and the Nasdaq Composite shed 32 points (0.5%) to 6,175. In heavy volume, 951 million shares were traded on the NYSE and 2.6 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.25 to $46.08 per barrel and wholesale gasoline was $0.01 lower at $1.49 per gallon. Elsewhere, the Bloomberg gold spot price decreased $1.42 to $1,265.34 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% lower at 97.20.

Dow member General Electric Co. (GE $29) announced that Chairman and Chief Executive Officer (CEO) Jeff Immelt will retire and John Flannery, current President and CEO of GE Healthcare has been named CEO of the company, effective August 1, 2017. GE noted that Immelt will remain Chairman through his retirement on December 31, 2017 and the leadership change is the result of a succession plan that had been run by the Board since 2011. Flannery will become Chairman and CEO January 1, 2018. Shares traded nicely higher.

The technology sector remained in focus today, extending Friday's selloff that gave back some of a decisive rally that has led to a plethora of record highs for the stock markets. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: Technology—Too Far or Room to Run?, the tech run likely won't go on forever—nothing does—but we don't see the unabashed enthusiasm for the group that would make us more concerned, and valuations aren't extended to the point that we believe investors should start to worry. That doesn't mean investors who have developed too large a position in tech relative to their risk tolerances shouldn't rebalance and take some profits. But we continue to see positive developments and believe the run in the tech sector still has further to go. Read more on the Markets & Economy page at www.schwab.com. Follow Schwab on Twitter: @schwabresearch.

Fed monetary policy headlines heavy weekly economic calendar

Treasuries ticked lower as the economic calendar was void of any major release today. The yield on the 2-year note increased 2 basis points (bps) to 1.35%, while the yields on the 10-year note and the 30-year bond added 1 bp to 2.21% 2.87%, respectively.

Treasury yields modestly extended a recent rebound from heightened domestic and European political uncertainty, mixed economic data, the Fed's highly expected rate hike this week and the likelihood that the Fed could begin the process of shrinking its large balance sheet later this year. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the Fed's potential changes to its bloated balance sheet and the impact on the bond markets in her article, Will the Fed Reduce Its Balance Sheet? What Bond Investors Should Knowon the Fixed Income page at www.schwab.com. Follow Kathy on Twitter: @kathyjones. Also, Chief Investment Strategist Liz Ann Sonders addresses the recent mixed economic data in her latest article, Turn Down For What: Why is Job Growth Slowing?, on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

The markets are looking to this week's fully-loaded economic calendar, highlighted by the Consumer and Producer Price Indexes (CPI & PPI), NFIB Small Business Optimism, retail sales, industrial production and capacity utilization, the NAHB Housing Market Index, housing starts and building permits, and the preliminary University of Michigan Consumer Sentiment Index. However, the headlining event will likely be Wednesday's Federal Open Market Committee's (FOMC) monetary policy decision. A 25 bp hike to the target fed funds rate is highly expected, but the accompanying statement, updated economic projections and subsequent press conference by Chairwoman Janet Yellen are poised to garner heavy attention.

As noted in the latest Schwab Market Perspective: Goldilocks…or the Three Bears?, we believe the market will likely largely look past the expected FOMC rate hike, and focus more on any information with regard to the Fed’s balance sheet. It is now expected that the Fed will begin the process of slowly reducing its bloated balance sheet by the end of this year, but that process (and commentary surrounding it) could be a source of elevated volatility in the months to come. Read more on the Markets & Economy page at www.schwab.com, including our continued belief that the bull market has legs, but why investors should be aware that risks are elevated.

Tomorrow, the U.S. economic calendar  will commence with the latest National Federation of Independent Business (NFIB) Small Business Optimism Index, forecasted to remain near historical record highs at a level of 104.5 for May, which will be followed by the Producer Price Index (PPI) for May, expected to have not changed m/m after increasing 0.5% in April, while excluding food and energy, the core rate is anticipated to have increased by 0.1%.

European equities down on politics, Asian stocks also see some pressure

European equities lost ground, with technology issues decisively lower on the heels of Friday's selloff in the sector in the U.S., while traders appeared cautious amid looming monetary policy decisions this week out of the U.S., U.K. Switzerland and Japan. The British pound extended late last week's slide versus the U.S. dollar, to lend some relative support to U.K. stocks. The markets grappled with the recent U.K. election that surprisingly resulted in a hung parliament and fostered uncertainty regarding the timing of Brexit negotiations and whether they will yield hard or softer exit terms. Political uncertainty was also supported by local elections in Italy, which faces a national election later this year, showing the populist Five Star Movement suffered a setback. Fallout from France's recent election remained in focus, with President Macron appearing set to gain a large parliamentary majority following this weekend's first round vote. Germany is also headed for an election later this year. For commentary on the political front check out Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. 

In economic news, French business sentiment held steady in May, while Italian industrial production missed expectations for April. The euro ticked higher versus the greenback and bond yields in the region were mostly lower. However, the oil & gas sector was the lone group in the green as crude oil prices rebounded somewhat from a recent tumble in the wake of last month's disappointing OPEC production cut extension and last week's noticeably bearish U.S. oil inventory data.

Stocks in Asia finished lower as Friday's selloff in the technology sector in the U.S. carried over to the region, causing a flare-up in uneasiness toward the group that has led the rally in the stock markets. The global markets are awaiting this week's key monetary policy decisions, with the Bank of England, Bank of Japan and Swiss National Bank set to deliver statements after Wednesday's highly-anticipated announcement from the Fed in the U.S., which is expected to deliver a rate hike. Moreover, political uncertainty remained on the heels of last week's U.K. election that led to a hung parliament. Japanese equities declined, with the yen gaining some ground and following a report that showed the nation's machine orders—a gauge of capital spending—unexpectedly fell in April. Stocks trading in mainland China and Hong Kong decreased, Indian securities traded lower and South Korean shares dropped. Australian markets were closed for a holiday. For a look at the global economic front, see Jeffrey Kleintop's video, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com.

The international economic docket for tomorrow will deliver the BSI All Industry Index and a manpower survey from Japan, business confidence from Australia, CPI, PPI and housing data from the U.K., the Wholesale Price Index from Germany and non-farm payrolls from France.

Stocks Mixed Ahead of Jobs Report

Charles Schwab: On the Market

Posted: 2/2/2017 4:15 PM ET

Stocks Mixed Ahead of Jobs Report

U.S. stocks wavered on either side of the flatline before ultimately closing mixed on the heels of yesterday's Fed decision to hold current monetary policy steady and ahead of tomorrow's widely followed domestic employment report. On the equity front, Facebook topped its 4Q estimates but fostered concern in regard to its guidance to headline a mixed bag of corporate results. Treasuries were mixed, crude oil prices dipped and the U.S. dollar and gold were higher. Overseas, the Bank of England announced no changes to its current monetary policy at the conclusion of its meeting today.

The Dow Jones Industrial Average (DJIA) decreased 6 points to 19,885, the S&P 500 Index was 1 point (0.1%) higher at 2,281, and the Nasdaq Composite lost 6 points (0.1%) to 5,636. In moderately-heavy volume, 880 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.34 lower to $53.54 per barrel and wholesale gasoline lost $0.05 to $1.53 per gallon. Elsewhere, the Bloomberg gold spot price added $6.43 to $1,216.28 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—increased 0.2% to 99.80.

Facebook Inc. (FB $131) reported 4Q earnings-per-share (EPS) ex-items of $1.41, above the $1.31 FactSet estimate, as revenues jumped 53.0% year-over-year (y/y) to $8.8 billion, north of the forecasted $8.5 billion. Daily and monthly active users of the social media outlet both topped expectations, while ad revenue growth continued to jump. FB relinquished solid gains seen in the post-and-pre market sessions following its release late yesterday as its forecasts for higher-than-expected spending and reiteration that ad revenue growth will decelerate meaningfully in 2017 caused some concern among analysts. Shares saw pressure in choppy action.

Dow member Merck & Co. Inc. (MRK $64) posted 4Q profits ex-items of $0.89 per share, matching expectations, as revenues decreased 1.0% y/y to $10.1 billion, compared to the forecasted $10.2 billion. MRK's 2017 guidance bracketed the Street's estimates. MRK traded nicely higher.

MetLife Inc. (MET $51) announced 4Q EPS ex-items of $1.28, below the expected $1.34, with revenues increasing 1.0% y/y to $17.2 billion, versus the forecasted $17.3 billion. Shares traded decisively to the downside.

Ralph Lauren Corp. (RL $77) posted fiscal 3Q earnings ex-items of $1.86 per share, above the $1.64 estimate, as revenues fell 12.0% y/y to $1.7 billion, roughly in line with forecasts. RL maintained its full-year guidance. Separately, the company announced a cost savings plan and said it and Chief Executive Officer (CEO), Stefan Larsson, have mutually agreed to part ways. Shares fell sharply.

Mead Johnson Nutrition Co. (MJN $84) surged after confirming that it is in discussions with U.K. consumer products company and maker of Lysol cleaners, Reckitt Benckiser PLC. (RBGLY $18), about RBGLY's proposal to acquire MJN for $90.00 per share in cash. MJN noted that no agreement has been completed and there are no assurances that any transaction will result from these discussions. RBGLY gained ground.

Shares of Costco Wholesale Corp. (COST $168) rallied after the company reported that its net sales in January increased 9.1% to $9.08 billion from the $8.32 billion registered during the similar period last year.

Jobless claims decline

Weekly initial jobless claims (chart) declined 14,000 to 246,000 last week, below forecasts of 250,000, with the prior week’s figure revised to 260,000 from 259,000. The four-week moving average rose by 2,250 to 248,000, while continuing claims fell 39,000 to 2,064,000, just north of estimates of 2,063,000.

Preliminary 4Q nonfarm productivity (chart) rose 1.3% on an annualized basis, versus expectations of a 1.0% gain, following the upwardly revised 3.5% increase seen in 3Q. Also, unit labor costs increased 1.7%, versus the forecast calling for a 1.9% gain. Unit labor costs were revised downward to a rise of 0.2% in 3Q.

Treasuries were mixed, with the yield on the 2-year note dipping 1 basis point (bp) to 1.20%, the yield on the 10-year note was flat at 2.47%, and the 30-year bond rate ticking 1 bp higher to 3.09%.

Treasury yields, the U.S. dollar and stocks have been choppy as of late amid focus on the flurry of policy moves from President Donald Trump, recent record highs for equities, and yesterday's unchanged monetary policy decision from the Fed that appeared to foster a relatively dovish takeaway from the markets. 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, Schwab’s Chief Investment Strategist Liz Ann Sonders offers analysis of the Fed's monetary policy decision in her latest article, Fed Leaves Rates Unchanged, while noting in Rise Up: Dow 20k Fails to Thrill Individual Investors, that individual sentiment has become less bullish, while other measures show highly elevated optimism. She adds that extremely low volatility isn't likely to persist, but the bull market is. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Tomorrow's U.S. economic calendar will provide a plethora of key reports to close out the week that could change the perceived dovish tone by the Fed in its policy statement yesterday. The ISM and Markit will provide their reads on services sector activity in January, with both expected to depict continued growth, while factory orders will put a bow on the final month of 2016, forecasted to show a rebound in manufacturing demand from November's drop. However, the headlining report will likely be the January nonfarm payroll report, projected to show total and private sector job growth remained steady, rising 175,000 and 173,000, respectively. The unemployment rate is estimated to remain close to a nine-year low of 4.7%. The wage component is poised to continue to garner the heaviest scrutiny for its implications on inflation and the health of the all-important U.S. consumer. Month-over-month (m/m) average hourly earnings are expected to rise 0.3% after December's 0.4% gain, while y/y wages are estimated to slow slightly to a 2.8% gain from the prior month's 2.9% increase, which was the highest gain since the great recession ended in June 2009.

As noted in the latest Schwab Market Perspective: A New World, continued solid economic data and a decent earnings reporting season bolster our confidence in the continuation of the bull market in stocks. However, rising inflation, possibly forcing the Fed to be more aggressive, could lead to bouts of volatility and more pullbacks. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Europe mixed, Asia mostly lower

European equities diverged, with technology leading to the upside and healthcare stocks pacing decliners, amid lingering U.S. political uneasiness and a plethora of mixed earnings reports. Traders also digested the unchanged monetary decision from the Bank of England (BoE), which followed the U.S. Fed's decision to hold its monetary policy stance steady yesterday. The British pound fell as the BoE boosted its economic growth forecast but lowered its outlook for inflation. The euro moved higher versus the U.S. dollar and bond yields in the region lost ground. 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.

Stocks in Asia finished mostly to the downside as festering U.S. political uneasiness in the wake of a plethora of policy moves from President Donald Trump, particularly regarding global trade and immigration, continued to foster some risk aversion. For more on Trump's 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. The yen rallied amid the skittishness in the markets and in the wake of yesterday's unchanged Fed monetary policy decision, pressuring Japanese equities. Stocks trading in Hong Kong were lower in the second day back from an extended break due to the Lunar New Year holiday, while mainland Chinese markets remain closed until tomorrow. Securities in Australia and South Korea declined, however, Indian equities added to yesterday's rally that accompanied the nation's annual budget plan. For more on international investing, see Michelle Gibley's, CFA, 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.

The international economic docket for tomorrow will include a plethora of PMI reads from Japan, China, India, the U.K., Germany, France, Italy and the eurozone. Additionally, Italy will report CPI and the eurozone will announce retail sales results.

Stocks Finish Lower Ahead of Labor Report

Charles Schwab: On the Market

Posted: 11/3/2016 4:15 PM ET

Stocks Finish Lower Ahead of Labor Report

U.S. stocks finished the regular trading session lower, though financial issues managed a mild advance as yesterday's monetary policy decision from the Federal Reserve preserved expectations for a possible December rate hike. In economic news, ISM's services sector report and jobless claims missed forecasts, while 3Q productivity and factory orders topped estimates. Treasuries were mixed, gold and the U.S. dollar were lower and crude oil prices continued a recent sell-off.

The Dow Jones Industrial Average (DJIA) declined 29 points (0.2%) to 17,931, the S&P 500 Index decreased 9 points (0.4%) to 2,089 and the Nasdaq Composite lost 47 points (0.9%) to 5,058. In moderately-heavy volume, 889 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.68 to $44.66 per barrel, wholesale gasoline lost $0.03 to $1.42 per gallon and the Bloomberg gold spot price moved $6.31 lower to $1,303.12 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 97.14.

Facebook Inc. (FB $120) reported 3Q earnings-per-share (EPS) ex-items of $1.09, above the $0.97 FactSet estimate, as revenues jumped 59.0% year-over-year (y/y) to $7.0 billion, north of the expected $6.9 billion. The social network's daily and monthly active users slightly beat forecasts, led by mobile, but the company warned that it could see a meaningful revenue growth deceleration and increased investment in 2017. Shares fell.

Whole Foods Market Inc. (WFM $28) posted fiscal 4Q EPS of $0.28, above the projected $0.24, as revenues grew 1.7% y/y to $3.5 billion, roughly in line with forecasts. 4Q same-store sales declined 2.6% y/y, compared to the estimated decrease of 2.0%. WFM guided that same-store sales thus far in 1Q are down 1.6%, while issuing full-year earnings and revenue guidance that was slightly below expectations. Separately, the company announced leadership changes, including the elimination of its co-CEO structure. WFM finished slightly lower.

MetLife Inc. (MET $47) announced 3Q profits of $1.28 per share, excluding items, above the $1.15 estimate, with revenues declining 2.0% y/y to $17.7 billion, versus the projection of $17.2 billion. Shares advanced.

Cigna Corp. (CI $117) posted 3Q EPS ex-items of $1.94, above the forecasted $1.90, with revenues increasing 5.0% y/y to $9.9 billion, roughly in line with expectations. CI narrowed its full-year profit outlook and reaffirmed its revenue growth outlook. Shares were modestly lower. For analysis of the healthcare cost environment, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Vertigo: Effect of Spiking Healthcare Costs on Consumers, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Services sector reports mixed, jobless claims unexpectedly rise

The Institute for Supply Management (ISM) non-Manufacturing Index (chart) declined to 54.8 in October from 57.1 in September and compared to the Bloomberg forecast of a decrease to 56.0. A reading above 50 denotes expansion. New orders and business activity both declined but remained solidly in expansion territory. Growth in inventories accelerated slightly, while employment expansion decelerated.

The ISM said comments from respondents remained mostly positive about business conditions and the overall economy. However, several respondents noted the uncertainty on the impact of the upcoming U.S. Presidential election and Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Election Night: How to Watch the Returns, as part of our election 2016 commentary at www.schwab.com/insights/category/election-2016, where you can also find timely analysis of The Stock Market and Election Cycles.

The final Markit U.S. Services PMI Index was unrevised at 54.8 in October from the preliminary level to match forecasts, but was above the 52.3 level registered in September. The release is independent and differs from ISM's report, as it has less historic value and Markit weights its index components differently. A reading above 50 denotes expansion.

U.S. services sector output accounts for the lion's share of economic activity, powered by the consumer, which Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, discusses in his latest Schwab Sector Views: The Most Wonderful Time of the Year…Already? Brad notes that consumer confidence is encouraging heading into the holidays, wages are ticking higher, and the labor market looks healthy, but there are questions whether American consumers' notorious propensity to spend has decreased following the financial crisis. Read more at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

Factory orders (chart) increased 0.3% month-over-month (m/m) in September, versus expectations of a 0.2% gain, while August's figure was adjusted higher to a 0.4% rise. September durable goods orders—preliminarily reported a week ago—were revised negatively to a 0.3% decrease, from an initial 0.1% dip, and orders of nondefense capital goods excluding aircraft—a proxy for business spending—was revised lower to a 1.3% drop from the initially reported 1.2% decline.

Weekly initial jobless claims (chart) increased by 7,000 to 265,000 last week, compared to forecasts of a decrease to 256,000, as the prior week figure was unrevised at 258,000. The four-week moving average increased by 4,750 to 257,750, while continuing claims declined 14,000 to 2,026,000, south of the estimated level of 2,043,000.

Preliminary 3Q nonfarm productivity (chart) grew 3.1% on an annualized basis, versus expectations of a 2.1% gain, following the favorably revised 0.2% decline seen in the 2Q. Also, unit labor costs increased 0.3%, versus the forecast calling for a 1.2% gain. Unit labor costs were revised lower to a rise of 3.9% in 2Q.

Treasuries were mixed with the yield on the 2-year note dipping 1 basis point (bp) to 0.81%, while the yield on the 10-year note ticked 1 bp higher at 1.81% and the 30-year bond rate rose 4 bps to 2.60%. With yesterday's unchanged monetary policy decision from the Federal Open Market Committee (FOMC) preserving elevated expectations of a rate hike in December, Schwab's Chief Fixed Income Strategist, Kathy Jones offers analysis of the FOMC's decision in her article, The Fed Plays It Safe, December Hike Likely, at www.schwab.com/insights, while also offering her article, Are Bond Yields About to Rise?, at www.schwab.com/onbonds. Follow Kathy on Twitter: @kathyjones.

Tomorrow, the U.S. economic calendar will culminate with the release of the October nonfarm payroll report, projected to show payrolls grew by 175,000 jobs, after gaining 156,000 in September. Private sector jobs are expected to rise 170,000 following the prior month's 167,000 increase. The unemployment rate is anticipated to dip to 4.9% from 5.0%. Average hourly earnings are estimated to increase 0.3% m/m, on the heels of September's 0.2% gain.

As noted in the recent Schwab Market Perspective: Looking Past the Election, the Fed believes the unemployment rate is nearing what it calculates to be "full" employment, and wage growth has already shown signs of picking up with average hourly earnings (AHE) accelerating to a year-over-year pace of more than 2.5%. Fed members have been preparing the market and investors for a hike, and we believe, after several false starts, it will actually follow through this time around. Perhaps equally as important will be the message the Fed sends regarding what it may be looking to do into 2017. Read more at www.schwab.com/marketinsight.

The trade balance for September will also be reported tomorrow, forecasted to have narrowed to a $38.0 billion deficit, from the $40.7 billion shortfall reported in August.

Europe mostly lower, Asia mixed

European equities finished mostly lower, with the Bank of England (BoE) expectedly keeping its monetary policy stance unchanged, following the Fed's decision yesterday that signaled a December rate hike was likely still on track. The BoE dropped its guidance for a possible rate cut as it raised its inflation and economic growth forecasts. Crude oil prices reversed to the downside to continue a recent tumble and pressure energy stocks. The British pound rallied versus the U.S. dollar after a court ruled that the U.K. government would have to request parliamentary approval to trigger Article 50 and start official negotiations with the European Union (EU) regarding its vote to leave the EU, known as a Brexit. The ruling cooled recently ramped up concerns of a so-called "hard" Brexit. For more analysis of the Brexit fallout, Schwab's Director of International Research, Michelle Gibley, CFA, offers her latest article, Keep Calm and Carry On: The Brexit Shock That Wasn't. Moreover, with the markets choppy and poised for increased volatility amid the diverging global monetary policy landscape, along with U.S. political and U.K. Brexit uncertainty, Schwab's Chief Global Investment Strategist, 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. Read all these articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop. The euro was little changed versus the U.S. dollar and bond yields in the region gained ground.

Stocks in Asia finished mixed, with the looming U.S. Presidential election continuing to foster uncertainty and yesterday's Fed monetary policy decision preserving elevated expectations of a December rate hike. However, crude oil prices rebounded slightly from a recent selloff and Chinese economic data continued to be on the favorable side. Volume was lighter than usual as Japanese markets were closed for a holiday. Mainland Chinese securities rose following an October read on the nation's key services sector activity, which showed growth accelerated, while optimism continued regarding government infrastructure spending. Schwab's Jeffrey Kleintop, CFA, offers timely analysis of the global economic picture in his article, World Tour: An Around The World Look At the Economic Landscape at www.schwab.com/oninternational. Stocks trading in Hong Kong, Australia and India declined, while equities in South Korea advanced.

The international economic docket for tomorrow will deliver a services sector PMI reading from Japan and retail sales from Australia. Releases from across the pond are expected to include Markit Services PMIs for Germany, Italy, France and the eurozone.

Fence-Sitting Persists

Charles Schwab: On the Market

Posted: 8/22/2016 4:15 PM ET

Fence-Sitting Persists

Last week's uncertainty has carried over to this week, as U.S. equities finished mixed and near the unchanged mark, amid evident caution ahead of the start to the Federal Reserve's annual symposium in Jackson Hole, Wyoming this week, which culminates with Friday's speech by Fed Chairwoman Janet Yellen. A pullback in crude oil prices from last week's rally also fostered some negative sentiment, while some M&A news gave the healthcare sector a boost. Treasuries finished higher and the U.S. dollar was flat, while gold was lower.

The Dow Jones Industrial Average (DJIA) decreased 23 points (0.1%) to 18,529, the S&P 500 Index shed 1 point (0.1%) to close at 2,183, while the Nasdaq Composite gained 6 points (0.1%) to 5,245. In lighter volume, 693 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.70 to $47.41 per barrel, wholesale gasoline lost $0.03 to $1.48 per gallon and the Bloomberg gold spot price declined $3.03 to $1,338.44 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 94.55.

Dow member Pfizer Inc. (PFE $35) announced an agreement to acquire oncology bio-pharmaceutical company Medivation Inc. (MDVN $80) for $81.50 per share in cash for a total enterprise value of about $14.0 billion. PFE said the deal is expected to be immnew ediately accretive to its earnings upon closing and it does not expect it to impact its current 2016 guidance. PFE was modestly lower, while shares of MDVN rallied nearly 20%.

Domestic economic docket dormant but Fed gathering set to command attention

Treasuries were higher amid a dormant economic calendar, as the yield on the 2-year note dipped 1 basis point (bp) to 0.74%, the yield on the 10-year note declined 4 basis points (bps) to 1.54%, and the 30-year bond rate fell 5 bps to 2.24%.For analysis on the fixed income markets see the video from Schwab's Managing Director of Trading and Derivatives, Randy Frederick and Fixed Income Director Collin Martin, CFA, titled Tempered Expectations for Bond Returns: Why Hold Bonds? Also, for commentary on the record high stock market, see the video from Schwab's Chief Investment Strategist, Liz Ann Sonders and Randy Frederick, titled Long-Running Bull Finally Attracting Believers? See both at www.schwab.com/insights and follow us on Twitter: @randyafrederick, @lizannsonders and @schwabresearch.

Fed policy focus and accompanying volatility is likely to begin to ramp back up this week, with the U.S. economic calendar yielding key data on the housing sector in the form of tomorrow's new homes sales, with economists expecting a 2.0% month-over-month decline during July to an annual rate of 580,000 units, as well as Wednesday's release of existing home sales. As well, some manufacturing data may also likely garner some attention, with Thursday's durable goods orders report in focus, as well as two reports tomorrow—Markit's Manufacturing PMI Index, forecasted to tick lower to 52.7 during July from the 52.9 posted in June, with a reading above 50 denoting expansion in activity, as well as the Richmond Fed Manufacturing Index. For a look at the housing market, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: There's a New Sector Coming. However, the highlight of the week will likely be the Fed's highly-anticipated annual monetary policy symposium in Jackson Hole, Wyoming, which will culminate with Friday's speech by Federal Reserve Chairwoman Janet Yellen.

As noted in the Schwab Market Perspective: The Calm Before the…., a period of peace has reigned in the market over the past month, but the lull in volatility likely won’t last. However, we do believe the secular bull market has further to run. The third quarter is shaping up to improve on lackluster first half U.S. economic results but weak corporate confidence remains an impediment to stronger growth. Fed uncertainty is likely to heat up heading toward the September Federal Open Market Committee (FOMC) meeting. Read the whole perspective and our sector views at www.schwab.com/marketinsight.

Europe and Asia mixed on commodity weakness and Fed focus

European equities finished mixed, with basic materials and oil & gas issues seeing pressure as commodity prices fell, led by crude oil prices amid lingering supply speculation. The U.S. dollar gained modest ground as Fed rate hike expectations continued to resurface following comments over the weekend from Fed Vice Chair Stanley Fischer that the Central Bank was close to reaching its targets for full employment and 2.0% inflation. The euro dipped compared to the greenback, while bond yields in the region moved to the downside. However, the British pound was higher versus the dollar, continuing its recent rebound from a sell-off that followed the Bank of England's (BoE) decision earlier this month to cut its benchmark interest rate further and boost its asset purchases. The BoE's decision was aimed at bolstering the economy on the heels the late-June vote by the U.K. to leave the European Union, known as a Brexit. The pound has also found support from last week's July economic data that showed retail sales easily topped forecasts, jobless claims unexpectedly declined and consumer price inflation surprisingly rose. For more on the potential impact of the Brexit vote, see the Schwab Center for Financial Research's article, Brexit: What Investors Should Know, at www.schwab.com/marketinsight.

Stocks in Asia finished mixed, with the global markets continuing to focus on the divergent monetary policy landscape following comments over the weekend by U.S. Fed Vice Chair Fischer and ahead of this week's annual Fed policy gathering. Also, Bank of Japan (BoJ) Governor Kuroda hinted at further stimulus measures, while uncertainty regarding more policy action in China persisted. The yen weakened versus the U.S. dollar, though crude oil prices gave back some of a recent run. For more on Japan's potential increased stimulus measures see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, What investors need to know about helicopter money, and amid the heightened uncertainty, Jeff offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification. Read both articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop. Japanese equities, as well as those traded in Hong Kong, advanced, while mainland Chinese fell. Meanwhile, securities traded in Australia, South Korea and India all saw declines for the session.

Tomorrow's international economic calendar will be dominated by the Markit Manufacturing PMI from around the globe, as well as trade data from the U.K.

Schwab Center for Financial Research - Market Analysis Group

Stocks Slide on Crude Pressure

Charles Schwab: On the Market

Posted: 8/10/2016 4:15 PM ET

Stocks Slide on Crude Pressure

Domestic stocks closed the regular trading session lower amid some mixed earnings results and as crude prices declined, despite a pullback for the U.S. dollar, on the heels of a report that showed a surprising rise in oil inventories. Treasuries managed gains, while domestic data revealed slightly fewer-than-expected job openings for June and a rise in weekly mortgage applications. Gold managed a mild move higher.

The Dow Jones Industrial Average (DJIA) declined 37 points (0.2%) to 18,496, the S&P 500 Index lost 6 points (0.3%) to 2,176 and the Nasdaq Composite fell 21 points (0.4%) to 5,205. In moderate volume, 749 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil lost $1.06 to $41.71 per barrel, wholesale gasoline was $0.05 lower at $1.30 per gallon and the Bloomberg gold spot price rose $5.72 to $1,346.45 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 95.63.

Dow member Walt Disney Co. (DIS $98) reported fiscal 3Q earnings-per-share (EPS) of $1.62, one penny above the FactSet estimate, as revenues rose 9.0% year-over-year (y/y) to $14.3 billion, compared to the expected $14.2 billion. Revenues at the company's parks and resorts and studio segments topped forecasts, while its media and networks division sales came in just shy of forecasts. DIS announced that it is acquiring a 33% stake in technology services and video streaming company, BAMTech, for $1.0 billion, while also reporting that it will launch a new ESPN-branded multi-sport direct-to-consumer service. Shares finished higher.

Michael Kors Holdings Ltd. (KORS $49) posted fiscal 1Q EPS ex-items of $0.88, topping the expected $0.74, as revenues increased 0.2% y/y to $988 million, versus the forecasted $952 million. 1Q same-store sales fell 7.4% y/y, compared to the projected 4.8% drop. KORS issued softer-than-expected 2Q guidance, while reaffirming its full-year earnings outlook. Shares closed lower.

Ralph Lauren Corp. (RL $103) announced fiscal 1Q profits ex-items of $1.06 per share, north of the estimated $0.89, as revenues declined 4.0% y/y to $1.6 billion, versus the forecasted $1.5 billion. 1Q same-store sales dropped 6.0% y/y, compared to the expected 4.8% decrease. RL maintained its full-year guidance and shares rallied.

Yelp Inc. (YELP $37) jumped after reporting 2Q EPS of $0.01, versus the $0.07 per share loss that was expected, as revenues rose 30.0% y/y to $173 million, versus the forecasted $170 million. YELP raised its full-year guidance.

For more on the global earnings landscape, see Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, article, Earnings estimates are rebounding: what it means for stocks, at www.schwab.com/marketinsight, and be sure to follow Jeff on Twitter: @jeffreykleintop.

Job openings and mortgage applications rise

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, showed 5.62 million jobs were available to be filled in June, up from May's 5.51 million level, and versus the Bloomberg forecast of 5.68 million. The hiring rate ricked higher to 3.6% from 3.5%, while the separation rate dipped to 3.4% from May's 3.5% pace.

The MBA Mortgage Application Index gained 7.1% last week, after falling 3.5% in the previous week. The increase came as a 9.6% rise for the Refinance Index was accompanied by a 2.6% gain for the Purchase Index. The average 30-year mortgage rate dipped 2 basis points (bps) to 3.65%.

Treasuries were higher, with the yield on the 2-year note declining 3 bps to 0.68%, while the yields on the 10-year note and the 30-year bond decreased 4 bps to 1.51% and 2.23%, respectively. For more on the bond markets, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, With a Whimper Instead of a Bang: Is the Great Bond Bull Market Over?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones. Also, for analysis of portfolio management in volatile times in the market, see our latest article, Does Your Risk Tolerance Change Over Time?, at www.schwab.com/insights and follow Schwab on Twitter: @schwabresearch.

Tomorrow, the U.S. economic calendar will bring the release of the Import Price Index, forecasted to have declined 0.4% m/m during July, after registering a 0.2% increase in June. We will also receive weekly initial jobless claims, expected to have decreased to a level of 265,000 from the previous report's 269,000.

Europe lower on oil, earnings and BoE hiccup, Asia mixed

European equities finished mostly lower amid the backdrop of global monetary policy divergence and uncertainty, with oil & gas issues seeing some pressure as crude oil prices lost ground for a second session. Moreover, a plethora of earnings data weighed on the markets, along with some strength in the euro. The British pound gave up early gains and finished little changed versus the U.S. dollar. The pound saw a brief bounce on the heels of yesterday's failed bond buying operation by the Bank of England (BoE), which came up short of hitting its target for bond purchases. The BoE surprisingly boosted its asset purchases and cut its benchmark interest rate following its monetary policy meeting last week aimed at bolstering the economy in the wake of the late-June vote by the U.K. to leave the European Union (EU), known as a Brexit. For more on the potential impact of the Brexit vote, read Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Brexit's Impact on Sectors, Part Two at www.schwab.com/marketinsight. And for commentary on how the recent Zika pandemic may or may not affect the markets, see the latest article from Schwab's Jeffrey Kleintop, CFA, Does Zika pose an Olympic-sized threat to stocks?, at www.schwab.com/oninternational. French industrial and manufacturing production figures showed unexpected month-over-month declines in June. Bond yields in the region lost ground.

Stocks in Asia finished mixed ahead of tomorrow's national holiday in Japan and as traders await a plethora of Chinese economic reports. Japanese equities declined in light trading ahead of the holiday and as the yen showed some strength to offset a stronger-than-expected increase in the nation's key machine orders for June, which is used as a gauge of capital spending. Mainland Chinese issues were lower, while stocks trading in Hong Kong were higher ahead of this week's flood of economic data, including tomorrow night's releases of industrial production and retail sales reports, which will be followed by lending figures for last month. Schwab's Jeffrey Kleintop, CFA, discusses China data in his article, Trust but Verify: Five Independent Indicators of China's Economy. Also, Schwab's Director of International Research, Michelle Gibley, CFA, offers 5 Reasons China Won't Crash the Global Economy in 2016. Read both articles at www.schwab.com/oninternational. Securities in India fell and South Korean listings finished flat, while weakness in oil & gas issues on yesterday's dip in crude oil prices outweighed some strength in the healthcare sector to drag Australian equities lower.

The international economic docket for tomorrow will be light, offering inflation expectations from Australia and the CPI from France and Italy, while Italy will also report trade data.

Bulls Employ Strong Labor Report

Charles Schwab: On the Market

Posted: 8/5/2016 4:15 PM ET

Bulls Employ Strong Labor Report

Domestic stocks managed to retain solid session gains on Friday with the S&P 500 finishing at a record-high close in the wake of the stronger-than-expected July U.S. labor report. Treasuries were lower and the U.S. dollar was higher following the jobs data, while additional domestic reports showed that the trade deficit widened and consumer credit expanded by a smaller-than-forecasted figure. Meanwhile, gold was sharply lower and crude oil prices lost modest ground.

The Dow Jones Industrial Average (DJIA) increased 191 points (1.0%) to 18,544, the S&P 500 Index added 19 points (0.9%) to 2,183 and the Nasdaq Composite gained 55 points (1.1%) to 5,221. In moderately-heavy volume, 849 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil was $0.13 lower at $41.80 per barrel, wholesale gasoline added $0.01 to $1.38 per gallon and the Bloomberg gold spot price fell $24.71 to $1,336.44 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.5% to 96.24. Markets were higher for the week, as the DJIA increased 0.6%, the S&P 500 Index ticked 0.4% to the upside and the Nasdaq Composite advanced 1.1%.

Kraft Heinz Co. (KHC $89) reported 2Q earnings per share (EPS) of $0.85, above the FactSet estimate of $0.71, on revenues of $6.8 billion, in line with forecasts. As well, the U.S. food giant upped its dividend by 4.5% to $0.60 per share. Shares finished solidly higher.

Priceline Group Inc. (PCLN $1,414) posted 2Q EPS ex-items of $13.93, well above the $12.67 that the Street was expecting. Revenues increased 12% year-over-year (y/y) to $2.6 billion, which were mostly in line with projections, even though it said it saw softer travel demand in markets affected by recent terrorist attacks, particularly France and Belgium. As well, PCLN said the search for a new Chief Executive Officer continues, and that it will take the time needed to find the right candidate. PCLN was nicely higher.

Weyerhauser Co. (WY $33) announced 2Q earnings ex-items of $0.17 per share, below the expected $0.22, with revenues falling 5.5% y/y to $1.7 billion, versus the estimated $1.9 billion. Despite the miss, shares of WY gained ground.

Monster Beverage Corp. (MNST $163) achieved 2Q earnings of $0.99 per share, below the expected $1.03, on revenues of $827.5 million, which beat analysts' expectations for $804.2 million. The energy drink maker cited continued strength in the U.S. dollar and distributor transitions for the lower-than-expected results. Shares closed higher.

U.S. jobs jump, but unemployment remains steady

Nonfarm payrolls (chart) rose by 255,000 jobs month-over-month (m/m) in July, compared to the Bloomberg forecast of a 180,000 increase. The rise of 287,000 seen in June was upwardly revised to a gain of 292,000 jobs. The total upward revision to job gains in May and June was 18,000. Excluding government hiring and firing, private sector payrolls increased by 217,000, versus the forecasted gain of 171,000, after increasing by 259,000 in June, negatively revised from the 265,000 rise that was initially reported. Gains were seen in professional and business services, healthcare and financial services, while employment in mining continued to trend lower.

The unemployment rate remained at 4.9%, compared to expectations of a decline to 4.8%, while average hourly earnings grew by 0.3% m/m, above projections of a 0.2% increase, and June's 0.1% rise was unadjusted and average weekly hours ticked higher to 34.5 from June's unrevised 34.4 hours where it was expected to remain. Finally, the labor force participation rate increased slightly to 62.8% during July from June's 62.7%.

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $12.3 billion during June, falling short of the $16.0 billion forecast of economists polled by Bloomberg, while May's figure was revised lower to $17.9 billion from the initially reported level of $18.6 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $4.6 billion, while revolving debt, which includes credit cards, rose by $7.7 billion.

The trade balance (chart) showed that the deficit widened in June to $44.5 billion, compared to the $43.0 billion Bloomberg estimate. May's deficit was revised to $41.0 billion from the $41.1 billion posted earlier. Exports rose 0.3% m/m to $183.2 billion, and imports rose 1.8% m/m to $227.7 billion.

Treasuries were lower following the jobs report, with the yields on the 2-year and 10-year notes rising 8 basis points (bps) to 0.72% and 1.58%, respectively, while the 30-year bond rate was 6 bps higher at 2.31%. Bond yields have seen some pressure in the wake of the decision in the U.K. to cut rates and add to its asset purchases, the unchanged monetary policy stance from the Fed, and severe miss in 2Q GDP growth.

Schwab's Chief Investment Strategist, Liz Ann Sonders provides analysis of last week's Fed's decision in her commentary, A Hopeful Transmission: Fed Holds Rates Steady, But… and Schwab's Chief Fixed Income Strategist, Kathy Jones discusses in her article, With a Whimper Instead of a Bang: Is the Great Bond Bull Market Over?. Read both articles at www.schwab.com/marketinsight and follow Liz Ann and Kathy on Twitter: @lizannsonders and @kathyjones.

Europe sees gains on Bank of England and U.S jobs buoyancy, Asia mixed

European equities finished soundly higher, getting a boost from the better-than-expected U.S. July labor report. Meanwhile, yesterday's monetary policy decision by the Bank of England (BoE) to cut its benchmark interest rate and unexpectedly boost its asset purchase program also helped to further soothe uncertainty post-Brexit. Financials continued to be a point of focus amid attention on the Italian banking sector, as the Bank of Italy's governor said it cannot rule out public support for the nation's troubled banks.

The euro and the pound were lower versus the greenback following the U.S. labor report, while bond yields in the region were higher. Amid the continued elevated global volatility that has been amplified by economic growth uncertainty and divergent monetary policy actions, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification and Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, provides an updated look at sectors in the aftermath of Brexit in the latest Schwab Sector Views: Brexit's Impact on Sectors, Part Two. Read both articles at www.schwab.com/marketinsight and be sure to follow Schwab and Jeff on Twitter: @schwabresearch and @jeffreykleintop.

Stocks in Asia finished mixed ahead of today's U.S. labor report and as investors continue to assess the divergent monetary policy around the globe. Japanese equities finished flat, unable to hang on to early gains and getting little help from some weakness in the yen as an upbeat wage report was met with lower-than-expected consumption figures and a flat read on the nation's Leading Index. Mainland Chinese stocks nudged lower, while securities trading in Hong Kong finished with solid gains. Indian listings ticked higher, with investors continuing to gauge the possible effects of the nation's largest tax reform in decades, per Bloomberg, with the goods-and-services tax bill passed by the upper house of parliament yesterday. Schwab's Director of International Research, Michelle Gibley, CFA, offers a look at the global political landscape in her article, Performing Reformers: How Political Change Can Affect Stocks, at www.schwab.com/oninternational. Meanwhile, Australian stocks advanced, led by energy and materials issues, while South Korean equities gained ground.

Stocks finish week higher despite slow start

After an initial sluggish start, the Dow was able to end its seven-session losing streak and U.S. equities finished the trading week higher. An end-of-week rally transpired on the heels of the better-than-expected July labor report amid the backdrop of 2Q earnings season, which continued to roll out results that, more often than not, topped analysts' forecasts. In the recent Schwab Market Perspective: Is the Recent Rally for Real?, our experts highlight that this doesn’t mean the economy is off to the races as the business community remains relatively cautious, despite a largely better-than-expected earnings season. In the article, Schwab's specialists dive deeper into the earnings scene and note that interestingly, when we step back from the seasonal pattern we can see that after about two years of declines a rising trend in earnings estimates appears to be emerging. Read the whole perspective at www.schwab.com/marketinsight, and be sure to follow Schwab on Twitter: @schwabresearch.

Dow members Pfizer Inc. (PFE $36) and Procter & Gamble Co. (PG $87) bested both top and bottom line expectations, CVS Health Corp. (CVS $98) beat on earnings and Time Warner Inc. (TWX $78) also topped per share profit forecasts, while MetLife Inc. (MET $40) reported figures that were well south of estimates. In the recent article Earnings estimates are rebounding: what it means for stocks, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, discusses how analysts’ improving outlook for corporate earnings has tracked the trend of better-than-expected economic data, helping to support stocks in the face of negative geopolitical events. Read more of Jeff's insights at www.schwab.com/marketinsight, and be sure to follow him on Twitter: @jeffreykleintop.

Heavy dose of data expected

Next week's domestic economic docket will heat back up, with key releases of retail sales and the preliminary University of Michigan Consumer Sentiment Index for August. In the recent Schwab Market Perspective, our experts note that consumer confidence remains relatively healthy according to the Conference Board, likely due at least in part to a continued healthy job market. This has helped to move wages higher after years of largely tepid or nonexistent gains according to the Atlanta Fed Wage Tracker, which could have aided the recent move up in the retail sales estimates for 2016 by the National Retail Federation. Read more at www.schwab.com/marketinsight, and be sure to follow Schwab on Twitter: @schwabresearch.

Other significant U.S. reports next week include: preliminary 2Q nonfarm productivity and unit labor costs, the NFIB Small Business Optimism Index, wholesale and business inventories, the JOLTS Job Openings report, the Import Price Index, and the Producer Price Index.

International economic releases for next week are expected to include: China—trade data, CPI, PPI, industrial production and retail sales. Japan—trade data, machine orders, PPI and the Tertiary Industry Index. India—trade data, CPI and industrial production. U.K.—industrial and manufacturing production, construction output and trade data. Germany—the Wholesale Price Index, CPI, preliminary 2Q GDP, industrial production and trade data. Eurozone—industrial production and preliminary 2Q GDP.