Stocks Finish Lower, One Session Left for 2016

Charles Schwab: On the Market

Posted: 12/29/2016 4:15 PM ET

Stocks Finish Lower, One Session Left for 2016

U.S. stocks closed with mild losses as crude oil prices slipped lower in the wake of an unexpected rise in oil inventories reported by the government. Treasuries and gold were higher and the U.S. dollar dipped. In economic news, weekly jobless claims fell in line with expectations and a preliminary read for the U.S. goods trade deficit unexpectedly widened.

The Dow Jones Industrial Average (DJIA) decreased 14 points (0.1%) to 19,820, the S&P 500 Index lost nearly 1 point to 2,249 and the Nasdaq Composite declined 6 points (0.1%) to 5,432. In moderately-light volume, 572 million shares were traded on the NYSE and 1.3 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.29 lower to $53.77 per barrel and wholesale gasoline was unchanged at $1.68 per gallon. Elsewhere, the Bloomberg gold spot price added $15.93 to $1,157.60 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 102.65.

Sears Holdings Corp. (SHLD $9) gained ground after announcing that it has obtained a secured standby letter of credit facility, which provides the company with additional liquidity to fund its operations.

Jobless claims drop as expected

Weekly initial jobless claims (chart) fell 10,000 to 265,000 last week, matching the Bloomberg forecast, as the prior week figure was unrevised at 275,000. The four-week moving average dipped by 750 to 263,000, while continuing claims jumped 63,000 to 2,102,000, north of the estimated level of 2,027,000.

The advance goods trade deficit widened unexpectedly to $65.3 billion in November, from the favorably revised $61.9 billion in October, versus projections calling for the deficit to narrow to $61.6 billion.

Treasuries were higher, with the yield on the 2-year note declining 4 basis points (bps) to 1.22%, the yield on the 10-year note dropping 3 bps to 2.48%, and the 30-year bond rate dipping 2 bps to 3.08%.

Despite today's dip, bond yields remain elevated in the wake of upbeat economic data, which has accompanied high expectations for fiscal stimulus, tax reform and regulatory rollbacks following the surprise November Presidential election. Also, the rally in rates was bolstered in early December as the Fed's highly expected 25 bp increase to its target for the fed funds rate included a forecast for more rate hikes in 2017 than it had previously projected. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the bond markets in a video with Schwab's Vice President of Trading and Derivatives, Randy Frederick titled, How Should Bond Investors Prepare in Light of Fed Outlook for 2017? at www.schwab.com/insights, where you can also find her latest, Changing Conditions: A Bond Market FAQ. Follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Signs of rising inflation have also pressured bond prices and Schwab's Fixed Income Director, Collin Martin, CFA, discusses in his article, Inflation Is Rising: Time to Consider Treasury-Inflation Protected Securities? at www.schwab.com/onbonds.

Tomorrow, the U.S. economic calendar will yield the Chicago Purchasing Mangers Index, expected to decline slightly to 56.8 for December from the 57.6 level in November, but still solidly in expansion territory (above 50).

Europe dips, Asia mixed

European equities dipped following the decline in the U.S. yesterday, while volume remained subdued amid a lack of catalysts as the New Year approaches. Financials continued to be hampered as the markets grapple with the expected bailout of struggling Italian lender Banca Monte dei Paschi di Siena SpA (BMDPD $7). Oil & gas issues modestly added to recent gains in the wake of the strength in crude oil prices as of late, while basic materials slightly gave back a recent jump. In economic news, U.K. home prices rose much more than expected in December. The euro gained ground and the British pound ticked higher versus the U.S. dollar, while bond yields in the region were mostly lower.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, 5 Reasons International Stocks May Underperform In 2017, at www.schwab.com/oninternational, as well as his video with Senior Derivatives Analyst Nathan Peterson titled, Brexit, Germany, China: How the Global Economy Could Fare in the New Year at www.schwab.com/insights. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed following the drop in the U.S. yesterday, with global volume, data and conviction remaining hamstrung in the final trading sessions of 2016. Japanese equities dropped with the yen gaining noticeable ground. Mainland Chinese shares dipped and those in Hong Kong rose, with the markets in the world's second largest economy continuing to grapple with festering currency/liquidity concerns in the wake of the U.S. dollar's recent jump, uncertainty following government crackdowns—notably on the real estate and insurance sectors—and lingering uneasiness regarding trade relations with the U.S. For analysis of the impact on the global markets of the U.S. election, see Schwab's Jeffrey Kleintop's, CFA, latest article, President Trump and Global Trade: How Will Campaign Promises Play Out?.

Australian securities gained ground as basic materials extended yesterday's rally. A rise in South Korean stocks was supported by an upbeat read on the nation's November industrial production, which was partially offset by the government's downwardly revised 2017 GDP forecast. Indian equities continued to rebound from a recent selloff to a five-week low, courtesy of festering earnings and economic concerns, along with government reform uncertainty and monetary policy divergence. Schwab's Director of International Research, Michelle Gibley, CFA, offers timely analysis of emerging markets in her latest article, Emerging Markets: Why They Deserve a Place in Your Portfolio, Read both articles at www.schwab.com/oninternational, and be sure to check out our latest article, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

The international economic docket for tomorrow will be light, offering CPI from South Korea and PPI from Italy.

Stocks Close Near Lows

Charles Schwab: On the Market

Posted: 12/28/2016 4:15 PM ET

Stocks Close Near Lows

U.S. stocks traded lower, as data, volume and conviction continue to be light in the final trading sessions of 2016. Treasuries, gold, the U.S. dollar and crude oil prices were all higher. Limited domestic economic data revealed an unexpected decline in pending home sales. In equity news, the Korea Fair Trade Commission announced it found that certain business practices of Qualcomm are in violation of the country's competition law.

The Dow Jones Industrial Average (DJIA) decreased 111 points (0.6%) to 19,834, the S&P 500 Index lost 19 points (0.8%) to 2,250 and the Nasdaq Composite declined 49 points (0.9%) to 5,439. In moderately-light volume, 611 million shares were traded on the NYSE and 1.3 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.16 higher to $54.06 per barrel and wholesale gasoline was $0.02 higher at $1.68 per gallon. Elsewhere, the Bloomberg gold spot price added $3.44 to $1,142.22 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.3% higher at 103.28.

Qualcomm Inc. (QCOM $66) announced late-yesterday an $865 million fine from South Korean regulators for violating competition laws regarding its patent licensing practices. The company said it intends to fight the ruling as it strongly believes that the Korea Fair Trade Commission findings are inconsistent with the facts, disregard the economic realities of the marketplace and misapply fundamental tenets of competition law. Shares traded lower.

Kate Spade & Co. (KATE $18) jumped amid a report from Dow Jones Newswires that the company is considering a sale of the company. KATE did not comment on the report.

Pending home sales surprisingly decline

Pending home sales fell 2.5% month-over-month (m/m) in November, versus the Bloomberg projection of a 0.5% gain, and following the unrevised 0.1% increase registered in October. Compared to last year, sales were 1.4% higher. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which unexpectedly rose in November and remained at the highest level since February 2007.

Treasuries were higher, with the yield on the 2-year note ticking 2 basis points (bps) lower to 1.26%, the yield on the 10-year note falling 5 bps to 2.51% and the 30-year bond rate declining 4 bps to 3.10%.

Yesterday bond yields added to a recent surge that has come from upbeat economic data, which has accompanied high expectations for fiscal stimulus, tax reform and regulatory rollbacks following the surprise November Presidential election. Also, the rally in rates was bolstered in early December as the Fed's highly expected 25 bp increase to its target for the fed funds rate was delivered along with a forecast for three rate hikes in 2017, up from two in its September projection. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the bond markets in a video with Schwab's Vice President of Trading and Derivatives, Randy Frederick titled, How Should Bond Investors Prepare in Light of Fed Outlook for 2017? at www.schwab.com/insights, where you can also find her latest, Changing Conditions: A Bond Market FAQ. Follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Signs of rising inflation have also pressured bond prices and Schwab's Fixed Income Director, Collin Martin, CFA, discusses in his article, Inflation Is Rising: Time to Consider Treasury-Inflation Protected Securities? at www.schwab.com/onbonds.

Tomorrow, the U.S. economic calendar will remain light, with the release of weekly initial jobless claims, expected to have declined to 265,000 from last week's 275,000 level.

Europe and Asia mixed as volume remained thin

European equities finished mixed, with telecommunications stocks leading to the downside, while volume and conviction remained subdued in the holiday-shortened week. Financials continued to be hamstrung by festering concerns toward the European banking sector. Banca Monte dei Paschi di Siena SpA (BMDPD $7) remained in focus as the European Central Bank said yesterday the struggling Italian lender needs substantially more capital than the company had planned in its recently failed capital increase. The ECB's estimate comes as the government approved a bank bailout decree that will allow it to increase its public borrowing by 20 billion euros to help fund bank bailouts. However, basic materials issues rallied and the energy sector gained ground as crude oil prices modestly added to yesterday's gains, helping U.K. stocks move higher in their return from an extended holiday break. In economic news, Italian consumer and manufacturing confidence both unexpectedly improved in December. The euro and British pound lost ground on the U.S. dollar, while bond yields in the region were mostly lower.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, 5 Reasons International Stocks May Underperform In 2017, at www.schwab.com/oninternational, as well as his video with Senior Derivatives Analyst Nathan Peterson titled, Brexit, Germany, China: How the Global Economy Could Fare in the New Year at www.schwab.com/insights. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed following the modest gains in the U.S. and Europe yesterday, though volume remained subdued amid the holiday-shortened week. Japanese equities finished flat despite some weakness in the yen, while November economic data was mixed as the nation's industrial production rose by a smaller amount than anticipated and retail sales unexpectedly rose. Mainland Chinese issues declined as China's markets continue to grapple with festering currency/liquidity concerns in the wake of the U.S. dollar's recent jump, uncertainty following government crackdowns—notably on the real estate and insurance sectors—and lingering uneasiness regarding trade relations with the U.S. For analysis of the impact on the global markets of the U.S. election, see Schwab's Jeffrey Kleintop's, CFA, latest article, President Trump and Global Trade: How Will Campaign Promises Play Out?. However, stocks trading in Hong Kong rebounded from a recent bout of selling pressure in its return to action from the long holiday break.

Australian securities were standout winners amid a rally in basic materials listings, while South Korean equities fell on festering political uncertainty in the fallout from the recent impeachment of the nation's president. Indian stocks finished flat after yesterday's sharp rebound from a recent selloff that has taken its index to a five-week low, courtesy of festering earnings and economic concerns, along with government reform uncertainty and monetary policy divergence. Schwab's Director of International Research, Michelle Gibley, CFA, offers timely analysis of emerging markets in her latest article, Emerging Markets: Why They Deserve a Place in Your Portfolio, Read both articles at www.schwab.com/oninternational, and be sure to check out our latest article, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

Tomorrow, the international economic docket will be void of any major releases.