Stocks Rally Ahead of Senate Tax Vote

Charles Schwab: On the Market

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

Stocks Rally Ahead of Senate Tax Vote

 

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

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

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

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

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

Personal income and spending rise, jobless claims dip

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

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

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

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

Schwab's Chief Investment Strategist Liz Ann Sonders notes that U.S. business capital spending has already picked up but an even sharper recovery could be in the cards for 2018, while tax reform—if we get it—would be an additional kicker in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle. Tomorrow, November manufacturing activity will be on display with the releases of the ISM Manufacturing Index and the final Markit Manufacturing PMI Index. The ISM index is projected to dip to 58.3 from 58.7 in October, while Markit's index is expected to be revised higher to 54.0 from the preliminary 53.8 reading, but slightly below October's 54.6 level. Readings above 50 for both reports denote expansion.

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

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

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, if the bill passes the Senate, the House and Senate would need to convene a conference to negotiate and reconcile differences between the two bills to produce a single consensus bill. That bill would then need to be approved by both chambers before it could be sent to President Donald Trump for his signature.

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

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

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

European equity markets relinquished early gains and finished mostly lower, with the euro extending a rise amid a downside reversal for the U.S. dollar late in the session and the British pound jumping on signs of progress in deadlocked Brexit negotiations. Energy issues gave up an advance as crude oil prices were choppy ahead of today's OPEC production decision. OPEC is expected to deliver an extension of cuts to the end of 2018 but there were some uncertainties that lingered ahead of the decision. U.S. tax reform optimism continued but this fostered yesterday's noticeable rotation out of the technology sector, and the group remained under pressure on this side of the pond. In economic news, eurozone consumer price inflation estimates came in a bit cooler than expected for November, while the region's October unemployment rate dipped unexpectedly. German retail sales surprisingly fell last month. In his latest article, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, addresses the question Are Stocks too Expensive?, noting that although world stock market valuations are above average, similar valuations have produced double-digit gains over the following 12 months during the past 50 years. Jeff concludes that valuations support a globally diversified portfolio offering the best diversification benefits in 20 years. Bond yields finished mostly lower to exacerbate pressure on financials.

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

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

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

Stocks Trade Higher, Finish Q3 with Solid Gains

Charles Schwab: On the Market

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

Stocks Trade Higher, Finish Q3 with Solid Gains

 

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

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

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

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

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

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

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

Personal income and spending match forecasts, regional manufacturing activity jumps

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

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

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

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

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

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

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

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

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

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

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

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

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

Stocks nudge higher on week to tack onto solid Q3 gains

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

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

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

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

Stocks Mixed on Data and Persistent Weakness in Tech

Charles Schwab: On the Market

Posted: 7/31/2017 4:15 PM ET

Stocks Mixed on Data and Persistent Weakness in Tech

U.S. stocks finished mixed, as investors weighed relatively upbeat global economic data and continued uncertainty surrounding the tech sector. Treasury yields and the U.S. dollar were little changed, while crude oil moved above $50/barrel and gold was slightly higher. M&A activity was in focus after Discovery Communications agreed to acquire Scripps Networks Interactive for nearly $15 billion.

The Dow Jones Industrial Average (DJIA) advanced 61 points (0.3%) to 21,891, the S&P 500 Index was 2 points (0.1%) lower at 2,470, and the Nasdaq Composite declined 27 points (0.4%) to 6,348. In heavy volume, 1.0 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.46 to $50.17 per barrel and wholesale gasoline was $0.03 higher at $1.68 per gallon. Elsewhere, the Bloomberg gold spot price inched $0.57 higher to $1,270.21 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 92.85.

Discovery Communications Inc. (DISCA $27) announced an agreement to acquire Scripps Networks Interactive Inc. (SNI $87) for $90.00 per share in cash and stock, valued at about $14.6 billion. Under the terms of the deal Scripps shareholders will receive $63.00 per share in cash and $27.00 per share in Class C Common shares of Discovery stock. Shares of DISCA saw pressure on the news and as the company reported Q2 earnings that missed forecasts. SNI was modestly higher as rumors of the deal recently boosted its shares and the company lowered its guidance after posting softer-than-expected Q2 revenues.

Dynavax Technologies Corp. (DVAX $16) surged over 70% after an advisory committee for the U.S. Food & Drug Administration (FDA) supported the company's safety claim regarding its Hepatitis B vaccine candidate, prompting some analysts to upgrade the stock.

Pending home sales jump, regional manufacturing activity continues to show growth

Pending home sales rose 1.5% month-over-month (m/m) in June, versus the Bloomberg projection of a 1.0% increase, and following the upwardly revised 0.7% drop registered in May. Compared to last year, sales were 0.7% higher. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which dipped slightly more than expected in June.

The Chicago Purchasing Managers Index (chart) declined more than expected but remained at a level depicting expansion (above 50), after falling to 58.9 in July from 65.7 in June, which was the highest since May 2014. Expectations called for a decrease to 60.0.

The Dallas Fed Manufacturing Activity Index surprisingly rose further into a level depicting expansion (a reading above zero). The index improved to 16.8 in July, from 15.0 in June, and compared to the expected decline to 13.0.

Today's reports begin a week that will see earnings continue to pour in and the economic calendar likely garnering attention given the recent action in bonds and currencies, while the markets appear a little less certain that another Fed rate hike this year is in the offing. Tomorrow, we will get a look at national manufacturing activity in July with the releases of the ISM Manufacturing Index, projected to dip to 56.5 from 57.8 in June, and the final Markit Manufacturing PMI Index, expected to be unrevised at 53.2 and up from June's 52.0 level. Readings above 50 for both depict expansion. We will also get a look at the health of the consumer and inflation, with the release of June personal income and spending, forecasted to match May's m/m gains of 0.4% and 0.1%, respectively, while the core PCE Index—a Fed favored gauge of inflation—is projected to remain at a 1.4% year-over-year rate and below the Fed's 2.0% target. Tomorrow's monthly U.S. auto sales and construction spending reports are also likely to be in focus.

As noted in the latest Schwab Market Perspective: Are Danger Signs Rising…or Will the Bull Run Continue?, a solid earnings season should contribute to a continuation of the bull market in stocks, along with economic data that is showing a robust labor market, but few signs of inflation building. Dangers are lurking, however, and the possibility of a decent-sized pullback has grown over the past couple of months, in light of monetary policy and geopolitical uncertainties. While we would likely view such a move as healthy, it can be disconcerting. Stay diversified and be prepared to guard against overreacting to any such move. Read more on the Markets & Economy page at www.schwab.com.

Treasuries were little changed, as the yields on the 2-year and 10-year notes, along with the 30-year bond, were all flat at 1.35%, 2.29% and 2.90%, respectively. Bond yields have shown some relative signs of life after recent pressure though the U.S. dollar remains hampered. The markets continue to grapple with geopolitical and global monetary policy uncertainties, exacerbated by last week's unchanged Fed monetary policy decision, as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her latest article, Fed Keeps it on the QT. Liz Ann notes that the decision was unanimous, and the addition of the words "relatively soon" point to a September start point to balance sheet shrinkage, or quantitative tightening (QT). Next up is the Jackson Hole annual conference, at which Yellen will speak, which could provide an opportunity to further steer the consensus around QT's timing. There is a September timing risk however, given that we could be in the midst of a debt ceiling stand-off, so stay tuned. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

The political front remains a source of market uncertainty in the wake another failed attempt at health care reform as discussed in Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's article, Health Care Reform: What Investors Should Know, on the Insights & Ideas page at www.schwab.com.

Europe mixed, Asia mostly higher following data and amid geopolitical uncertainty

European equities finished mixed in late-day action, with basic materials and oil & gas issues finding some support from upbeat economic data in the region, which followed relatively favorable reports out of Asia. However, the rally in technology issues continued to pause as analysts grapple with valuation concerns as earnings season rolls on. Also, consumer goods stocks were pressured by tobacco companies in the wake of late Friday's FDA announcement that it plans to crackdown on nicotine levels in cigarettes. The euro and British pound both moved higher in late-day action versus the U.S. dollar to apply some pressure on the markets, ahead of this week's monetary policy decision from the Bank of England, while core eurozone consumer price inflation estimate came in slightly hotter than expected. Bond yields in the region finished mixed. German retail sales rose more than expected in June, while the eurozone unemployment rate unexpectedly dipped. Stocks appeared to shrug off flared-up geopolitical concerns in the wake of another missile test by North Korea late last week. For a look at global investing, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, An important benefit to global investors is back after 20 years on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mostly to the upside, with the markets digesting some economic data, along with the continued global earnings season. Japanese equities declined, with the yen gaining ground to overshadow an upbeat read on the nation's industrial production, which rebounded more than expected in June. However, stocks traded in mainland China and Hong Kong rallied following upbeat earnings from some key companies in the nation, and as manufacturing and non-manufacturing reports continued to suggest expansion in July, with the latter showing growth in activity out of the key services sector accelerated. Australian securities advanced those traded in India also rose ahead of this week's monetary policy decisions from the two countries. Meanwhile, South Korean stocks ticked only slightly higher, showing some late-day resiliency in the face of late last week's missile test from North Korea. Amid this backdrop and as South Korean and Indian markets remain near all-time highs, Schwab's Jeffrey Kleintop, CFA, offers his articles, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, as well as, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page.

Markit Manufacturing PMI readings from across the globe will dominate tomorrow's international economic calendar, while other items of note include PPI and trade data from South Korea, auto sales from Japan, employment figures from Germany and GDP from the Eurozone.

Lackluster Reports Pressure Equities for Second Day

Charles Schwab; On the Market

Posted: 5/31/2017 4:15 PM ET

Lackluster Reports Pressure Equities for Second Day

U.S. equities finished lower for a second session with financials taking the brunt of the losses following some trading revenue warnings from within the sector, while the Fed's Beige Book noted some districts saw some slowing in growth. Crude oil's continued descent pressured the energy sector, and domestic economic data was less-than-stellar. Meanwhile, Treasury yields lost ground and gold was higher, while the U.S. dollar was flat.

The Dow Jones Industrial Average (DJIA) declined 21 points (0.1%) to 21,009, the S&P 500 Index decreased 1 point (0.1%) to 2,412, and the Nasdaq Composite moved 5 points (0.1%) lower to 6,199. In heavy volume, 1.5 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.34 to $48.32 per barrel and wholesale gasoline lost $0.02 to $1.60 per gallon. Elsewhere, the Bloomberg gold spot price increased $5.57 to $1,268.66 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 97.09.

Michael Kors Holdings Ltd. (KORS $33) reported a fiscal Q4 loss of $0.17 per share, or earnings-per-share (EPS) of $0.73 ex-items, versus the $0.70 FactSet estimate, as revenues dropped 11.2% year-over-year (y/y) to $1.1 billion, roughly in line with forecasts. Q4 same-store sales fell 14.1% y/y, compared to the projected 12.8% decrease. The company noted a challenging year as it continued to operate in a difficult retail environment with elevated promotional levels. KORS issued Q1 and full-year guidance that was below the Street's expectations, as it characterized the current year as "a transition year." Separately, the company announced a new $1.0 billion stock repurchase program. Shares were sharply lower.

Bank of America Corp. (BAC $22) and Dow member JPMorgan Chase & Co. (JPM $82) lead the financial sector lower after executives from the two companies at separate conferences in New York City warned that trading revenues in Q2 are lower y/y.

Regional manufacturing growth slows, Fed report shows moderating growth

The Chicago Purchasing Managers Index (chart) slowed but remained at a level depicting expansion (above 50), after declining to 55.2 in May, from 58.3 in March, which was the highest level since January 2015, and versus the Bloomberg expectation of a decrease to 57.0.

Pending home sales fell 1.3% month-over-month (m/m) in April, versus projections of a 0.5% increase, and following the downwardly revised 0.9% decline registered in March. Compared to last year, sales were 5.4% lower. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which fell more than expected in April.

The MBA Mortgage Application Index decreased 3.4% last week, following the previous week's 4.4% gain. The drop came as a 5.6% fall in the Refinance Index was met with a 1.4% decline for the Purchase Index. The average 30-year mortgage rate remained at 4.17%.

The Federal Reserve's Beige Book, a look at business activity across the nation used as a preparation tool for the Fed's next two-day monetary policy meeting set to conclude on June 14th, was released in afternoon action. The report showed that the U.S. economy as a whole continued to grow at a "modest to moderate" pace, but the districts of Boston and Chicago noted slowing growth, while New York "indicated that activity had flattened out." Meanwhile, the report indicated that "labor market conditions continued to tighten, with most districts citing shortages", while prices overall "were little changed from the previous report, with most districts reporting modest increases."

Expectations are elevated that the Fed will raise interest rates following its June meeting, though the frequency of further hikes this year is in question as the Central Bank looks to begin the process of shrinking its bloated balance sheet, a move that Schwab’s Chief Investment Strategist Liz Ann Sonders notes is a form of tightening. Liz Ann discusses this in her latest article, Gimme Three Steps … and a Stumble?, noting that the transition from quantitative easing (QE) to quantitative tightening (QT) begs the question whether we are heading into another period of heightened volatility. She concludes that although stocks tend to fare well during rate hike cycles, the unprecedented nature of this tightening cycle suggests bouts of volatility are likely. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Treasuries finished modesly higher, as the yields on the 2-year and 10-year notes, along with the 30-year bond, dipped by 1 basis point to 1.28%, 2.20% and 2.87%, respectively. For analysis of the bond markets amid the expected Fed interest rate action, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, as well as Schwab's Chief Fixed Income Strategist, Kathy Jones' article, Three Reasons to Own Bonds When the Fed is Raising Interest Rates on the Fixed Income page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

Tomorrow's economic calendar will heat up with a plethora of key reports for the markets to digest ahead of Friday's labor report, beginning with ADP's private sector payroll release and weekly initial jobless claims. However, the following releases of the ISM Manufacturing Index and May auto sales figures are likely to garner the most scrutiny. ISM is expected to show manufacturing activity is expected to slow slightly to 54.6 in May from 54.8 April but remain solidly in expansion territory a depicted by a reading above 50. According the FactSet, adjusted auto sales are projected to post another y/y decline, likely preserving concerns about the divergence between hard and soft data.

As noted in the latest Schwab Market Perspective: Unprecedented! Or Maybe Not?, leading indicators continue to show a growing economy, bouncing back from the weak first quarter, while the labor market continues to tighten, and globally, we are seeing improving growth. This should help the bull market continue. Read more on the Markets & Economy page at www.schwab.com. Other reports on tomorrow's calendar include the final Markit Manufacturing PMI Index and construction spending.

Europe and Asia mixed in the face of heightened political uncertainty

European equities finished mixed amid elevated political uncertainty in the region. Recent polls suggested U.K. Prime Minister Theresa May's Conservative Party could lose seats in Parliament and may not win an overall majority in next week's election. This came against the backdrop of the nation's ongoing Brexit negotiations to foster some increased political uncertainty, while elections loom in Italy and Germany later this year. The British pound overcame early losses and was higher versus the U.S. dollar. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick offer the video, Political Risk: How Should Investors Respond? 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, the eurozone consumer price inflation estimates for May came in cooler than expected, while the region's unemployment rate unexpectedly dipped to 9.3%. Also, Germany's unemployment change declined by a slightly smaller amount than anticipated and the nation's retail sales surprisingly slipped. The euro was higher versus the greenback and bond yields in the region finished mixed. Healthcare stocks gained solid ground, though the oil & gas sector came under pressure as crude oil prices extended losses. Basic materials were lower despite some relatively upbeat Chinese manufacturing and services data, while financials were hampered by a flare-up in Italian banking concerns and warnings about trading revenues out of the U.S. banking sector.

Stocks in Asia finished mixed amid lingering political uncertainty in the U.S. and Europe, while the markets digested some divergent reads on economic activity in the region. Japanese equities dipped slightly, with the yen choppy after paring gains late in the session, while a report showed the nation's industrial production rebounded solidly in April, but at a pace that was just shy of expectations. Stocks in mainland China advanced, but those traded in Hong Kong declined, as traders grappled with a recent credit rating downgrade of the nation, festering regulatory crackdown concerns, and the aforementioned political uncertainty. Also, the markets digested China's official May business activity reports, which showed growth in manufacturing output held steady, slightly above forecasts, while its expansion in its key services sector accelerated slightly. Meanwhile, markets in Australia and South Korea gained modest ground, while securities in India finished flat ahead of the release of its Q1 GDP report. After the markets closed, India reported that its Q1 GDP growth slowed to a 6.1% y/y pace of expansion, from a 7.0% pace in Q4, and compared to the projected acceleration to a rise of 7.1%.

For a look at the global markets and economy, see Schwab's Jeffrey Kleintop's, CFA, article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the Markets & Economy page at www.schwab.com, as well as his video, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com.

Reports on tomorrow's international economic calendar include: the Markit Manufacturing PMIs from across the globe, CPI from South Korea, and GDP from Italy.

Stocks Close Lower to Round-Out a Solid Week

Charles Schwab: On the Market

Posted: 3/31/2017 4:15 PM ET

Stocks Close Lower to Round-Out a Solid Week

U.S. stocks finished the regular trading session lower, but were nicely higher for the week and posted a strong quarterly advance. In economic news, a rise in personal income for February matched expectations, while personal spending missed estimates and consumer sentiment was revised to a lower-than-expected level. Treasury yields dipped after rebounding yesterday and the U.S. dollar was nearly unchanged. Crude oil prices extended a recent recovery and gold managed minor gains. In equity news, BlackBerry rallied after announcing its 4Q results.

The Dow Jones Industrial Average (DJIA) lost 65 points (0.3%) to 20,663 and the S&P 500 Index shed 5 points (0.2%) to 2,363, while the Nasdaq Composite was 3 points lower at 5,912. In moderately-heavy volume, 983 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.25 higher to $50.60 per barrel and wholesale gasoline gained $0.02 to $1.70 per gallon. Elsewhere, the Bloomberg gold spot price rose $4.91 to $1,247.55 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 100.47. Markets were higher for the week, as the DJIA increased 0.3%, the S&P 500 Index advanced 0.8%, and the Nasdaq Composite rallied 1.4%.

BlackBerry Ltd. (BBRY $8) reported a 4Q loss of $0.09 per share, or earnings-per-share (EPS) of $0.04 ex-items, compared to the breakeven FactSet estimate, as revenues fell 38.4% year-over-year (y/y) to $286 million, versus the projected $288 million. Adjusted revenue was $297 million. The company said looking ahead, it expects to grow at or above the overall market in its software business and generate positive free cash flow for the full year. Shares rallied. 

FMC Corp. (FMC $70) jumped after announcing an agreement to acquire a portion of Dow member DuPont's (DD $80) crop protection business and simultaneously sell DD its health & nutrition business. The divestiture of DD's crop protection business will satisfy its commitments to the European Commission in connection with its conditional regulatory clearance of its merger with Dow Chemical Co. (DOW $64), which is now expected to close between August 1 and September 1. DD traded lower.

Personal income and spending mixed, consumer sentiment unexpectedly revised lower

Personal income (chart) was up 0.4% month-over-month (m/m) in February, matching the Bloomberg forecast, and compared to January's upwardly revised 0.5% gain. Personal spending ticked 0.1% higher last month, below expectations and January's unrevised 0.2% gain. The February savings rate as a percentage of disposable income was 5.6%. The PCE Deflator was up 0.1%, matching expectations. Compared to last year, the deflator was 2.1% higher, in line with estimates. Excluding food and energy, the PCE Core Index was up 0.2% m/m, matching expectations, and the index was 1.8% higher y/y, above estimates of a 1.7% gain. January's y/y figure was revised higher to a 1.8% increase.

The final March University of Michigan Consumer Sentiment Index (chart) was revised to 96.9 from the preliminary level of 97.6, where it was expected to remain. However, the index was up slightly compared to February's level of 96.3. Compared to last month, the expectations component was unchanged, while the current conditions component moved higher. The 1-year inflation outlook declined to 2.5% from February's 2.7% rate, and the 5-10 year inflation projection dipped to 2.4% from 2.5%.

The Chicago Purchasing Managers Index (chart) unexpectedly moved further into a level depicting expansion (above 50), after rising to 57.7 in March—the highest level since January 2015—from 57.4 in February, and versus expectations of a decline to 56.9.

Treasuries were higher, with the yields on the 2-year note and the 30-year bond declining 2 basis points (bps) to 1.26% and 3.02%, respectively, while the yield on the 10-year note declined 3 bps to 2.40%. 

Bond yields rebounded yesterday, helping the stock markets gain ground as financials led the way, while the U.S. dollar extended a recent recovery. For analysis of the financial sector, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Financials—Opportunity or End of the Run?, at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

The markets continue to grapple with upbeat economic data, festering political uncertainty and the Fed's March rate hike and outlook for future increases. Amid this backdrop, check out Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, Hard Times: Time for the Hard Data to Catch Up to the Soft Data, at www.schwab.com/marketinsight, as well as our video's by Schwab's Vice President of Trading and Derivatives, Randy Frederick and Senior Fixed Income Research Analyst, Collin Martin, CFA, titled, Fed Hiked Interest Rates, So Why Are Bond Yields Still So Low?, and Randy's and Schwab's Chief Fixed Income Strategist, Kathy Jones' discussion, Three Fed Hikes Seen in 2017: How Should Bond Investors Respond, at www.schwab.com/insights. Follow Liz Ann, Randy and Kathy on Twitter: @lizannsonders, @randyafrederick and @kathyjones.

And for our latest commentary on the political front, read Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's article, Why the Health Care Stumble Could Complicate Tax Reform, at www.schwab.com/insights.

Europe mixed, Asia mostly lower

European equities finished mixed, with basic materials and oil & gas issues pulling back from recent recoveries, exacerbated by a government shakeup in resource-heavy South Africa and the pause in the run in crude oil prices as of late. The global markets reacted to a plethora of economic data, while political uncertainty on both sides of the Atlantic continued to stymie conviction, amid U.S. President Donald Trump's comments and expected actions on trade, while Brexit negotiations begin and a key French Presidential election looms. For analysis of the European political front, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Randy Frederick's video's, "Brexit" Underway: How Can Investors Prep Now That Article 50 Has Been Triggered? and Why Should the French Presidential Election Be Important to Investors? at www.schwab.com/insights. Follow Jeff on Twitter: @jeffreykleintop. Also, Director of International Research, Michelle Gibley CFA, offers her article, Europe Votes: Could More Countries Reject the EU? at www.schwab.com/oninternational. Eurozone consumer price inflation came in below forecasts for this month, German retail sales rose much more than expected and U.K. 4Q GDP growth was unrevised. The euro and British pound moved higher versus the U.S. dollar, while bond yields in the region traded mixed. The Stoxx Europe 600 Index rose solidly this week, adding to a rally for 1Q and posting the best March performance since 2010, per Bloomberg.

Stocks in Asia finished mostly lower as the global markets digested comments from U.S. President Trump regarding upcoming trade negotiations with China and expected executive orders aimed at combating the trade deficit and tariff enforcement. Moreover, traders digested a plethora of economic data in the region, while posturing for the end of the quarter. Japan reported an increase in inflation and stronger-than-expected industrial production for February, though household spending fell more than anticipated. China's government reads on manufacturing and services sector growth for March both showed acceleration. Japanese equities declined despite an extension of weakness in the yen, while mainland Chinese shares rose, but those traded in Hong Kong finished lower. South Korean stocks traded to the downside, while a pullback in oil & gas issues from a recent run weighed on Australian securities. Indian listings dipped, snapping a string of gains. Amid the trade concerns and lingering grappling with the Fed's March rate hike, see Schwab's Jeffrey Kleintop's, CFA, article, President Trump and Global Trade: How Will Campaign Promises Play Out?, along with his commentary The Fed has China in a Tough Spot and Michelle Gibley's, CFA, recent article, Fed Rate Hikes May Benefit Japanese Stocks at www.schwab.com/oninternational.

Stocks post solid weekly gain to close out quarterly rally

Stocks closed out a solid quarterly advance with a respectable rebound from recent pressure, showing some resiliency in the face of festering political uncertainty, which was exacerbated by last week's failed healthcare reform bill. Energy issues led the way as crude oil prices snapped back from a recent tumble on the heels of some bullish inventory data and speculation of an extension of OPEC's production cut agreement, per Bloomberg. Stocks were also bolstered by an unexpected jump in Consumer Confidence to the highest level since December 2000 and a stronger-than-expected final read on 4Q, as well as comments out of Washington suggesting the healthcare hiccup would likely not derail efforts on tax reform and infrastructure spending. Financials also contributed to the week's gain as the drop in Treasury yields showed some signs of stabilizing. The U.S. dollar rebounded on the economic data and some hawkish commentary from a Fed official.

The stage is set for next week's heavy dose of data, to see if economic optimism can continue to counter political uncertainty. The ISM and Markit will deliver their March reads on manufacturing and key services sector activity and the Fed will release the minutes from its meeting that yielded a rate hike earlier this month, while the trade balance, monthly auto sales and factory orders are likely to garner attention. However, the headlining event will close out the week, courtesy of Friday's March nonfarm payroll report.

As noted in the latest Schwab Market Perspective: Working off the Froth, the modest downward pressure on stocks recently appears to be working off some overly optimistic sentiment. We view this as a healthy pause in an ongoing bull market. U.S. political realities and the failure of healthcare reform contributed to the recent pullback in stocks but investors shouldn't get discouraged. Economic data has hooked up—notably business confidence, which has led to a pickup in capital spending. The official Brexit process has begun, and although a recession doesn't appear imminent, risks have risen and volatility will likely rise. Read more at www.schwab.com/marketinsight.

International reports due out next week include: Australia—retail sales, building approvals, trade balance, and the Reserve Bank of Australia's monetary policy decision. China—manufacturing and services sector reports. India—manufacturing and services reports, and the Reserve Bank of India's monetary policy decision. Japan—1Q Tankan Large Manufacturing Index, as well as manufacturing and services reports. Eurozone—retail sales, Markit's Composite PMI Index, European Central Bank meeting minutes, along with Germany's factory orders and trade balance. U.K.—Markit's Composite PMI Index, industrial and manufacturing production, and trade balance.

Stocks Close Lower for Final Session of 2016

Charles Schwab: On the Market

Posted: 12/30/2016 4:15 PM ET

Stocks Close Lower for Final Session of 2016

U.S. stocks closed the final trading session of 2016 lower as complacency lingered and volume and data were light ahead of the New Year holiday weekend. Treasuries were higher and the U.S. dollar, gold and crude oil prices ticked lower. In light economic news, a read on some regional manufacturing activity missed expectations.

The Dow Jones Industrial Average (DJIA) decreased 57 points (0.3%) to 19,763, the S&P 500 Index lost 10 points (0.5%) to 2,239 and the Nasdaq Composite declined 49 points (0.9%) to 5,383. In moderately-light volume, 783 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.05 lower to $53.72 per barrel and wholesale gasoline was $0.01 lower at $1.67 per gallon. Elsewhere, the Bloomberg gold spot price shed $5.73 to $1,152.40 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 102.30. Markets were lower for the week, as the DJIA declined 0.9%, the S&P 500 Index lost 1.1% and the Nasdaq Composite decreased 1.5%.

Mylan NV (MYL $38) announced the launch of a generic version of Dow member Johnson & Johnson's (JNJ $115) drug, Concerta, aimed at treating Attention Deficit Hyperactivity Disorder (ADHD). MYL traded higher and JNJ was little changed.

Cabela's Inc. (CAB $59) dropped after the company received a "second request" from the Federal Trade Commission (FTC) for additional information in regard to its proposed merger with Bass Pro Shops.

Regional manufacturing activity slips

The Chicago Purchasing Managers Index (chart) declined more than expected but remained in expansion territory (above 50), decreasing to 54.6 in December from 57.6 in November, and versus the Bloomberg expectation of a dip to 56.8. Growth in new orders and production both decelerated, while inventories and employment both signaled contraction.

Treasuries were higher, with the yield on the 2-year note dipping 2 basis points (bps) to 1.20%, the yield on the 10-year note declining 3 bps to 2.44% and the 30-year bond rate slipping 1 bp to 3.07%.

Bond yields have rallied this year 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.

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

Europe modestly higher and Asia mixed to close out 2016

European equities finished slightly higher, amid lingering complacency to close out 2016, which saw mixed performance in the region as U.K. markets stood out with a sharp rally, though Italian stocks fell noticeably on exacerbated banking sector concerns. 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. Financials led to the upside, as the banking sector got a reprieve, with Italian lender Banca Monte dei Paschi di Siena SpA (BMDPD $7) announcing plans to issue about $15.8 billion of debt to bolster is capital position. The report comes as the company is expected to receive government support after it approved a bank bailout decree that will allow it to increase its public borrowing by 20 billion euros to help fund bank bailouts. Stocks shrugged off flared-up geopolitical concerns as the U.S. announced new sanctions against Russia, as well as the expulsion of 35 diplomats, due to allegations that the country interfered with the November elections. Russia announced today that it will not retaliate by expelling American diplomats. The euro and British pound traded higher versus the U.S. dollar, while bond yields in the region gained ground.

Stocks in Asia finished mixed in the final trading session of 2016, which has seen divergent performance, while volume continued to be subdued ahead of the New Year holiday, with markets in South Korea closed today. Japanese equities declined despite the yen giving back some of yesterday's advance. Stocks trading in mainland China and Hong Kong advanced on the heels of yesterday's upbeat November trade data. Chinese stocks rebounded from recent weakness that has come courtesy of 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 fell, with financials seeing pressure. Indian equities rallied, along with other emerging markets, continuing to pare recent weakness that has been fostered by 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.

Stocks limp to 2016 finish line

U.S. stocks finished lower on the holiday-shortened final week of 2016, with the markets complacent amid a lack of catalysts and data light ahead of the New Year. The U.S. dollar and Treasury yields pulled back from 2016 rallies, while crude oil prices added to a year-to-date surge. The global markets assessed the wild swings in 2016, with the Fed raising rates in the wake of some signs the economy is gaining steam, while showing some resiliency in the face of heightened political uncertainty in Europe, notably a short-lived negative reaction to the U.K.'s vote to leave the European Union, known as Brexit. All major U.S. indexes rallied sharply on the year, bolstered by the surprise November election, which saw Donald Trump win the Presidency and the Republicans gain control of Congress. On the year, most major sectors jumped, led by energy issues on crude oil's surge and financials in the wake of the upward charge in interest rates, but real estate stocks dipped and healthcare issues saw red.

The New Year will begin with another shortened-week, but the economic calendar will be robust, with the ISM Manufacturing and non-Manufacturing Indexes being joined by the Fed's minutes from its December meeting where it raised rates and offered a forecast for a faster pace of hikes in 2017 than it had previously estimated. Other reports include the trade balance, factory orders and Markit's reads on manufacturing and services sector activity. However, the headlining release will likely be Friday's December nonfarm payroll report.

As noted in the Schwab Market Perspective: Will the Momentum Continue Into 2017?, some of the enthusiasm since the election may have pulled some gains from 2017 into 2016, but we believe the economic momentum seen in the latter half of 2016 will continue into 2017. A compelling support for 2017 is investor flows into U.S.-based funds, helping to keep the bull market alive. The populist trend seen globally last year may not continue and investors should focus on market reactions in the face of political "shocks" and on the improving global manufacturing picture. Read more at www.schwab.com/marketinsight, where you can also find Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, look at investing in the major sectors heading into the New Year in his latest Schwab Sector Views: Entering 2017 the Same Way as 2016.

International reports due out next week include: Australia—trade balance. China—manufacturing and services data. India—preliminary 1Q GDP estimate. Eurozone—Markit's business activity reports, CPI estimate, economic confidence and retail sales. Germany—factory orders. U.K.—Markit's business activity reports.

Uncertainty Keeps Markets Rangebound

Charles Schwab: On the Market

Posted: 10/31/2016 4:15 PM ET

Uncertainty Keeps Markets Rangebound

U.S. equities finished modestly lower and near the unchanged mark, as investors look ahead to monetary policy meetings out of the U.S., the U.K. and Japan, as well as Friday's domestic jobs report, to gain more clarity. M&A activity dominated the equity front, headlined by Dow member General Electric's oil and gas combination with Baker Hughes and CenturyLink's tie-up with Level 3 Communications. Treasuries were modestly higher, following mixed economic data, while crude oil prices continued to selloff, exacerbated by disappointing OPEC talks over the weekend. Gold was higher, while the U.S. dollar was nearly flat.

The Dow Jones Industrial Average (DJIA) declined 19 points (0.1%) to 18,142, the S&P 500 Index was nearly unchanged at 2,126 and the Nasdaq Composite ticked nearly 1 point lower to 5,189. In heavy volume, 1.0 billion shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil tumbled $1.84 to $46.86 per barrel, wholesale gasoline ticked $0.03 lower to $1.42 per gallon and the Bloomberg gold spot price rose $2.58 to $1,278.05 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 98.35.

Dow member General Electric Co. (GE $29) announced that it will combine its oil and gas business with Baker Hughes Inc. (BHI $55). Under the terms of the deal, Baker Hughes shareholders will receive a special one-time cash dividend of $17.50 per share and 37.5% of the new company. GE will own 62.5% of the company and the transaction is expected to close in mid-2017. Both GE and BHI finished lower.

CenturyLink Inc. (CTL $27) announced an agreement to acquire Level 3 Communications Inc. (LVLT $56) for $66.50 per share in cash and stock, in a transaction valued at about $34.0 billion, including the assumption of debt. Under the terms of the deal, LVLT shareholders will receive $26.50 per share in cash and a fixed exchange ratio of 1.4286 shares of CTL for each share they own. Shares of CTL were lower, while LVLT gained solid ground. Both companies separately reported 3Q earnings results, with CenturyLink topping profit forecasts and matching revenue expectations, while Level 3 missed estimates.

Cardinal Health Inc. (CAH $69) reported fiscal 1Q earnings-per-share (EPS) ex-items of $1.24, above the $1.21 FactSet estimate, with revenues rising 14.0% year-over-year (y/y) to $32.0 billion, north of the expected $31.1 billion. Shares were nicely higher despite the company lowering its full-year EPS guidance, as its pharmaceutical segment profit is expected to be down y/y, due to generic pharmaceutical pricing and reduced levels of branded inflation.

Personal income and spending rise

Personal income (chart) was 0.3% higher month-over-month (m/m) in September, below the Bloomberg forecast of a 0.4% rise, and compared to August's unrevised 0.2% increase. Personal spending gained 0.5% last month, north of the expected 0.4% increase and versus August's downwardly revised 0.1% dip. The September savings rate as a percentage of disposable income was 5.7%. The PCE Deflator was up 0.2%, matching expectations. Compared to last year, the deflator was 1.2% higher, in line with estimates. Excluding food and energy, the PCE Core Index moved 0.1% higher m/m, matching expectations, and the index was up 1.7% y/y, in line with estimates.

For more on the consumer, 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.

The Chicago Purchasing Managers Index (chart) fell but clung to expansion territory (above 50), after dropping to 50.6 in October from 54.2 in September and versus expectations of a dip to 54.0. New orders, production and inventories declined, while order backlogs and employment rose.

The Dallas Fed Manufacturing Index improved to -1.5 for October, from September's unrevised -3.7 level, with economists forecasting an increase to 2.0. A reading below zero denotes contraction in activity.

Treasuries were higher, as the yield on the 2-year note lost 1 basis point (bp) to 0.85%, while the yields on the 10-year note and the 30-year bond dipped by 3 bps to 1.83% and 2.59%, respectively. Bond yields have given back some of a recent rally that has come from some relatively upbeat economic data and elevated Fed rate hike expectations and Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her article, Are Bond Yields About to Rise?, the shift to higher yields is likely to be slow, in our view, but markets don’t appear to be prepared for the change. We suggest investors prepare for a potential rise in bond yields by trimming exposure to bonds with either long durations or high credit risk. Read more at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.

A heavy week of data will continue tomorrow, with key reads on October manufacturing activity, courtesy of the ISM Manufacturing Index and the final Markit Manufacturing PMI Index (economic calendar). ISM's index is projected to tick higher to 51.7 from 51.5 in September, while Markit's index is estimated to be unrevised at 53.2, and up from September's 51.5 level. Readings above 50 denote expansion. As well, construction spending will be reported, forecasted to have risen 0.5% m/m during September, following the 0.7% decline seen in August.

However, Wednesday's monetary policy decision from the Federal Open Market Committee (FOMC) and Friday's October nonfarm payroll report are poised to command most of the attention, with traders looking to clear up uncertainty regarding a December rate hike.

As noted in the recent Schwab Market Perspective: Looking Past the Election, economic data continues to support a sluggish growth narrative, although there are glimmers of hope that we could see at least a modest acceleration in 2017. Barring a surprise move on Wednesday, which could jolt the market as odds of a hike at that meeting remain low, the focus on the Fed will move back to the forefront following the election, with all eyes on the December meeting. 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 around the next two meetings regarding what it may be looking to do into 2017. Read more at www.schwab.com/marketinsight. Be sure to follow Schwab on Twitter: @schwabresearch.

Finally, with U.S. political risk hamstringing the global markets Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Final Clinton-Trump Debate Sets Up a Sprint to the Finish Line, 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.

Europe sees red, Asia mixed amid lingering uncertainty

European equities finished lower, with oil & gas issues seeing pressure after talks over the weekend between the Organization of the Petroleum Exporting Countries (OPEC) yielded no new developments regarding a production cut. Also, global sentiment was stymied by flared-up U.S. Presidential uncertainty as the November election looms, while Italian banking concerns resurfaced. In economic news, preliminary eurozone 3Q GDP rose at a 0.3% quarter-over-quarter (q/q) pace, matching forecasts and 2Q's expansion, while output grew 1.6% year-over-year, in line with estimates and the prior quarter's gain. However, German retail sales unexpectedly dropped in September. Schwab's Chief Global Investment Strategist 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, and follow Jeff on Twitter: @jeffreykleintop. The euro was lower versus the U.S. dollar and British pound reversed to the upside in late-day action, while bond yields in the region dipped.

Stocks in Asia finished mixed, as the global markets remain uncertain regarding the presidential race in the U.S., while the world monetary policy landscape continues to garner attention, with decisions looming in the U.S. and U.K. this week, and the Bank of Japan expected to announce its policy stance tomorrow. For our latest analysis of Japan's monetary policy, see Schwab's Jeffrey Kleintop's, CFA, article, Going Godzilla: What has the Bank of Japan Unleashed?, at www.schwab.com/oninternational. The persistent pressure on crude oil prices also bogged down the energy sector, exacerbated by no production cut agreement following weekend talks between OPEC. Stocks in Japan dipped on the heels of a disappointing September industrial production report, which may have overshadowed some weakness in the yen and the announcement that the nation's three largest shipping companies agreed to combine their container operations. Mainland Chinese equities and those traded in Hong Kong also dipped, while South Korean listings declined markedly, even as a report showed the country's industrial production unexpectedly rose in September. Strength in Australian mining issues gave that nation's markets a boost, as China strengthened its currency, more than offsetting sluggishness in oil & gas stocks and a drop in the tech sector. Finally, markets in India were closed for a holiday.

Tomorrow, the economic calendar overseas will focus primarily on the Asia/Pacific region, with South Korea set to release CPI and the trade balance, as well as China's trade balance and manufacturing and non-manufacturing PMIs, and Japan's manufacturing PMI. In addition to the aforementioned monetary policy meeting of the Bank of Japan, the Reserve Bank of Australia will also meet to discuss policy, with no change to its benchmark rate expected.