Stocks Extend Recent Gains

Charles Schwab: On the Market

Posted: 12/8/2017 4:15 PM EST

Stocks Extend Recent Gains

 

U.S. stocks advanced during the regular trading session to extend recent gains and finish the week mostly higher. The advance for equities was aided by a relatively upbeat read on the domestic labor market which followed favorable economic reports out of China and Japan. Treasury yields were mixed and the U.S. dollar was higher, while gold was little changed and crude oil prices rallied. 

The Dow Jones Industrial Average (DJIA) increased 119 points (0.5%) to 24,329, the S&P 500 Index was 15 points (0.6%) higher at 2,651, and the Nasdaq Composite advanced 27 points (0.4%) to 6,840. In moderate volume, 740 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.67 to $57.36 per barrel and wholesale gasoline gained $0.02 to $1.72 per gallon. Elsewhere, the Bloomberg gold spot price moved $0.71 higher to $1,247.93 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.90. Markets were mixed for the week, as the DJIA and the S&P 500 Index increased 0.4% and the Nasdaq Composite declined 0.1%.

United Continental Holdings Inc. (UAL $64) increased its Q4 passenger revenue outlook after reporting a 5.1% increase in November traffic, and it announced a new $3 billion share repurchase program. Shares traded higher.

Western Digital Corp. (WDC $81) is gained solid ground amid media reports that the company and Toshiba Corp. (TOSYY $16) have reached a deal in principle to settle their chip dispute and could announce a formal agreement next week. Neither company commented on the report.

Cooper Companies Inc. (COO $227) reported fiscal Q4 earnings-per-share (EPS) of $1.78, or $2.65 ex-items, versus the $2.64 FactSet estimate, with revenues rising 8.0% year-over-year (y/y) to $562 million, above the projected $559 million. The medical device company issued 2018 EPS guidance that had a midpoint below expectations. Shares finished solidly lower.

November labor report shows job growth tops forecasts, consumer sentiment slips

Nonfarm payrolls (chart) rose by 228,000 jobs month-over-month (m/m) in November, compared to the Bloomberg forecast of a 195,000 increase. The rise of 261,000 seen in October was revised to a gain of 244,000 jobs. The total upward revision to the job gains in October and September was 3,000.

Excluding government hiring and firing, private sector payrolls increased by 221,000, versus the forecasted gain of 195,000, after rising by 247,000 in October, revised from the 252,000 increase that was initially reported. The Department of Labor said employment continued to trend up in professional and business services, manufacturing and healthcare.

The unemployment rate remained at 4.1%, matching estimates, while average hourly earnings were up 0.2% m/m, below projections of a 0.3% increase and versus October's downwardly revised 0.1% decrease. Y/Y, wage gains were 2.5% higher, versus estimates of a 2.7% increase and October's downwardly revised 2.3% rise. Finally, average weekly hours ticked higher to 34.5 from October's unrevised 34.4 rate, where it was forecasted to remain.

Rate hike expectations for when the Fed concludes its meeting next week remained elevated following the relatively favorable employment report but the softer-than-expected wage growth and downward revision to the prior month may have caused some uncertainty regarding the pace of rate hikes in 2018. As we head toward the New Year, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers a look at the key issues to watch in his latest, Schwab Sector Views: 18 Thoughts Heading into '18, pointing out that business optimism is elevated, which could bolster already rising capital investments. This could help support a continuation of the strong labor market.
Schwab's Chief Investment Strategist Liz Ann Sonders points out that capital spending (capex) is likely to be an economic highlight in 2018 and coupled with the continued rebound in productivity is good news for wages in her articles, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle and One Thing Leads to Another: Productivity's Rebound.

The preliminary University of Michigan Consumer Sentiment Index (chart) declined to 96.8 in December, from 98.5 in November, and compared to expectations of an improvement to 99.0. The current economic conditions component of the survey improved but was more than offset by a decline in the expectations part of the report. The 1-year inflation forecast rose to 2.8% from November's 2.5% rate, while the 5-10 year inflation outlook ticked higher to 2.5% from the prior month's level of 2.4%.

Wholesale inventories (chart) were revised lower to a 0.5% m/m decline for October from the preliminary estimate of a 0.4% decrease, where it was forecasted to remain and compared to September's 0.1% gain. Sales grew 0.7% m/m, compared to forecasts of a 0.3% increase and September's upwardly revised 1.4% rise. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—dipped to a 1.25 months pace from September's 1.26 rate.

Treasuries finished mixed, with the yield on the 2-year note dipping 1 basis point (bp) to 1.79%, the yield on the 10-year note remaining at 2.37%, and the 30-year bond rate increasing 1 bp to 2.76%.

The U.S. dollar is extended its weekly gain and Treasury yields are diverged on the heels of the employment data, which followed favorable Chinese trade and Japanese GDP figures. Moreover, the markets cheered a breakthrough in the U.K. Brexit impasse, and a short-term government funding bill late yesterday that should help avoid a U.S. government shutdown this weekend. However, tax reform continues to be a main focus for the markets as the House and Senate grapple with reconciling key differences in their bills.

Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of the reconciliation process and what investors should be paying attention to, in his article, Tax Reform: What Investors Should Know.

If you have questions regarding how the potential tax overhaul may affect you as an investor, see Hayden's Tax Reform: Frequently Asked Questions.

Europe and Asia higher

European equity markets moved higher, with the markets cheering upbeat economic reports out of the U.S., China and Japan, which overshadowed an unexpected drop in German exports and mixed industrial and manufacturing production figures in the region. Financials led the way, bolstered by a long-awaited deal by regulators to complete the final batch of post-crisis capital rules, which offered clarity for the industry. The U.K. and European Union (EU) reached a deal on three key issues, including the Irish border, that paves the way to break the Brexit negotiation deadlock and likely leads to talks moving to the next phase ahead of next week's EU summit. However, the next stage would revolve around trade and headlines suggested this could be a lengthy process in getting an agreement, which appeared to weigh on the British pound versus the U.S. dollar. The Brexit breakthrough joined the agreement in the U.S. on a short-term government spending bill that likely avoids a near-term shutdown, though the markets continued to eye the U.S. tax reform reconciliation process.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans. The euro dipped versus the greenback and bond yields in the region finished mixed.

Stocks in Asia finished higher as the U.S. markets rose to break a string of sluggishness, while economic reports in the region fostered some optimism. Japan's Q3 GDP was revised to a 2.5% quarter-over-quarter annualized pace of growth, from the preliminary estimate of a 1.4% rise, and versus expectations of an adjustment to a 1.5% rate of expansion. China's November exports and imports rose much more than expected resulting in an unexpected widening of the nation's trade surplus. The yen lost ground for a second day amid some rejuvenated global economic optimism, helping lift Japanese share prices. Stocks trading in mainland China and Hong Kong advanced, while securities trading in Australia and India also gained ground and South Korean equities ticked to the upside. The markets rebounded after a recent stumble and Schwab's Jeffrey Kleintop, CFA, and Randy Frederick, discuss in the video, It's All Relative: Why Stocks May Not Be Overvalued.

Stocks nudge higher on week as tech rebounds and tax reform moves closer

U.S. stocks finished the week modestly higher with economic data continuing to paint a positive global backdrop, while the weekend passage of the Senate's tax reform bill fostered optimism that the most sweeping overhaul effort in decades was moving closer to President Donald Trump's desk. Moreover, the tech sector rollover that had pressured the markets as of late, reversed to the upside as the week matured to help nudge the markets into positive territory and the Nasdaq mostly recover early losses. Energy stocks lagged behind as crude oil prices moved to the downside. The U.S. dollar moved noticeably higher and Treasury yields ticked to the upside in choppy trading with political uncertainty in Europe also garnering attention.

Next week, fiscal policy focus will share the spotlight with monetary policy as the Federal Open Market Committee (FOMC) is highly expected to conclude its Wednesday meeting with a 25 bps increase to its target fed funds rate to 1.50% (economic calendar). However, the accompanying updated FOMC projections and Chairwoman Janet Yellen's final press conference shortly after the decision will likely garner the most attention as the markets try to gauge the pace of rate hikes in 2018. The decision will also be joined by releases next week including: JOLTS Job Openings report, the NFIB Small Business Optimism Index, the Consumer Price Index (CPI), the Producer Price Index (PPI), retail sales, Markit's business activity reports, and industrial production and capacity utilization.

As noted in the latest Schwab Market Perspective: The Big Picture Heading into 2018, a better-than-expected 2017 appears to be morphing into a solid start to 2018, but it is unlikely to be as smooth a ride. We believe the bull market still has room to run but it could shape up to be a bumpier ride as expectations and sentiment are elevated. U.S. economic growth appears to be picking up, but with the Federal Reserve tightening policy and inflation likely to heat up, we appear to be in the latter stages of the cycle. Global markets are also poised to have an unprecedented year of performance; which is unlikely to be repeated, but conditions around the world still look largely supportive of further gains.

International reports due out next week to look out for include: Australia—employment change. China—CPI and PPI, lending statistics, retail sales, and industrial production. India—CPI, industrial production, and trade balance. Japan—machine orders, industrial production and capacity utilization, and the Q4 Tankan Large Manufacturing Index. Eurozone—European Central Bank monetary policy decision, industrial production, Markit's business activity reports, and the trade balance, along with German investor sentiment and CPI. U.K.—the Bank of England monetary policy decision, CPI, employment change, and retail sales.

U.S. Stocks Join Global Market Decline

Charles Schwab: On the Market

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

U.S. Stocks Join Global Market Decline

 

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

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

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

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

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

Wholesale price inflation comes in hotter than expected

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

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

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

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

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

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

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

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

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

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

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

Stocks Log Losses as Senate Reveals Tax Plan

Charles Schwab: On the Market

Posted: 11/9/2017 4:15 PM EST

Stocks Log Losses as Senate Reveals Tax Plan

 

U.S. stocks traded lower and Treasury yields gave up early gains and finished mixed as volatility rose ahead of today's release of the Senate's tax reform plan, which differed from the House's version in several areas. Crude oil prices and gold gained ground, while the U.S. dollar traded lower. In equity news, earnings reports continued to roll out, headlined by Macy's better-than-expected results. The economic docket showed weekly jobless claims rose more than forecasted and a monthly gain in wholesale inventories matched estimates. 

The Dow Jones Industrial Average (DJIA) declined 101 points (0.4%) to 23,462, the S&P 500 Index fell 10 points (0.4%) to 2,585, and the Nasdaq Composite dropped 39 points (0.6%) to 6,750. In moderate volume, 886 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.36 to $57.17 per barrel and wholesale gasoline was unchanged at $1.82 per gallon. Elsewhere, the Bloomberg gold spot price was $4.88 higher at $1,286.24 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 94.51.

Macy's Inc. (M $20) reported Q3 earnings-per-share (EPS) of $0.12, or $0.23 ex-items, versus the $0.19 FactSet estimate, as revenues declined 6.1% year-over-year (y/y) to $5.3 billion, roughly in line with projections. Q3 same-store sales fell 3.6% y/y, larger than the expected 2.9% decline. The company's gross margin improved slightly y/y and topped forecasts, while it noted that inventories declined. M reaffirmed its full-year guidance, pointing out that it expects continued improvement in trends in the holiday quarter, including a lift from loyalty and digital, and it intends to head into 2018 with momentum. Shares traded higher.

Kohl's Corp. (KSS $41) posted Q3 EPS of $0.70, below estimates of $0.72, with revenues inching 0.1% higher y/y to $4.3 billion, roughly in line with forecasts. Quarterly same-store sales ticked 0.1% higher y/y, versus the expected 0.7% decrease. The company's gross and operating margins came in below the Street's forecasts. KSS raised the low end of its full-year profit outlook. Shares pared heavy early losses and finished modestly lower as analysts expressed some optimism regarding the unexpected positive same-store sales growth in Q3 heading into the holiday season.

D.R. Horton Inc. (DHI $46) announced fiscal Q4 earnings of $0.82 per share, one penny north of expectations, as revenues grew 11.0% y/y to $4.1 billion, above the projected $4.0 billion. The homebuilder's closings, net orders and backlog all topped projections. DHI issued full-year revenue guidance that was just above estimates. Separately, the company increased its quarterly dividend by 25.0% to $0.125 per share. Shares were higher.

Monster Beverage Corp. (MNST $59) reported Q3 EPS of $0.38, or $0.40 ex-items, compared to the anticipated $0.40, as revenues gained 15.4% y/y to $910 million, versus the forecasted $905 million. Shares were little changed.

Jobless claims rise

Weekly initial jobless claims (chart) grew by 10,000 to 239,000 last week, above the Bloomberg forecast of an increase to 232,000, with the prior week’s figure being unrevised at 229,000. The four-week moving average declined by 1,250 to 231,250, while continuing claims rose 17,000 to 1,901,000, north of estimates of 1,885,000.

Wholesale inventories (chart) were unrevised at the preliminary estimate of 0.3% month-over-month (m/m) gain for September, matching forecasts and compared to August's 0.8% gain. Sales grew 1.3% m/m, compared to forecasts of a 0.9% increase and August's upwardly revised 1.9% jump. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—dipped to a 1.27 months pace from August's 1.28 rate.

Treasuries finished mixed, with the yield on the 2-year note declining 2 basis points (bps) to 1.63%, while the yields on the 10-year note and the 30-year bond ticked 1 bp higher to 2.33% and 2.80%, respectively.

Treasury yields relinquished gains and the U.S. dollar extended its loss amid uncertainty regarding the long road to tax reform as the markets received the Senate's tax overhaul plan today. The plan differs on some key points from the House's bill released last week, for example, the Wall Street Journal reported that the Senate's bill will delay the corporate tax cut until 2019. This has opened the door for what could be a highly contentious reconciliation process and was cited as a source of an afternoon jump in volatility in the markets. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend discusses this in his latest commentary, House Tax Reform Bill: What Investors Need to Know, noting that we don’t suggest investors take any action at this time.

The release of the House’s bill is the first step in what will surely be a lengthy process, and changes to the bill are inevitable. The biggest stumbling block remains the Senate, where getting to 50 votes isn’t a sure thing. Clarity will come only as the process unfolds in the weeks ahead.
The markets are also contended with Fed leadership that is heading for some major changes, including at the Chairman position after President Trump picked Fed Governor Jay Powell to lead the Central Bank. Schwab's Chief Fixed Income Strategist Kathy Jones and Vice President of Trading and Derivatives, Randy Frederick provide analysis in the video, Should a Change in Fed Leadership Matter to Investors?.

This all comes amid the positive global economic backdrop, which Schwab's Chief Investment Strategist Liz Ann Sonders points out could be bolstered by ramped up capital spending and productivity in her articles, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle and One Thing Leads to Another: Productivity's Rebound.

Tomorrow, the U.S. economic calendar will limit releases to the preliminary University of Michigan Consumer Sentiment Survey for November, forecasted to have ticked higher to 100.9 from October's final read of 100.7.

Europe mostly lower, Asia mixed

European equities moved lower, with U.S. tax reform uncertainties appearing to stymie conviction amid the recent global market rally, while U.K. Brexit talks garnered attention as they resumed after hitting a deadlock last month. For analysis, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?. The euro gained ground and the British pound ticked higher versus the U.S. dollar, while bond yields in the region moved to the upside. Moreover, mixed earnings results were in focus, while in economic news, German exports declined by a smaller amount than expected for September.

Stocks in Asia finished mixed as the markets contended with the tax-reform uncertainty in the U.S., some economic data in the region and as U.S. President Trump continued his tour with a stop in China. Japanese equities reversed to the downside late in the trading session as the yen rallied versus the U.S. dollar and as a report showed the nation's machine orders—a gauge of capital spending—fell more than expected in September. Shares trading in mainland China and Hong Kong advanced, while data showed the country's consumer and producer price inflation came in hotter than expected for October. Australian securities increased and Indian equities also ticked higher, while South Korean stocks dipped. With the global market rally appearing to pause somewhat amid the fiscal policy uncertainties in the U.S., Schwab's Jeffrey Kleintop, CFA, and Randy Frederick offer the video, Is An Optimistic Outlook for Global Equities Warranted?.

The international economic docket for tomorrow will yield the Tertiary Industry Index from Japan, industrial production from India and industrial and manufacturing production from the U.K. and France.

Another Sluggish Day on the Street

Charles Schwab: On the Market

Posted: 11/8/2017 4:15 PM EST

Another Sluggish Day on the Street

 

With little in the way of news to sway the U.S. equity markets soundly in one direction or the other, stocks finished with modest gains, led again by the tech sector, after spending most of the day crowding the unchanged mark. Tax reform continued to garner attention as the Senate is expected to deliver its bill this week, while global trade was also in focus as President Trump continues his Asian tour and China posted mixed trade data. Crude oil prices came under pressure following a bearish government oil inventory report and gold was higher. Treasury yields ticked slightly higher and the U.S. dollar was little changed.

The Dow Jones Industrial Average (DJIA) gained 6 points to 23,548, the S&P 500 Index was 4 points (0.1%) higher at 2,594, and the Nasdaq Composite gained 21 points (0.3%) to 6,789. In moderate volume, 881 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.39 to $56.81 per barrel and wholesale gasoline was unchanged at $1.82 per gallon. Elsewhere, the Bloomberg gold spot price was $5.32 higher at $1,280.62 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 94.88.

Take-Two Interactive Software Inc. (TTWO $118) reported a fiscal Q2 loss of $0.03 per share, or earnings-per-share (EPS) of $1.61 ex-items, versus the FactSet estimate calling for EPS of $0.74, as net bookings grew 20.3% year-over-year (y/y) to $577 million, above the expected $516 million. The video game company raised its full-year outlook and issued net bookings guidance for the holiday season that easily topped expectations. Shares were sharply higher.

Humana Inc. (HUM $243) posted Q3 profits of $3.44 per share, or $3.39 ex-items, compared to the forecasted $3.26, on revenues of $13.3 billion, roughly in line with expectations, but premiums were a bit shy of expectations. HUM raised its full-year earnings outlook but offered little in terms of guidance for next year. Shares were sharply lower.

Snap Inc. (SNAP $13) announced a Q3 loss of $0.36 per share, compared to the $0.33 per share shortfall that the Street had anticipated, with revenues rising 62.0% y/y to $208 million, below the projected $236 million. The social media company's global daily active users and average revenue per user both missed expectations. Shares fell sharply. Separately, SNAP disclosed that China's Tencent Holdings Ltd. (TCEHY $50) has taken a 10% stake in the company.

Wendy's Co. (WEN $15) reported Q3 EPS of $0.06, or $0.09 ex-items, versus the projected $0.12, as revenues declined 15.4% y/y to $308 million, just shy of the expected $310 million, due to lower ownership of company-operated restaurants. The fast-food chain's North American same-store sales rose 2.0% y/y, south of the estimated 2.6% gain. WEN lowered its full-year profit outlook and shares were solidly lower.

Mortgage applications flat

The MBA Mortgage Application Index was flat last week, following the prior week's 2.6% decline. The unchanged reading came as a 0.5% decrease in the Refinance Index was offset by a 0.5% gain in the Purchase Index. The average 30-year mortgage rate fell 4 basis points (bps) to 4.18%.
Treasuries dipped, as the yields on the 2-year and 10-year notes, along with the 30-year bond, all inched 1 bp higher to 1.64%, 2.32% and 2.79%, respectively.

Treasury yields and the U.S. dollar remained subdued as a positive global economic backdrop continues to be met with looming Fed leadership changes, and market grappling with uncertainty regarding the long road to tax reform.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, One Thing Leads to Another: Productivity's Rebound, although there remains a long runway between the House bill put forth on tax reform and a bill that could pass through the Senate, a more competitive tax code would likely grow the capital stock, which should boost productivity.

Schwab's Chief Fixed Income Strategist Kathy Jones and Vice President of Trading and Derivatives, Randy Frederick discuss in the video, Should a Change in Fed Leadership Matter to Investors?, while Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest commentary, House Tax Reform Bill: What Investors Need to Know.

Tomorrow's economic calendar will remain light, beginning with weekly initial jobless claims, forecasted to rise modestly to 232,000 from the prior week's 229,000, followed by wholesale inventories, with economists expecting a 0.3% month-over-month increase for September, matching that seen in August.

Europe and Asia mixed on global trade focus and U.S. tax reform uncertainty
European equities finished mixed, with banking stocks being hamstrung by disappointing quarterly results from the sector in the region. The markets also grappled with global trade uncertainty as U.S. President Donald Trump remained on his tour of Asia and China posted a mixed trade report. U.S. tax reform scrutiny festered to keep conviction in check. The euro was little changed, while the British pound added to recent losses versus the U.S. dollar. Bond yields in the region traded mixed. In economic news, Spanish industrial output for September came in stronger than expected. With the global markets pausing from their rally, Schwab's Liz Ann Sonders and Randy Frederick note in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?, that there seems to be no end in sight to the bull market in equities, but that doesn’t mean there’s nothing to worry about.

Stocks in Asia finished mixed as the markets focus on global trade relations as U.S. President Trump continued his tour of the region and as China's October trade data painted a divergent picture as exports missed expectations and imports continued to rise solidly. For a look at the global trade picture, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his article, Top Five Trade Issues Investors Should Be Watching. Japanese equities dipped, with the yen gaining some ground, while Australian securities finished flat. Mainland Chinese stocks ticked higher and those traded in Hong Kong declined, while listings in India were also lower and South Korean markets saw a modest gain.

More data from China will take center stage on tomorrow's international economic calendar, including the Asian nation's CPI, PPI, and lending statistics, while Germany and the U.K. will report trade figures.

Stocks off Lows, but Mostly Flat on Close

Charles Schwab: On the Market

Posted: 10/19/2017 4:15 PM EDT

Stocks off Lows, but Mostly Flat on Close

 

U.S. stocks finished the regular trading session mostly unchanged, but well off the lows of the day as separate reports on Dow member Apple weighed on the tech sector. Risk aversion flared amid a host of mixed global earnings and economic data, along with political and monetary policy uncertainties. Treasuries and gold advanced, while the U.S. dollar and crude oil prices moved lower. In economic news, weekly jobless claims declined and regional manufacturing activity rose, but the Leading Index unexpectedly dipped.

The Dow Jones Industrial Average (DJIA) ticked 5 points higher to 23,163, the S&P 500 Index inched nearly 1 point higher to 2,562, and the Nasdaq Composite declined 19 points (0.3%) to 6,605. In moderate volume, 706 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil traded $0.75 lower to $51.51 per barrel and wholesale gasoline was unchanged at $1.64 per gallon. Elsewhere, the Bloomberg gold spot price added $7.08 to $1,288.15 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% lower at 93.27.

Dow member Verizon Communications Inc. (VZ $49) reported Q3 earnings-per-share (EPS) of $0.89, or $0.98 ex-items, versus the FactSet estimate of $0.97, with revenues rising 2.5% year-over-year (y/y) to $31.7 billion, above the projected $31.4 billion. The highly-coveted postpaid retail net subscriber additions easily topped forecasts, more than offsetting a decline in FiOS TV subscribers. VZ reaffirmed its full-year guidance. Shares traded nicely higher.

Dow component Apple Inc. (AAPL $156) saw solid pressure to weigh on the tech sector, amid a report by the Economic Daily News that the company is cutting supplier orders for its iPhone8 and a separate report by the Wall Street Journal that its watch is no longer able to make cell service connection in China. AAPL did not comment on the reports.

Dow component Travelers Companies Inc. (TRV $133) posted Q3 earnings of $1.05 per share, or $0.91 ex-items, versus expectations of $0.42, as net written premiums grew 4.0% y/y to $6.7 billion, compared to the forecasted $6.6 billion. The company said in a quarter of unprecedented hurricane activity, its disciplined coastal underwriting stood up to the storms. Shares were higher in choppy trading.

Dow member American Express Co. (AXP $92) achieved Q3 EPS of $1.50, compared to the projected $1.48, with revenues increasing 9.0% y/y to $8.4 billion, above the expected $8.3 billion. The company said loan growth continued to be strong and credit metrics were again in line with its expectations. AXP raised its full-year EPS outlook. Separately, the company announced that Chief Executive Officer (CEO) and Chairman Kenneth Chenault will retire after 37 years with the company and be replaced by Stephen Squeri, effective February 1, 2018. Shares declined.

eBay Inc. (EBAY $37) reported Q3 profits of $0.48 per share, matching estimates, with revenues rising 9.0% y/y to $2.4 billion, roughly in line with forecasts. The company said its saw the fastest volume growth in over three years. EBAY issued Q4 guidance that missed expectations and shares finished down.

United Continental Holdings Inc. (UAL $60) posted Q3 EPS of $2.12, or $2.22 ex-items, compared to the projected $2.16, as revenues were roughly flat y/y at $9.9 billion, matching forecasts. Shares fell following the company's Q4 guidance, which seemed to foster analyst concerns about the airline's pricing power in a firming fare industry environment.

Jobless claims fall, regional manufacturing activity rises, and Leading Index declines

Weekly initial jobless claims (chart) fell by 22,000 to 222,000 last week, below forecasts of a decline to 240,000, with the prior week’s figure being revised higher by 1,000 to 244,000. The four-week moving average dropped by 9,500 to 248,250, while continuing claims declined 16,000 to 1,888,000, south of estimates of 1,890,000.

The Philly Fed Manufacturing Index (chart) in October unexpectedly rose to 27.9 from 23.8 in September, with a reading above zero indicating expansionary activity, and compared to estimates of a decline to 22.0.

The Conference Board's Index of Leading Economic Indicators (LEI) (chart) for September declined 0.2% month-over-month (m/m), missing projections of a 0.1% gain, and versus August's unrevised 0.4% rise. This snapped a 12-straight month winning streak for the index, as jobless claims, average workweek, and building permits weighed, more than offsetting positive contributions from ISM new orders, the yield curve, and stock prices.

The impacts of the hurricanes continue to skew economic data, and tomorrow we will get a look at another report that likely will be noisy due the storms, in the form of September existing home sales, projected to decline 0.9% m/m to an annual rate of 5.3 million units. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his latest article, Fires, Hurricanes, and Earthquakes: What Disasters Mean For Markets, 2017 is likely to rank as the most costly year ever for natural disasters. From a purely economic perspective—where analysis replaces emotion—disasters tend to spur economic growth over the short and long-term despite the widespread destruction they leave behind. Stock market losses associated with past major disasters were typically short-lived.

Treasuries traded higher, with the yields on the 2-year note and the 30-year bond declining 2 basis points (bps) to 1.54% and 2.83%, respectively, and the yield on the 10-year note dropping 3 bps to 2.32%. The U.S. dollar saw some pressure as the markets grapple with continued global economic optimism, Fed leadership uncertainty, and world political uncertainty, including whether U.S. tax reform can successfully navigate the long road.

Schwab's Chief Fixed Income Strategist, Kathy Jones offers a look at the Fed's path to normalization, notably the start of shrinking its balance sheet, as well as the potential leadership changes at the Central Bank in her article, Understanding the Federal Reserve's Shrinking Balance Sheet, and the video with Vice President of Trading and Derivatives, Randy Frederick, Should a Change in Fed Leadership Matter to Investors?. Tax reform continues to garner attention, with the Senate expected to vote this week on its budget resolution, as discussed by Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend in the article, Tax Reform Framework Released, But The Road Ahead Is Long.

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

Europe lower on data and politics, Asia mixed on China data

European equity markets traded lower, with some mixed global earnings and economic data appearing to stymie conviction, joining festering political concerns in the region. U.K. retail sales fell more than expected and U.S. leading indicators snapped a string of gains, while China's industrial production missed, retail sales beat and Q3 GDP growth slowed. Spain's government announced that it plans to suspend Catalonia's autonomy after it failed to renounce its independence push. Deadlocked Brexit negotiations remained in focus as the European Union's summit in Brussels began today. For analysis of the uncertain political front in the region, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Market Commentary page at www.schwab.com. The euro gained ground and the British pound was little changed versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mixed following the record highs in the U.S. and amid a host of Chinese economic data, while Japanese markets extended a winning streak that has taken its markets to highs not seen since 1996. China's Q3 GDP growth came in at 6.8% y/y, matching estimates and down from the 6.9% expansion seen in Q2. Also, China's retail sales rose slightly more than expected in September, while the nation's industrial production and fixed asset investment modestly missed expectations. Stocks trading in mainland China and in Hong Kong declined. Japanese equities advanced with yesterday's weakness in the yen helping shares post 13-straight session of gains. South Korean stocks declined and Australian securities ticked higher, while Indian markets were closed for a holiday. Amid the global market rally, Schwab's Chief Investment Strategist Liz Ann Sonders talks with Schwab's Randy Frederick in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?, on the Market Commentary page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

The international economic docket for tomorrow will be light, offering PPI from Germany, the Current Account for the Eurozone and public sector borrowing from the U.K.

Markets Add to Record Run

Charles Schwab: On the Market

Posted: 10/3/2017 4:15 PM EDT

Markets Add to Record Run

 

The U.S. equity markets moved further into record territory, as global economic sentiment continued to get a tailwind from yesterday's plethora of upbeat manufacturing reports and favorable September auto sales figures released today. Treasury yields inched lower after a recent rally and the U.S. dollar was little changed, while crude oil prices were mixed and gold was modestly higher.

The Dow Jones Industrial Average (DJIA) increased 84 points (0.4%) to 22,643, the S&P 500 Index was 5 points (0.2%) higher at 2,535, and the Nasdaq Composite advanced 15 points (0.7%) to 6,532. In moderate volume, 724 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.16 to $51.42 per barrel and wholesale gasoline was $0.01 higher at $1.57 per gallon. Elsewhere, the Bloomberg gold spot price rose $0.69 to $1,271.82 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was unchanged at 93.59.

Tesla Inc. (TSLA $348) announced that total Q3 deliveries of vehicles came in above expectations, led by its Model S and X cars, though its Model 3 shipments were well below estimates. The company said Model 3 production was less than anticipated due to production bottlenecks, but it pointed out that there are no fundamental issues with the Model 3 production or supply chain. Shares overcame early weakness and were higher.

Lennar Corp. (LEN $55) reported Q3 earnings-per-share (EPS) of $1.06, above the $1.00 FactSet estimate, as revenues rose 15.0% year-over-year (y/y) to $3.3 billion, topping the forecasted $3.2 billion. The homebuilder said its results were supported by strong demand for homes, low unemployment, favorable interest rates, and increased consumer confidence. LEN is gained solid ground.

The major automakers reported September sales today, with General Motors Co's (GM $43) sales rising 11.9% y/y, compared to FactSet's projected 8.1% increase. Ford Motor Co (F $12) reported an 8.7% rise in sales, versus the expected gain of 1.4%. Fiat Chrysler Automobiles NV's (FCAU $18) Chrysler sales fell 9.7%, compared to the expected 13.4% drop. GM and F were solidly higher, while shares of FCAU dipped.

Treasury yields and U.S. dollar take a breather

Treasuries finished higher, amid an economic calendar void of any major releases today. The yields on the 2-year and the 10-year notes, as well as the 30-year bond, declined 1 basis point (bp) to 1.48%, 2.33%, and 2.87%, respectively.

Treasury yields and the U.S. dollar have seen noticeable increases as of late as the Fed is set to begin to shrink its behemoth $4.5 trillion balance sheet, while signs of an uptick in inflation have joined the backdrop of a tight labor market to boost December Fed rate hike expectations. Global economic growth is widespread and the markets have appeared to become relatively optimistic in the wake of last week's release of the tax reform framework as discussed by Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend in his latest article, Tax Reform Framework Released, But The Road Ahead Is Long, on the Insights & Ideas page. Follow Schwab on Twitter: @schwabresearch.

The European Central Bank and Bank of England have also signaled moves to tighten monetary policy and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis in his article, How the Shift by Central Banks May Affect the Stock Market, on the Market Commentary page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop.

Meanwhile, the stock market has moved back to record high territory, showing 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.

Tomorrow, the economic docket will bring a couple September reads on the key U.S. services sector—the largest contributor to economic output—in the form of the ISM non-Manufacturing Index and Markit's final Services PMI Index. The ISM Index is expected to tick higher to 55.5 from 55.3 in August, while Markit's Index is projected to be unrevised at 55.1, but down from the prior month's 56.0 level. Readings above 50 for both indicate expansion. The consumer drives services sector activity and Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, points out that the likelihood of gradually rising short-term interest rates, a continued solid employment picture, and improved wage growth are helping paint a healthy picture. However, he points out some potential negative factors, while providing our current view of the economic cycle that leads us to maintain our neutral stances on the consumer staples and discretionary sectors. You can read this in Brad's latest, Schwab Sector Views: Consumer Staples: More than Meets the Eye on the Market Commentary page at www.schwab.com.

Other reports set for release tomorrow include the ADP Employment Change report, with the measure of private sector jobs expected to decline sharply to a level of 135,000 added for September from the 237,000 posted in August, as well as MBA Mortgage Applications.

Europe ticks higher as Spanish political uneasiness remains, Asia mixed

European equity markets showed some late-day strength to finish mostly higher with yesterday's upbeat global manufacturing data supporting sentiment and overshadowing lingering Spanish political uncertainty in the wake of the weekend's independence vote in Catalonia, which was deemed as illegal. The euro was higher versus the U.S. dollar and bond yields in the region gained ground.

The British pound saw some pressure following a read on construction output, which unexpectedly fell into contraction territory for September, and as Brexit uncertainty festered. For a look at the Brexit process, see our article, Brexit Begins: What's Next for the U.K?, on the Insights & Ideas page at www.schwab.com. The pound jumped last month as the Bank of England signaled that a rate hike could happen in the coming months. Schwab's Jeffrey Kleintop, CFA, discusses the shift in monetary policy and points out that Inflation May Be The Biggest Question For Investors In 2018, on the Market Commentary page at www.schwab.com. German markets were closed for a holiday.

Stocks in Asia finished mixed, with global market sentiment continuing to be buoyed by recent upbeat economic data, bolstered by yesterday's favorable manufacturing reports out of the U.S., China, Japan and eurozone. The yen continued to see pressure, helping stocks in Japan finish at a two-year high. Markets rallied in Hong Kong after returning to action following yesterday's holiday, with financials leading the way on the weekend announcement that the People's Bank of China will reduce the amount of cash lenders must hold in reserve. Markets in mainland China and South Korea extended holiday breaks. Listings in India moved to the upside, but Australian securities declined in the wake of the Reserve Bank of Australia's (RBA) expected unchanged monetary policy decision.

However, the markets appeared disappointed by RBA Governor Lowe's remarks after the decision, which provided a mixed outlook to foster policy uncertainty. Amid this backdrop, Schwab's Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick note in the video, Is An Optimistic Outlook for Global Equities Warranted?, all of the world's top 20 economies are growing this year—a rare occurrence over the last decade, underpinning our positive outlook for global earnings. Read more on the Insights & Ideas page at www.schwab.com and follow Randy on Twitter: @randyafrederick.

Similar to the U.S., reads on the all-important services sector will dominate tomorrow's international economic calendar, while other items of note include retail sales from the Eurozone, and the Reserve Bank of India's monetary policy decision, with no change to the nation's interest rates expected.

Stocks Nearly Flat, Flood of Earnings on Tap

Charles Schwab: On the Market

Posted: 7/17/2017 4:15 PM ET

Stocks Nearly Flat, Flood of Earnings on Tap

U.S. equities finished the first trading session of the week nearly where they started, as investors appeared to be in wait-and-see mode ahead of an acceleration in Q2 earnings season. Treasury yields dipped, along with crude oil prices, while the U.S. dollar was flat and gold ticked higher. News on the economic front was limited, with manufacturing in the New York region remaining in expansion territory, while data out of China was upbeat.

The Dow Jones Industrial Average (DJIA) ticked 6 points lower to 21,632, the S&P 500 Index was nearly unchanged at 2,459, and the Nasdaq Composite increased 2 points to 6,314. In light to moderate volume, 674 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.52 to $46.02 per barrel and wholesale gasoline was unchanged at $1.56 per gallon. Elsewhere, the Bloomberg gold spot price gained $5.14 to $1,233.84 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 95.11.

BlackRock Inc. (BLK $425) reported Q2 earnings-per-share (EPS) of $5.22, or $5.24 ex-items, versus the $5.40 FactSet estimate, as revenues rose 6.0% year-over-year (y/y) to $3.0 billion, roughly in line with expectations. The investment management company said while significant cash remains on the sidelines, investors have begun to put more of their assets to work. Shares traded lower.

J.B. Hunt Transport Services Inc. (JBHT $94) posted Q2 EPS of $0.88, below the Street's $0.91 estimate, with revenues increasing 7.0% year-over-year (y/y) to $1.7 billion. The company said benefits of volume growth and increases in revenue producing truck counts were substantially offset by lower customer rates and higher costs, including rail and over the road transportation costs and higher driver wages and recruiting costs. Shares overcame early pressure and were higher.

Shares of FedEx Corp. (FDX $215) came under pressure after the company disclosed in a regulatory filing that the impact of the June cyberattack at its TNT unit is still being evaluated but is likely material, citing loss of revenue due to decreased volumes and remediation/contingency costs.

The stock markets are at record highs and Q2 earnings season is set to ramp up, projected to show a growth rate of 6.8%, with nine sectors reporting expansion, led by a sharp rebound in the energy sector, per data compiled by FactSet. For analysis, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article,  Where's the Next Bubble?, and Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Christmas in July! (Status of the Consumer) on the Markets & Economy page at www.schwab.com. Be sure to follow us and Jeff on Twitter: @schwabresearch and @jeffreykleintop.

Regional manufacturing activity remains in expansion territory, kicking off economic docket

The Empire Manufacturing Index showed output from the New York region slipped but remain in expansion territory (a reading above zero) for July. The index declined to 9.8 from June's unrevised 19.8 level, with the Bloomberg forecast calling for a reading of 15.0.

Today's report kicks off the economic week, which will likely share the spotlight with earnings season but bring updates on areas of the economy that have been bright spots. Housing will dominate the docket, beginning with tomorrow's release of the July NAHB Housing Market Index, with economist expecting the read of homebuilders' view of the housing market to remain at June's level of 67, with housing starts and building permits coming later in the week. Moreover, we are getting the first look at manufacturing activity for July, as the Empire Manufacturing Index will be followed by the Philly Fed Manufacturing Index. The week will culminate with the Index of Leading Economic Indicators, which is projected to continue to indicate further economic expansion. Tomorrow's docket will also include the Import Price Index.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her commentary, 2017 Mid-year US Equity Outlook: Rattle and Hum, stocks have had a remarkable—and recently drama-free—run over the past eight-plus years. We are likely in a more mature phase, which could be marked by bouts of volatility and/or pullbacks—possible driven by Fed policy. But liquidity remains ample, financial conditions loose and earnings growth healthy; which have underpinned this bull for much of its history. Those are the key things on which to keep an eye as we head into the year's second half. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Treasuries finished higher, as the yields on the 2-year and 10-year notes, as well as the 30-year bond, all declined 2 basis points (bps) to 1.35%, 2.31% and 2.90%, respectively.

Bond yields and the U.S. dollar slipped last week after rebounding recently, pressured by softer-than-expected inflation and retail sales reports, along with Fed Chair Janet Yellen's dovish semi-annual monetary policy testimony. Schwab's Chief Fixed Income Strategist Kathy Jones notes in her Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' in the second half of 2017, we expect 10-year Treasury yields to remain in a 2% to 2.5% range, consistent with the eight-year "lower for longer" theme in the bond market. Read more on the Fixed Income page at www.schwab.com, where Kathy also discusses, Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page. Follow Kathy on Twitter: @kathyjones.

The political front remains in focus as the markets look to the highly scrutinized revised Senate healthcare bill, which faces a vote as the Republicans hold a slim majority. The vote has been delayed again due to Senator McCain's eye surgery. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend discusses in his latest article, Washington Midyear Update: 4 Key Issues for Investors to Watch, dysfunction, drama and ethical issues in the White House have combined with Republican infighting on Capitol Hill to bog down the policy agenda. There's growing concern among congressional Republicans that the much-anticipated policy changes will need to be significantly scaled back—or that they may not happen at all. Read more on the Insights & Ideas page at www.schwab.com.

Europe and Asia mixed following China data and ahead of ECB decision

European equities finished mixed, with oil & gas and basic materials stocks gaining ground following a plethora of upbeat Chinese economic data, headlined by better-than-expected Q2 GDP growth. Financials dipped amid a decline in most global bond yields and technology stocks saw some pressure, while conviction may have been held in check by this week's upcoming monetary policy decision from the European Central Bank and as earnings season is set to ramp up. Also, the markets eyed the second round of U.K. Brexit negotiations. For analysis of the political front see Schwab's 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 Randy on Twitter: @randyafrederick. In economic news, eurozone consumer price inflation came in flat month-over-month in June, matching expectations. The euro was little changed and the British pound was lower versus the U.S. dollar.

Stocks in Asia finished mixed, despite some favorable Chinese economic data, though volume was lighter than usual as Japanese markets were closed for a holiday. Mainland Chinese shares fell sharply, despite the Asian nation posting y/y Q2 GDP growth of 6.9%, versus the projected 6.8% expansion, matching Q1's pace, while it also reported stronger-than-expected retail sales, fixed asset investment and industrial production for June. Sentiment appeared to be hampered by a flare-up in regulatory crackdown concerns in the wake of the country's National Financial Work Conference over the weekend. Stocks in Hong Kong, however, advanced. In the wake of the data, Schwab's Jeffrey Kleintop, CFA, offers his 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page at www.schwab.com. Telecommunication, healthcare and financial stocks pressured Australian equities, while markets in India and South Korea advanced, extending a run of record highs for the countries' indexes. For more on emerging markets, see Schwab's Jeffrey Kleintop's, CFA, article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page at www.schwab.com.

Tomorrow's international economic calendar will offer the minutes from the Reserve Bank of Australia's latest monetary policy meeting, CPI, PPI and the Retail Price Index from the U.K., as well as the Zew Economic Sentiment Survey from Germany.

Stocks Mixed Amid Rise in Tech, Fall in Oil

Charles Schwab: On the Market

Posted: 7/5/2017 4:15 PM ET

Stocks Mixed Amid Rise in Tech, Fall in Oil

U.S. equities finished mixed in their return to action from yesterday's Independence Day holiday, as strength in the tech sector was tempered by a decline in energy stocks amid a tumble in crude oil prices on flared-up OPEC production cut uncertainty. Treasuries were modestly higher following a factory orders report and the release of the Fed's June meeting minutes, while appearing to shrug off yesterday's first test of an intercontinental ballistic missile (ICBM) by North Korea. Gold was higher, while the U.S. dollar was nearly unchanged.

The Dow Jones Industrial Average (DJIA) lost 1 point to 21,478, the S&P 500 Index gained 5 points (0.2%) to 2,434, while the Nasdaq Composite increased 41 points (0.7%) to 6,151. In moderate volume, 885 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil dropped by $1.94 to $45.13 per barrel and wholesale gasoline lost $0.03 to $1.50 per gallon. Elsewhere, the Bloomberg gold spot price gained $3.14 to $1,226.56 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 96.24.

Vantiv Inc. (VNTV $60) announced a tentative agreement to acquire U.K.-based Worldpay Group PLC. ((WPYGY $15) for about $10.0 billion in cash and stock. The companies said they are still negotiating the final terms of the deal. VNTV traded lower, while WPYGY rallied in U.S. trading.

O'Reilly Automotive Inc. (ORLY $179) tumbled over 18% after warning that its Q2 same-store sales rose at a pace that was below its previous forecast, noting that after exiting Q1 and entering April on an improved sales trend, it faced a more challenging sales environment than it expected for the remainder of the quarter. The auto parts chain said it saw continued headwinds from a second consecutive mild winter and overall weak consumer demand.

Tesla Inc. (TSLA $327) saw marked pressure after announcing Q2 deliveries that came in below the Street's forecasts, citing a severe production shortfall of battery packs that impacted deliveries, which it said was addressed in early June.

Amid the recent volatility in the tech sector that has led the stock markets to record highs recently, Schwab's Chief Investment Strategist Liz Ann Sonders offers her commentary, The Space Between … Tech Today Doesn't Resemble Tech Circa 2000, as well as her latest article, 2017 Mid-year US Equity Outlook: Rattle and Hum. Liz Ann notes that we think the latest pullback in tech is more likely to represent a pause that refreshes some excess optimistic sentiment than it is the start of something nastier. We are maintaining our outperform rating on the tech sector, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: From the Top Down for more, but as with any fast-growing segment of a portfolio’s holdings, we also remind investors of the power of diversification and periodic rebalancing.

Also, Liz Ann adds that stocks have had a remarkable—and recently drama-free—run over the past eight-plus years. We are likely in a more mature phase, which could be marked by bouts of volatility and/or pullbacks—possible driven by Fed policy. But liquidity remains ample, financial conditions loose and earnings growth healthy; which have underpinned this bull for much of its history. Those are the key things on which to keep an eye as we head into the year's second half. Read these articles on the Markets & Economy page at www.schwab.com and follow us and Liz Ann on Twitter: @schwabresearch and @lizannsonders.

Factory orders drop more than expected, Fed offers minutes

Factory orders (chart) fell 0.8% month-over-month (m/m) in May, versus the Bloomberg expectation of a 0.5% decline, while April's figure was negatively revised to a 0.3% decrease. May durable goods orders—preliminarily reported last week—were unadjusted at the preliminarily-reported 1.1% fall.

At 2:00 p.m. ET, the Federal Reserve released the minutes from its June monetary policy decision, in which it raised its target for the fed funds rate by 25 bps and provided some insight into its plans to reduce the size of its balance sheet. The report showed that the Committee was divided on the timing of the balance sheet program, noting, " Several preferred to announce a start to the process within a couple of months,' but others' emphasized that deferring the decision until later in the year would permit additional time to assess the outlook for economic activity and inflation." At the June meeting the Fed said it would trim holdings on Treasuries initially at $6 billion per month, increasing by $6 billion every three months over 12 months, until it reaches $30 billion. For agency- and mortgage-backed securities, the cap would begin at $4 billion, and rise by $4 billion every three months until it hits $20 billion a month. The Committee also reiterated its stance for continued gradual rate increases. Schwab's Chief Fixed Income Strategist, Kathy Jones provides additional insight in her article Fed Raises Rates, Sticks With Plans for One More Hike This Year.

As noted in the latest Schwab Market Perspective: Shifting Sentiment?, a more hawkish Fed than the market in terms of the expected trajectory of rate hikes, despite the mixed economic picture along with softer inflation readings, has raised concerns over a possible monetary mistake. We believe there is a strong desire among most Fed members to get rates to a more normal level and to start the process of reducing the balance sheet; but they also remain focused on not making decisions that may harm economic activity. Ongoing Fed policy uncertainty is likely to result in increased bouts of volatility. Read more on the Markets & Economy page at www.schwab.com

This sets the stage for tomorrow's robust economic calendar, which will offer reads on the labor market ahead of Friday's key June nonfarm payroll data in the form of weekly initial jobless claims and ADP's Employment Change report. Also, the critical U.S. services sector will be in focus following the releases of the ISM non-Manufacturing Index and Markit's final Services PMI Index, with both expected to show continued expansion. MBA mortgage applications and the trade balance will round out the day.

Treasuries finished higher with the yield on the 2-year note flat at 1.41%, while the yield on the 10-year note declined 2 basis points (bps) to 2.33% and the 30-year bond rate dipped 1 bp to 2.86%.

Bond yields have rebounded from depressed levels and Schwab's Kathy Jones notes in her Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' in the second half of 2017, we expect 10-year Treasury yields to remain in a 2% to 2.5% range, consistent with the eight-year "lower for longer" theme in the bond market. We expect the Federal Reserve to continue to tighten monetary policy and reduce its balance sheet gradually, assuming inflation doesn't slip further. Read Kathy's articles, including how we feel investors should position themselves in this environment on the Fixed Income page at www.schwab.com and follow Kathy on Twitter: @kathyjones.

Finally, for a look at the political front, which remains a source of market uncertainty, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest article, Washington Midyear Update: 4 Key Issues for Investors to Watch, on the Insights & Ideas page at www.schwab.com.

Europe mixed on data and geopolitics, Asia mostly higher

European equities finished mixed, with the euro dipping versus the U.S. dollar, while the global markets digested a rise in geopolitical concerns following actions by North Korea. Economic data in the region likely aided sentiment, with Markit's eurozone Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—being revised to a faster pace of growth than preliminarily estimated for June. Eurozone retail sales rose in line with forecasts and Markit's U.K. Composite PMI Index slowed but remained in expansion territory for last month. The British pound was little changed versus the greenback and bond yields in the region were mixed. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his article, Are bonds signaling a major stock market peak? on the Markets & Economy page at www.schwab.com, while Jeff and Vice President of Trading and Derivatives, Randy Frederick offer the video, How Do U.S. Equity Market Valuations Compare to Other Developed Markets?, on the Insights & Ideas page at www.schwab.com. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. Technology issues rebounded, while oil & gas stocks saw pressure as crude oil prices fell after a recent string of gains, exacerbated by reports that Russia is opposing any changes to the current OPEC-led production cuts.

Stocks in Asia finished mostly to the upside with the U.S. markets set to return to action following yesterday's Independence Day holiday, while shrugging off flared-up geopolitical concerns as North Korea conducted a test of an intercontinental ballistic missile (ICBM) yesterday. For more, see Schwab's Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com. Japanese equities gained ground, with the yen paring gains late in the session, and South Korea's Kospi Index also moved to the upside. Mainland Chinese stocks and those traded in Hong Kong advanced on the heels of a report from Caixin that showed the nation's key services sector output slowed but continued to showed growth. Indian securities ticked higher following data showing growth in the country's business activity accelerated, but markets in Australia declined, with oil & gas and healthcare weakness overshadowing strength in basic materials. The move comes in the wake of this week's decision by the Reserve Bank of Australia to leave its monetary policy unchanged. For a look at the global landscape, see Jeffrey Kleintop's, CFA, 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page at www.schwab.com.