Stocks Mixed As Techs Take a Hit

Charles Schwab: On the Market

Posted: 11/29/2017 4:15 PM EST

Stocks Mixed As Techs Take a Hit

 

The U.S. equity markets diverged amid continued global economic optimism following an upward revision to Q3 GDP and optimistic signs of progress in the Senate's tax reform bill. Treasury yields rose on the heels of a favorable economic outlook from Fed Chair Yellen, to the benefit of financials, but technology stocks tumbled, severely pressuring the Nasdaq. Crude oil prices were lower, extending losses ahead of tomorrow's OPEC meeting and following mixed oil inventory data, while gold was lower and the U.S. dollar was little changed.

The Dow Jones Industrial Average (DJIA) rose 104 points (0.4%) to 23,940, the S&P 500 Index fell nearly a point to 2,626, and the Nasdaq Composite tumbled 88 points (1.3%) to 6,824 In heavy volume, 922 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.69 to $57.30 per barrel and wholesale gasoline lost $0.04 to $1.73 per gallon. Elsewhere, the Bloomberg gold spot price decreased $8.94 to $1,285.04 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 93.24.

Tiffany & Co. (TIF $93) reported Q3 earnings-per-share (EPS) of $0.80, compared to the $0.76 FactSet estimate, as revenues grew 3.0% year-over-year (y/y) to $976 million, exceeding the projected $958 million. Q3 same-store sales were flat y/y, versus the forecasted 0.2% dip. TIF reaffirmed its full-year guidance. Shares finished lower.

Marvell Technology Group Ltd. (MRVL $22) posted Q3 EPS of $0.30, or $0.34 ex-items, compared to the forecasted $0.33, as revenues decreased 1.2% y/y to $616 million, just above the estimated $615 million. The chip company issued Q4 guidance that topped expectations. Shares were lower despite the results with the markets appearing to rotate out of the tech sector on the heels of the group's strong run this year, with chip companies seeing noticeable pressure.

Chipotle Mexican Grill Inc. (CMG $302) announced that Chairman and Chief Executive Officer (CEO)—and the founder of the company in 1993—Steve Ells will step down as CEO but will become Executive Chairman following the completion of a search to identify a new CEO. Shares were higher.

Shares of Autodesk Inc. (ADSK $109) tumbled over 15% after the application software company's Q3 billings figure missed expectations, resulting in a lowered full-year subscriptions outlook, despite reporting slightly stronger-than-expected Q3 top-and-bottomline results. The company also announced restructuring measures including the reduction of 1,150 employees to its workforce.

Q3 GDP revised higher, Fed comes into focus

The second look (of three) at Q3 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 3.3%, up from the first release's 3.0% gain. The Bloomberg forecast called for an adjusted 3.2% pace of expansion. Q2 GDP grew by an unrevised 3.1% rate. Personal consumption came in at a 2.3% gain for Q3, lower than the preliminary estimate of a 2.4% increase, and compared to the expectations of a 2.5% increase. Personal consumption grew by an unrevised 3.3% in Q2.

On inflation, the GDP Price Index was revised to a 2.1% increase, versus expectations of an unrevised 2.2% gain, while the core PCE Index, which excludes food and energy, was adjusted to a 1.4% increase, compared to forecasts of an unrevised 1.3% rise.

Pending home sales rose 3.5% month-over-month in October, versus projections of a 1.0% rise, and following the negatively-revised 0.4% decline registered in September. Compared to last year, sales were 1.2% higher, versus estimates of a 3.0% gain. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which rose more than expected in October.

The MBA Mortgage Application Index declined 3.1% last week, following the prior week's 0.1% gain. The decrease came as a 7.7% drop in the Refinance Index more than overshadowed a 1.8% increase in the Purchase Index. The average 30-year mortgage rate remained at 4.20%.

Today the Fed is garnering attention as Chairwoman Janet Yellen delivered her U.S. economic outlook to the Joint Economic Committee of Congress, noting the economic expansion is increasingly broad-based and she continues to expect gradual adjustments in the stance of monetary policy. However, she pointed out that although recent lower readings on inflation likely reflect transitory factors, it is possible that this year's low inflation could reflect something more persistent.
In afternoon action, the Central Bank released its Beige Book, an anecdotal look at business activity across the nation used as a monetary policy preparation tool for the two-day meeting set to end December 13th. The report showed that economic activity progressed at "a modest to moderate pace," through mid-November, while also noting that "price pressures have strengthened since the last report" and that the labor market remains tight. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, President Trump's nomination of current Fed governor Jerome “Jay” Powell to replace Janet Yellen as Chairman of the Federal Reserve when her term ends early next year was largely expected and greeted relatively favorably by the market. He is, like Yellen, a relatively dovish consensus builder; and therefore will represent continuity as the Fed continues its monetary policy normalization process. Given strong economic data and the pickup in some measures of wage growth, we believe the Fed will hike rates for the third time this year next month.

Treasuries finished lower, as the yield on the 2-year note increased 2 basis points (bps) to 1.77%, the yield on the 10-year note gained 5 bps to 2.38%, and the 30-year bond rate rose 6 bps to 2.82%.
The yield curve has steepened somewhat after a recent bout of flattening that appeared to foster some market weariness, while the U.S. dollar dipped after a two-day rebound, extending a pullback as of late.

The markets shrugged off flared-up geopolitical concerns following yesterday's missile launch by North Korea, aided by the positive global backdrop and signs of progress regarding the Senate's tax reform bill, which is expected to be voted on later this week. The House passed its bill two weeks ago, with several key differences setting the stage for a complicated reconciliation process.
Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, we believe the prospects for a tax reform bill being signed into law before the end of the year are improving, but we still think it is too early for investors to take any drastic action. The bill is virtually certain to be changed many times in the weeks ahead. If and when a tax bill passes, there will be time to review the details and amend your tax and financial plans accordingly.

Personal income and spending will highlight tomorrow's economic calendar, with both measures forecasted to have gained 0.3% m/m during October following their respective 0.4% and 1.0% m/m gains the month prior, while weekly initial jobless claims will also be released, expected to tick higher to a level of 240,000 from the prior week's 239,000. The Chicago Purchasing Manager Survey will be released later in the morning, with economists anticipating a decline in the index to 63.0 for November from October's 66.2 reading.

Europe and Asia mixed ahead of data, North Korean missile launch has little impact

European equity markets traded mixed, with financials getting a boost as bond yields in the region gained solid ground. Global economic optimism remained elevated, bolstered by signs of progress in tax reform and today's upbeat revision to Q3 GDP out of the U.S., along with cooled political concerns on this side of the pond. 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. However, the apparent rotation out of the tech sector that intensified in the U.S. made its way over to Europe late in the session to cause the markets to give up some solid early gains. Crude oil prices extended a weekly loss ahead of tomorrow's OPEC meeting and following some mixed inventory data in the U.S. The pound rallied against the U.S. dollar to hamstring the U.K. markets after Britain and the European Union reportedly agreed to reach a Brexit divorce bill, which could pave the way for negotiations of the exit to move forward. German consumer price inflation was mostly hotter than expected, French Q3 GDP rose at a pace that matched forecasts and eurozone economic confidence improved. The euro moved higher versus the greenback.

Stocks in Asia finished mixed, following the solid gains in the U.S. yesterday on further signs the economy is running healthy and progress toward tax reform. However, the markets likely treaded with some caution ahead of key economic data out of Japan and China tomorrow, which will coincide with the highly-anticipated OPEC production meeting and potential U.S. tax reform vote, and follow today's U.S. GDP revision and testimony from Fed Chief Yellen. The markets mostly shrugged off yesterday's latest missile launch by North Korea. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans, while offering analysis of the global stock market rally that has been bolstered by broad economic growth and is expected to continue in 2018 in his latest article, 5 Reasons Investors Should Give Thanks.

The yen gave back some recent gains to help lift Japanese equities and overshadow a softer-than-expected retail sales report, while markets in South Korea and India dipped. Mainland Chinese stocks ticked slightly higher, but those traded in Hong Kong fell and Australian listings saw modest gains.

A whole host of reports are slated for tomorrow's international economic calendar, including industrial production from South Korea and Japan, building approvals and consumer credit from Australia, manufacturing data out of China, retail sales and employment data from Germany, CPI and PPI from France and Italy, GDP from Spain, and CPI and employment figures from the Eurozone.

Stocks Mixed as Harvey, Dollar and Oil the Focus

Charles Schwab: On the Market

Posted: 8/28/2017 4:15 PM ET

Stocks Mixed as Harvey, Dollar and Oil the Focus

U.S. equities were mixed with investors eyeing the impact of Hurricane Harvey, as well as the continued decline in the U.S. dollar following Friday's uneventful speeches from Fed Chair Yellen and ECB President Draghi in Jackson Hole, Wyoming. Energy stocks were lower as crude oil prices fell, despite a rise in gasoline prices as refineries in Houston are offline. Treasuries were nearly unchanged and gold was solidly higher.

The Dow Jones Industrial Average (DJIA) declined 8 points to 21,806, the S&P 500 Index inched a point higher to 2,444, and the Nasdaq Composite gained 17 points (0.3%) to 6,283. In moderate volume, 704 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.30 to $46.57 per barrel and wholesale gasoline rose $0.03 at $1.57 per gallon. Elsewhere, the Bloomberg gold spot price jumped $19.87 to $1,311.07 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 92.21.

Gilead Sciences Inc. (GILD $75) announced an agreement to acquire cell therapy company Kite Pharma Inc. (KITE $178) for $180.00 per share in cash, in a transaction valued at about $11.9 billion. GILD traded higher and KITE rallied over 25%.

CBS Corp. (CBS $64) announced an agreement to acquire Network Ten, one of three major commercial broadcast networks in Australia, and it will launch its digital subscription video on-demand service, CBS All Access, in the Australian market. Terms of the deal were not disclosed. Shares were lower.  

Expedia Inc. (EXPE $143) came under pressure amid reports that the travel booking site's Chief Executive Officer (CEO), Dara Khosrowshahi, is leaving the company to become the CEO of Uber. EXPE's Chairman Barry Diller acknowledged that Dara has been asked to lead Uber and said that talks with him indicate that he will accept, but pointed out that nothing has been finalized yet.

Preliminary reads on wholesale inventories and trade deficit mixed

The advance goods trade deficit widened more than expected to $65.1 billion in July, from the upwardly revised $64.0 billion in June, and compared to the Bloomberg expectation of $64.5 billion.

Preliminary wholesale inventories rose 0.4% month-over-month (m/m) in July, versus forecasts for a 0.3% increase, and following June's downwardly revised 0.6% rise.

The Dallas Fed Manufacturing Activity Index nudged further into a level depicting expansion (a reading above zero). The index improved to 17.0 in August, from 16.8 in July, matching forecasts.

Treasuries were nearly unchanged, as the yields on the 2-year note and the 30-yield were flat at 1.33% and 2.74%, respectively, while the yield on the 10-year note was 1 basis point (bp) higher at 2.16%. For our latest analysis of the bond markets, check out Schwab's Chief Fixed Income Strategist Kathy Jones' article, What's the Bigger Risk: Bond Market Bubble or Complacency? on the Fixed Income page at www.schwab.com, and follow Kathy on Twitter: @kathyjones.

Treasury yields and the U.S. Dollar Index saw some pressure on Friday, with the latter extending losses to more than a two-year low, as the markets digested speeches by Fed Chair Janet Yellen and European Central Bank (ECB) President Mario Draghi at the Fed's highly-anticipated annual symposium in Jackson Hole, Wyoming. Both central bank leaders held off on offering new insight to monetary policy changes. The Fed is expected to begin shrinking its behemoth $4.5 trillion balance sheet next month and uncertainty remains whether it raises rates one more time this year. The ECB is expected to begin discussing the possibility of tapering its stimulus efforts later this year.

This week, low volume, politics and the geopolitical front will likely remain sources of volatility, but a robust back-end loaded U.S. economic calendar is poised to garner attention, headlined by Friday's August nonfarm payroll report. A look at August Consumer Confidence will get the ball rolling tomorrow, with economists anticipating a level of 120.3, slightly lower than the 121.1 posted in July, followed by Wednesday’s second read (of three) on Q2 GDP and July personal income and spending data, while August releases of the ISM Manufacturing Index, final University of Michigan Consumer Sentiment Index and auto sales will join the labor report to close out the week.

Some housing data is also on tap for tomorrow, with the S&P Corelogic Case-Shiller Home Price Index slated for release, forecasted to show home prices in the 20-city composite rose 0.3% m/m on a seasonally-adjusted basis, and 5.8% y/y.

As noted in the latest Schwab Market Perspective: Volatility Returns!, the latest bout of volatility illustrates why investors should stay focused on the longer-term. Risks for a more substantial pullback in the near-term still exist, as valuations remain elevated. After a weak first quarter, U.S. economic growth has rebounded, with an improving employment picture, tightening labor market, rising median wage growth, and a relatively healthy consumer. Even though past performance is no indication of future results, a prolonged bear market has never occurred outside the context of a recessionary environment. Looking at the Index of Leading Economic Indicators (LEI) from the Conference Board, there are no signs of a coming recession and the U.S. economy is getting some support from the rest of the world. Read more on the Markets & Economy page at www.schwab.com.

Europe dips as euro extends rally, Asia mixed 

European equities dipped, with the markets reacting to late-Friday's speech from ECB President Mario Draghi that offered no new monetary policy clues and boosted the euro to a two-and-half year high versus the U.S. dollar. The euro extended gains and the markets also assessed the impact of the weekend's Hurricane Harvey in the U.S., which continues to damage parts of Texas. Volume was lighter than usual as markets in the U.K. were closed for a holiday, though Brexit negotiations resumed and the British pound gained ground on the greenback. In economic news in the region, Italian economic, manufacturing and consumer sentiment reports all improved for August. Bond yields in the region finished mostly lower. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA offers a look at a potential milestone for global profits in his latest article, Earnings may be about to do something they've never done before, on the Markets & Economy page at www.schwab.com and for a look at Brexit talks, see our article, Brexit Begins: What's Next for the U.K.? on the Insights & Ideas page. Follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch.

Stocks in Asia finished mixed, with the markets digesting speeches from central bank leaders in the U.S. and Europe, which lacked details regarding changes to the path of monetary policy. Also, the impact of Hurricane Harvey in Texas was closely followed, with an eye on the oil and gas markets, while U.S. political and global trade uncertainty lingered. Recently flared-up tensions toward North Korea appeared to continue to recede. For analysis of this backdrop, see Schwab's Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks on the International Investing page at www.schwab.com, as well as his video with Vice President of Trading and Derivatives, Randy Frederick, Political Risk: How Should Investors Respond? on the Insights & Ideas page. Follow Randy on Twitter: @randyafrederick. Japanese equities finished flat with the yen ticking slightly higher, while stocks in mainland China and Hong Kong gained modest ground, with earnings optimism bolstering brokerage stocks. Australia securities declined, with weakness seen in financials, and those traded in South Korea also fell, as technology issues weighed on the markets. Finally, stocks in India advanced.

Tomorrow’s international economic calendar will include personal income and wage data from Japan, consumer confidence from Germany, and GDP and consumer spending from France.

Stocks Mixed Amid Persistent Uncertainty

Charles Schwab: On the Market

Posted: 8/25/2017 4:15 PM ET

Stocks Mixed Amid Persistent Uncertainty

U.S. equities finished out the week mixed in a choppy session, as a morning relief rally succumbed to the recent persistent uncertainty. Early gains came as political concerns seemed to have eased somewhat, with President Trump's top economic advisor Gary Cohn suggesting he will not leave his post. However, the highly-anticipated speeches from Fed Chair Janet Yellen and ECB President Mario Draghi didn’t offer anything new to remedy swirling anxiety surrounding global monetary policy. The U.S. dollar fell following Yellen’s and Draghi’s remarks, but bounced off the lows of the day, and Treasury yields ticked lower, while gold was higher and crude oil prices were mixed.

The Dow Jones Industrial Average (DJIA) rose 30 points (0.1%) to 21,814, the S&P 500 Index added 4 points (0.2%) to 2,443, and the Nasdaq Composite shed 6 points (0.1%) to 6,266. In light-to-moderate volume, 663 million shares were traded on the NYSE and 1.4 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.44 to $47.87 per barrel and wholesale gasoline lost $0.01 at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price gained $4.42 to $1,290.82 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 92.50. Markets were higher for the week, as the DJIA increased 0.6%, the S&P 500 Index rose 0.7% and the Nasdaq Composite gained 0.8%.

Ulta Beauty Inc. (ULTA $212) reported Q2 earnings-per-share (EPS) of $1.83, above the $1.78 FactSet estimate, as revenues grew 20.6% year-over-year (y/y) to $1.3 billion, roughly matching expectations. Q2 same-store sales rose 11.7% y/y, just shy of the 12.0% increase that the Street had projected. ULTA issued Q3 EPS guidance that had a midpoint below estimates, while its revenue and same-store sales outlooks were roughly in line with projections. For the full-year, the company raised its guidance. Shares finished solidly lower.

Broadcom Ltd. (AVGO $246) posted fiscal Q3 EPS of $1.14, or $4.10 ex-items, compared to the expected $4.03, as revenues rose 18.0% y/y to $4.5 billion, roughly in line with estimates. BRCM issued Q4 revenue guidance that was mostly in line with forecasts. Shares were lower as the company suggested some areas of weakness in its hard disk drive and data center segments that are fostering some concerns on the Street.

GameStop Corp. (GME $19) announced Q2 earnings of $0.22 per share, or $0.15 ex-items, compared to the $0.18 estimate, as revenues rose 3.4% y/y to $1.7 billion, above the projected $1.6 billion. Q2 same-store sales rose 1.9%, versus the expected 2.2% decline, but its gross margin declined y/y and missed the Street's forecasts. GME reaffirmed its full-year EPS outlook and said it expects same-store sales to be at the high end of its previous guidance. Shares fell sharply on analyst concerns about the lighter-than-expected gross margin.

Early look at July manufacturing demand show core orders grew

July preliminary durable goods orders (chart) fell 6.8% month-over-month (m/m), compared to the Bloomberg estimate of a 6.0% drop, and June's 6.4% jump was unrevised. Ex-transportation, orders were 0.5% higher m/m, compared to forecasts of a 0.4% gain and versus June's unrevised 0.1% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, grew 0.4%, in line with projections, and following the unrevised flat reading posted in the month prior.

The headline figure was driven by the volatile component of transportation equipment as nondefense aircraft and parts orders fell nearly 71% m/m, more than offsetting a 48% rise in defense aircraft and parts, and following the prior month's 129% surge. Demand for computers and related products, along with electrical equipment, appliances and components led the rise in core durable goods orders, partially offset by declines in orders for communications and machinery goods.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: What Makes the World Go Around?, the industrial sector is often overlooked but is at the center of much of what occurs in the global economy. Improving global growth and a solid U.S. economy should bode well for industrials. However, the diversity of the group and monetary and fiscal uncertainty keep us from upgrading the sector … for now. Read more on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

Treasuries were mostly higher, as the yield on the 2-year note was little changed at 1.33%, while the yield on the 10-year note decreased 3 basis points (bps) to 2.17% and the 30-year bond rate declined 2 bps to 2.75%.

Treasury yields came under pressure in the wake of Fed Chairwoman Janet Yellen's speech at the Fed's symposium in Jackson Hole, Wyoming. Amid the backdrop of festering global monetary policy uncertainty on signs of steady economic growth but low inflation, Yellen offered little in terms of economic and monetary policy commentary, focusing on financial regulation. She pointed out progress in putting in place a regulatory and supervisory structure to lower risks to financial stability and achieving a stronger financial system. Yellen added that any changes to post-crisis financial reforms should be "modest." She did note that "substantial progress has been made" toward the Fed's economic objectives of maximum employment and price stability. The markets were looking for any clues to the possibility of another rate hike this year and if the Central Bank will begin the process of shrinking its behemoth $4.5 trillion balance sheet next month as most are expecting.

Similar to Yellen, European Central Bank President (ECB) Mario Draghi steered clear from commenting on future monetary policy in his afternoon speech at the Fed symposium, instead focusing on trade and tax regulations. The euro jumped following Draghi’s remarks, adding pressure to the U.S dollar, as the lack of commentary toward future policy only added to the recent uncertainty.

For more on the Fed gathering, see the video by Schwab's Chief Fixed Income Strategist Kathy Jones titled, Jackson Hole Agenda: What's Next for the Fed and ECB? on the Insights & Ideas page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

Europe gives up gains, Asia mostly higher as monetary policy eyed

European stocks relinquished early gains and finished mostly lower, with the euro and British pound gaining noticeable ground on the greenback after Fed Chair Janet Yellen offered few new clues to monetary policy at the highly-anticipated Fed symposium in Jackson Hole, Wyoming. Caution appeared evident ahead of today's speech by ECB President Draghi at the Fed's symposium. Bond yields in the region finished mixed. Germany reported Q2 GDP growth of 2.1% y/y, in line with forecasts, and versus the 1.9% expansion posted in Q1. In other economic news, the expectations component of the August German business confidence report unexpectedly improved, while French consumer confidence dipped as expected for this month.

Amid the backdrop of solid earnings and economic growth, along with lingering political and trade uncertainty, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA offers his articles, Earnings may be about to do something they've never done before, on the Markets & Economy page at www.schwab.com, as well as Top Five Trade Issues Investors Should Be Watching on the International Investing page. Jeff and Vice President of Trading and Derivatives, Randy Frederick deliver the video, Political Risk: How Should Investors Respond? on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mostly higher to close out the week even as potential volatility-boosting speeches from the Fed and ECB loomed on the horizon, while U.S. political and global trade uncertainty festered. Japanese equities rose, with the yen extending yesterday's decline, and as the Asian country reported that national consumer price inflation rose in line with expectations in July, while Tokyo consumer price inflation for August came in hotter than expected. Mainland Chinese stocks and those listed in Hong Kong rallied, with earnings results in the region boosting sentiment, while securities in South Korea overcame early weakness and ticked slightly higher. For a look at 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. Shares in Australia finished flat and Indian markets were closed for a holiday.

Stocks avoid third straight weekly decline

U.S. stocks rebounded from back-to-back weekly declines in typical late-August subdued volume. Earnings season wrapped up with mixed results from the consumer discretionary and staples sectors, but Q2 remained on track to post profit growth breaching 9.0% and revenue expansion topping 5.0%. Even as U.S. political uncertainty festered, sentiment appeared soothed by reports of progress on tax reform and as President Donald Trump's top economic advisor Gary Cohn suggested he will not leave his post. Signs of continued global growth likely buoyed the markets, with eurozone and U.S. business activity reports from Markit showing expansion persisted in August, helping overshadow disappointing U.S. existing and new home sales reports. Stocks showed some resiliency in the face of lingering global monetary policy as highly-anticipated speeches by Fed Chair Yellen and ECB President Draghi came into focus ahead their September monetary policy meetings. The U.S. Dollar Index fell back to lows not seen since May 2016 and crude oil prices continued to drop, while the Treasury yield curve flattened a bit.

Next week, low volume, politics and the geopolitical front will likely remain sources of volatility, but a robust back-end loaded U.S. economic calendar is poised to garner attention, headlined by Friday's August nonfarm payroll report. Consumer Confidence and the second (of three) read on Q2 GDP will get the ball rolling, followed by July personal income and spending data, while August releases of the ISM Manufacturing Index, final University of Michigan Consumer Sentiment Index and auto sales will join the labor report to close out the week.

As noted in the latest Schwab Market Perspective: Volatility Returns!, the latest bout of volatility illustrates why investors should stay focused on the longer-term. Risks for a more substantial pullback in the near-term still exist, as valuations remain elevated. After a weak first quarter, U.S. economic growth has rebounded, with an improving employment picture, tightening labor market, rising median wage growth, and a relatively healthy consumer. Even though past performance is no indication of future results, a prolonged bear market has never occurred outside the context of a recessionary environment. Looking at the Index of Leading Economic Indicators (LEI) from the Conference Board, there are no signs of a coming recession and the U.S. economy is getting some support from the rest of the world. Read more on the Markets & Economy page at www.schwab.com.

International reports due out next week that deserve a mention include: Australia—building approvals. China—industrial profits, Manufacturing and non-Manufacturing PMIs. India—Q2 GDP. Japan—household spending, retail sales, and industrial production. Eurozone—economic confidence, unemployment rate, consumer price inflation and Markit's Manufacturing PMI, along with German retail sales and unemployment change. U.K.—mortgage approvals and Markit's Manufacturing PMI.

Stocks Trade in Red Shade

Charles Schwab: On the Market

Posted: 8/23/2017 4:15 PM ET

Stocks Trade in Red Shade

U.S. stocks were unable to breech the unchanged mark during the trading session, closing lower as last night's speech by President Trump cast a shadow over global trade issues and has market participants pondering a possible government shutdown. Volume remained on the lighter side, while on Friday Fed Chair Yellen will speak at the Central Bank's annual symposium in Jackson Hole, WY. Treasury yields and the U.S. dollar were lower and crude oil prices and gold were higher. In other economic developments, Markit business activity reports indicated expansion in both the manufacturing and service sectors continued in August.

The Dow Jones Industrial Average (DJIA) declined 88 points (0.4%) to 21,812, the S&P 500 Index was 8 points (0.3%) lower at 2,444, and the Nasdaq Composite decreased 19 points (0.3%) to 6,278. In light-to-moderate volume, 682 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.58 to $48.41 per barrel and wholesale gasoline was up by $0.03 to $1.62 per gallon. Elsewhere, the Bloomberg gold spot price increased $5.35 to $1,290.42 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 93.16.

Lowe's Companies Inc. (LOW $73) reported Q2 earnings-per-share (EPS) of $1.68, or $1.57 ex-items, versus the $1.62 FactSet estimate, as revenues increased 6.8% year-over-year (y/y) to $19.5 billion, below the projected $19.6 billion. Q2 same-store sales rose 4.5% y/y, compared to the expected 4.3% increase. LOW lowered its full-year EPS outlook, while reaffirming its revenue guidance. Shares traded solidly lower.

Salesforce.com Inc. (CRM $93) posted Q2 EPS of $0.02, or $0.33 ex-items, versus the projected $0.32, with revenues rising 26.0% y/y to $2.6 billion, above the forecasted $2.5 billion. The company raised its full-year guidance slightly. Shares dipped.

Intuit Inc. (INTU $136) announced fiscal Q4 profits of $0.09 per share, or $0.20 ex-items, compared to the estimated $0.17, as revenues grew 12.0% y/y to $842 million, north of the forecasted $809 million. INTU issued Q1 and full-year EPS guidance that was below expectations, while its revenue outlook for the year came in above expectations. Shares finished lower.

American Eagle Outfitters Inc. (AEO $12) reported Q2 EPS of $0.12, or $0.19 ex-items, versus the $0.16 expectation, as revenues increased 3.0% y/y to $845 million, topping the estimated $824 million. Q2 same-store sales grew 2.0% y/y, compared to the 0.4% dip that was forecasted. AEO issued Q2 EPS guidance with a midpoint below projections, while its same-store sales outlook was roughly in line with expectations. Shares were nicely higher.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA points out in his latest article, Earnings may be about to do something they've never done before, the earnings estimates for the world's companies have risen back to $30 again for the fourth time in 10 years. Without a rise in earnings above $30, stock prices may find it difficult to move any higher. Thanks to solid global growth supporting all the major regions of the world a break out above $30 now appears more likely than it has in a decade. Read more on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop.

Business activity continues to show expansion, new home sales fall

The preliminary Markit U.S. Manufacturing PMI Index unexpectedly dipped to 52.5 in August, from July's 53.3 level and compared to the Bloomberg expectation of an increase to 53.5. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector this month accelerated more than expected, rising to 56.9 from July's 54.7 level, above forecasts calling for a rise to 55.0. Readings above 50 for both reports denote expansion in activity.

New home sales (chart) dropped 9.4% month-over-month (m/m) in July to an annual rate of 571,000, well below the forecasts calling for 610,000 units and the upwardly revised 630,000 unit pace in June. The median home price was up 6.3% y/y to $313,700. New home inventory increased to 5.8 months of supply at the current sales pace from 5.2 in June. Sales fell sharply m/m in the Northeast and West, dipped in the South, but were up in the Midwest. Y/Y, sales are down in all regions except the West. New home sales are based on contract signings instead of closings.

Tomorrow, the economic calendar will complete the July housing sales picture with the release of existing home sales, projected to show contract closings on previously-owned homes rose 0.5% m/m to an annual rate of 5.55 million units. As low inventory has led to an acceleration in home prices that has outpaced income growth, affordability is a major factor threatening the continued housing recovery. The price and supply data of the report are likely going to garner the highest scrutiny. For analysis of real estate stocks and the impact of the housing market on the other major sectors, check out Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: What Makes the World Go Around?, on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

The MBA Mortgage Application Index dipped 0.5% last week, following the previous week's 0.1% gain. The decline came as a 0.3% rise in the Refinance Index was more than offset by a 1.5% drop for the Purchase Index. The average 30-year mortgage rate remained at 4.12%.

Treasuries traded higher with the yield on the 2-year note dipping 2 basis points (bps) to 1.31%, the yield on the 10-year note dropping 5 bps to 2.17% and the 30-year bond rate declining 4 bps to 2.75%.

Treasury yields and the U.S. dollar remained choppy ahead of Friday's key Fed symposium in Jackson Hole, Wyoming, where Fed Chief Janet Yellen and European Central Bank (ECB) President Mario Draghi are expected to speak. Both regions face subdued inflation and modest economic expansion and the markets will likely be looking for clues to the timing of the beginning of the Fed's reduction of its behemoth balance sheet and whether the Central Bank has one more rate hike in it this year. Also, focus will be on if the ECB's Draghi delivers a new policy message on tapering its stimulus measures, though reports have speculated that he will not deliver any new policy commentary.

As noted in the latest Schwab Market Perspective: Volatility Returns!, the Federal Reserve is likely to embark on its quantitative tightening (QT) plan, in order to slowly unwind its bloated balance sheet. We have confidence that the Fed has little desire to jolt the financial markets, but it and the market are in uncharted territory as unwinding a $4.5 trillion balance has never been done historically. We continue to believe this will be an additional volatility-driver. Read more on the Markets & Economy page at www.schwab.com.

Tomorrow's economic calendar will also yield weekly initial jobless claims, forecasted to have moved higher to a level of 238,000 from 232,000 last week and the latest Kansas City Fed Manufacturing Index, expected to tick higher to 11 in August from the 10 registered in July with a reading above zero denoting expansion in activity.

Europe sees pressure after yesterday's gain, Asia mixed on trade concerns

European equities gave back some of yesterday's advance, with the euro gaining ground on the U.S. dollar after an upbeat economic report in the region. The markets also continued to grapple with exacerbated global trade and political uncertainty in the wake of a speech last night by U.S. President Donald Trump. The stock markets shrugged off Markit's preliminary read on eurozone business activity for August that showed growth in unexpectedly accelerated, led by the manufacturing sector. The British pound was lower versus the greenback and bond yields in the region finished mixed. ECB President Mario Draghi spoke today but offered no new clues to any policy shifts at the central bank, ahead of Friday's speech in Jackson Hole, Wyoming.

Schwab's Jeffrey Kleintop, CFA points out in his article, What are fund flows telling us about trends and risks in the global stock market?, the underlying distribution of money flows appears to be driven by fundamentals or diversification, rather than purely by performance or geopolitical risk aversion, suggesting a trend that is more deeply rooted (although some markets may be vulnerable in the event of an escalation of geopolitical risk). Investors may want to consider these trends as they consider the global diversification in their own portfolio. Read more on the Markets & Economy page at www.schwab.com.

Stocks in Asia finished mixed following yesterday's gains, with the markets grappling with exacerbated trade concerns amid recent actions by the U.S. toward China and as President Trump delivered a speech last night that appeared to raise concerns about the future of NAFTA and the possibility of a U.S. government shutdown. For a look at the global landscape, see Schwab's Jeffrey Kleintop's, CFA, article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Japanese equities increased on the heels of yesterday's drop in the yen and as a report showed the growth in the nation's manufacturing output accelerated slightly in August. Australian securities declined amid weakness in financials, healthcare and technology issues, and Chinese stocks dipped. Markets in Hong Kong were closed due to Typhoon Hato. Indian shares advanced, led by property-related stocks, and South Korean equities ticked higher.

Tomorrow, the international economic docket will yield the Leading Index from Japan, business confidence from France and GDP, the Index of Services and total business investment from the U.K.

Stocks Trade in Red Shade

Charles Schwab: On the Market

Posted: 8/23/2017 4:15 PM ET

Stocks Trade in Red Shade

U.S. stocks were unable to breech the unchanged mark during the trading session, closing lower as last night's speech by President Trump cast a shadow over global trade issues and has market participants pondering a possible government shutdown. Volume remained on the lighter side, while on Friday Fed Chair Yellen will speak at the Central Bank's annual symposium in Jackson Hole, WY. Treasury yields and the U.S. dollar were lower and crude oil prices and gold were higher. In other economic developments, Markit business activity reports indicated expansion in both the manufacturing and service sectors continued in August.

The Dow Jones Industrial Average (DJIA) declined 88 points (0.4%) to 21,812, the S&P 500 Index was 8 points (0.3%) lower at 2,444, and the Nasdaq Composite decreased 19 points (0.3%) to 6,278. In light-to-moderate volume, 682 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.58 to $48.41 per barrel and wholesale gasoline was up by $0.03 to $1.62 per gallon. Elsewhere, the Bloomberg gold spot price increased $5.35 to $1,290.42 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 93.16.

Lowe's Companies Inc. (LOW $73) reported Q2 earnings-per-share (EPS) of $1.68, or $1.57 ex-items, versus the $1.62 FactSet estimate, as revenues increased 6.8% year-over-year (y/y) to $19.5 billion, below the projected $19.6 billion. Q2 same-store sales rose 4.5% y/y, compared to the expected 4.3% increase. LOW lowered its full-year EPS outlook, while reaffirming its revenue guidance. Shares traded solidly lower.

Salesforce.com Inc. (CRM $93) posted Q2 EPS of $0.02, or $0.33 ex-items, versus the projected $0.32, with revenues rising 26.0% y/y to $2.6 billion, above the forecasted $2.5 billion. The company raised its full-year guidance slightly. Shares dipped.

Intuit Inc. (INTU $136) announced fiscal Q4 profits of $0.09 per share, or $0.20 ex-items, compared to the estimated $0.17, as revenues grew 12.0% y/y to $842 million, north of the forecasted $809 million. INTU issued Q1 and full-year EPS guidance that was below expectations, while its revenue outlook for the year came in above expectations. Shares finished lower.

American Eagle Outfitters Inc. (AEO $12) reported Q2 EPS of $0.12, or $0.19 ex-items, versus the $0.16 expectation, as revenues increased 3.0% y/y to $845 million, topping the estimated $824 million. Q2 same-store sales grew 2.0% y/y, compared to the 0.4% dip that was forecasted. AEO issued Q2 EPS guidance with a midpoint below projections, while its same-store sales outlook was roughly in line with expectations. Shares were nicely higher.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA points out in his latest article, Earnings may be about to do something they've never done before, the earnings estimates for the world's companies have risen back to $30 again for the fourth time in 10 years. Without a rise in earnings above $30, stock prices may find it difficult to move any higher. Thanks to solid global growth supporting all the major regions of the world a break out above $30 now appears more likely than it has in a decade. Read more on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop.

Business activity continues to show expansion, new home sales fall

The preliminary Markit U.S. Manufacturing PMI Index unexpectedly dipped to 52.5 in August, from July's 53.3 level and compared to the Bloomberg expectation of an increase to 53.5. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector this month accelerated more than expected, rising to 56.9 from July's 54.7 level, above forecasts calling for a rise to 55.0. Readings above 50 for both reports denote expansion in activity.

New home sales (chart) dropped 9.4% month-over-month (m/m) in July to an annual rate of 571,000, well below the forecasts calling for 610,000 units and the upwardly revised 630,000 unit pace in June. The median home price was up 6.3% y/y to $313,700. New home inventory increased to 5.8 months of supply at the current sales pace from 5.2 in June. Sales fell sharply m/m in the Northeast and West, dipped in the South, but were up in the Midwest. Y/Y, sales are down in all regions except the West. New home sales are based on contract signings instead of closings.

Tomorrow, the economic calendar will complete the July housing sales picture with the release of existing home sales, projected to show contract closings on previously-owned homes rose 0.5% m/m to an annual rate of 5.55 million units. As low inventory has led to an acceleration in home prices that has outpaced income growth, affordability is a major factor threatening the continued housing recovery. The price and supply data of the report are likely going to garner the highest scrutiny. For analysis of real estate stocks and the impact of the housing market on the other major sectors, check out Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: What Makes the World Go Around?, on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

The MBA Mortgage Application Index dipped 0.5% last week, following the previous week's 0.1% gain. The decline came as a 0.3% rise in the Refinance Index was more than offset by a 1.5% drop for the Purchase Index. The average 30-year mortgage rate remained at 4.12%.

Treasuries traded higher with the yield on the 2-year note dipping 2 basis points (bps) to 1.31%, the yield on the 10-year note dropping 5 bps to 2.17% and the 30-year bond rate declining 4 bps to 2.75%.

Treasury yields and the U.S. dollar remained choppy ahead of Friday's key Fed symposium in Jackson Hole, Wyoming, where Fed Chief Janet Yellen and European Central Bank (ECB) President Mario Draghi are expected to speak. Both regions face subdued inflation and modest economic expansion and the markets will likely be looking for clues to the timing of the beginning of the Fed's reduction of its behemoth balance sheet and whether the Central Bank has one more rate hike in it this year. Also, focus will be on if the ECB's Draghi delivers a new policy message on tapering its stimulus measures, though reports have speculated that he will not deliver any new policy commentary.

As noted in the latest Schwab Market Perspective: Volatility Returns!, the Federal Reserve is likely to embark on its quantitative tightening (QT) plan, in order to slowly unwind its bloated balance sheet. We have confidence that the Fed has little desire to jolt the financial markets, but it and the market are in uncharted territory as unwinding a $4.5 trillion balance has never been done historically. We continue to believe this will be an additional volatility-driver. Read more on the Markets & Economy page at www.schwab.com.

Tomorrow's economic calendar will also yield weekly initial jobless claims, forecasted to have moved higher to a level of 238,000 from 232,000 last week and the latest Kansas City Fed Manufacturing Index, expected to tick higher to 11 in August from the 10 registered in July with a reading above zero denoting expansion in activity.

Europe sees pressure after yesterday's gain, Asia mixed on trade concerns

European equities gave back some of yesterday's advance, with the euro gaining ground on the U.S. dollar after an upbeat economic report in the region. The markets also continued to grapple with exacerbated global trade and political uncertainty in the wake of a speech last night by U.S. President Donald Trump. The stock markets shrugged off Markit's preliminary read on eurozone business activity for August that showed growth in unexpectedly accelerated, led by the manufacturing sector. The British pound was lower versus the greenback and bond yields in the region finished mixed. ECB President Mario Draghi spoke today but offered no new clues to any policy shifts at the central bank, ahead of Friday's speech in Jackson Hole, Wyoming.

Schwab's Jeffrey Kleintop, CFA points out in his article, What are fund flows telling us about trends and risks in the global stock market?, the underlying distribution of money flows appears to be driven by fundamentals or diversification, rather than purely by performance or geopolitical risk aversion, suggesting a trend that is more deeply rooted (although some markets may be vulnerable in the event of an escalation of geopolitical risk). Investors may want to consider these trends as they consider the global diversification in their own portfolio. Read more on the Markets & Economy page at www.schwab.com.

Stocks in Asia finished mixed following yesterday's gains, with the markets grappling with exacerbated trade concerns amid recent actions by the U.S. toward China and as President Trump delivered a speech last night that appeared to raise concerns about the future of NAFTA and the possibility of a U.S. government shutdown. For a look at the global landscape, see Schwab's Jeffrey Kleintop's, CFA, article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Japanese equities increased on the heels of yesterday's drop in the yen and as a report showed the growth in the nation's manufacturing output accelerated slightly in August. Australian securities declined amid weakness in financials, healthcare and technology issues, and Chinese stocks dipped. Markets in Hong Kong were closed due to Typhoon Hato. Indian shares advanced, led by property-related stocks, and South Korean equities ticked higher.

Tomorrow, the international economic docket will yield the Leading Index from Japan, business confidence from France and GDP, the Index of Services and total business investment from the U.K.

Stocks Extend Weekly Advance Despite Disappointing Data

Charles Schwab: On the Market

Posted: 7/14/2017 4:15 PM ET

Stocks Extend Weekly Advance Despite Disappointing Data

U.S. stocks added to a solid weekly advance, with technology issues leading the ascent amid some eased Fed rate hike expectations following softer-than-expected reads on retail sales and consumer sentiment and as inflation remains subdued following this week's dovish testimony by Fed Chair Yellen. An increase in Treasuries coupled with some negative reactions to mostly upbeat banking earnings reports weighed on financials. The U.S. dollar was lower, while gold and crude oil prices were higher.

The Dow Jones Industrial Average (DJIA) gained 85 points (0.4%) to 21,638, the S&P 500 Index advanced 11 points (0.5%) to 2,459, and the Nasdaq Composite increased 38 points (0.6%) to 6,312. In light to moderate volume, 674 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.46 to $46.54 per barrel and wholesale gasoline was $0.03 higher at $1.56 per gallon. Elsewhere, the Bloomberg gold spot price gained $11.02 to $1,228.60 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 95.14. Markets gained solid ground for the week, as the DJIA increased 1.0%, S&P 500 Index advanced 1.4% and the Nasdaq Composite surged 2.6%.

Dow member JPMorgan Chase & Co. (JPM $92) reported Q2 earnings-per-share (EPS) of $1.82, above the FactSet estimate of $1.59, as revenues rose 4.5% year-over-year (y/y) to $25.5 billion, compared to the expected $25.0 billion. JPM noted a stable-to-improving global economic backdrop and a U.S. consumer that remains healthy, while saying loans and deposits continue to grow strongly but market trading revenue was down amid lower volatility and client activity. The company's net interest margin came in a bit shy of forecasts due to higher funding costs, and the company lowered its guidance for net interest income. Shares finished lower.

Citigroup Inc. (C $67) posted Q2 EPS of $1.28, topping the projected $1.21, as revenues increased 2.0% y/y to $17.9 billion, above the forecasted $17.4 billion. The company said it saw continued momentum in its businesses, with loan and revenue growth across both sides of the house. Trading revenues topped forecasts and net interest income was roughly in line with forecasts. However, shares were lower amid analyst caution regarding the outlook for net interest income for the industry.

Wells Fargo & Co. (WFC $55) achieved Q2 profits of $1.07 per share, exceeding the projected $1.01, as revenues were roughly flat y/y to $22.2 billion, versus the estimated $22.5 billion. The company noted continued modest economic growth, increased net interest income and continued improvement in credit results. However, loans were down quarter-over-quarter and its core fees missed expectations. WFC traded lower.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers a look at the financial sector as they unofficially kick off Q2 earnings season in his latest Schwab Sector Views: Christmas in July! (Status of the Consumer), on the Markets & Economy page at www.schwab.com and be sure to follow us on Twitter: @schwabresearch.

Retail sales and consumer price inflation miss, along with consumer sentiment

Advance retail sales (chart) for June declined 0.2% month-over-month (m/m), compared to the Bloomberg forecast of a 0.1% gain and compared to May's favorably revised 0.1% decline. Last month's sales ex-autos declined by 0.2% m/m, versus expectations of a 0.2% gain, and following the unrevised 0.3% decrease seen in the previous month. Sales ex-autos and gas were down 0.1% m/m, compared to estimates of a 0.4% rise, and versus May's unrevised flat reading. The retail sales control group, a figure used to help calculate GDP, dipped 0.1%, compared to the projected 0.3% rise, and the prior month's figure was unrevised at a flat reading. Sales declined at restaurants, gasoline stations, as well as at grocery and department stores, while online and building materials sales were bright spots.

The Consumer Price Index (CPI) (chart) was flat m/m in June, versus estimates calling for a 0.1% gain, while May's 0.1% dip was unrevised. The core rate, which strips out food and energy, ticked 0.1% higher m/m, compared to expectations of a 0.2% increase and versus May's unrevised 0.1% rise. Y/Y, prices were 1.6% higher for the headline rate, below forecasts of a 1.7% rise, while the core rate was up 1.7%, matching projections. May y/y figures showed an unrevised 1.9% rise and an unadjusted 1.7% increase for the headline and core rates respectively.

Industrial production (chart) was up 0.4% m/m in June, above estimates calling for a 0.3% gain, and compared to May's upwardly revised 0.1% increase. This was the fifth-straight monthly advance as manufacturing production ticked higher and mining output rose solidly, while growth in utilities was flat. Capacity utilization increased to 76.6%, compared to May's downwardly revised 76.4%, and below forecasts of 76.8%. Capacity utilization is 3.3 percentage points below its long-run average.

The preliminary University of Michigan Consumer Sentiment Index (chart) fell to the lowest level since October 2016, dropping to 93.1 in July from the prior month's 95.1 level, and compared to expectations for it to dip to 95.0. The current economic conditions component improved modestly m/m, while the expectations measure fell. The 1-year inflation forecast rose to 2.7% from 2.6%, while the 5-10 year inflation outlook also ticked higher to 2.6% from 2.5%.

Business inventories (chart) increased 0.3% m/m in May, in line with forecasts, and versus April's unrevised 0.2% decrease.

Treasuries gained ground on the data, notably the softer-than-expected inflation and retail sales data, which added to this week's dovish monetary policy testimony from Fed Chairwoman Janet Yellen to temper expectations of the pace of rate hikes this year and beyond. As noted in the latest Schwab Market Perspective: Smooth Sailing for Stocks?, a mixed economic picture, combined with the recent retreat in some inflation measures, has raised the level of uncertainty regarding future Federal Reserve actions. The environment for U.S. and global stocks continues to be in decent shape, but some risks are elevated and the possibility of a pullback exists. A notable potential driver of bouts of volatility could be U.S. and global central bank policy as they sail toward monetary policy normalization. Read more on the Markets & Economy page at www.schwab.com.

The yield on the 2-year note dipped 1 basis point (bp) to 1.35%, the yield on the 10-year note dropped 2 bps to 2.32% and the 30-year bond rate was nearly unchanged at 2.91%.

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 continues to garner attention, with the revised Senate healthcare bill being dissected to see if it has the potential to pass a vote and 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 turns mixed on data and global central bank volatility, Asia mostly higher

European equities finished mixed, with strength in oil & gas issues and basic materials being offset by gains in the euro and British pound versus the U.S. dollar, which found pressure following some disappointing U.S. retail sales and inflation data. The currencies gained ground on eased Fed rate hike expectations that followed the U.S. data and this week's dovish testimony from Fed Chair Yellen. Also, reports fostered speculation that the European Central Bank may be moving closer to scaling back its stimulus measures later this year. Financials saw some pressure as global bond yields moved lower and banking sector earnings reports in the U.S. were scrutinized. In economic news in the region, growth in EU new car registrations slowed, while the eurozone trade surplus came in below forecasts. For more on the markets, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, Where's the Next Bubble?, on the Markets & Economy page at www.schwab.com, as well as his 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mostly higher, extending global market gains that have been fostered by the recent increase in crude oil prices and dovish monetary policy testimony from U.S. Fed Chair Janet Yellen, while appearing cautious ahead of key earnings reports out of the U.S. banking sector. Japanese equities ticked higher, with the yen giving back recent gains, while mainland Chinese shares also nudged to the upside. Stocks trading in Hong Kong and South Korea advanced, while Indian equities dipped and all three of these constituents have indexes that are at or near record highs and for a look at 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 Markets & Economy page at www.schwab.com. Australian securities rose.

Stocks climb as Fed Chief strikes dovish tone

U.S. stocks participated in a global rally that was fueled by eased concerns about the pace of Fed rate hikes as the Central Bank moves toward the start of reducing its bloated balance sheet. Economic data continued to paint a mixed picture with U.S. industrial production extending a winning streak, while retail sales and consumer sentiment missed. However, the bulk of the shift in Fed sentiment came as wholesale and consumer price inflation remained subdued and as Fed Chair Janet Yellen struck a dovish tone in her semi-annual Congressional monetary policy testimony. Yellen said the fed funds rate remains somewhat below its neutral level and "because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance." Technology stocks returned to rally mode after their brief hiccup. Energy and materials issues also helped lead the way as commodity prices added to a recent rebound on another dose of upbeat Chinese economic data and as the U.S. dollar drifted lower. Crude oil prices also rallied, bolstered by some bullish oil inventory data. However, financials were noticeably lower as Treasury yields, especially on the short-to-mid end of the curve, fell, and some key banking sector quarterly results to unofficially kick off earnings season garnered a mixed reaction.

Next week, as earnings take center stage, the U.S. economic calendar will bring updates on areas of the economy that have been bright spots. Housing will dominate the docket, courtesy of the releases of the NAHB Housing Market Index, as well as housing starts and building permits. Moreover, we will get the first look at manufacturing activity—which has suggested growth has accelerated recently—for July, in the form of regional reports the Empire Manufacturing Index and 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.

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.

Next week's international economic front will likely garner heightened attention with key release including: Australia—employment change. China—retail sales, industrial production, property prices and Q2 GDP. India—trade balance. Japan—trade balance and the Bank of Japan's monetary policy decision. Eurozone—consumer price inflation and the European Central Bank monetary policy decision. U.K.—inflation statistics and retail sales.

Stocks Continue to Tick Higher

Charles Schwab: On the Market

Posted: 7/13/2017 4:15 PM ET

Stocks Continue to Tick Higher

U.S. stocks finished with mild gains as Fed Chair Janet Yellen concluded her two-day monetary policy commentary in front of the Senate this afternoon. Tech and financial issues led the advance as Treasury yields rebounded from yesterday's declines and the Street is awaiting a plethora of key banking sector earnings reports tomorrow. The U.S. dollar was nearly unchanged, crude oil prices were higher and gold was lower.

The Dow Jones Industrial Average (DJIA) gained 21 points (0.1%) to 21,553, the S&P 500 Index advanced 5 points (0.2%) to 2,448, and the Nasdaq Composite increased 13 points (0.2%) to 6,274. In moderate volume, 768 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.59 to $46.08 per barrel and wholesale gasoline was $0.01 higher at $1.53 per gallon. Elsewhere, the Bloomberg gold spot price shed $2.13 to $1,218.38 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 95.74.

Target Corp. (TGT $53) got a boost after the retailer said it expects Q2 earnings-per-share (EPS) to be at the high end of its previous guidance, which was above the FactSet estimate. TGT cited improved traffic and sales trends through the first two months of the quarter.

TGT's report offered some optimism to the struggling retail sector and tomorrow the group will remain in focus as the economic calendar is set to deliver tretahe June retail sales report and the preliminary July University of Michigan Consumer Sentiment Index. Retails sales are projected to rebound from May's slip and consumer sentiment is forecasted to dip slightly. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers a relatively positive view on the American consumer in his latest Schwab Sector Views: Christmas in July! (Status of the Consumer), but points out some clouds on the horizon that keep us, and should keep you, at least somewhat cautious. Read more on our marketperform rating on the consumer discretionary sector on the Markets & Economy page at www.schwab.com and be sure to follow us on Twitter: @schwabresearch.

Delta Air Lines Inc. (DAL $55) reported Q2 EPS of $1.68, or $1.64 ex-items, versus estimates of $1.66, as revenues rose 3.3% year-over-year (y/y) to $10.8 billion, roughly in line with expectations. DAL offered mixed Q3 guidance. Shares traded lower.

For more on the stock markets, which remain near record high levels, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, Where's the Next Bubble?, in which he notes that there don't seem to be any classic bubbles near bursting at the moment—at least not among the ones most commonly referenced as potential candidates. But remember that bubbles are sometimes only seen in hindsight, which is why we always council diversification. Read more on the Markets & Economy page at www.schwab.com, and be sure to follow Jeff on Twitter: @jeffreykleintop.

Jobless claims top forecasts, wholesale price inflation ticks higher

Weekly initial jobless claims (chart) declined by 3,000 to 247,000 last week, above the Bloomberg forecast of 245,000, with the prior week’s figure being revised higher by 2,000 to 250,000. The four-week moving average rose by 2,250 to 245,750, while continuing claims fell 20,000 to 1,945,000, south of estimates of 1,950,000.

The Producer Price Index (PPI) (chart) showed prices at the wholesale level in June were up 0.1% month-over-month (m/m), above expectations to match May's flat reading. The core rate, which excludes food and energy, was also up 0.1%, versus forecasts of a 0.2% advance and May's unrevised 0.3% increase. Y/Y, the headline rate was 2.0% higher, topping projections of a 1.9% increase, and the core PPI rose 1.9% last month, below estimates of a 2.0% gain. In May, producer prices were 2.4% higher and up 2.1% for the headline and core rates, respectively.

Federal Reserve Chairwoman Janet Yellen concluded her two-day semi-annual Congressional monetary policy testimony in front of the Senate Banking Committee. Her testimony didn't deviate much from what she told the House yesterday, which fostered a dovish takeaway in the markets and appeared to ease concerns about the pace of further rate hikes. Yellen noted that the Fed will begin to shrink the balance sheet this year and inflation continues to run below its target, partly due to a few unusual reductions in certain categories of prices. However, the part of her testimony that garnered the most attention was when she said the fed funds rate remains somewhat below its neutral level and "because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance."

Treasuries were under pressure, with the yields on the 2-year and 10-year notes gaining 2 basis points (bps) to 1.36% and 2.34%, respectively, while the yield on the 30-year bond rose 3 bps to 2.91%.

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. Kathy notes that we believe the Federal Reserve to continue to tighten monetary policy and reduce its balance sheet gradually, assuming inflation doesn't slip further. 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.

Inflation, one of the two policy mandates for the Fed, has seen a recent retreat to boost the level of uncertainty regarding future Central Bank actions, setting the stage for tomorrow's Consumer Price Index (CPI) to possibly garner heightened scrutiny. The headline figure is expected to tick 0.1% higher m/m and core CPI is projected to rise 0.2%, resulting in y/y gains of 1.7%—below the Fed's 2.0% target—for both figures. As noted in the latest Schwab Market Perspective: Smooth Sailing for Stocks?, combine the upward move in yields with a modest rebound in some commodities, folks may be wondering if the reflation story is again gaining traction. We believe it's too early to buy into that, especially with inflation readings remaining low, but it is something to keep an eye on, and could potentially add some more choppiness to the waters as we sail through the summer months. Read more on the Markets & Economy page at www.schwab.com.

Additional releases on tomorrow's domestic docket will include the Fed's June industrial production and capacity utilization report, forecasted to show production increased 0.3% m/m and utilization ticked higher to 76.8%, and business inventories, expected to have increased 0.3% m/m in May after declining by 0.2% in April.

The political front continues to garner attention, with a revised Senate healthcare bill being revealed and scrutinized to see if it has the support to pass a procedural vote. 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 modestly adds to yesterday's rally, Asia mostly higher following data and Fed

European equities mostly ticked to the upside following yesterday's broad-based rally that stemmed from the dovish takeaway of U.S. Fed Chairwoman Janet Yellen's monetary policy testimony that seemed to ease rate hike jitters. Also, global sentiment may have received a boost from some upbeat Chinese economic data. The euro declined and the British pound rose versus the U.S. dollar, while bond yields in the region gained ground. Schwab's 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 Randy on Twitter: @randyafrederick. Brexit negotiations continued to garner attention, while the economic calendar showed German consumer price inflation rose in line with forecasts.

Stocks in Asia finished mostly higher as the global markets cheered yesterday's testimony from U.S. Fed Chair Yellen that eased fed rate hike concerns, while some China data was favorable. Shares trading in mainland China and Hong Kong advanced, aided by reports that showed the nation's exports rose more than expected and key lending statistics topped forecasts. Schwab's Jeffrey Kleintop, CFA, offers analysis of the global economic outlook in his 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page at www.schwab.com. Australian securities gained ground. South Korean equities managed a move higher after the Bank of Korea expectedly kept its benchmark interest rate unchanged, while Indian stocks advanced despite late-yesterday's data showing consumer price inflation came in a bit cooler than expected and industrial production rose at a smaller pace than projected. Both indexes reached record highs and for a look at 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 Markets & Economy page at www.schwab.com. However, Japanese equities finished flat as the yen gained ground on the monetary policy comments out of the U.S. and as the markets digested the Bank of Japan's recent bond buying operations.

The international economic calendar will continue to be light tomorrow, offering industrial production and capacity utilization from Japan, wholesale prices from India and CPI and trade data from Italy.