Early Gains Fade to Red

Charles Schwab: On the Market

Posted: 12/14/2017 4:15 PM EST

Early Gains Fade to Red

 

Early gains for U.S. equities faded throughout the day and stocks finished lower, despite a jump in November retail sales and positive service sector data, and reports that a tentative tax bill deal has been reached. Consumer discretionary stocks got a boost from the sales report, but the gains were muted by a fall in the health care sector. Pressure on financials after Treasury yields pared gains contributed to the downdraft, as investors asses yesterday's Fed rate hike and a host of European monetary policy decisions. Crude oil and the U.S. dollar were higher, while gold was lower. Attention toward the equity front focused on Dow member Walt Disney’s agreement to acquire parts of Twenty-First Century Fox for $52 billion.

The Dow Jones Industrial Average (DJIA) declined 77 points (0.3%) to 24,509, the S&P 500 Index lost 11 points (0.4%) to 2,652, and the Nasdaq Composite decreased 19 points (0.3%) to 6,857. In moderate volume, 810 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.44 to $57.074 per barrel and wholesale gasoline gained $0.02 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price moved $2.42 lower to $1,253.08 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.52.

As was widely speculated, Dow member Walt Disney Co. (DIS $111) announced an agreement to acquire parts of Twenty-First Century Fox Inc. (FOXA $35), including the Twentieth Century Fox Film and Television studios, along with cable and international TV businesses, for about $52.4 billion in stock. Under the terms of the deal, Twenty-First Century Fox stockholders will receive 0.2745 Disney shares for each share they hold. Immediately prior to the acquisition, Twenty-First Century Fox will separate the Fox Broadcasting network and stations into a newly listed company that will be spun off to its shareholders. Walt Disney also announced that it has extended Robert Iger's contract and he will remain Chairman and Chief Executive Officer of the company through 2021. DIS and FOXA both gained solid ground.

Express Scripts Holding Co. (ESRX $69) raised its full-year earnings-per-share (EPS) outlook, while issuing 2018 EPS guidance that exceeded expectations. Shares finished higher.

Shares of Teva Pharmaceutical Industries Limited (TEVA $17) jumped after announcing a comprehensive restructuring plan aimed at reducing costs by $3 billion by the end of 2019, including reducing its workforce by over 25%. Also, the company suspended its dividend.

Delta Air Lines Inc. (DAL $55) gained solid ground after the airline issued 2018 revenue guidance with a midpoint above the FactSet estimate after guiding that it expects December passenger unit revenue to be up roughly 4.0%. Separately, the company announced that it agreed to order 100 of Airbus SE's (EADSY $25) A321neo aircraft with options of up to 100 additional jets.

Retail sales jump, jobless claims drop, business activity reports mixed

Advance retail sales (chart) for November rose 0.8% month-over-month (m/m), compared to the Bloomberg forecast of a 0.3% gain and compared to October's upwardly revised 0.5% increase. Last month's sales ex-autos were up by 1.0% m/m, versus expectations of a 0.6% gain, and following the favorably revised 0.4% increase seen in the previous month. Sales ex-autos and gas gained 0.8% m/m, above estimates of a 0.4% rise, and versus October's upwardly revised 0.4% gain. The retail sales control group, a figure used to help calculate GDP, increased 0.8%, north of projections of a 0.4% rise, and versus the prior month's favorably revised 0.4% gain.

The report suggests the holiday season got off to a strong start and the all-important U.S. consumer continues to be underpinned by the solid labor market and signs of wage growth. Growth was broad-based across the 13 categories, led by a 2.5% jump in sales at nonstore retailers—which includes online shopping—but auto sales were the lone group that declined. Per Bloomberg, core retail sales—ex food, gas, building materials and autos—on a three-month annualized basis rose at the fastest pace since June 2014. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, has touted the broad-based economic impact of the consumer as of late, which has led to elevated business optimism that could bolster already rising capital investments as he discusses in his latest Schwab Sector Views: 18 Thoughts Heading into '18.

Weekly initial jobless claims (chart) dropped by 11,000 to 225,000 last week, versus forecasts to remain at the prior week's unrevised 236,000 level. The four-week moving average came in at 234,750, while continuing claims fell by 27,000 to 1,886,000, south of estimates of 1,900,000.

The preliminary Markit U.S. Manufacturing PMI Index showed expansion in output surprisingly accelerated, rising to 55.0 in December, versus expectations to match November's 53.9 level. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector this month unexpectedly slowed, declining to 52.4 from November's 54.5 figure, and versus forecasts calling for it to rise to 54.7. However, readings above 50 for both indexes denote expansion.

The Import Price Index (chart) rose 0.7% m/m for November, matching projections, following October's downwardly revised 0.1% rise. Compared to last year, prices were up by 3.1%, below forecasts of a 3.2% rise and compared to October's downwardly revised 2.3% increase.
Business inventories (chart) dipped 0.1% m/m in October, matching forecasts, and versus September's unrevised flat reading.

Treasuries were mixed, as the yield on the 2-year note rose 4 basis points (bps) to 1.81%, the yield on the 10-year note was flat at 2.35%, while the 30-year bond rate dipped 2 bps to 2.71%.

Bond yields were mixed but the U.S. dollar got back on the winning path after yesterday's drop, with the markets grappling with today's data and unchanged monetary policy decisions by the European Central Bank and Bank of England, which followed yesterday's highly-expected Fed rate hike. For analysis of the Fed's monetary policy decision, check out Schwab's Senior Fixed Income Research Analyst, Collin Martin's, CFA, article,

Fed Raises Rates, Projects More to Come in 2018, as well as our commentary, Fed Rate Hike: What Does It Mean for Your Portfolio.

Tax reform also remained a source of market attention, bolstered by reports that lawmakers have reached a tentative deal on a final bill. Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of what investors should be paying attention to, in his article, Tax Reform: What Investors Should Know, while also addressing questions regarding how the potential tax overhaul may affect you as an investor in his article, Tax Reform: Frequently Asked Questions. Moreover, as you conduct your year-end tax planning, check out our latest article, Tax Reform: 11 Questions to Ask Your Advisor.

The economic calendar will round out the week with the Federal Reserve’s industrial production and capacity utilization report, with production forecasted to have increased 0.3% m/m during November and capacity utilization to tick higher to 77.2%, as well as the Empire Manufacturing Index, with economists expecting a level of 18.0, with a reading above zero indicating expansion in activity.

Europe and Asia lower as central bank action in focus

European equities finished lower, with technology issues seeing some pressure and financials extending losses late as bond yields moved to the downside and the markets digested a flood of monetary policy decisions. The European Central Bank (ECB) and the Bank of England (BoE), along with the Swiss National Bank (SNB) all kept their monetary policy stances unchanged as expected, on the heels of yesterday's highly-expected rate hike in the U.S. The euro and Swiss franc lost ground on the U.S. dollar, while the British pound reversed modestly to the upside late in the session.

The markets paid close attention to the customary press conference following the ECB's decision by President Mario Draghi, who raised the region's economic growth outlook but was seen as dovish in regard to inflation, noting that an ample degree of stimulus is still needed. Draghi said the structure of its bond-buying program nor a change in guidance were discussed at the meeting as it has only been six weeks since it announced that it will cut the amount of monthly purchases in half starting in January. He did say that it could increase asset purchases or the duration if its outlook becomes less favorable and inflation fails to make progress toward a sustained path to its goal of just under 2.0%.

The focus on monetary policy decisions overshadowed stronger-than-expected U.S. retail sales and eurozone business activity reports, along with headlines suggesting a U.S. tax reform agreement has been reached. Markit's preliminary December Composite PMI Index—a gauge of business activity in both the manufacturing and services sectors—surprisingly improved to 58.0 from 57.5 in November and compared to forecasts calling for a dip to 57.2. As noted in our 2018 Schwab Market Outlook: Executive Summary, we anticipate solid growth in 2018 and don't see a recession on the horizon. However, with markets priced for ongoing moderate growth and low volatility, the risks we’re monitoring include the potential for higher inflation and more central bank tightening than expected.

Stocks in Asia finished mostly to the downside as the markets digested a host of economic data in the region, along with yesterday's rate hike in the U.S., while awaiting today's monetary policy decisions from the European Central Bank and the Bank of England. China reported roughly in line figures on November retail sales, fixed asset investment and industrial production, while Australian employment grew more than expected last month and Indian wholesale price inflation came in a bit cooler than expected for November. The yen gained ground on the U.S. dollar to weigh on Japanese stocks, ahead of a key read on the nation's manufacturing sentiment for Q4 due out tonight. Mainland Chinese equities and those listed in Hong Kong declined, while markets in Australia and South Korea also lost ground. However, stocks in India finished higher. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers a look at the global markets heading into the New Year in his, 2018 Global Market Outlook: Three Actions to Take for the Year Ahead.

Tomorrow’s international economic calendar will offer the Tankan Large Manufacturing and non-Manufacturing Indexes from Japan, India’s trade balance, and wage data from France.

Stocks Lower as Tech Rebound Fizzles

Charles Schwab: On the Market

Posted: 12/5/2017 4:15 PM EST

Stocks Lower as Tech Rebound Fizzles

 

U.S. equities finished lower, with an early rebound for tech stocks losing steam in late-day action, while attention has shifted to the looming likely highly-contentious reconciliation process for tax reform. Treasury yields were mixed but little changed despite reports showing services sector output remained solid and the trade deficit widened more than expected. Crude oil prices moved higher and gold was lower, while the U.S. dollar also gained ground.

The Dow Jones Industrial Average (DJIA) fell 109 points (0.5%) to 24,181, the S&P 500 Index lost 10 points (0.4%) to 2,629, and the Nasdaq Composite declined 13 points (0.2%) to 6,762. In moderate volume, 885 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.15 higher to $57.62 per barrel and wholesale gasoline gained $0.03 to $1.72 per gallon. Elsewhere, the Bloomberg gold spot price decreased $9.39 to $1,266.79 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 93.38.

Toll Brothers Inc. (TOL $47) reported fiscal Q4 earnings-per-share (EPS) of $1.17, compared to the $1.19 FactSet estimate, as revenues rose 9.0% year-over-year (y/y) to $2.0 billion, versus the projected $2.1 billion. The luxury homebuilder's Q4 deliveries came in below expectations. TOL issued full-year revenue guidance that had a midpoint just above estimates. Shares fell.

AutoZone Inc. (AZO $710) posted fiscal Q1 EPS of $10.00, compared to the forecasted $9.78, with revenues increasing 4.9% y/y to $2.6 billion, exceeding the projected $2.5 billion. The auto parts retailer said its Q1 same-store sales rose 2.3% y/y, north of the expected 0.9% gain. Shares were modestly higher.

Services sector growth slows but remains solid, trade deficit widens more than expected

The November Institute for Supply Management (ISM) non-Manufacturing Index (chart) declined to 57.4 from October's unrevised 60.1 reading, which was only the fourth time in its history above 60 and the highest level since August 2005. The Bloomberg forecast called for a decline to 59.0. A reading above 50 denotes expansion. New orders fell 4.1 points month-over-month (m/m) to 58.7, business activity dipped 0.8 points to 61.4, and employment decreased 2.2 points to 55.3. Prices declined 2 points but remained elevated at 60.7. Non-manufacturing activity accounts for a large majority of U.S. economic output and the ISM said respondents' comments indicate that the economy and sector will continue to grow for the remainder of the year.

This report joins a host of global PMIs that continue to suggest global growth could continue to underpin the world stock market rally. Schwab's Chief Investment Strategist Liz Ann Sonders points out in her latest article, I Melt with You: Anatomy of a Market Melt Up, we believe it's been the actual fundamentals that have driven the calm surge in stocks with all 45 OECD countries growing. Liz Ann adds that coupled with the start of a sharp turn-for-the-better in U.S. corporate earnings and you have the recipe for yet another leg up in the ongoing secular bull market. However, she cautions that melt ups can be fun while they’re underway; but they don’t tend to end well, and it’s tricky to time the inevitable failure, concluding that discipline is more important now than it’s been in quite some time.

The final Markit U.S. Services PMI Index was revised to 54.5 in November from the preliminary 54.7 level, versus expectations of an upward adjustment to 55.2, and below October's 55.3 level. A reading above 50 denotes expansion and the release is independent and differs from ISM's report, as it has less historic value and Markit weights its index components differently.

The trade balance (chart) showed that the deficit came in at $48.7 billion in October, compared to estimates of $47.5 billion. September's deficit was upwardly revised to $44.9 billion. Exports were flat month-over-month (m/m) at $195.9 billion, while imports rose by 1.6% to $244.6 billion.
Treasuries were mixed to little changed, as the yield on the 2-year note increased 1 basis point (bp) to 1.84%, while the yield on the 10-year note was flat at 2.35% and the 30-year bond rate lost 1 bp to 2.73%.

The U.S. dollar modestly extended yesterday's gain and Treasury yields remain near the top end of the range traded at this year as the markets continue to digest the weekend's Senate tax reform bill passage and prepare for the expected competitive reconciliation process between the House and Senate as they try to find compromises on some key differences of their bills.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Bill Passes Senate, Clearing Key Hurdle, reaching consensus between the two chambers won’t be easy; there are significant differences between the two bills that will need to be resolved. The conference process will begin this week and Republican leaders are optimistic that a deal can be struck within a matter of days. Complicating matters, the two chambers also must find time this week to avert a government shutdown and approve legislation that extends funding to keep the government open and operating. With regard to the tax bill, until the agreement is finalized, there is little for investors to do. But a year-end conversation with your financial advisor is always a good idea, and a discussion of the potential impacts to your tax situation as a result of the legislation would be prudent.

An initial look at job data for November will likely headline tomorrow's economic calendar ahead of Friday's November nonfarm payroll report, with the ADP Employment Change report expected to show private sector jobs increased by 190,000 following October's 235,000 increase. Final Q3 nonfarm productivity and unit labor costs will also be released, with the former forecasted to be upwardly revised to a 3.3% quarter-over-quarter (q/q) increase from the preliminarily-reported 3.0% and the latter to be adjusted downward to a 0.2% q/q rise from the 0.5% posted originally. MBA Mortgage Applications will also be released.

Europe dips on mixed data and Brexit uncertainty, Asia mostly lower

European equity markets finished mostly lower even as technology issues rebounded with a softer-than-expected eurozone retail sales report slightly more than offsetting Markit's data showing eurozone output from the manufacturing and services sectors continued to show solid growth. The euro saw some pressure versus the U.S. dollar, with the markets continuing to grapple with the prospects of U.S. tax reform and yesterday's failed Brexit talks putting some uncertainty regarding if negotiations can move forward. Talks are expected to continue this week, and the British pound traded lower compared to the greenback. Bond yields in the region were mostly lower and financials moved to the downside. Volatility has shown some signs of ticking higher as the markets assess the global market rally this year and in his article, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, tackles 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.

Stocks in Asia finished mixed after the U.S. markets gave back most of their gains late yesterday as the recent pressure on the technology sector persisted and an early boost from the weekend's Senate tax reform bill faded. Japanese securities declined, with the yen gaining ground, while those in Australia were also lower after the Reserve Bank of Australia expectedly held its monetary policy stance steady including leaving its benchmark interest unchanged at 1.50%. Mainland Chinese stocks and listings in Hong Kong fell, despite a report by Caixin showing growth in output in the nation's key services sector accelerated. Meanwhile, markets in India declined modestly and stocks in South Korea were slightly higher. The markets have shown some signs of pausing from this year's strong global rally that has been fueled by the broadest economic growth in a decade, which Schwab's Jeffrey Kleintop, CFA, says is expected to continue in 2018 as discussed in his article, 5 Reasons Investors Should Give Thanks.

Reports from around the globe tomorrow will include GDP from Australia, manufacturing orders from Germany and CPI from Switzerland.

Modest Gains in a Lackluster Session

Charles Schwab: On the Market

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

Modest Gains in a Lackluster Session

 

U.S. equities modestly added to record highs after a read on the key services sector activity hit a level not seen in 12 years and a report on private sector jobs met expectations. Treasuries were nearly unchanged and the U.S. dollar trimmed a run as of late, while crude oil prices were mixed and gold ticked higher. On the equity front, PepsiCo posted mixed results and Mylan rallied on an FDA approval.

The Dow Jones Industrial Average (DJIA) increased 20 points (0.1%) to 22,662, the S&P 500 Index was 3 points (0.1%) higher at 2,538, and the Nasdaq Composite added 3 points to 6,535. In moderate volume, 736 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.44 to $49.98 per barrel and wholesale gasoline was $0.01 higher at $1.58 per gallon. Elsewhere, the Bloomberg gold spot price rose $4.45 to $1,276.11 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 93.47.

PepsiCo Inc. (PEP $109) reported Q3 earnings-per-share (EPS) of $1.49, or $1.48 ex-items, versus the $1.43 FactSet estimate, as revenues rose 1.3% year-over-year (y/y) to $16.2 billion, compared to the projected $16.3 billion. The company said each of its operating sectors delivered results in line with or ahead of its expectations in what continues to be a challenging market, with the exception of its North America Beverages segment where revenues declined following two consecutive years of very strong Q3 growth. PEP raised its full-year earnings outlook but slightly lowered its revenue forecast. Shares overcame early losses to finish modestly higher.

Ford Motor Co. (F $12) was in focus after it reaffirmed its full-year guidance late yesterday and announced its strategic update with initiatives including cost cutting and expanding electric vehicle revenue opportunities. Shares of F were nearly unchanged.

Monsanto Co. (MON $120) reported fiscal Q4 EPS of $0.05 per share, or $0.20 ex-items, but it is unclear if this is comparable to the projected loss of $0.41 per share, with revenues growing 4.8% y/y to $2.7 billion, north of the forecasted $2.5 billion. Shares ticked higher.

Share of Mylan NV (MYL $38) rallied after the U.S. Food and Drug Administration approved its generic copy of Teva Pharmaceuticals Industries Ltd's (TEVA $16) best-selling drug for multiple-sclerosis. Shares of TEVA fell sharply.

Services sector activity hits 12-year high, ADP employment report matches expectations

The September Institute for Supply Management (ISM) non-Manufacturing Index (chart) jumped to the highest reading since August 2005's 61.3 level, rising to 59.8 from August's unrevised 55.3 level, and compared to the Bloomberg forecast of a gain to 55.5. A reading above 50 denotes expansion. New orders jumped 5.9 points month-over-month (m/m) to 63.0, business activity rose 3.8 points to 61.3, and employment ticked 0.6 points higher to 56.8. Prices spiked 8.4 points to 66.3. The ISM said respondents' comments indicate a good outlook for business conditions.

The report complements Monday's ISM Manufacturing Index, which hit a 13-year high, as well as a host of upbeat global economic data as of late, bolstering our view discussed in the latest, Schwab Market Perspective: Fourth Quarter Fun…or Folly?, that it is lifting earnings and supporting the bull market. However, the inflation components of both reports jumped and added to recent signs of an uptick in pricing pressures. We believe if inflation begins to kick in in earnest, it could push the Fed to be more aggressive than currently believed and foster bouts of volatility and/or pullbacks. Read more on the Market Commentary page at www.schwab.com, where you can also find Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, Inflation May Be The Biggest Question For Investors In 2018. Follow Schwab and Jeff on Twitter: @schwabresearch and @jeffreykleintop.

The final Markit U.S. Services PMI Index was revised to 55.3 in September from the preliminary 55.1 level, where it was expected to remain, but just below August's level of 56.0. The release is independent and differs from ISM's report, as it has less historic value and Markit weights its index components differently.

The ADP Employment Change Report showed private sector payrolls rose by 135,000 jobs in September, in line with the Bloomberg forecast, while August's increase of 237,000 jobs was revised to a gain of 228,000. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday's broader September nonfarm payroll report, expected to show jobs grew by 80,000 and private sector payrolls rose by 74,000 (economic calendar). The unemployment rate is forecasted to remain at 4.4% and average hourly earnings are projected to rise 0.3% month-over-month (m/m).

The MBA Mortgage Application Index declined 0.4% last week, following the prior week's 0.5% decrease. The dip came as a 1.8% drop in the Refinance Index more than offset a 1.0% gain for the Purchase Index. The average 30-year mortgage rate ticked 1 basis point (bp) higher to 4.12%.
Treasuries were nearly unchanged, as yield on the 2-year note ticked 1 bp lower to 1.46%, while the yields on the 10-year and the 30-year bond were flat at 2.33% and 2.87%, respectively.

Treasury yields have gained traction as of late, with the 10-year rate hitting multi-month highs, and the U.S. dollar has seen a noticeable increase to highs not seen since August. The moves came as the Fed announced it will begin to shrink its behemoth $4.5 trillion balance sheet, while December Fed rate hike expectations remain elevated. Also, broad-based global economic growth and relative optimism toward tax reform framework have contributed. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend discusses the tax reform details his latest article, Tax Reform Framework Released, But The Road Ahead Is Long on the Market Commentary page.

Tomorrow's economic calendar will begin with weekly initial jobless claims, forecasted to tick slightly lower to a level of 265,000 from the prior week's 272,000, followed by the trade balance, with economists anticipating the deficit to have narrowed during August to $42.7 billion. The final read on August durable goods orders will also be released, expected to remain at the initial 1.7% m/m increase, and factory orders will round out the day, forecasted to have posted a 1.0% rise for August following the 3.3% decline the month prior.

Europe sees some pressure on mixed data and as political concerns fester, Asia mixed

European equity markets finished mostly lower as an unexpected decline in retail sales countered more signs of solid global business activity growth, and as Spanish political concerns continued to fester. Catalonia ramped up its fight to protect the weekend's independence vote that has been deemed illegal. Also, Brexit uncertainty continues to linger, while U.K. Prime Minister Theresa May spoke and introduced new caps on household energy prices but several mishaps that occurred during the speech garnered the most attention. For analysis of political and Brexit uncertainties, see Schwab's Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick. The euro and British pound gained ground on the U.S. dollar amid flared-up uncertainty regarding who will be the Fed Chief in the U.S. and in the wake of the European Central Bank and Bank of England signaling last month moves to tighten monetary policy, and Schwab's 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. Bond yields in the region are mixed.

Stocks in Asia finished mixed on the heels of yesterday's record highs in the U.S. that came courtesy of improved global economic sentiment in the wake of recent upbeat data. Schwab's Jeffrey Kleintop, CFA, and 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. However, volume remained lighter than usual as markets in mainland China and South Korea remained closed for holidays.

Stocks in Japan ticked higher to add to its two-year high, and markets in Hong Kong tacked on to yesterday's rally amid continued optimism following the weekend's upbeat manufacturing data and the announcement from the People's Bank of China that it will reduce the amount of cash lenders must hold in reserve. Australian securities dropped, with the markets continuing to grapple with yesterday's unchanged monetary policy decision by the Reserve Bank of Australia, which offered a mixed outlook to foster policy uncertainty. Meanwhile, listings traded in India advanced ahead of the monetary policy decision by the Reserve Bank of India after the closing bell, where it expectedly left rates unchanged.

For tomorrow, the international economic calendar will offer retail sales and trade data from Australia, CPI from Switzerland, and retail figures from the Eurozone.

Markets Hardy In Face of Persistent Anxiety

Charles Schwab: On the Market

Posted: 9/6/2017 4:15 PM ET

Markets Hardy In Face of Persistent Anxiety

U.S. equities were higher, remaining durable in the face of continued uncertainty surrounding monetary policy, political and geopolitical issues, as well as the approaching Category 5 Hurricane Irma off the Florida coast following in the aftermath of Hurricane Harvey battering the Texas coast last week. Treasury yields and the U.S. dollar were higher after yesterday's drops, while crude oil prices were mixed and gold was lower.

The Dow Jones Industrial Average (DJIA) rose 54 points (0.3%) to 21,808, the S&P 500 Index gained 8 points (0.3%) to 2,466, and the Nasdaq Composite increased 18 points (0.3%) to 6,393. In moderate volume, 813 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.50 to $49.16 per barrel and wholesale gasoline lost $0.03 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price was $6.20 lower at $1,333.29 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—inched 0.1% higher to 92.29.

Hewlett Packard Enterprise Co. (HPE $14) reported fiscal Q3 earnings-per-share (EPS) of $0.15, or $0.31 ex-items, versus the $0.26 FactSet estimate, as revenues rose 3.0% year-over-year (y/y) to $8.2 billion, topping the forecasted $7.5 billion. HPE issued Q4 EPS guidance that was slightly below expectations, while its full-year profit outlook was mostly in line with estimates. Shares were lower.

Dave & Buster's Entertainment Inc. (PLAY $51) posted Q2 profits of $0.71 per share, or $0.59 ex-items, versus the $0.55 expectation, as revenues increased 14.9% y/y to $281 million, compared to the forecasted $282 million. Q2 same-store sales grew 1.1% y/y, compared to the 2.6% gain that was anticipated. PLAY raised its full-year net income outlook slightly, but it had a midpoint the missed forecasts, while it lowered its same-store sales forecast. Shares fell.

Sarepta Therapeutics Inc. (SRPT $47) jumped after announcing upbeat results from a trial of its treatment for Duchenne Muscular Dystrophy.

United Continental Holdings Inc. (UAL $60) came under pressure after the airline lowered its Q3 outlook, citing some impact from Hurricane Harvey, geopolitical tensions in the Korean Peninsula, pricing issues and higher fuel costs.

Services sector reports miss but show growth accelerated in August

The August Institute for Supply Management (ISM) non-Manufacturing Index (chart) rose to 55.3 from July's unrevised 53.9 level, and compared to the Bloomberg forecast of a gain to 55.6. A reading above 50 denotes expansion. New orders grew 2.0 points month-over-month (m/m) to 57.1, business activity rose 1.6 points to 57.5, and employment gained 2.6 points to 56.2. Prices increased 2.2 points to 57.9. The ISM said the majority of respondents are optimistic about business conditions going forward.

The final Markit U.S. Services PMI Index was revised to 56.0 in August from the preliminary 56.9 level, where it was expected to remain, and up from July's level of 54.7. The release is independent and differs from ISM's report, as it has less historic value and Markit weights its index components differently.

The outlook for the services sector—the largest contributor to U.S. economic growth—appears positive with consumer starting to see wages move higher as one of the strongest areas of the economy continues to be the labor market as discussed in the latest Schwab Market Perspective: A Preview of Coming Attractions?. The limited risk of an economic recession keeps us in the bull market camp, notwithstanding near-term risks of fiscal and monetary uncertainties. Read more on the Markets & Economy page at www.schwab.com.

The trade balance (chart) showed that the deficit came in at $43.7 billion in July, compared to estimates of $44.7 billion. June's deficit was downwardly revised to $43.5 billion. Exports dipped 0.3% month-over-month (m/m) to $194.4 billion, while imports nudged lower by 0.2% to $238.1 billion.

The MBA Mortgage Application Index rose 3.3% last week, following the previous week's 2.3% drop. The increase came as a 5.1% rise in the Refinance Index was met with a 1.4% gain for the Purchase Index. The average 30-year mortgage rate declined 5 basis points (bps) to 4.06%.

In afternoon action, the Federal Reserve released its Beige Book, a summary of business activity across the nation used as a tool to prepare for this month's two-day monetary policy meeting ending on the 20th. The report indicated that the economy continued on a "modest to moderate" pace, with little in the way of inflation. Meanwhile, job growth slowed somewhat in some districts, and labor conditions continued to be characterized as "tight." Some items of note, however, were that some districts expressed concerns over a prolonged slowdown in the auto industry, particularly in Cleveland and Chicago, and the Atlanta and Dallas Fed banks reported wide-ranging disruptions in economic activity along the Gulf Coast as a result of Hurricane Harvey.

Treasuries finished lower, as the yield on the 2-year note ticked 1 bp higher to 1.31%, while the yields on the 10-year note and the 30-year bond rose 4 bps to 2.10% and 2.72%, respectively. Bond yields and the U.S. dollar fell yesterday, courtesy of some dovish commentary from Fed members and a return of risk aversion as North Korean tensions flared back up. The 10-year bond yield hit the lowest level since last November and the greenback fell back to levels not seen in over two years. Global monetary policy uncertainty remains a source of volatility ahead of tomorrow's decision by the European Central Bank (ECB) and as the Bank of Canada today unexpectedly raised rates.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, we think bond yields are likely to rise from current levels as the economy continues to improve and the Federal Reserve tightens policy, but we don’t see a bubble in the market. Read more on the Fixed Income page at www.schwab.com, and for analysis of investing styles, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?, on the Markets & Economy page. Follow Kathy and Liz Ann on Twitter: @kathyjones and @lizannsonders.

For our latest analysis of the political front, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's newest article, Congress Returns to Face Debt Ceiling, Government Shutdown Deadlines, on the Insights & Ideas page at www.schwab.com.

Tomorrow's economic calendar will be fairly light and include weekly initial jobless claims, forecasted to rise to a level of 241,000 from the prior week's 236,000, as well as final Q2 productivity and labor costs, with productivity expected to be upwardly revised to a 1.3% increase and labor costs to have been adjusted lower to a 0.6% rise.

Europe mixed as skittish mood lingers, Asia mixed

European equity markets finished mixed, with sentiment continuing to be a bit hamstrung by heightened North Korean tensions and U.S. political uneasiness, while monetary policy uncertainty festered ahead of tomorrow's decision from the ECB. The euro and British pound ticked higher versus the U.S. dollar, while bond yields in the region rebounded. German factory orders for July surprisingly dropped. Automakers led to the upside as the recently improved optimism toward the sector was bolstered by some upbeat analyst recommendations. However, insurance companies remained hamstrung in the aftermath of Hurricane Harvey in the U.S. and as another potential damaging Category 5 Hurricane Irma made landfall in the Caribbean. For a look at global stock investing, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Vice President of Trading and Derivatives, Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mostly lower on the heels of yesterday's drop in the U.S., as sentiment remained skittish in the face of exacerbated tensions toward North Korea, along with global monetary policy and U.S. political uncertainties. 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. Read more on the International Investing page at www.schwab.com. Japanese equities dipped, with the yen holding onto recent gains despite a report that showed the nation's wages unexpectedly declined in July. Markets in South Korea, India, Hong Kong, and Australia all declined, with the latter posting a Q2 GDP report which showed growth was smaller than expected. Stocks in mainland China finished flat.

In addition to the European Central Bank's monetary policy decision, tomorrow's international economic calendar will offer retail sales from Australia, Japan's Leading Index, industrial production from Germany, and GDP from the Eurozone.