Tax Reform Again Provides Fuel for Stock Rally

Charles Schwab; On the Market

Posted: 12/18/2017 4:15 PM EST

Tax Reform Again Provides Fuel for Stock Rally

 

U.S. stocks joined their foreign counterparts in a global rally, courtesy of optimism regarding tax reform which is expected to make its way through Congress this week. An unexpected jump in homebuilder sentiment to a more than 18-year high and a host of global M&A deals also aided in providing support. Treasury yields were mostly higher and the U.S. dollar lost ground, while gold was higher and crude oil prices were mixed.

The Dow Jones Industrial Average (DJIA) increased 140 points (0.6%) to 24,792, the S&P 500 Index was 15 points (0.6%) higher at 2,691, and the Nasdaq Composite jumped 58 points (0.8%) to 6,995. In heavy volume, 921 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil decreased $0.11 to $57.22 per barrel and wholesale gasoline added $0.02 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price moved $4.99 higher to $1,261.43 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 93.70.

Hershey Co. (HSY $114) announced an agreement to acquire Amplify Snack Brands Inc. (BETR $12), for $12.00 per share in cash, or about $1.6 billion including debt. HSY was higher, while BETR surged over 70%.

Campbell Soup Co. (CPB $50) announced an agreement to acquire Snyder's-Lance Inc. (LNCE $50) for $50.00 per share in cash, or about $4.9 billion. Shares of both companies were higher.

Penn National Gaming Inc. (PENN $29) announced an agreement to acquire Pinnacle Entertainment Inc. (PNK $31) for $32.47 per share in cash and stock, valued at about $2.8 billion. Under the terms of the deal, PNK stockholders will receive $20.00 in cash and 0.42 shares of PENN for each share owned. In connection with the deal, Boyd Gaming Corp. (BYD $35) agreed to acquire four assets of PNK for $575 million in cash. Shares of PENN were lower, while PNK and BYD were higher.

CSX Corp. (CSX $54) announced that Chief Executive Officer (CEO) Hunter Harrison passed away over the weekend after taking a medical leave due to unexpected severe complications from a recent illness. The board has named Chief Operating Officer James Foote as acting CEO. Shares were higher.

Homebuilder sentiment unexpectedly jumps to 18-year high, kicking off busy week

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month unexpectedly jumped to over an 18-year high of 74, versus the Bloomberg forecast calling for a 70 reading and November's downwardly revised 69 level. The index sits decisively above the 50 mark, the point of separation for good versus poor conditions. The NAHB said housing market conditions are improving partially because of new policies aimed at providing regulatory relief to the business community.

The NAHB added that with low unemployment rates, favorable demographics and a tight supply of existing home inventory, we can expect continued upward movement of the single-family construction sector next year. Tomorrow, we will get a look at November housing construction activity in the form of housing starts and building permits (economic calendar). Starts are projected to decline 3.2% month-over-month (m/m) to an annual rate of 1,249,000 units and permits are forecasted to decrease 3.1% to an annual rate of 1,275,000 units.

New home construction rebounded in October to the fastest pace in a year, suggesting a potential boost for Q4 GDP growth as construction spending subtracted from GDP in the second and third quarters, per Bloomberg. Schwab's Chief Investment Strategist Liz Ann Sonders notes in our 2018 Market Outlook: U.S. Stocks and Economy, animal spirits are keeping business optimism alive and broad U.S. growth should remain healthy in 2018, however late cycle tendencies should be on investors’ radar screen.

Treasuries were mostly lower, with the yield on the 2-year note flat at 1.84%, while the yield on the 10-year note rose 3 bps to 2.39% and the 30-year bond rate gained 4 bps to 2.75%. Schwab's Chief Fixed Income Strategist Kathy Jones provides a look at the bond markets heading into the New Year, in her video, What Could Fixed Income Investors Expect in 2018?.

Treasury yields have diverged and the U.S. dollar has fallen, though the stock markets continue their ascent, as the House and Senate are expected to vote on a final tax bill this week. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers a look at the tax bill and the votes in his latest commentary, Sweeping Tax Bill Poised to Become Law. Also, Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, delivers his article, Tax Reform: Frequently Asked Questions and as you conduct your year-end tax planning, check out our, Tax Reform: 11 Questions to Ask Your Advisor.

Europe and Asia higher, bolstered by U.S. tax reform optimism

European equity markets finished broadly higher, with the global markets rallying on hopes that U.S. tax reform will face final votes this week, while a flood of M&A deals buoyed global sentiment. Stocks gained ground despite gains in the euro and British pound versus the U.S. dollar, while bond yields in the region traded mixed. In economic news, eurozone consumer price inflation rose in line with expectations for November. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his, 2018 Global Market Outlook: Three Actions to Take for the Year Ahead, in which he says 2018 global stock market gains could potentially be in the double-digits and international stocks may outperform U.S. stocks. Jeff urges investors to rebalance as 2018 gains in stocks may result in a higher risk asset allocation ahead of a potential recession and bear market.

Stocks in Asia finished higher with growing optimism of U.S. tax reform, as lawmakers are set to vote on the final bill this week, lifting global economic sentiment. The global markets have rallied this year, bolstered by the broadest economic growth in a decade and is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, in his article, 5 Reasons Investors Should Give Thanks. Japanese equities rallied, with the yen holding onto Friday's losses, while a report showed the nation's exports grew more than expected. Mainland Chinese stocks and those traded on Hong Kong were higher, with the People's Bank of China continuing to raise short-term interest rates and home price data came in mostly positive. Meanwhile, markets in Australia and India rose, and shares listed in South Korea finished flat.

From tomorrow's international economic calendar, investors will get the minutes from the Reserve Bank of Australia's last monetary policy meeting, PPI from South Korea, and the Ifo Business Climate Survey from Germany.

Stocks Rally as Bulls Come Charging Back

Charles Schwab: On the Market

Posted: 11/16/2017 4:15 PM EST

Stocks Rally as Bulls Come Charging Back

 

U.S. stocks rallied during Thursday's trading session, bouncing back from a two-day slide as European shares also snapped a string of losses. Favorable earnings reports from Dow members Wal-Mart and Cisco Systems, along with upbeat industrial production and homebuilder sentiment reads aided in boosting equity gains. Treasury yields rebounded and the U.S. dollar ticked slightly higher, along with gold, while crude oil prices were lower. 

The Dow Jones Industrial Average (DJIA) advanced 187 points (0.8%) to 23,458, the S&P 500 Index jumped 21 points (0.8%) at 2,586, and the Nasdaq Composite rallied 87 points (1.3%) to 6,793. In moderate volume, 776 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.19 to $55.14 per barrel and wholesale gasoline was $0.03 lower at $1.71 per gallon. Elsewhere, the Bloomberg gold spot price ticked $0.59 higher to $1,278.66 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—advanced 0.1% to 93.93.

Dow member Wal-Mart Stores Inc. (WMT $100) reported Q3 earnings-per-share (EPS) of $0.58, or $1.00 ex-items, versus the $0.97 FactSet estimate, as revenues rose 4.2% year-over-year (y/y) to $123.2 billion, above the projected $121.1 billion. Q3 same-store sales at Walmart grew 2.7% y/y, topping the expected 1.9% gain. The company raised its Q4 EPS outlook and issued same-store sales guidance that was slightly above expectations. Shares traded sharply higher.

Dow component Cisco Systems Inc. (CSCO $36) posted fiscal Q1 earnings of $0.48 per share, or $0.61 ex-items, with revenues decreasing 2.0% y/y to $12.1 billion, roughly in line with expectations. CSCO issued Q2 guidance that exceeded forecasts. Shares rallied.

Best Buy Co. Inc. (BBY $55) announced Q3 EPS of $0.78, matching projections, as revenues rose 4.2% y/y to $9.3 billion, below the expected $9.4 billion. Q3 same-store sales increased 4.4% y/y, below the forecasted 4.9%. BBY issued Q4 earnings guidance that was below estimates, while its sales outlook was mostly in line with expectations. The company raised its full-year guidance. Shares fell.

Homebuilder sentiment and industrial production top forecasts

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month unexpectedly improved to an eight-month high of 70, versus the Bloomberg forecast calling for a dip to 67 from October's unrevised 68 level. The index sits decisively above the 50 mark, the point of separation for good versus poor conditions. The NAHB said builder confidence is close to a post-recession high—a strong indicator that the housing market continues to grow steadily—but its members still face supply-side constraints, such as lot and labor shortages and ongoing building material price increases.

Tomorrow, the economic calendar will bring a look at housing construction activity in the form of housing starts and building permits, with starts projected to rise 5.6% month-over-month (m/m) to an annual rate of 1,190,000 units and permits expected to increase 2.0% to a 1,250,000 unit rate. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest, Schwab Sector Views: 'Tis the Season…Almost, mortgage demand appears to be healthy, while interest rates continue to be relatively low and the high rental rates in some areas of the country provide incentive for home buying.

Industrial production (chart) rose 0.9% month-over-month (m/m) in October, above estimates of a 0.5% gain, after September's upwardly revised 0.4% increase. Manufacturing and utilities production both grew solidly, while mining output dropped. Capacity utilization rose to 77.0% from the prior month's upwardly revised 76.4% rate, and compared to forecasts of 76.3%. Capacity utilization is 2.9 percentage points below its long-run average. Industrial production has gained 2.9% over the past 12 months, and Schwab's Chief Investment Strategist Liz Ann Sonders notes that capex may be in for an even sharper recovery in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle. 

Weekly initial jobless claims (chart) surprisingly rose by 10,000 to 249,000 last week, versus the Bloomberg forecast of a decrease to 235,000, with the prior week’s figure being unrevised at 239,000. The four-week moving average grew by 6,500 to 237,750, while continuing claims fell 44,000 to 1,860,000, south of estimates of 1,900,000.

The Philly Fed Manufacturing Index (chart) in November declined more than expected to 22.7 from 27.9 in October, but a reading above zero indicates expansion. This compared to estimates of a decline to 24.6.

The Import Price Index (chart) rose 0.2% m/m for October, below projections of a 0.4% gain, following September's upwardly revised 0.8% rise. Compared to last year, prices were up by 2.5%, in line with forecasts and compared to September's unrevised 2.7% increase.

Treasuries finished lower, with the yield on the 2-year note gaining 3 basis points (bps) to 1.71%, the yield on the 10-year note increasing 5 bps to 2.37%, and the 30-year bond rate advancing 6 bps to 2.82%.

Treasury yields and the U.S. dollar rebounded somewhat from recent pressure that came from a flare-up in global risk aversion on the heels of the world stock market rally as of late. Festering U.S. tax reform uncertainty—today the House passed its bill to overhaul the tax code, which has some significant differences from the Senate's version—has fostered the change in conviction. This has countered a relatively positive economic landscape, while recent soft Chinese economic data and market skittishness as the yield curve has flattened have exacerbated sentiment. As such, check out our article, Does Low Market Volatility Portend a Market Tumble?, as well as Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest commentary, Tax Reform: Key Differences Between the Senate and House Plans.

Tomorrow's domestic docket will also yield the November Kansas City Fed Manufacturing Index, forecasted to dip to 21 from 23 in October, though a reading above 0 indicates growth in activity.

Europe recovers on data, Asia rebounds from recent slide

European equity markets traded higher, rebounding from the recent string of losses that has come from an apparent change in global sentiment to de-risking, while disappointing Chinese economic data as of late has weighed on commodity-related stocks. Some upbeat earnings data in the region teamed up with a rebound in eurozone new car registrations to support the recovery in the markets, while the energy sector remained under pressure as crude oil prices extended a recent selloff. Eurozone consumer price inflation rose in line with forecasts. The euro declined versus the U.S. dollar and the British pound rose following a better-than-expected U.K. retail sales report, while bond yields in the region finished mixed. Gains for Italian stocks and Europe's financial sector were limited by a drop in shares of Italy's banks. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, momentum favors the bulls for the foreseeable future, but elevated valuations and growing investor complacency pose risks that could lead to a long-awaited pullback and/or a pickup in volatility from today’s extremely low base.

Asian stocks mostly rebounded from the recent pullback, with the yen giving back some of its gains seen as of late as the global markets have stumbled amid a flare-up in risk aversion, while overnight stabilization in crude oil prices helped the energy sector recover somewhat. Japanese equities rallied, while Australian securities were also higher, with a softer-than-expected read on the nation's employment growth limiting gains. Mainland Chinese shares dipped and stocks trading in Hong Kong advanced with the recent soft economic data being met with some upbeat earnings results. Indian equities gained ground and South Korean shares advanced. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers a look at the global market rally seen this year that has been fostered by the broadest economic growth in a decade in his latest article, 5 Reasons Investors Should Give Thanks.

International economic releases for tomorrow will be light, with new vehicle sales from Australia and the current account and construction output from the Eurozone.

Stocks Add to Record Highs

Charles Schwab: On the Market

Posted: 9/18/2017 4:15 PM ET

Stocks Add to Record Highs

U.S. equities extended recent record highs, continuing to show resiliency against lingering geopolitical and political concern, as well as monetary policy uncertainty ahead of decisions from the Fed and Bank of Japan this week. Treasury yields extended last week's run and the U.S. dollar was higher amid softer-than-expected home-builder sentiment, while gold was lower and crude oil prices gained slight ground.

The Dow Jones Industrial Average (DJIA) increased 63 points (0.3%) to 22,331, the S&P 500 Index gained 4 points (0.2%) to 2,504, and the Nasdaq Composite increased 6 points (0.1%) to 6,455. In moderate volume, 821 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.02 higher to $49.91 per barrel and wholesale gasoline gained $0.01 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price declined $11.73 to $1,308.46 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 92.08.

Northrop Grumman Corp. (NOC $262) announced an agreement to acquire aerospace and defense technology company, Orbital ATK Inc. (OA $132), for $134.50 per share or about $7.8 billion in cash plus the assumption of $1.4 billion in net debt. NOC said the deal is expected to be accretive to earnings-per-share (EPS) in the first full year after the deal closes, which is expected in the first half of 2018. NOC was nicely higher and OA rallied sharply.

Home-builder sentiment drops to kick off economic week headlined by Fed

The National Association of Home Builders (NAHB) Housing Market Index showed home-builder sentiment this month fell to 64, versus the Bloomberg forecast calling for it to match August's downwardly-revised 67 level. However, the index sits well above the 50 mark, the point of separation for good versus poor conditions. The NAHB said the recent hurricanes have intensified its members' concerns about the availability of labor and the cost of building materials, but once the rebuilding process is underway builder confidence is expected to return to the high levels seen this spring.

Tomorrow, we will get a look at August housing construction activity in the form of housing starts and building permits, with starts projected to rebound 1.7% month-over-month (m/m) to an annual rate of 1,174,000 units after July's 4.8% drop (economic calendar). Permits are expected to dip 0.8% to an annual rate of 1,220,000 units following the prior month's 4.1% fall. Also on tap is the Import Price Index, forecasted to have increased 0.4% m/m during August following the 0.1% rise seen in July.

Schwab's Chief Investment Strategist Liz Ann Sonders points out in her article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", that we expect to see a dip in economic activity in the short-term, followed by a boost associated with the recovery/rebuilding efforts. She adds that real estate has been one of most consistent beneficiaries in the subsequent three-to-twelve months following the 10 costliest U.S. hurricanes. We believe the impact will unlikely dent the Fed's plans to continue monetary policy normalization. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter:@lizannsonders.

Treasuries were lower, as the yield on the 2-year note ticked 1 basis point (bp) higher to 1.39%, while the yields on the 10-year note and the 30-year bond gained 3 bps to 2.23% and 2.80%, respectively.

Bond yields rebounded sharply last week after hitting levels not seen since November and the U.S. dollar recovered modestly from multi-year lows, as an ongoing positive economic backdrop was met with consumer price inflation accelerating in August to keep the possibility of a December Fed rate hike in play. Also, The Bank of England (BoE) and European Central Bank (ECB) has signaled they may start to tighten highly accommodative monetary policy, the markets shrugged off another missile test by North Korea, and economic cost estimates of Hurricane Irma appeared to be less than feared.

Schwab's Chief Fixed Income Strategist, Kathy Jones, and Vice President of Trading and Derivatives, Randy Frederick, provide analysis of the bond markets in the video, The Economy is Picking Up, But Bond Yields Are Falling—What's That About?, on the Insights & Ideas page and follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Schwab's Chief Global Investment Strategist 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.

This sets the stage for Wednesday's monetary policy decision from the Federal Open Market Committee (FOMC) (economic calendar). As noted in the latest Schwab Market Perspective: A Cat and Mouse Fall, the Fed is playing their own internal cat and mouse game with some officials citing low inflation as a reason to delay further tightening; while others want to stay on the steady path toward normalization, due to the tighter labor market. We continue to believe that the start to the slow winding down of the Fed's massive balance sheet will be announced this week; but that an additional rate hike before year end remains in question. We continue to believe the Fed's "quantitative tightening" (QT) could be the cause of some heightened volatility. Read more on the Markets & Economy page at www.schwab.com.

Europe and Asia move higher to begin the week

European equity markets traded higher, continuing to shrug off lingering geopolitical concerns, while monetary policy decisions from the Fed and Bank of Japan this week were in focus but appeared to not stymie conviction. The British pound gave back some of last week's surge against the U.S. dollar as the Bank of England (BoE) signaled that it may raise rates in the coming months. The pound lost ground despite BoE Governor Carney reiterating that a rate hike could be in the offing. The euro gave up modest gains and dipped late in the session even as the European Central Bank is expected to announce the start of dialing back its stimulus measures this fall. Bond yields in the region were mostly higher, except for in Portugal, which fell sharply after the nation received an upgrade of its credit rating to investment grade by Standard & Poor's. In economic news, eurozone consumer price inflation rose in line with expectations for August.

For a look at global investing, see Schwab's Jeffrey Kleintop's, CFA, 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 Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page.

Stocks in Asia finished higher amid the recent global market resiliency in the face of festering North Korean tensions and monetary policy uncertainty, though attention on this week's Fed and Bank of Japan decisions ramped up. The yen continued to lose ground on the U.S. dollar, but markets in Japan were closed for a holiday. Mainland Chinese stocks rose modestly and those traded in Hong Kong rallied, as late-Friday's stronger-than-expected lending statistics were met with today's report showing August home prices cooled to ease concerns about further government efforts to curb housing activity. Markets in Australia advanced, led by financials, South Korean listings jumped and Indian equities gained ground in the wake of the nation's upbeat August trade report after Friday' close. Both South Korean and Indian markets moved back to near record highs and Schwab's Jeffrey Kleintop, CFA, offers his article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over, on the Markets & Economy page at www.schwab.com. 

Markets Flat Amid Investor Caution

Charles Schwab; On the Market

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

Markets Flat Amid Investor Caution

U.S. equities finished mixed and near the unchanged mark as investors weighed eased geopolitical concerns against upbeat economic data that may have put the possibility of a Fed rate hike back into play. Retail sales came in much stronger than expected and manufacturing activity in the New York region surged. Meanwhile, Treasury yields rose on the reports, gold was lower, while crude oil prices and the U.S. dollar were little changed.

The Dow Jones Industrial Average (DJIA) gained 6 points to 21,999, the S&P 500 Index lost 1 point to 2,465, and the Nasdaq Composite ticked 7 points (0.1%) lower to 6,333. In light-to-moderate volume, 700 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.04 lower to $47.55 per barrel and wholesale gasoline was unchanged at $1.58 per gallon. Elsewhere, the Bloomberg gold spot price lost $10.05 to $1,272.10 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 93.82.

Dow member Home Depot Inc. (HD $150) reported Q2 earnings-per-share (EPS) of $2.25, versus the FactSet estimate of $2.21, as revenues rose 6.2% year-over-year (y/y) to $28.1 billion, compared to the forecasted $27.8 billion. Q2 same-store sales grew 6.3% y/y, above the projected 4.9% gain. HD raised its full-year guidance. Shares finished lower despite the results.

Coach Inc. (COH $41) posted fiscal Q4 EPS of $0.53, or $0.50 ex-items, versus the forecasted $0.49, as revenues decreased 1.7% y/y to $1.1 billion, below the estimated $1.2 billion. Q4 same-store sales grew 4.0% y/y, above the estimated 3.6% increase. The company's gross margin declined y/y. COH issued current year earnings guidance with a midpoint below expectations, while its revenue outlook topped projections. Shares dropped decisively.

Dick's Sporting Goods Inc. (DKS $27) announced Q2 profits of $1.03 per share, or $0.96 ex-items, compared to the forecasted $1.00, as revenues rose 9.6% y/y to $2.2 billion, roughly in line with forecasts. Q2 same-store sales ticked 0.1% higher y/y, below the 1.4% gain that was expected. DKS issued Q3 guidance that came in below forecasts, while it lowered its full-year outlook. The company noted a "very competitive and dynamic marketplace," adding that "by design, we will be more promotional and increase our marketing efforts for the remainder of the year, as we will aggressively protect our market share." DKS fell sharply.

Retail sales top forecasts, while regional manufacturing and homebuilder sentiment jump

Advance retail sales (chart) for July rose 0.6% month-over-month (m/m), compared to the Bloomberg forecast of a 0.3% gain and compared to June's upwardly revised 0.3% increase. Last month's sales ex-autos grew by 0.5% m/m, versus expectations of a 0.3% gain, and following the favorably revised 0.1% increase seen in the previous month. Sales ex-autos and gas were up 0.5% m/m, compared to estimates of a 0.4% rise, and versus June's upwardly revised 0.3% rise. The retail sales control group, a figure used to help calculate GDP, increased 0.6%, compared to the projected 0.4% rise, and the prior month's figure was revised higher to a 0.1% rise. Ten of the thirteen categories were higher, with autos, building materials and nonstore retailers—including on line activity—leading the way, while gas, clothing and electronics and appliances sales were lower.

The report suggests strong consumer confidence and wages flashing early signs of trending higher could be starting to bolster consumer spending, the lifeblood of U.S. economic growth. However, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, points out in his Schwab Sector Views: Time to "Energize" Your Portfolio?, spending on traditional retail items has been cautious and competition among retailers—cited today by Dick's Sporting Goods—may limit profitability, leading to our maintained marketperform rating on consumer discretionary stocks. Read more on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

The Import Price Index (chart) ticked 0.1% higher m/m for July, matching projections, and compared to June's unrevised 0.2% decrease. Compared to last year, prices were up by 1.5%, in line with forecasts to match June's unrevised increase.

The Empire Manufacturing Index showed output from the New York region jumped further to a level depicting expansion (a reading above zero) for August. The index surged to 25.2 from July's unrevised 9.8 level, with forecasts calling for a reading of 10.0.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month rose to 68 from July's unrevised level of 64, where it was forecasted to remain. This index sits at the highest since May and well above the 50 mark, the point of separation for good versus poor conditions. The NAHB said its members are encouraged by rising demand in the new-home market, due to ongoing job and economic growth, attractive mortgage rates and growing consumer confidence. However, the report noted that builders continue to face supply-side challenges, such as lot and labor shortages and rising building material costs.

Tomorrow, we will get a look at housing construction activity, in the form of July housing starts and building permits (economic calendar). Starts are expected to tick 0.4% higher m/m to an annual rate of 1,220,000 units and permits are projected to decline 2.0% to an annual rate of 1,250,000 units. MBA Mortgage Applications will also be released.

Business inventories (chart) grew 0.5% m/m in June, north of forecasts calling for a 0.4% gain, and versus May's unrevised 0.3% increase.

Treasuries were lower, as the yield on the 2-year note rose 2 basis points (bps) to 1.35%, the yield on the 10-year note gained 4 bps to 2.26%, and the 30-year bond rate added 3 bps to 2.84%.

Treasury yields rose and the U.S. dollar was nearly unchanged on the data as expectations of one more Fed rate hike this year rebound modestly from last week's decline in the wake of subdued inflation data. This may bring more scrutiny on tomorrow's release of the Central Bank's July policy meeting minutes. For a look at the meeting, see Schwab's Chief Investment Strategist Liz Ann Sonders' article, Fed Keeps it on the QT, on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Bond yields and the greenback are also recovering as the recently flared-up geopolitical concerns on heightened tensions between North Korea and the U.S. appear to be easing. Schwab's Liz Ann Sonders notes in her latest article, Ogre Battle: United States Takes on North Korea … Implications for Stocks the S&P 500 was hit with a sharp near-1.5% reversal last Thursday, followed by a relief rally. We don't believe significant military escalation is the likely outcome of the battle of wills between President Trump and North Korea’s Kim Jong Un. But it is a year ending in "7" and there are other forces at work which could keep stocks in a choppy pattern for the next couple of months. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Europe and Asia mostly higher as geopolitical concerns remain in retreat

European equities finished mostly to the upside, as risk appetites continued to recover after being stymied by last week's rise in tensions between North Korea and the U.S. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA points out in his article, What are fund flows telling us about trends and risks in the global stock market?, that the money coming into ETFs is flowing into a broad range of stock markets featuring a preference for international stocks and revealing a surprising disconnect with the performance and geopolitical risk of the underlying markets. Read more on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop. The euro and British pound lost ground on the U.S. dollar, while bond yields in the region moved to the upside. Stocks came off the best levels of the day as the markets assessed the implications of the plethora of upbeat U.S. data on Fed monetary policy, while economic news in the region was lackluster. German Q2 GDP growth slowed quarter-over-quarter, while U.K. consumer price inflation came in cooler than forecasted. Volume was lighter than usual as markets in Italy were closed for a holiday.

Stocks in Asia finished mostly to the upside as global risk aversion continued to ease after last week's flare-up in geopolitical concerns as tensions between North Korea and the U.S. escalated pressured the global markets. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors are best served when grim headlines are in the news by remembering that geopolitical risks are a regular part of investing and that a long history of geopolitical developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are most often the result. 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 jumped, as the yen gave back a recent rally, while Australian listings also gained ground. Stocks in mainland China advanced modestly following some stronger-than-expected July lending statistics, while those traded in Hong Kong declined amid a late-day slide led by oil companies and property-related issues. Volume was lighter than usual as markets in South Korea and India were closed for holidays.

Items on tomorrow's international docket include wage data from Australia, GDP from Italy and the Eurozone, and employment figures from the U.K.

Markets Mixed Amid Political Uncertainty

Charles Schwab: On the Market

Posted: 7/18/2017 4:15 PM ET

Markets Mixed Amid Political Uncertainty

The U.S. equity markets were mixed, as continued pressure on Treasury yields and a disappointing report from Goldman Sachs pressured financials, but a blowout quarter from Netflix gave consumer discretionary stocks a boost. Meanwhile, political uncertainty was elevated as the Senate's healthcare bill failed again and a read on home-builder sentiment disappointed. Crude oil, gold and the U.S. dollar were higher.

The Dow Jones Industrial Average (DJIA) fell 55 points (0.3%) to 21,575, the S&P 500 Index gained 2 points (0.1%) to 2,461, and the Nasdaq Composite increased 30 points (0.5%) to 6,344. In light to moderate volume, 694 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.38 to $46.40 per barrel and wholesale gasoline was $0.02 higher at $1.58 per gallon. Elsewhere, the Bloomberg gold spot price gained $7.80 to $1,241.91 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 94.67.

Dow member Goldman Sachs Group Inc. (GS $223) reported Q2 earnings-per-share (EPS) of $3.95, compared to the FactSet estimate of $3.38, as revenues dipped 1.0% year-over-year (y/y) to $7.9 billion, versus the projected $7.6 billion. GS topped estimates for most of its business units, but its fixed income currency and commodity unit's activity noticeably missed expectations. The company said a mixed operating environment persisted into Q2 as conditions continued to support underwriting and M&A, while also constraining certain market-making activity. Shares were lower.

Bank of America Corp. (BAC $24) posted Q2 profits of $0.46, above the projected $0.43, as revenues increased 7.0% y/y to $22.8 billion, versus the expected $21.9 billion. Trading revenues were slightly ahead of forecasts, while its net interest income and margin came in a bit shy of estimates. BAC lost ground.

Dow component Johnson & Johnson (JNJ $134) announced Q2 EPS of $1.40, or $1.83 ex-items, compared to projections of $1.79, with revenues rising 1.9% y/y to $18.8 billion, just below the $19.0 billion estimates. JNJ raised its full-year guidance, and shares were higher.

Dow member UnitedHealth Group Inc. (UNH $185) reported Q2 earnings of $2.32 per share, or $2.46 ex-items, versus the projected $2.38, as revenues grew 8.0% y/y to $50.1 billion, compared to the expected $50.0 billion. UNH raised its full-year EPS outlook, and shares were higher.

Netflix Inc. (NFLX $184) posted Q2 EPS of $0.15, one penny shy of estimates, as revenues increased 32.3% y/y to $2.8 billion, roughly in line with expectations. The company's net subscriber additions easily topped expectations. NFLX issued Q3 guidance that was well above estimates. Shares of NFLX rallied.

With Q2 earnings season ramping up and the stock markets at record highs, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Where's the Next Bubble?, and Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, provides analysis of the major market sectors in his latest Schwab Sector Views: Christmas in July! (Status of the Consumer) on the Markets & Economy page at www.schwab.com. Be sure to follow us and Jeff on Twitter: @schwabresearch and @jeffreykleintop.

Homebuilder sentiment falls

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month dropped to 64 from June's downwardly revised level of 66, and below the Bloomberg forecast calling for a 67 reading. This was the lowest since November but remains well above the 50 mark, the point of separation for good versus poor conditions. The NAHB said its members are telling it they are growing increasingly concerned over rising material prices, particularly lumber.

Tomorrow, housing construction activity will be in focus, with the release of June housing starts and building permits (economic calendar). Starts are projected to snap a three-month streak of losses, rising 6.2% month-over-month (m/m) to an annual rate of 1,160,000 units, while permits are expected to increase 2.8% to an annual rate of 1,201,000 units, after posting back-to-back monthly declines. Weekly MBA Mortgage Applications will also be reported.

Schwab's Brad Sorensen, CFA, paints a pretty positive picture for the American consumer in his latest Schwab Sector Views, but adds that there are some concerning things that keep us from being overwhelmingly bullish on the consumer. Brad notes that while confidence remains high according to surveys, actions have been slower to come around as housing formations have only just started to tick higher, retail sales growth has been relatively tepid, and auto purchases have shown signs of rolling over. Read more on the Markets & Economy page at www.schwab.com.

The Import Price Index (chart) decreased 0.2% month-over-month (m/m) for June, matching the Bloomberg projection, and compared to May's upwardly revised 0.1% decrease. Compared to last year, prices were up by 1.5%, above forecasts calling for a 1.3% rise and following May's upwardly revised 2.3% increase.

Treasuries were higher, as the yield on the 2-year note dipped 1 basis point (bp) to 1.35%, while the yields on the 10-year note and the 30-year bond dropped 5 bps to 2.27% and 2.86%, respectively.

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

The political front remains in focus as the highly scrutinized revised Senate healthcare bill appears to be getting scrapped again, and focus appears to be shifting to repealing Obamacare instead of replacing it. This adds credence to Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's Washington Midyear Update: 4 Key Issues for Investors to Watch, where he points out 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 sees pressure on political uncertainty and data, Asia mixed

European equities finished broadly lower, with another setback for the U.S. healthcare bill and the continued U.K. Brexit negotiations adding to political uncertainty. For analysis of the political front see Schwab's Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Follow Randy on Twitter: @randyafrederick. Technology issues led to the downside as the markets digested ramped up earnings season on both sides of the pond. In economic news, German investor confidence declined for a second-straight month, while U.K. inflation data came in mostly below forecasts. The British pound saw some pressure versus the U.S. dollar on the data. The euro rose versus the greenback, ahead of this week's monetary policy decision by the European Central Bank, while bond yields extended a recent slide to weigh on financials, along with a negative reaction to earnings reports from the sector out of the U.S. Basic materials came under pressure.

Stocks in Asia finished mixed to mostly lower, following flared-up U.S. political uncertainty, while the yen gained ground to pressure Japanese equities after returning to action following yesterday's holiday break. The markets are also eyeing this week's monetary policy decision by the Bank of Japan. Australian securities fell sharply amid a broad-based decline among sectors, while those traded in South Korea finished flat, holding at a record high. Stocks in India dropped, retreating from a record high. With these markets at or near all-time highs, Schwab's Jeffrey Kleintop, CFA, offers his article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page at www.schwab.com. However, stocks in mainland China and Hong Kong advanced, with property-related issues leading a late-day charge as an upbeat property price report joined a recent string of stronger-than-expected data, headlined by yesterday's Q2 GDP report. In the wake of the data, Schwab's Jeffrey Kleintop, CFA, offers his 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page at www.schwab.com.

Tomorrow's international economic calendar will be very light, with the lone report of note being PPI from South Korea.

Stocks Nearly Flat, Flood of Earnings on Tap

Charles Schwab: On the Market

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

Stocks Nearly Flat, Flood of Earnings on Tap

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

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

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

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

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

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

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

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

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

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

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

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

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

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

European equities finished mixed, with oil & gas and basic materials stocks gaining ground following a plethora of upbeat Chinese economic data, headlined by better-than-expected Q2 GDP growth. Financials dipped amid a decline in most global bond yields and technology stocks saw some pressure, while conviction may have been held in check by this week's upcoming monetary policy decision from the European Central Bank and as earnings season is set to ramp up. Also, the markets eyed the second round of U.K. Brexit negotiations. For analysis of the political front see Schwab's Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Follow Randy on Twitter: @randyafrederick. In economic news, eurozone consumer price inflation came in flat month-over-month in June, matching expectations. The euro was little changed and the British pound was lower versus the U.S. dollar.

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

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

Stocks Lower Amid Mixed Economic News

Charles Schwab: On the Market

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

Stocks Lower Amid Mixed Economic News

While off the worst levels of the day, U.S. equities finished lower after the domestic economic calendar offered a host of mixed reports. Homebuilder sentiment cooled, industrial production and capacity utilization came in just shy of estimates, while weekly jobless claims fell and regional manufacturing activity continued to be upbeat. Treasuries were lower, as was gold, while the U.S. dollar was nearly flat.

The Dow Jones Industrial Average (DJIA) fell 15 points (0.1%) to 21,356, the S&P 500 Index declined 5 points (0.2%) to 2,433, and the Nasdaq Composite lost 29 points (0.5%) to 6,166. In moderate volume, 881 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.27 to $44.46 per barrel and wholesale gasoline was $0.01 higher at $1.44 per gallon. Elsewhere, the Bloomberg gold spot price decreased $6.53 to $1,254.33 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 97.47.

Kroger Co. (KR $25) announced Q1 net earnings of $0.32 per diluted share or $0.58 ex-items compared to the FactSet expectation of $0.58 per share, while revenues increased 4.9% year-over-year (y/y) to $36.3 billion, topping forecasts. The company also lowered its 2017 GAAP net earnings guidance. Shares of KR were down over 15%.

Product solutions company Jabil Inc. (JBL $29) reported Q3 earnings results that showed a loss of $0.14 per share or a positive $0.31 ex-items, compared to the $0.29 FactSet consensus estimate, while revenues rose 4.1% to approximately $4.5 billion, roughly matching expectations. JBL traded lower.

The Nasdaq was again decisively to the downside with the recent pressure on technology issues persisting. As a spotlight remains on tech, Schwab's Director of Market and Sector Analysis Brad Sorensen, CFA, addresses the situation in his recent Schwab Sector Views: Technology—Too Far or Room to Run?. Brad informs us that the technology sector has been on a remarkable run. It was the best-performing sector over the past three- and 12-month periods. After a run like that, it makes sense that investors are asking if tech may have gone too far. Could a retrenchment be in store? Read the whole article on the Markets & Economy page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

Heavy dose of economic data points

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month declined to 67 from May's downwardly revised level of 69 and while it may be at a four-month low in June, remains near the highest levels in approximately 12 years. The 50 mark is the point of separation for good versus poor conditions. The NAHB said that although still quite strong, the figures might be hinting at an easing of optimism in an industry where more workers are desperately needed to break ground on new projects. And businesses might also be less confident since post-election buoyancy has given way to legislative gridlock.

Industrial production (chart) was unchanged month-over-month (m/m) in May, falling shy of estimates calling for a 0.2% increase, and following April's upwardly revised 1.1% rise, which was the strongest surge in nearly seven years. Manufacturing production declined, while mining and utilities output ticked higher. Capacity utilization ticked lower to 76.6%, compared to April's unrevised 76.7%, and shy of forecasts expecting a tick higher to 76.8%.

Weekly initial jobless claims (chart) declined by 8,000 to 237,000 last week, below the Bloomberg forecast of 241,000, with the prior week’s figure unrevised at 245,000. The four-week moving average decreased by 1,000 to 243,000, while continuing claims increased by 18,000 to 1,935,000, north of estimates of 1,920,000.

The Empire Manufacturing Index showed output from the New York region jumped further-than-expected into expansion territory (a reading above zero) for June. The index leaped to 19.8 from May's unrevised -1.0 level, with forecasts calling for a reading of 5.0.

The Philly Fed Manufacturing Index (chart) in June declined to 27.6 after rising to 38.8 in May, though a reading above zero indicates expansionary activity, and compared to estimates of a decline to 24.9.

The Import Price Index (chart) declined 0.3% month-over-month (m/m) for May, below the Bloomberg projection of a 0.1% decline, and compared to April's downwardly revised 0.2% increase. Compared to last year, prices were up by 2.1%, short of forecasts calling for 2.9% and following April's downwardly revised 3.6% increase.

Treasuries were lower, as the yields on the 2-year note and the 30-year bond increased 2 bps to 1.35% and 2.79%, respectively, while the yield on the 10-year note gained 3 bps to 2.16%. Yesterday, the U.S. Federal Reserve raised the target range for the federal funds rate by 25 bps. Schwab's Chief Fixed Income Strategist, Kathy Jones addresses the latest Fed decision in her recent article Fed Raises Rates, Sticks With Plans for One More Hike This Year. Read the whole article to find out what Kathy found surprising as well as detailed analysis on the Fixed Income page at www.schwab.com and follow Kathy on Twitter: @kathyjones.

More housing data is in store on tomorrow’s economic calendar, with housing starts and building permits scheduled for release, with starts forecasted to have increased 0.4% m/m during May to an annual rate of 1,223,000 units and permits to have risen 0.2% m/m to an annual rate of 1,249,000 units, followed by the preliminary University of Michigan Consumer Sentiment Index, expected to remain at the prior month’s 97.1 level.

European and Asian shares saw pressure

European equities traded broadly lower with retailers and commodity producers leading the decent. The decline developed on the heels of yesterday's Fed decision and in the wake of the Bank of England (BoE) keeping its monetary policy unchanged as expected, though the number of officials at the BoE calling for a rate hike has now increased to three versus the five officials who voted to stay the current policy path. In other central bank action, the Swiss National Bank kept both its target range and the rate charged on sight deposits unchanged, as expected. In economic developments in the region, consumer price inflation reports out of France and Italy were mostly in line with projections, retail sales figures in the U.K. were well short of expectations and the trade balance for the Eurozone was narrower than anticipated.

The euro moved lower versus the U.S. dollar, while the British pound erased an early decline that ensued following the BoE decision and traded higher against the greenback. Bond yields in the region were mostly higher. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses the recent action in the global bond markets and what it may be signaling in his latest article,Are bonds signaling a major stock market peak? on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia traded mostly lower with energy issues leading the decline on the heels of yesterday's Fed decision to increase the target range for the federal funds rate by 25 basis points and as crude oil prices continued to slide. Mainland Chinese stocks ticked to the upside, as the People's Bank of China (PBoC) appears to be holding off on any immediate increases to borrowing costs. The PBoC raised money-market costs shortly following its U.S. counterpart tightening in March. However, securities in Hong Kong fell sharply, with property firms under heavy pressure after the city's monetary authority raised borrowing costs shortly following the U.S. Fed's monetary policy decision yesterday. Japanese equities slipped, with exporters underperforming as the yen advanced versus the U.S. dollar and held gains, while traders in the island nation await Friday's decision from the Bank of Japan when it concludes its latest monetary policy meeting. Markets in Australia also fell, despite a report showing the country's jobless rate declined to its lowest level in over four years with the strong jobs report also sending the Australian dollar higher versus all of its major peers. Finally, stocks in India declined.

For a more detailed picture of our current global economic landscape, see the latest video from Schwab's Jeffrey Kleintop, CFA, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com.

In addition to the conclusion of the aforementioned Bank of Japan monetary policy meeting, tomorrow’s international economic calendar will hold Italy’s trade balance and CPI from the Eurozone.

Rise in Crude Oil Prices Fuel Market Gains

Charles Schwab: On the Market

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

Rise in Crude Oil Prices Fuel Market Gains

U.S. equities finished higher, as upbeat homebuilder sentiment and a jump in crude oil prices on optimism of extended production cuts overshadowed heightened geopolitical concerns toward North Korea, a global cyber-attack over the weekend, and more disappointing Chinese economic data. Treasury yields ticked higher, as did gold, while the U.S. dollar lost ground.

The Dow Jones Industrial Average (DJIA) rose 85 points (0.4%) to 20,982, the S&P 500 Index added 11 points (0.5%) to 2,402, and the Nasdaq Composite increased 28 points (0.5%) to 6,150. In moderate volume, 849 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil increased $1.01 to $48.85 per barrel and wholesale gasoline added $0.02 to $1.60 per gallon. Elsewhere, the Bloomberg gold spot price moved $2.34 higher to $1,230.70 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 98.92.

Thermo Fisher Scientific Inc. (TMO $173) announced an agreement to acquire Patheon NV (PTHN $35) for $35.00 per share in cash, for about $7.2 billion, including the assumption of $2.0 billion in debt. TMO was modestly higher, while shares of PTHN rallied over 30%.

Moody's Corporation (MCO $116) announced an agreement to acquire Amsterdam-based business information provider Bureau van Dijk for about $3.3 billion. MCO finished higher.

Energy stocks saw gains to propel the markets as crude oil prices rallied after Saudi Arabia and Russia said they are in favor of extending production cuts until March 2018, longer than the six month extension that had been expected by the markets. Also, internet security companies got a boost from a cyber-attack that affected dozens of countries over the weekend. For a look at energy and all other major sectors see, Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Is Energy an Opportunity or a Trap? on the Markets & Economy page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

Homebuilder sentiment surprisingly improves, regional manufacturing report misses

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month improved to 70—the second highest reading since 2005—from 68 in April, where the Bloomberg forecast called for it to remain. A 50 mark separates good and poor conditions. The NAHB said the report shows the builders' optimism in the housing market is solidifying, even as they deal with higher building material costs and shortages of lots and labor.

Tomorrow, we will get a look at housing construction activity in the form of April housing starts and building permits. Starts are forecasted to rebound from a four-month low in March, rising 3.7% month-over-month (m/m) to an annual rate of 1,260,000 units. Permits are projected to tick 0.2% higher to an annual rate of 1,270,000 units. As noted in the latest Schwab Market Perspective: Sell in May…or Settle In?, after a long downturn, we're starting to see an encouraging uptick in both home ownership and household formations. This suggests that consumer confidence is starting to translate into some economy-boosting action. Read more on the Markets & Economy page at www.schwab.com. In addition, the other item on tomorrow's docket will be the Federal Reserve's industrial production and capacity utilization report, forecasted to show production rose 0.4% m/m during April following the 0.5% increase seen in March, while utilization is expected to have ticked higher to 76.3% from the 76.1% registered the month prior.

The Empire Manufacturing Index showed output from the New York region surprisingly dropped into contraction territory (a reading below zero) for May. The index fell to -1.0 from April's unrevised 5.2 level, with forecasts calling for a 7.5 reading.

Treasuries are dipping, with the yield on the 2-year note little changed at 1.30%, while the yields on the 10-year note and the 30-year bond are ticking 1 basis point higher to 2.33% and 3.00%, respectively. For analysis of the bond markets, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com. Follow Schwab on Twitter: @schwabresearch. Also, Schwab's Vice President of Trading and Derivatives, Randy Frederick and Chief Fixed Income Strategist, Kathy Jones offer the video, Fed Rate-Hike Cycle: How Can Bond Investors Prepare? on the Insights & Ideas page at www.schwab.com. Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones.

Finally, focus on the political front remains, and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses What the Coming Tax Cuts Mean for the Stock Market on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop. Moreover, see the video from Schwab's Randy Frederick and Vice President of Legislative and Regulatory Affairs, Michael T. Townsend titled, Washington Overview: Budget Deals, Tax Reform, and Trump's 100-Day Mark, on the Insights & Ideas page at www.schwab.com.

Europe mostly higher despite lingering uncertainties

European equities finished mostly higher, with markets shrugging off another round of softer-than-expected Chinese economic data, a global cyber-security attack, and global trade concerns. Oil & gas issues lent support amid a rally in crude oil prices on optimism about extended global oil production cuts. Political uncertainty remained, with Germany holding regional elections ahead of a national election later this year, while Brexit negotiations continue and as an election looms in Italy later this year. For analysis of the political uncertainty see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?, while Director of International Research, Michelle Gibley CFA, offers her article, Europe Votes: Could More Countries Reject the EU? on the International Investing page at www.schwab.com. The euro and British pound were higher as the U.S. dollar saw some pressure, while bond yields in the region gained ground.

Stocks in Asia finished mostly higher, with oil prices rallying sharply on optimism of extended production cuts. The markets showed some relative resiliency in the face of heightened geopolitical concerns in the face of another missile test by North Korea, along with another round of softer-than-expected Chinese economic data. The markets also appeared to shrug off lingering trade concerns and news of a global cyber-security attack. China's industrial production, fixed asset investment and retail sales al missed expectations for April. The data followed late-Friday's stronger-than-expected reads on new yuan loans and aggregate financing—a gauge of total credit issued—with mainland Chinese stocks and those traded in Hong Kong both gaining ground, aided by that nation's release of infrastructure spending plan. Markets in India rose, with some cooler-than-anticipated inflation figures late-Friday boosting optimism that the Reserve Bank of India may have room to cut rates, per Bloomberg. Meanwhile, securities in Japan dipped, paring losses as the yen showed some weakness, while South Korean equities moved higher and those listed in Australia finished flat,. For analysis of the global front amid the backdrop of trade and geopolitical uncertainty, see Schwab's Jeffrey Kleintop's, CFA, articles, Missiles and Markets: An investor guide to geopolitical risks 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 at www.schwab.com.

Tomorrow's international economic calendar will include the Tertiary index and retail sales from Japan, CPI from France, GDP from Italy, the Zew Economic Sentiment Survey from Germany, GDP and the trade balance from the Eurozone, and CPI, PPI, the Retail Price index and housing prices from the U.K.

Stocks Shrug Geopolitics, Domestic Data

Charles Schwab: On the Market

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

Stocks Shrug Geopolitics, Domestic Data

U.S. equities finished higher on the day, apparently dismissing political uncertainty of late, as well as lackluster domestic economic data. Manufacturing and housing data came in below expectations, which followed softer-than-anticipated consumer inflation and retail sales reports while the markets were closed on Good Friday. Elsewhere, Treasuries were mixed, while gold, the U.S. dollar and crude oil prices fell.

The Dow Jones Industrial Average (DJIA) rose 184 points (0.9%) to 20,637, the S&P 500 Index gained 20 points (0.9%) to 2,349, and the Nasdaq Composite increased 52 points (0.9%) to 5,857. In moderate volume, 704 million shares were traded on the NYSE and 1.4 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.53 to $52.65 per barrel and wholesale gasoline was $0.01 lower at $1.72 per gallon. Elsewhere, the Bloomberg gold spot price declined $2.91 to $1,282.78 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.3% at 100.31.

Shares of Eli Lilly and Co. (LLY $83) and Incyte Corp. (INCY $125) fell after their treatment for rheumatoid arthritis was rejected by the U.S. Food and Drug Administration (FDA). The FDA said in a letter that it is unable to approve the application in its current form and indicated clinical data are needed to determine the most appropriate doses. Both companies said they disagree with the FDA's conclusions and the timing of a resubmission will be based on further discussions with the agency. LLY reaffirmed its 2017 financial guidance and INCY said it is evaluating the impact on its previously-issued R&D expenses guidance for 2017.

Arconic Inc. (ARNC $27) announced that Chairman and Chief Executive Officer (CEO) Klaus Kleinfeld has stepped down, and David Hess will serve as Interim CEO, while Patricia Russo was appointed to serve as Interim Chair. The company said Kleinfeld stepped down by mutual agreement after the Board learned that amid a proxy fight, without consultation with or authorization by the Board, he had sent a letter directly to a senior officer of Elliot Management that the Board determined showed poor judgement. The company added that the decision was not made in response to the proxy fight or Elliot Management's criticisms of its strategy, leadership or performance and is not in any way related to the financials or records of the company. Shares were modestly higher.

Homebuilder sentiment and regional manufacturing slip more than expected

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month declined to 68 from 71 in March, which was the highest level since June 2005, and compared to the Bloomberg expectation of a dip to 70. A 50 mark separates good and poor conditions. The NAHB said even with this month's modest drop, builder confidence is on very firm ground, and builders are reporting strong interest among potential home buyers. However, builders are facing several challenges, such as hefty regulatory costs and ongoing increases in building material prices.

Along with earnings season ramping up, tomorrow's economic calendar will bring a look at housing construction activity in the form of housing starts and building permits. Starts are projected to decline 3.0% month-over-month to an annualized rate of 1,250,000 units, while permits are forecasted to rise 2.8% to an annual rate of 1,250,000 units.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his recent Schwab Sector Views: Housing—Building Bubble or Growing Trouble?, for now, we believe the housing market is a modestly positive contributor to overall U.S. economic activity. Although prices have risen, the lack of new building means that there hasn't been a surge of activity in housing that could give a real jolt to housing. At this point, we aren't overly concerned about a bubble building. Read more, as well as Brad's views on other sectors on the Markets & Economy page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

The Empire Manufacturing Index showed output from the New York region fell more than expected but remained in expansion territory (a reading above zero) for April. The index dropped to 5.2 from March's unrevised 16.4 level, with the Bloomberg forecast calling for a 15.0 reading.

Treasuries finished mixed, as the yield on the 2-year note declined 2 basis points (bps) to 1.19%, while the yields on the 10-year note and the 30-year bond rose 2 bps to 2.25% and 2.91%, respectively.

Bond yields and the U.S. dollar have come under pressure recently amid flared-up geopolitical concerns, President Donald Trump's comments that he thought the greenback was getting "too strong," and some cooler-than-expected inflation data.

For a look at the moves in the bond markets, see Schwab's Senior Fixed Income Research Analyst, Collin Martin's, CFA, latest article titled, What Investors Should Know About the High-Yield Bond Rally on the Markets & Economy page at www.schwab.com, along with Collin's and Vice President of Trading and Derivatives, Randy Frederick's video Fed Hiked Interest Rates, So Why Are Bond Yields Still So Low?. Randy and Schwab's Chief Fixed Income Strategist, Kathy Jones also discuss, Three Fed Hikes Seen in 2017: How Should Bond Investors Respond. See these and other videos at the Insights & Ideas page on www.schwab.com. Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones.

As noted in the latest Schwab Market Perspective: Reassessing Risk and Reflation, investors appear to be shying away from risk, resulting in a pullback in stocks. We view this as temporary, although patience will be required and sharper downturns could occur within the ongoing bull market. "Hard" economic data hasn't accelerated to the same degree as "soft" data (confidence/survey-based), and some convergence is expected. Political and geopolitical uncertainty abounds, while the Fed has begun to address the slow draining of its balance sheet. Global earnings have aided stock market gains, but the expectations bar is getting higher to hurdle. The next several weeks should show whether gains will persist or if expectations may have gone too far. Read more on the Markets & Economy page at www.schwab.com.

In addition to tomorrow's housing data, the Federal Reserve's industrial production and capacity utilization report is slated for release, with production expected to show a 0.4% m/m increase during March, while utilization is forecasted to have moved higher to 76.2%.

Asia mixed as many international markets remained closed

Stocks in Asia finished mixed amid heightened geopolitical concerns after another missile test by North Korea, while European markets remained closed for the Easter holiday, along with those in Hong Kong and Australia. The yen continued to gain ground amid the elevated uneasiness, likely limiting gains in Japan as stocks ticked only slightly higher. Chinese economic data is in focus as the nation reported that its 1Q GDP grew at a 6.9% year-over-year (y/y) pace, from the 6.8% expansion posted in 4Q, where it was expected to remain. Also, China's retail sales, industrial production and fixed asset investment all topped expectations, but mainland Chinese shares declined. China's markets were hampered by the heightened North Korean tensions and exacerbated concerns about further regulatory crackdowns on the markets. For more on China, see Schwab's Director of International Research Michelle Gibley's, CFA, article, 5 Big Risks Posed by China (And Why They Shouldn't Crash Global Markets in 2017) at www.schwab.com/oninternational. Stocks in South Korea rose modestly, while those traded in India fell. For a look at the global trade landscape, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, Top Five Trade Issues Investors Should Be Watching. Read both these articles on the International Investing page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop.