Stocks Add to Yesterday’s Bounce

Charles Schwab: On the Market

Posted: 11/21/2017 4:15 PM EST

Stocks Add to Yesterday’s Bounce

 

The U.S. equity markets added to yesterday's gains, despite a slew of mixed earnings reports, and continued global political uncertainty. Upbeat existing home sales gave the bulls some sustenance on the heels of yesterday's jump in Leading Indicators. However, volume was again somewhat restrained ahead of this week's Thanksgiving holiday break for the markets. Treasury yields were mixed and the U.S. dollar dipped, while crude oil and gold were higher.

The Dow Jones Industrial Average (DJIA) rose 161 points (0.7%) to 23,591, the S&P 500 Index gained 17 points (0.7%) at 2,599, and the Nasdaq Composite jumped 72 points (1.1%) to 6,862. In moderate volume, 828 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.41 to $56.83 per barrel and wholesale gasoline was $0.03 higher at $1.77 per gallon. Elsewhere, the Bloomberg gold spot price gained $2.96 to $1,279.88 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.1% to 94.00.

The U.S. Department of Justice (DOJ) announced that it is suing to block AT&T Inc's (T $34) proposed $85 billion takeover of Time Warner Inc. (TWX $90), noting that the merger would greatly harm American consumers. T responded by saying the DOJ lawsuit is a radical and inexplicable departure from decades of antitrust precedent and it is confident the U.S. District Court will reject the Government's claims and permit this merger under longstanding legal precedent. T was lower and TWX was higher.

Lowe's Companies Inc. (LOW $81) reported Q3 earnings-per-share (EPS) of $1.05, above the $1.02 FactSet estimate, as revenues increased 6.5% year-over-year (y/y) to $16.8 billion, exceeding the projected $16.6 billion. Q3 same-store sales grew 5.7% y/y, north of the expected 4.5% gain. LOW reaffirmed its full-year guidance. Shares dipped.

Dollar Tree Inc. (DLTR $99) posted Q3 profits of $1.01 per share, well above the estimated $0.90, with revenues rising 6.3% y/y to $5.3 billion, roughly in line with forecasts. Q3 same-store sales grew 3.2% y/y, exceeding the expected 2.5% increase. DLTR issued Q4 earnings guidance that topped expectations, while it raised its full-year outlook. Shares were higher.

Palo Alto Networks Inc. (PANW $150) announced a fiscal Q1 loss of $0.70 per share, or EPS of $0.74 ex-items, versus the expected profit of $0.68, as revenues rose 27.0% y/y to $506 million, exceeding the estimated $489 million. The next-generation security company issued Q2 guidance that topped forecasts and raised its full-year outlook. Shares were solidly higher.

Intuit Inc. (INTU $152) reported a fiscal Q1 loss of $0.07 per share, or EPS of $0.11 ex-items, compared to the expected earnings of $0.05, with revenues rising 14.0% y/y to $886 million, north of the estimated $855 million. The maker of QuickBooks and TurboTax issued Q2 guidance that was mostly above estimates, while it reaffirmed its full-year outlook. Shares were lower.

Campbell Soup Co. (CPB $46) posted fiscal Q1 EPS of $0.91, or $0.92 ex-items, versus the expected $0.97, as revenues declined 2.0% y/y to $2.2 billion, roughly in line with forecasts. The company said this was a difficult quarter, particularly for its U.S. soup business, amid a continued volatile operating environment with a rapidly evolving retailer landscape and competitive activity pressuring the top line. CPB lowered its full-year EPS outlook, while reaffirming its revenue guidance. Shares fell.

Continued rebound in existing home sales stronger than expected

Existing-home sales in October rose 2.0% month-over-month (m/m) to a 5.48 million annual rate, compared to the Bloomberg forecast of a 5.40 million pace, and versus September's downwardly revised 5.37 million rate. Sales of single-family homes rose 2.1% m/m but were 1.0% below year ago levels, while purchases of multi-family structures were up 1.7% m/m and flat y/y. The median existing-home price was 5.5% above year ago levels at $247,000, marking the 68th-straight month of y/y gains. Unsold inventory came in at a 3.9-months pace at the current sales rate—a record low—down from the 4.4 months rate a year ago. Inventory of homes for sale decreased and is down 10.4% y/y, falling for 29 consecutive months. Sales were higher m/m in all regions. Existing home sales are based on contract closings instead of signings and account for the majority of the housing sales market.

The National Association of Realtors (NAR) noted job growth in most of the country continues to carry on at a robust level and is starting to slowly push up wages, which is in turn giving households added assurance that now is a good time to buy a home. However, supply constraints for both new and previously-owned homes are posing headwinds for the housing sector and may be offsetting solid demand, with prices rising sharply to dampen affordability, which could be exacerbated by rising interest rates.

Housing has helped strong Q3 earnings results from the financial sector as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her newest article, Green Grass and High Tides: Earnings Stellar But Not Without Risk. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, maintains his outperform rating on financials, noting in his latest, Schwab Sector Views: 'Tis the Season…Almost, that mortgage demand appears healthy and high rental rates in some parts of the country could provide further incentive for home buying.

Treasuries were mixed, as the yield on the 2-year note rose 2 basis points (bps) to 1.77%, while the yield on the 10-year note dipped 1 bp to 2.36% and the 30-year bond rate fell 2 bp to 2.76%.
Treasury yields continue to diverge and the U.S. dollar has dipped as the markets grapple with U.S. tax reform uncertainty ahead of next week's expected Senate vote on its plan that differs significantly from the House's plan that passed last week, along with the failed coalition talks in Germany. This is being countered by Q3 earnings season that is winding down and mostly above expectations against a positive global economic backdrop.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, we believe the prospects for a tax reform bill being signed into law before the end of the year are improving, but a number of tricky steps must still be overcome.

Ahead of Thursday's Thanksgiving holiday break for all U.S. markets, tomorrow's economic calendar will be jam-packed with data, with weekly mortgage applications being followed by weekly jobless claims, preliminary durable goods orders and the final University of Michigan Consumer Sentiment Index. The data is expected to show the employment front remains solid, manufacturing demand continues to pick up and elevated consumer sentiment persists. However, the afternoon release of the minutes from the Fed's most recent monetary policy meeting that ended November 1st with an unchanged stance will likely garner the heaviest attention as a December rate hike is highly expected. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, that new head of the Fed is seen as representing continuity as the Central Bank continues its policy normalization and given the strong economic backdrop, along with signs of wage growth picking up, we believe the Fed will hike rates for the third time this year next month.

Europe and Asia higher, taking lead from U.S. action yesterday

European equity markets traded higher, with energy issues getting a boost with crude oil prices moving modestly higher after a bout of weakness and ahead of next week's OPEC meeting. The markets continued to shrug off flared-up political uncertainty as the potential for a German election redux rose following the recently failed coalition talks, which joined continued scrutiny of the possibility for U.S. tax reform. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans. In economic news, Switzerland's exports declined for a second-straight month, while U.K. public sector net borrowing came in above expectations. The euro and the British pound were little changed versus the U.S. dollar, while bond yields in the region finished mostly lower.

Stocks in Asia finished higher following the gains in the U.S. yesterday, with a solid jump in the nation's Leading Indicators helping foster some resiliency in the face of tax reform concerns and a flare-up in German political uncertainty. Japanese equities advanced, aided by some weakness in the yen, rebounding from a recent pullback from recent highs not seen in over two decades. Schwab's 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, adding that stocks appear to closely track earnings growth, even where risks are most intense, while broad economic and earnings growth is expected to continue in 2018.

Stocks in mainland China and Hong Kong moved nicely higher, with financials jumping as earnings optimism toward the sector ramped up, while markets in South Korea and India also finished to the upside. Markets in Australia gained modest ground, with the markets digesting the minutes from the Reserve Bank of Australia's (RBA) monetary policy meeting earlier this month, which resulted in an unchanged policy decision, as well as a speech from RBA Governor Lowe. Both suggested the economy is improving but the central bank was not in a hurry to begin normalizing policy through rate increases.

Tomorrow’s international economic calendar will be quiet, save the lone report of consumer confidence from the Eurozone.

Stocks Rise as Hopes for Tax Reform Stay Alive

Charles Schwab: On the Market

Posted: 10/20/2017 4:15 PM EDT

Stocks Rise as Hopes for Tax Reform Stay Alive

 

U.S. equities extended weekly gains on the heels of last night's budget resolution passed by the Senate which sparked some tax reform optimism, though many obstacles still remain to securing an overhaul. Treasury yields and the U.S. dollar rallied, crude oil prices were also higher and gold declined. Limited economic news showed existing home sales in September increased more than forecasted. Meanwhile, on the earnings front, market participants seemingly shrugged off Dow member General Electric's severe earnings miss.

The Dow Jones Industrial Average (DJIA) advanced 166 points (0.7%) to 23,329, the S&P 500 Index gained 13 points (0.5%) to 2,575, and the Nasdaq Composite increased 24 points (0.4%) to 6,629. In moderate volume, 899 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil traded $0.34 higher to $51.84 per barrel and wholesale gasoline increased $0.04 to $1.68 per gallon. Elsewhere, the Bloomberg gold spot price declined $8.94 to $1,281.18 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.5% higher at 93.69. Markets were nicely higher for the week, as the DJIA jumped 2.0%, the S&P 500 Index gained 0.9% and the Nasdaq Composite advanced 0.4%.

Dow member General Electric Co. (GE $24) reported Q3 earnings-per-share (EPS) of $0.22, or $0.29 ex-items, well below the $0.49 FactSet estimate, as revenues grew 14.4% year-over-year (y/y) to $33.5 billion, above the projected $32.5 billion. The company called the quarter challenging as solid earnings performance in a majority of its businesses was offset by a decline in power performance in a difficult market. GE lowered its full-year EPS outlook. Shares finished lower, but pared heavy losses.

Dow component Procter & Gamble Co. (PG $88) posted fiscal Q1 EPS of $1.06, or $1.09 ex-items, versus the $1.08 expectation, with revenues rising 1.0% y/y to $16.7 billion, roughly in line with forecasts. The company's gross margin missed expectations. The company said it saw organic sales growth in a decelerating global market and against a relatively strong base period. PG reaffirmed its full-year guidance. Shares saw pressure.

Honeywell International Inc. (HON $145) announced Q3 earnings of $1.75 per share, matching estimates, as revenues increased 3.0% y/y to $10.1 billion, compared to the expected $10.0 billion. HON reaffirmed its full-year profit outlook, but its Q4 earnings guidance missed forecasts. Shares ticked higher.

Home sales surprisingly rise, tax reform and Fed speculation boost yields and dollar

Existing-home sales in September rose 0.7% month-over-month (m/m) to a 5.39 million annual rate, compared to the Bloomberg forecast of a 5.30 million pace, and versus August's unrevised 5.35 million rate. Sales of single-family homes grew m/m but were below year ago levels, while purchases of multi-family structures fell and remain lower y/y. The median existing-home price was up 4.2% y/y at $245,100. Unsold inventory came in at a 4.2-months pace at the current sales rate, down from the 4.5 months rate a year ago. Inventory of homes for sale rose, but are down 6.4% y/y, falling for 28 consecutive months. Sales were flat m/m in the Northeast and slipped in the South, while rising in the Midwest and West. Existing home sales are based on contract closings instead of signings and account for the majority of the housing sales market.

The National Association of Realtors (NAR) noted temporary, but notable declines in Texas and Florida due to the hurricanes, as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, in his latest article, Fires, Hurricanes, and Earthquakes: What Disasters Mean For Markets. The NAR added that home sales in recent months remain at their lowest level of the year and are unable to break through, despite considerable buyer interest in most parts of the country as supply issues and fast-rising prices continue to stifle sales growth. If supply and price pressures ease, the housing market could get a boost, amplified by that fact that the report said nearly two-thirds of renters currently believe now is a good time to buy a home. This is one pillar buoying Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, outperform rating on the financial sector noted in his latest, Schwab Sector Views: Sustainable Energy?.

Treasuries fell, with the yields on the 2-year note and the 30-year bond rising 5 basis points (bps) to 1.58% and 2.89%, respectively, while the yield on the 10-year note gained 6 bps to 2.38%.
Treasury yields and the U.S. dollar gained ground amid speculation on who the next Fed Chief will be and as the Senate passed its budget resolution late last night to nudge tax reform down the lengthy path to fruition.

Schwab's Chief Fixed Income Strategist, Kathy Jones offers analysis of the potential leadership changes and balance sheet reduction at the Fed in her article, Understanding the Federal Reserve's Shrinking Balance Sheet, and the video with Vice President of Trading and Derivatives, Randy Frederick, Should a Change in Fed Leadership Matter to Investors?. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend discusses the likely elongated journey of tax reform in the article, Tax Reform Framework Released, But The Road Ahead Is Long.
Check out these articles and video on the Market Commentary page at www.schwab.com and follow Kathy, Randy and Schwab on Twitter: @kathyjones, @randyafrederick and @schwabresearch.

Europe and Asia higher as financials gain and politics remain in focus

European equity markets tilted to the upside, with financials leading the advance, bolstered by a gain in bond yields in the region. The euro traded lower versus the U.S. dollar, which got a boost from relative optimism regarding tax reform after the Senate passed its budget resolution. The British pound was higher versus the greenback as the European Union's summit in Brussels continued as Brexit negotiations remained in a deadlock but headlines suggested talks could be getting closer to moving to the next phase. However, Spanish political uneasiness lingered on the heels of yesterday's announcement that Spain was moving to suspend Catalonia's autonomy after it missed a deadline to renounce its independence push.

For analysis of Brexit and Spanish political concerns, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Market Commentary page at www.schwab.com.
Stocks in Asia finished higher amid an afternoon push to the upside as optimism regarding tax reform in the U.S. was lifted by the Senate's passing of its budget resolution. Japanese equities overcame early losses to finish little changed, ahead of this weekend's election, and on the heels of a 13-day winning streak that has taken the Nikkei 225 Index to highs not seen in over two decades. The yen gave back some of yesterday's gains as the U.S. dollar rose on the tax reform optimism and amid speculation of who will head up the Fed. Mainland Chinese stocks rose and shares trading in Hong Kong rallied, rebounding from yesterday's declines that followed some mixed economic data that showed industrial production missed, retail sales beat and Q3 GDP growth slowed. Australian and South Korean securities gained ground. Markets in India were closed for a holiday. With the global markets rallying, Schwab's Chief Investment Strategist Liz Ann Sonders talks with Schwab's Randy Frederick in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?, discussing that there seems to be no end in sight to the bull market in equities, but that doesn’t mean there’s nothing to worry about. See this video on the Market Commentary page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Stocks higher on week as Dow breaches milestone

Stocks finished the week higher, hitting fresh record highs and the Dow breaching the 23,000 milestone. Global economic and earnings optimism underpinned sentiment, with regional manufacturing reports jumping, while industrial production rebounded and existing home sales surprisingly recovered. Dow members IBM Corp. (IBM $162), Verizon Communications Inc. (VZ $50) Johnson & Johnson (JNJ $142) and UnitedHealth Group Inc. (UNH $207) highlighted a heating-up earnings season, along with Morgan Stanley (MS $51). Of the 88 S&P 500 companies that have reported thus far, 75% have topped revenue forecasts and 82% have bested earnings estimates, per data compiled by Bloomberg. Financials led the way, along with healthcare issues, while technology stocks gained ground, shrugging off an intraweek drop in Dow member Apple Inc. (AAPL $156) on iPhone8 demand worries and Apple Watch connection concerns in China. The energy sector dipped as crude oil prices slid late in the week and early earnings reports from the sector disappointed against the backdrop of lofty growth expectations. Consumer staples fell solidly, continuing to be hampered by industry concerns, exacerbated by negative reactions to results from Dow component Procter & Gamble and Unilever NV (UN $56). Tax reform optimism ensued to support stocks after passing another early hurdle on the long road to passage, while Fed leadership uncertainty lingered, boosting the U.S. dollar. Treasury yields also rallied to bolster gains for financials.

Next week, the tone for the markets will likely be set by today's speech after the closing bell by Federal Reserve Chairwoman Janet Yellen, the continued ramp-up of earnings season, and the economic calendar culminating with the first look (of three) at Q3 GDP. Other reports that will dawn the economic docket next week include, Markit's October business activity reports, preliminary durable goods orders, new home sales and the final University of Michigan Consumer Sentiment Index for October.

As noted in the latest Schwab Market Perspective: Preparing for the Latter Innings, U.S. stocks continue to grind higher, with little appearing able to knock them off course. The possibility of a pullback always exists but a melt up is also reemerging as a real possibility. Earnings tend to drive equity market direction, and the next few weeks should help set the tone for market action for the rest of the year. Expectations came down a bit as we entered reporting season and recent robust economic data gives support to the potential for companies to meet and/or beat estimates. Global economic growth continues to improve, which should help support both domestic and global stock markets. Read more on the Market Commentary page at www.schwab.com.

International reports on next week's calendar worth noting include: Australia—CPI. China—property prices and industrial profits. Japan—CPI. Eurozone—consumer confidence, Markit's business activity reports, and the European Central Bank monetary policy meeting, along with German business confidence and retail sales. U.K.—Q3 GDP.

Stocks Close Monday Mixed

Charles Schwab: On the Market

Posted: 7/24/2017 4:15 PM ET

Stocks Close Monday Mixed

U.S. stocks finished the trading session mixed as the busiest week for earnings season is now underway and the markets await Wednesday's Fed monetary policy decision. Existing home sales declined a bit more than expected, but business activity reports from Markit suggested continued growth. Tech shares led advancers, followed by financial stocks as Treasury yields rebounded from a recent bout of weakness. The U.S. dollar and crude oil prices were higher and gold was little changed.

The Dow Jones Industrial Average (DJIA) lost 67 points (0.3%) to 21,513, the S&P 500 Index was 3 points (0.1%) lower at 2,470, and the Nasdaq Composite advanced 23 points (0.4%) to 6,411. In moderate volume, 821 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.57 to $46.34 per barrel and wholesale gasoline was unchanged at $1.53 per gallon. Elsewhere, the Bloomberg gold spot price increased $0.38 to $1,255.36 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.96.

Hasbro Inc. (HAS $105) reported Q2 earnings-per-share (EPS) of $0.53, or $0.52 ex-items, versus the $0.45 FactSet estimate, as revenues grew 11.0% year-over-year (y/y) to $973 million, compared to the expected $974 million. Gross margin came in a bit shy of forecasts. The company noted solid revenue growth in the U.S. and Canada but some softness in economic conditions in Brazil and the U.K. Shares saw heavy pressure.

V.F. Corp. (VFC $59) posted Q2 EPS of $0.29, one penny above forecasts, as revenues rose 2.0% y/y to $2.4 billion, topping the estimated $2.3 billion. VFC raised its full-year guidance. Separately, VFC announced that its Chairman Eric Wiseman announced his retirement. Shares overcame early losses and finished higher.

WebMD Health Corp. (WBMD $66) announced an agreement to be acquired by KKR's Internet Brands for $66.50 per share in cash, in a transaction valued at about $2.8 billion. WBMD rallied sharply.

Existing home sales dip slightly more than expected, business activity continues to grow

Existing-home sales in June decreased 1.8% month-over-month (m/m) to a 5.52 million annual rate compared to the Bloomberg forecast of a decline to a 5.57 million pace, and versus May's unrevised 5.62 million rate. Sales of single-family homes declined 2.0% m/m and purchases of multi-family structures were little changed, and both were up y/y. The median existing-home price was up 6.5% y/y at $263,800, a new all-time high. Unsold inventory came in at a 4.3-month pace at the current sales rate, down from the 4.6 months rate a year ago. Inventory of homes for sale was down 0.5% m/m, and down 7.1% y/y and has fallen for 25 consecutive months. Sales declined in all regions except for the Midwest. Existing home sales are based on contract closings instead of signings and account for the majority of the housing sales market.

National Association of Realtors (NAR) Chief Economist Lawrence Yun said the previous three-month lull in contract activity translated to a pullback in existing sales in June. Yun added that demand for buying a home is as strong as it has been since before the Great Recession, though interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that's straining their budget.

The preliminary Markit U.S. Manufacturing PMI Index rose more than expected to 53.2 in July, from June's 52.0 level and compared to the expected increase to 52.3. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector this month held steady at June's 54.2 level, matching forecasts. Readings above 50 for both reports denotes expansion in activity.

Today's data kicked off a heavy week, which shares the stage with ratcheted-up earnings season and Wednesday's Fed monetary policy decision. With no updated economic projections and press conference, coupled with the recently perceived change in tone, the Central Bank is not expected to make any policy tweaks.

As noted in the latest Schwab Market Perspective: Are Danger Signs Rising…or Will the Bull Run Continue?, economic uncertainty has confounded the Fed, which may raise the risk of a policy mistake and/or bouts of market volatility, while putting the potential for another rate hike this year into greater doubt. We're sticking with our forecast for one more hike this year along with the start of a gradual reduction in their balance sheet, believing the latter could come before the former. The long running bull market continues to show remarkable resiliency and we expect that to continue. However, risks have risen and a pullback is likely but solid earnings growth should continue to support stocks. Read more on the Markets & Economy page at www.schwab.com and be sure to follow us on Twitter: @schwabresearch.

Treasuries dipped with the yields on the 2-year and 10-year notes rising 2 basis points (bps) to 1.36% and 2.26%, respectively, while the yield on the 30-year bond ticked 3 bps higher to 2.84%.

Bond yields and the U.S. dollar rebounded modestly from pressure as of late on heightened political uncertainty and mixed economic data, while the markets grapple with global monetary policy uncertainty.

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.

Tomorrow's economic calendar will begin with the S&P/Case-Schiller Home Price Index, forecasted to show the 20-city composite rose 5.8% year-over-year and 0.3% on a seasonally-adjusted basis month-over-month in May, as well as the Consumer Confidence Index, with economists expecting a slight downtick to a level of 116.5 for July from the 118.9 posted in June, and the Richmond Fed Manufacturing Index will round out the day.

Europe and Asia mixed

European equities finished mixed, with the euro retreating somewhat from a recent rally that came in the wake of last week's unchanged monetary policy decision by the European Central Bank (ECB) with President Mario Draghi noting that talks of tapering its stimulus measures will begin in the fall. The British pound gained ground to weigh on the U.K. markets, along with the IMF's downwardly revised 2017 growth forecast for the nation, while Brexit negotiations continue to roll on and U.S. political uncertainty festers. Bond yields in the region diverged. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers a look at what the global bond markets are signaling in his article, Are bonds signaling a major stock market peak? on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop. Jeff and Schwab's Vice President of Trading and Derivatives Randy Frederick offer the video, Political Risk: How Should Investors Respond?, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick. In economic news, Markit's Eurozone Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—declined to 55.8 in July, from 56.3 in June and compared to the projected dip to 56.2. However, a reading above 50 denotes expansion. Automakers led  to the downside on reports that the European Commission is investigating potential collusion between German automakers on technology amid the lingering diesel emissions scandal.

Stocks in Asia also finished mixed as traders await the ramped up earnings season this week, which will also bring a monetary policy decision in the U.S. Political uncertainty in the U.S. continued to hamper conviction. Japanese equities declined, but came off the worst levels of the day as the yen gave back some early gains. Shares trading in both mainland China and Hong Kong advanced on the heels of recent upbeat economic data, which helped overshadow lingering concerns about regulatory crackdowns. Weakness in oil & gas and financials weighed on Australian stocks, while equities in India and South Korea ticked higher, with securities in both countries remaining at or near record highs. Amid this backdrop, see Schwab's Jeffrey Kleintop's CFA, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page at www.schwab.com, where you can also find his 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks.

A relatively light international economic docket for tomorrow will include consumer confidence from Australia, the Import Price Index and Ifo business climate survey from Germany and business confidence and PPI from France.

Markets Mixed as Energy Stocks Power Down

Charles Schwab: On the Market

Posted: 6/21/2017 4:15 PM ET

Markets Mixed as Energy Stocks Power Down

U.S. stocks finished the regular trading session mixed as gains in healthcare and technology issues were tempered by pullbacks in financial and energy equities with the latter group finding pressure despite an upbeat oil inventory report and amid some speculation with regard to Chinese crude demand. Treasuries were nearly unchanged following domestic data that showed a surprising rise in existing home sales and mortgage applications increased. The U.S. dollar was slightly lower and gold experienced minor gains.

The Dow Jones Industrial Average (DJIA) declined 57 points (0.3%) to 21,410, the S&P 500 Index decreased 1 point (0.1%) to 2,436, and the Nasdaq Composite gained 46 points (0.7%) to 6,234. In moderately-heavy volume, 829 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.98 to $42.53 per barrel and wholesale gasoline lost $0.01 to $1.41 per gallon. Elsewhere, the Bloomberg gold spot price increased $3.38 to $1,246.39 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 97.55.

Adobe Systems Inc. (ADBE $144) posted a Q2 profit of $0.75 per share, or $1.02 ex-items, compared to the FactSet consensus estimate of $0.92, on a 27% year-over-year (y/y) increase on revenues to $1.77 billion, also above analysts’ $1.73 billion forecast. For the current quarter, ADBE said it sees revenues of $1.8 billion, matching the Street’s expectations, while adjusted earnings per share are thought to be $1.00, above forecasts calling for $0.97. The company’s largest segment, digital media, saw solid gains, as well as its marketing and advertising division. Shares closed nicely higher.

FedEx Corp. (FDX $212) swung to a profit in the fiscal Q4, reporting earnings per share of $3.75 for the quarter, or $4.25 ex-items, versus the Street’s $3.87 consensus estimate. Sales were $15.7 billion, up from the $13.0 billion posted a year ago, and ahead of analysts’ estimates for $15.6 billion. Looking forward, the logistics company said it predicts earnings of $13.20-14.00 per share for the year, in line with the midpoint of estimates, while also saying it is looking into charging more during peak shipping periods, such as Black Friday and Christmas. FDX traded modestly higher.

Shares of CarMax Inc. (KMX $60) gained  modest ground after the auto retailer reported a fiscal Q1 profit of $1.13 per share, above the FactSet estimate calling for $0.98, on a 19.1% y/y increase in revenues to $4.54 billion, also above forecasts. Same-store rose 8.2% during the quarter.

Existing home sales jump, mortgage applications rise

Existing-home sales in May increased 1.1% month-over-month (m/m) to a 5.62 million annual rate compared to the Bloomberg forecast of a decline to a 5.55 million pace, and up from April’s negatively revised 5.56 million rate. Sales of single-family homes increased 1.0% m/m and purchases of multi-family structures rose 1.6%, and both were up y/y. The median existing-home price was up 5.8% y/y at $252,800, an all-time high. Unsold inventory came in at a 4.6-month pace at the current sales rate, up from April’s 4.2 months pace and the 4.7 months rate a year ago. Inventory of homes for sale was up 2.1% m/m, but is down 8.4% y/y and has fallen for 24 consecutive months. Sales increased in all regions except for the Midwest. Existing home sales are based on contract closings instead of signings and account for the majority of the housing sales market.

National Association of Realtors (NAR) Chief Economist Lawrence Yun said that sales activity expanded as more buyers were able to overcome an increasingly challenging market. Yun said, “Current demand levels indicate sales should be stronger, but it's clear some would-be buyers are having to delay or postpone their home search because low supply is leading to worsening affordability conditions," adding “With new and existing supply failing to catch up with demand, several markets this summer will continue to see homes going under contract at this remarkably fast pace of under a month."

The MBA Mortgage Application Index increased 0.6% last week, following the previous week's 2.8% rise. The advance came as a 2.1% jump in the Refinance Index was met with a 1.0% decline for the Purchase Index. The average 30-year mortgage rate remained at 4.13%.

Treasuries finished nearly unchanged, as the yields on the 2-year and 10-year notes were flat at 1.35% and 2.16%, respectively, and the 30-year bond ticked 1 basis point lower to 2.73%.

Treasury yields have remained in a trading range amid a host of domestic and European political uncertainty, mixed economic data, and last week’s highly-expected rate hike by the Fed and details of the process in beginning to shrink its balance sheet sometime this year. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the Fed's potential changes to its inflated balance sheet and the impact on the bond markets in her article, Will the Fed Reduce Its Balance Sheet? What Bond Investors Should Know on the Fixed Income page at www.schwab.com. Follow Kathy on Twitter: @kathyjones. Also, Chief Investment Strategist Liz Ann Sonders addresses the recent mixed economic data in her article, Turn Down For What: Why is Job Growth Slowing?, on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Investors continue to keep an eye on the various speeches by Federal Reserve officials after some hawkish comments coming from Federal Reserve Bank of New York President William Dudley, as other speeches at various engagements are slated for today and throughout the remainder of the week. As noted in the latest Schwab Market Perspective: Goldilocks…or the Three Bears?, we believe the market will likely largely look past the expected FOMC rate hike, and focus more on any information with regard to the Fed’s balance sheet. It is now expected that the Fed will begin the process of slowly reducing its bloated balance sheet by the end of this year, but that process (and commentary surrounding it) could be a source of elevated volatility in the months to come. Read more on the Markets & Economy page at www.schwab.com, including our continued belief that the bull market has legs, but why investors should be aware that risks are elevated.

Tomorrow, the U.S. economic calendar will offer weekly initial jobless claims, forecasted to have ticked higher to a level of 240,000 from the 237,000 last week and the Index of Leading Economic Indicators (LEI), with economists anticipating a 0.3% m/m rise in May, matching the gain seen in April. Rounding out the day will be the June Kansas City Fed Manufacturing Index, anticipated to have increased to a level of 9 from 8 in May, with a reading above 0 indicating expansion in activity.

Europe and Asia mostly lower

European equities booked a second day of losses, with markets in the region lower across the board as crude oil was the main theme. Ongoing Brexit talks were also a focus after negotiations officially began Monday in Brussels. The British pound was lower as the nation is set to begin a new parliamentary session with Prime Minister Theresa May’s party in the minority. In a ceremony to mark the formal opening of the new parliament, Queen Elizabeth II gave a speech, providing a framework of what lawmakers will contemplate over its term. The nation’s government is looking at eight new laws in order to facilitate a smoother transition from the European Union. Amid the political turmoil overseas, including upcoming elections in Italy and Germany later this year, see Schwab's Chief Global Investment Strategist 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?.

In economic news, industrial orders in Spain fell during the month of April, and public sector net borrowing in the U.K. declined from the month prior. The euro also lost ground versus the greenback and bond yields in the region were mixed.

Stocks in Asia finished lower, following in the steps of the U.S. markets, with the drop in crude oil prices pressuring resource-related issues and technology shares paring some recent strength, and despite MSCI giving China the thumbs-up. Japanese equities fell, with the yen gaining strength throughout the session, and despite a report that showed marked improvement in the nation's production in all sectors. Mainland Chinese shares were able to buck the downtrend in the region on news that MSCI gave the Asian nation the green light to include its A-shares in the company’s emerging markets indexes after rejecting its request the prior three attempts. MSCI said it will add 222 of China’s Large Cap stocks from last year. However, stocks trading in Hong Kong fell on worries that China’s MSCI inclusion could spark competition and jeopardize its role as a vital entryway to China for global investors. Elsewhere, South Korean equities dropped and Indian securities were flat.

Markets in resource-rich Australia fell as the tumble in crude oil prices and iron ore hit mining and energy stocks hard. Meanwhile, banks continued to suffer following yesterday’s downgrade by Moody’s of twelve of the nation’s lenders, including its four largest banks. For a look at the global economic front, see Jeffrey Kleintop's video, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com, while you can also follow Jeff on Twitter: @jeffreykleintop.

The international economic docket for tomorrow will be light, offering only business confidence and production output from France.

Markets Mixed, Dow Extends Losing Streak

Charles Schwab; On the Market

Posted: 3/22/2017 4:15 PM ET

Markets Mixed, Dow Extends Losing Streak

U.S. stocks finished mixed, with the Dow adding to its worst day of the calendar year yesterday, amid a mixed bag of news, and after a developing story involving an attack near the U.K. Parliament. Treasuries were higher following economic news that offered some disappointing housing data, while crude oil prices added to yesterday's pullback and the U.S. dollar was also lower, while gold saw a modest gain.

The Dow Jones Industrial Average (DJIA) declined 7 points to 20,661, the S&P 500 Index rose 4 points (0.2%) to 2,344, and the Nasdaq Composite gained 28 points (0.5%) to 5,822. In moderate volume, 899 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.20 lower to $48.04 per barrel and wholesale gasoline lost a penny to $1.60 per gallon. Elsewhere, the Bloomberg gold spot price gained $3.05 to $1,247.86 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 99.69.

After the closing bell yesterday, Nike Inc. (NKE $54) reported 3Q diluted earnings-per-share (EPS) of $0.68, well above the $0.53 FactSet estimate, while revenues increased 5.0% year-over-year (y/y) to $8.4 billion just shy of expectations. The company also reported that its gross margin had contracted 140 basis points to 44.5%, as higher average selling prices were more than offset by higher product costs, unfavorable changes in foreign exchange rates and the impact of higher off-price sales. Shares of NKE lost solid ground.

FedEx Corp. (FDX $196) also reported after yesterday's close, announcing 3Q EPS of $2.07 per diluted share or $2.35 on an adjusted basis, falling short of the $2.62 consensus forecast, while revenues rose 18.1% y/y to $15.0 billion, matching estimates. FDX noted that its operating results were impacted by the significantly negative net impact of fuel and one fewer operating day, but these factors were partially offset by the benefits from yield growth at all of the company’s transportation segments. FDX traded higher.

Shares of Sears Holdings Corp. (SHLD $8) revealed in its recent 10-K statement, filed today, that its historical operating results indicate substantial doubt exists related to the Company's ability to continue as a going concern. Shares of SHLD were sharply lower.

Existing-home sales and weekly mortgage applications fall shy of estimates

Existing-home sales in February declined 3.7% month-over-month (m/m) to a 5.48 million annual rate, compared to the Bloomberg forecast of a 5.55 million pace. February's figure was unrevised at a 5.69 million annual rate, which is the highest since February 2007. Sales of single-family homes fell 3.0% m/m and purchases of condominium and co-op units dropped 9.2%. The median existing-home price was up 7.7% y/y at $228,400. Housing supply came in at a 3.8-month pace at the current sales rate, and the inventory of homes for sale is down 6.4% y/y. Sales in the South were higher m/m, and were lower in the Northeast, Midwest and West.

National Association of Realtors (NAR) Chief Economist Lawrence Yun said, "The speed of transactions is very fast and we know that there's an inventory shortage. Buying interest remains very solid and strong but we have a bottleneck. We don't have enough inventory to satisfy that buying interest."

The MBA Mortgage Application Index fell 2.7% last week, following the previous week's 3.1% gain. The decrease came as a 3.3% decline for the Refinance Index was met with a 2.1% decrease for the Purchase Index. The average 30-year mortgage rate was unchanged from the previous week's 4.46%.

Treasuries finished higher, as the yields on the 2-year and 10-year notes, as well as the 30-year bond decreased 2 bps to 1.24%, 2.40% and 3.02%, respectively.

As noted in the recent Schwab Market Perspective: Teflon Market, helping to bolster our belief in a strengthening economy—and our bullish stance—is the increased hawkishness of the Federal Reserve and their decision to hike rates at the March Federal Open Market Committee (FOMC) meeting. Additionally, the Fed signaled willingness to continue to hike rates in the coming months, which would mark the first time we would see more than one hike in a year since the financial crisis. Read the whole perspective at www.schwab.com/marketinsight. Also, for analysis on the Fed and its implications for bond investors, see the video from Schwab's Chief Fixed Income Strategist, Kathy Jones and Vice President of Trading and Derivatives, Randy Frederick titled Three Fed Hikes Seen in 2017: How Should Bond Investors Respond?, at www.schwab.com/insights. Follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Tomorrow's economic calendar will give investors some additional housing data in the form of new home sales, with economists anticipating a 1.8% m/m increase during February to a rate of 565,000 units, while weekly initial jobless claims are also slated for release, forecasted to have ticked lower to a level of 240,000 from the prior week's 241,000.

Europe and Asia lower following sharp U.S. declines

European equities finished mostly lower following the sharp declines in the U.S. yesterday with traders cautiously weighing whether the Trump Administration can deliver on its pro-growth policies. Financials and commodity issues led the laggards, a rally in government bonds continued and base metals tumbled, with iron ore approaching bear market territory. Meanwhile, the European Commission drafted some rules to aid in strengthening national antitrust agencies, saying that competition authorities in the European Union should gain more resources, powers and independence. In the U.K., rising prices may be posing a risk to domestic demand as the Bank of England has predicted a slowdown in retail sales and Britain reported its fastest pace of consumer inflation in over three years yesterday. Schwab's Chief Global investment Strategist Jeffrey Kleintop, CFA, informs us in his recent article, The future of Europe: EU 2.0 and its impact on the markets, that this month marks the 60th anniversary of the Treaty of Rome, from which the 28-nation European Union (EU) and the euro currency traces its origin. Also this month, the United Kingdom is preparing to formally begin its exit from the EU—the only full member to ever do so in those 60 years—among a rising tide of nationalist political movements threatening the survival of Europe’s union in the years ahead. Read the rest of the article at www.schwab.com/oninternational and follow Jeff on Twitter: @jeffreykleintop. The euro and British pound are losing ground versus the U.S. dollar and bond yields in the region are mostly declining.

Stocks in Asia finished sharply lower on the heels of yesterday's declines in the U.S. and as some international investors are beginning to speculate whether President Trump's growth promises will transpire from proposals to policy. Japanese equities dropped markedly, as the yen moved higher for a seventh day, hitting a four-month high versus the U.S. dollar and despite some trade data that showed exports grew more than expected on a y/y basis. Schwab's Director of International Research Michelle Gibley, CFA, discusses in her recent article Fed Rate Hikes May Benefit Japanese Stocks, that from Nov. 7 to Dec. 31, the yen fell nearly 12% against the U.S. dollar. Japanese stocks rose in turn. This has a lot to do with Japanese companies’ heavy reliance on exports. Read the whole article at www.schwab.com/oninternational and follow Schwab on twitter: @schwabresearch.

Mainland Chinese shares and those traded in Hong Kong fell to join the regional selloff, while interbank borrowing rates have climbed across the board in the world's second largest economy which has amounted to non-bank institutions paying a record premium for short-term funds relative to larger Chinese banks according to Bloomberg. For more on the impact of the Fed’s rate-hiking cycle on China, see Schwab’s Jeffrey Kleintop’s latest article, The Fed has China in a Tough Spot, at www.schwab.com/marketinsight. Meanwhile, stocks in Australia fell, led by declines in mining issues, while markets in South Korea and India also lost ground.

Markets Mixed Following Fed Minutes

Charles Schwab: On the Market

Posted: 2/22/2017 4:15 PM ET

Markets Mixed Following Fed Minutes

U.S. equities finished mixed, with the Dow notching another record high, while the S&P 500 and Nasdaq were near the flatline, as investors assessed political risks on both sides of the pond, as well as the minutes from the Fed's last meeting. Treasuries were modestly higher, even as existing home sales jumped to a 10-year high, and crude oil prices and the U.S. dollar were lower, while gold inched higher. Meanwhile, news on the earnings front was relatively upbeat.

The Dow Jones Industrial Average (DJIA) increased 33 points (0.2%) to 20,776, the S&P 500 Index declined 3 points (0.1%) to 2,363, and the Nasdaq Composite fell 5 points (0.1%) to 5,861. In moderate volume, 824 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.74 to $53.59 per barrel and wholesale gasoline gained $0.01 to $1.73 per gallon. Elsewhere, the Bloomberg gold spot price increased $3.04 to $1,238.78 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 101.22.

TJX Companies Inc. (TJX $76) reported 4Q earnings-per-share (EPS) of $1.03, versus the $1.00 FactSet estimate, with revenues rising 6.0% year-over-year (y/y) to $9.5 billion, besting the projected $9.4 billion. 4Q same-store sales rose 3.0% y/y, north of the expected 2.6% gain. TJX announced plans to increase its dividend and an addition to its stock repurchase program. The company issued 1Q EPS and same-store sales guidance that missed forecasts. Shares ticked higher.

Toll Brothers Inc. (TOL $34) posted fiscal 1Q EPS of $0.42, topping the estimated $0.34, as revenues declined 0.9% y/y to $921 million, exceeding the projected $889 million. The luxury homebuilder's deliveries, net contracts and backlog all topped expectations. TOL raised its 2017 outlook for deliveries and initiated a quarterly dividend of $0.08 per share. Shares of TOL rallied.

Garmin Ltd. (GRMN $54) announced 4Q earnings of $0.72 per share, or $0.73 ex-items, above the forecasted $0.58, with revenues rising 10.0% y/y to $861 million, topping the estimated $793 million. GRMN issued 2017 EPS guidance that was just shy of projections, while its revenue outlook exceeded expectations. Shares were sharply higher.

DISH Network Corp. (DISH $62) reported 4Q EPS of $0.70, above the forecasted $0.67, as revenues decreased 1.6% y/y to $3.7 billion, compared to the expected $3.8 billion. The company's new pay-TV subscribers increased y/y. Shares gained ground.

Schwab’s Chief Investment Strategist Liz Ann Sonders offers a look at the earnings front in her latest article, Better Days: Earnings Growth Picks Up Sharply in 2017, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Existing home sales rise to highest in almost a decade ahead Fed meeting details

Existing-home sales in January rose 3.3% month-over-month (m/m) to a 5.69 million annual rate—the highest since February 2007—compared to the Bloomberg forecast of a 5.55 million pace. December's figure was upwardly revised to a 5.51 million annual rate. Compared to last year, sales were 3.8% higher. The median existing-home price was up 7.1% y/y at $228,900. Housing supply came in at a 3.6-month pace at the current sales rate, and the inventory of homes for sale is down 7.1% y/y. Sales in the Northeast jumped m/m, and rose in the South and West, with all these regions higher y/y. However, sales in the Midwest were down m/m and y/y.

National Association of Realtors (NAR) Chief Economist Lawrence Yun said, "Market challenges remain, but the housing market is off to a prosperous start as homebuyers staved off inventory levels that are far from adequate and deteriorating affordability conditions." Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, discusses investing in the real estate sector in his article, Real Estate Sector: Underperform, noting that real estate companies, in general, have had a great run over the past couple of years, but we think now is a great opportunity to take some profits and prepare for potential underperformance in the coming months. Read more at www.schwab.com/marketinsight,

The MBA Mortgage Application Index declined 2.0% last week, following the previous week's 3.7% drop. The decrease came as a 1.0% decline for the Refinance Index was met with a 2.8% fall for the Purchase Index. The average 30-year mortgage rate rose 4 basis points (bps) to 4.36%.

In afternoon action, the Federal Reserve released the minutes to the January/February Federal Open Market Committee’s monetary policy meeting where it opted to keep interest rates unchanged. The report showed that "many" Fed officials indicated support for raising rates "fairly soon" if the economy stayed the course or strengthened. However, policymakers voiced uncertainty over the fiscal policy plans of the Trump administration and Republican-controlled Congress, as well as headwinds the rising dollar may present. Following the meeting on Feb.1, the Committee's statement appeared to foster a dovish takeaway by the markets. However, last week's Congressional testimony by FOMC Chief Janet Yellen suggested a March rate hike was still on the table.

As noted in the latest Schwab Market Perspective: Not So Fast!, elevated earnings and economic expectations could lead to a pullback or more sideways action but we believe the bull market in U.S. stocks will continue. If economic data continues to surprise on the upside, a March rate hike is likely to be on the table; while there is an additional risk that the Fed may be forced to speed up the tightening process should inflation accelerate from here. Read more at www.schwab.com/marketinsight, and for more on the Fed, see our article, Changes at the Fed: What Does the Coming Personnel Shake-up Mean?, at www.schwab.com/insights. Follow Schwab on Twitter: @schwabresearch.

Treasuries finished modestly higher, as the yields on the 2-year and 10-year notes, as well as the 30-year bond, all ticked 1 bp lower to 1.21%, 2.42% and 3.03%, respectively. For a look at the bond markets, see Schwab's Director of Income Planning, Rob Williams', CFP, and Senior Research Analyst, Cooper Howard's, CFA, latest article, Short-Term Bonds: Why They Could Outperform As Interest Rates Rise, at www.schwab.com/marketinsight.

Treasury yields and the U.S. dollar remained in focus, and the stock markets paused a bit from rallies to all-time highs, bolstered by continued upbeat economic data, March Fed rate hike expectations that remain intact, and lingering optimism of U.S. President Donald Trump's reflationary policy pledges. For a look at the political front, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest article, Washington's Way: Why Trump's Policy Changes Could Take Time, at www.schwab.com/insights.

Tomorrow's economic calendar will offer investors a look at some regional manufacturing activity in the form of the Kansas City Fed Manufacturing Index for February, forecasted to remain at January's level of 9, with a reading above zero denoting expansion in activity, as well as weekly initial jobless claims, with economists expecting a slight uptick to a level of 240,000 from the prior week's 239,000.

Europe mixed after recent run, Asia mostly higher

European equities finished mixed, with the markets assessing the recent rally and the U.S. markets pausing from all-time highs that have been driven by upbeat economic data and optimism of reflationary policies from U.S. President Donald Trump. The markets digested some mixed earnings reports in the region, along with festering European political uncertainty as a key French Presidential election looms. For more on the global markets and the European political risk, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, The stock market sees nothing to worry about—that may be about to change. Jeff notes that Europe's economy is performing the best in many years on many key measures and stock markets are currently behaving as if there is nothing to worry about, but that may be about to change now that we are within 45 trading days of the French Presidential election. He concludes that savvy investors should be prepared for a rise in volatility in global stock markets in the coming months. Read more at www.schwab.com/oninternational, and be sure to check out Jeff's article, Five Reasons to Stay Invested Despite Heightened Uncertainty. Follow Jeff on Twitter: @jeffreykleintop.

The euro ticked higher and the British pound dipped versus the U.S. dollar, while bond yields in the region were mostly lower. In economic news, German business confidence unexpectedly improved for this month, and preliminary U.K. 4Q GDP growth topped expectations, while eurozone core consumer price inflation rose in line with forecasts.

Asian markets finished mostly higher as the U.S. markets returned to action yesterday from a long holiday weekend, continuing a rally to all-time highs, despite political uncertainty in Europe and the U.S. Stocks in China and Hong Kong advanced, with financials leading the way despite a report that showed a slowdown in property price gains. Australian equities increased modestly, overcoming early losses that stemmed from hawkish commentary from Reserve Bank of Australia Governor Lowe, and showing some resiliency in the face of weakness in technology and financial issues. Markets in South Korea and India rose, with the latter extending a winning streak to five sessions. However, Japanese securities finished flat, as the yen rebounded from recent weakness. Schwab's Director of International Research, Michelle Gibley, CFA, provides some timely analysis of global investing in her articles, Currency Hedging: 5 Things You Need to Know and Emerging Markets: Why They Deserve a Place in Your Portfolio at www.schwab.com/oninternational.

Tomorrow's economic calendar for overseas will be fairly light, with reports expected to include Japan's Leading Index, GDP and the Gfk Consumer Climate Index from Germany, and CPI from Italy. Meanwhile, The Bank of Korea will meet to discuss monetary policy, with no change to its stance expected.

Financial Review

Let’s All Go to the Movies

Sinclair Noe — January 24, 2017

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW + 112 = 19,912
SPX + 14 = 2280
NAS + 48 = 5600
RUT + 21 = 1369
10Y + .07 = 2.47%
OIL + .31 = 53.06
GOLD – 8.90 = 1209.80

The S&P 500 and Nasdaq set record highs.

It was a busy first day for President Trump. Here are some of the highlights: Withdrew from TPP, promised to renegotiate NAFTA, placed a hiring freeze on federal employees, discussed slashing business regulations by 75%, reinstated the Mexico City policy on banning foreign aid groups from providing abortion counseling and vowed to stop the seizure of South China Sea islands. Trump had breakfast today with the heads of GM, Ford and Fiat Chrysler, as he pressures the Big Three car-makers to boost U.S. employment.

Australia has called for the Trans-Pacific Partnership to go ahead without the U.S. following President Trump’s withdrawal from the 12-nation trade agreement. China’s foreign ministry declined to say whether Beijing would consider any invitation to join the TPP, but a spokesperson instead cited rival trade pacts.

President Trump signed two orders today to move forward with construction of the Keystone XL and Dakota Access pipelines. Trump campaigned on promises to increase domestic energy industry production and before taking office indicated he supported completion of the Dakota pipeline and revival of the Keystone XL project.

Environmental activists broadly opposed the Keystone XL pipeline and campaigned against it for more than seven years. Shares of ETP, the company building the 450,000 barrel-a-day Dakota line, rose 3.5 percent. Trump owned ETP stock through at least mid-2016, per financial disclosure forms, and ETP’s chief executive, Kelcy Warren, donated $100,000 to his campaign. U.S. Energy Secretary nominee Rick Perry was until recently on ETP’s board.

Coincidentally, the Canadian government today reported a pipeline spill in the western Canadian province of Saskatchewan has leaked about 52,000 gallons of oil. The spill came seven months after another major incident in Saskatchewan, in which a Husky Energy Inc pipeline leaked 60,000 gallons into a major river and cut off the drinking water supply for two cities.

Trump’s administration has also asked the Environmental Protection Agency to temporarily halt all contracts, grants and interagency agreements pending a review.

Rex Tillerson has been cleared by the Foreign Relations Committee. President Trump’s pick for secretary of state received backing with an 11-10 vote along party lines that “all but assures Senate confirmation,” according to the Associated Press. Meanwhile, the Senate confirmed Representative Mike Pompeo as President Donald Trump’s CIA director.  A U.S. Senate committee swiftly approved Wilbur Ross,Trump’s nominees for commerce, and Elaine Chao for transportation secretary by voice vote, signaling that they will face little resistance to approval by the full Senate.

On Jan. 11, Tillerson said China should not be allowed access to islands it has built in the contested South China Sea. Today, China responded, saying it had “irrefutable” sovereignty over disputed islands in the South China Sea after the White House vowed to defend “international territories” in the strategic waterway.

China claims most of the South China Sea, while Taiwan, Malaysia, Vietnam, the Philippines and Brunei claims parts of the sea that commands strategic sea-lanes and has rich fishing grounds along with oil and gas deposits. China’s Foreign Ministry spokeswoman said “the United States is not a party to the South China Sea dispute”.

White House press secretary Sean Spicer met the press again today, hilarity ensued. Spicer says Trump will announce a pick for the Supreme Court next week. Spicer confirmed that President Trump believes millions of people voted illegally in November’s election, despite a total absence of evidence to support this view.

The dollar slumped to the weakest level in six weeks yesterday after U.S. Treasury Secretary nominee Steven Mnuchin said an “excessively strong dollar” could have a negative short-term effect on the economy. The Dollar Index has reversed those declines this morning, moving back above 100.

The UK government lost its Article 50 case. The decision handed down by the UK’s top court says the government must receive parliamentary approval before it can trigger Article 50, the mechanism that would begin the UK’s exit from the European Union.

The proposed merger of health insurers Aetna and Humana has been blocked on antitrust grounds. A federal judge said the tie up would threaten competition and would’ve resulted in higher prices and reduced services for seniors who buy Medicare Advantage. Aetna will owe Humana a $1 billion breakup fee.

You may recall that Aetna threatened the government last summer with pulling out of 11 of the 15 states where it participated in the Obamacare individual insurance markets, claiming it was a “business decision.” The threat was made while the Department of Justice was investigating the merger but before it filed its antitrust lawsuit. After the lawsuit was filed, Aetna followed through on its threat.

However, in an opinion on the case, the judge wrote that it wasn’t just a “business decision”, there was more to it: “Aetna tried to leverage its participation in the exchanges for favorable treatment from DOJ regarding the proposed merger.” Aetna then tried to cover up that connection between the threat to pull out of those markets and the antitrust investigation to the point where the “repeated efforts to conceal a paper trail about the decision-making process” bordered on “malfeasance,” he wrote.

US District Judge Bates determined that there was “persuasive evidence that when Aetna later withdrew from the 17 counties, it did not do so for business reasons, but instead to follow through on the threat that it made earlier.”

There is still a lot of uncertainty about the impact the Trump administration’s trade and business policies will have on the economy and markets. But all this was backdrop for earnings reports, which were pouring in throughout the session. Earnings are coming in generally better than expected.

Profits of S&P 500 companies are estimated to have risen 6.7 percent in the latest quarter, marking the strongest growth in two years. The S&P 500 is trading at about 17 times forward 12-month earnings, compared with the 10-year median of 14.2.

Powered by strong chip and display panel sales, Samsung Electronics’ operating profit jumped 50% to $7.9 billion in the fourth quarter, helping the company bounce back from its costly Note 7 debacle.

BT Group saw its stock drop as much as 19 percent this morning – wiping out $9 billion in market cap – after the company cut its outlook for the coming years and revealed “inappropriate behavior” in its Italian unit had forced a tripling of provisions for losses there.

DuPont reported fourth quarter earnings beat estimates, while revenue missed estimates. DuPont also said it expected its merger with Dow Chemical to close during the first half of the year.

Verizon missed earnings estimates by 3 cents a share. Revenue beat Street forecasts. Verizon saw year-over-year revenue fall 5.6 percent as it added far fewer wireless subscribers than analysts had expected.

After the closing bell yesterday, Yahoo reported better-than-expected quarterly profit and revenue, and said the sale of its core internet business to Verizon would be delayed but  should be completed in the second quarter.

Travelers insurance company posted earnings well above estimates. Revenue also beat forecasts. Travelers did see underwriting results fall in its auto insurance sector, but that was more than made up for by improvements in other lines.

Johnson & Johnson — J&J reported earnings of $1.58 per share for the fourth quarter, 2 cents a share above estimates. Revenue came in slightly below forecasts. The medical device maker also gave a full-year forecast that falls below analysts’ estimates.

3M reported quarterly profit of $1.88 per share, 1 cent a share above estimates. Revenue was in line with estimates. The company also affirmed its full-year forecast.

Alibaba Group posted a 54 percent rise in third-quarter revenue, beating analyst estimates, helped by higher sales during its Single’s Day shopping event and increased earnings in its cloud and digital media ventures.

Lockheed Martin beat estimates for fourth-quarter revenue and earnings, but last year delivered fewer-than-forecast F-35 jets. The Pentagon’s No. 1 weapons supplier also said internal controls for financial reporting were ineffective at its Sikorsky helicopter business.

D.R. Horton, the largest U.S. home-builder, reported its highest growth in orders in more than a year. Orders rose 14.6 percent to 9,241 homes in the quarter ended Dec. 31. The average selling price for the quarter was $297,000, up 2 percent from a year earlier. Horton reaffirmed its 2017 revenue forecast.

Homebuilders gained after a report showed that U.S. home resales fell more than expected in December as the supply of houses on the market dropped to levels last seen in 1999. The National Association of Realtors reported sales decreased by 2.8% at a seasonally adjusted annual rate of 5.49 million in December.

Lawrence Yun, NAR chief economist, wrote: “Housing affordability for both buying and renting remains a pressing concern because of another year of insufficient home construction… It’ll take more entry-level supply; continued job gains and even stronger wage growth for first-timers to make up a greater share of the market.”

Rio Tinto — The mining company sold its Australian coal unit to Yancoal Australia for up to $2.45 billion in cash. Yancoal is an entity controlled by the Chinese government.

Nominations for the Oscars were announced this morning.  “La La Land” has landed a record-tying 14 Academy Awards nominations, matching it with “Titanic” and “All About Eve” for most nominations ever. The other nominees for best picture are: “Moonlight,” ”Arrival,” ”Manchester by the Sea,” ”Hell or High Water,” ”Lion,” ”Fences,” ‘Hidden Figures” and “Hacksaw Ridge.” Now, that I think about it – it might be good to go to the movies.

Financial Review

Nasty

Sinclair Noe — October 20, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW – 40 = 18,162
SPX – 2 = 2141
NAS – 4 = 5241
10 Y un 1.75%
OIL – 1.21 = 50.61
GOLD – 3.70 = 1266.20

The number of Americans filing for unemployment benefits increased by 13,000 to 260,000 for the week ended October 15. That marked 85 straight weeks of claims below the 300,000 threshold normally associated with a strong jobs market, the longest such period since 1970. Part of the increase in claims last week could be related to the effects of Hurricane Matthew, which could have left some people temporarily out of work.

The National Association of Realtors reports existing home sales rose 3.2 percent to an annual rate of 5.47 million units, the quickest pace since June. The increase in existing home sales was broad-based across four major regions tracked by the NAR, with gains reported in the Northeast, Midwest, South and West.

Inventories remained tight, with 2.04 million homes on the market. That was up 1.5 percent from the prior month, but 6.8 percent lower than in September 2015; enough to push the median price up 5.6 percent from a year ago to $234,200 last month. The institutional investors who bought up homes in recent years have continued to rent them out rather than putting them on the market. The association said first-time home buyers accounted for 34 percent of the purchases, the most since July 2012.

Ryan Marshall, CEO of the homebuilder Pulte Group, laid out the state of the US housing market in one succinct quote. “With US new home sales for 2016 on track to grow in excess of 10% over last year, we believe housing demand remains on a sustained path of recovery fueled by ongoing job creation, low unemployment, a supportive interest rate environment, and a limited inventory of homes.”

Arizona’s unemployment rate dropped to 5.5% in September from 5.8% in August. Arizona gained 32,700 jobs in September, which is better than average. The private sector gained 3,800 jobs, with education and health services and construction showing solid advances, and manufacturing and financial activities lost jobs. Government added 28,900 jobs. Arizona Nonfarm employment grew by 2.3% (61,800 jobs) year over the year in September. The Private Sector accounted for all of the September gains, adding 61,900 jobs (2.8%). Government employment declined by 100 jobs in the 12 months through September.

The European Central Bank kept interest rates on hold at historic lows this morning and ECB President Mario Draghi said the Bank was committed to pursuing substantial asset purchases aimed at spurring growth and inflation. With the Eurozone economy enjoying what Draghi called “a moderate but steady” recovery, he defended the stimulus effort, saying: “low rates work.” To keep the asset buying program running smoothly, Draghi said the ECB was investigating using options. He added that they did not discuss tapering but that QE would not last forever.

Wells Fargo is being investigated on suspicion of identity theft. California prosecutors are looking into whether Wells Fargo’s creation of millions of fraudulent accounts constitutes identity theft. The California Attorney General’s Office has authorized a seizure warrant against the bank that seeks customer records and other documents, saying there is probable cause to believe the bank committed felonies. Federal prosecutors are also looking into the matter.

After the Senate Banking Committee held a hearing last month with the Wells Fargo CEO John Stumpf, who has since retired, it followed up with a letter containing 58 additional questions for the bank. Among them: What proportion of the harmed customers are old, members of ethnic minorities or military veterans?

Wells Fargo has not officially answered the question but former Wells employees are stepping up to provide answers; and they are describing predatory practices: Mexican immigrants who speak little English. Older adults with memory problems. College students opening their first bank accounts. Small-business owners with several lines of credit. In Arizona, the Salt River Pima-Maricopa Indian Community was targeted. And as new accounts were opened, there were fees, lots and lots of fees. One former employee described it as “lions hunting zebras.”

But wait, there’s more.  The bank is now out of good standing with a leading consumer watchdog group. Wells Fargo is no longer accredited by the Better Business Bureau, making it possibly the biggest business ever to fall into that category. The BBB website lists Wells Fargo as “not BBB accredited” and gives it a grade of “C-” on a scale of “A+” to “F.”

An adviser to the Court of Justice of the European Union has backed Intel’s appeal against a record $1.1 billion fine for antitrust violations and believes a lower court should review it. EU regulators imposed the penalty in 2009 for Intel’s attempts to stifle Advanced Micro Devices.

New Tesla vehicles will have full self-driving hardware built in. Eight surround cameras provide 360-degree visibility around the car at up to 250 meters of range, and the vehicles will also incorporate twelve updated ultrasonic sensors and forward-facing radar “capable of seeing through heavy rain, fog, dust and even the car ahead.”

Dow Jones is planning a substantial revamp at The Wall Street Journal as part of a review to better address costs in an effort to deal with an ongoing decline in print advertising. The “WSJ2020” plan will look to rebalance the news organization’s revenue streams as its customers' flock to digital formats and a revised version of the print newspaper will launch in the next few weeks with some sections consolidated. Dow Jones is owned by News Corp.

In a first of its kind, Sprint is set to issue $3.5 billion in five-year bonds that are backed by its wireless spectrum, which the telecom operator values at $16.4 billion. Investors seem to like the idea, with orders hitting $30 billion. The “air-wave bonds” are expected to yield 3.5%.

We have a couple of stories on big mergers – rumors really, but they are big, so here goes. Bloomberg reports Qualcomm is in the final stages of negotiations to buy NXP Semiconductors in what could be an all-cash deal for $110 to $120 per share. Qualcomm now has a market cap of around $99 billion, while NXP has a market cap of around $36 billion. The deal would be the largest in the history of the semiconductor industry.

Meanwhile, AT&T and Time Warner executives have held informal talks to discuss business strategies that could include a merger; neither side has hired an adviser. It’s also another indication that service providers are getting more and more interested in owning and investing in content. Verizon recently bought AOL and is in the process of acquiring Yahoo. AT&T merged with DirecTV last year.

Verizon Communications added far fewer wireless subscribers than expected in the third quarter. Operating revenue fell 6.5%. Smaller rivals such as T-Mobile and Sprint have rolled out aggressive promotions to win over Verizon’s subscriber base. As the company fends off competition in a maturing wireless market, it has acquired AOL and plans to buy Yahoo in a bid for a set of digital web properties and ad technology tools that will help it compete with internet giants Facebook and Google.

After the closing bell, Microsoft reported earnings of $0.76 on an adjusted basis. Analysts were expecting $0.68 per share. Revenue of $22.3 billion on an adjusted basis, 2.3% higher than the same period in 2015. Analysts were expecting $21.71 billion. Microsoft closed above $60, an all-time high, and the first all-time high since 1999.

Chipmaker Advanced Micro Devices reported a better-than-expected 23 percent increase in quarterly revenue, helped by higher demand for graphics chips used in gaming consoles.

American Airlines reported a slightly better-than-expected quarterly profit, helped by lower fuel costs. Still, net income fell to $737 million, or $1.40 per share, from $1.69 billion, or $2.49 per share, a year earlier.

Walgreens Boots Alliance shares slipped in early trading after the pharmacy chain missed fourth-quarter sales estimates. Walgreens now expects its acquisition of Rite Aid to close on Jan. 27, three months later than planned. Walgreens said in September it would likely have to divest between 500 and 1,000 stores to get regulatory clearance for the $9.4 billion deal.

Travelers was the top drag on the Dow, after the insurer posted a 22.8 percent drop in quarterly profit.

Union Pacific stock was down 6.7 percent after the company said weak demand for consumer goods had reduced the volume of its freight and coal shipments.

Canadian Pacific Railway reported another steep decline in revenue and lower-than-expected earnings on Wednesday as a delayed grain harvest and a slump in commodity prices hampered shipping volumes.

Earnings season always offers some entertaining justifications, and today it came from Dunkin Donuts. US same-store sales were higher than analysts had expected. However, revenue missed expectations. In response, Dunkin’ Brands CEO Nigel Travis cited several reasons for the weak performance, including “changes in gas prices, changes in food stamp regulations, and, of course, the overwhelming dampening effect of the presidential election.” Yeah, that’s it.

Of course the third and final presidential debate was last night and if you don’t think politics can affect business consider this. Within hours, dozens of sellers on Etsy had whipped up merchandise — T-shirts and buttons — bearing the slogans “nasty woman” and “bad hombres”; there is also a new perfume called “nasty woman” and Spotify reported that streams of Janet Jackson’s 1986 hit “Nasty” have increased 250%. Merriam Webster said “hombre” and “nasty” both topped its list of the most-searched words during the debate.