Financial Review

Quads

Sinclair Noe — July 19, 2017

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DOW + 66 = 21,640
SPX + 13 = 2473
NAS + 40 = 6385
RUT + 14 = 1441
10 Y + .01 = 2.27%
OIL + .69 = 47.09
GOLD – 1.00 = 1242.00
BITCOIN + 1.75% = 2334.63 USD
ETHEREUM – 2.36% = 209.06

The Dow Industrials, S&P 500, Nasdaq Composite and Russell 2000 all closed at record highs today. This is the first time all 4 indexes closed at a record high on the same day since March 1^st.

ETFs have seen net new inflows of $250 billion thus far this year, and more than half of that inflow has gone to just 20 ETFs, or about 1% of the ETF universe. The most popular ETF this year, in terms of flows, has been the iShares Core S&P 500 ETF (IVV), which has taken in $18.5 billion.

Two other iShares equity products—the iShares Core MSCI EAFE ETF (IEFA) a market-cap-weighted index of developed-market stocks in Europe, Australasia and the Far East, and excludes the US and Canada, and the iShares Core MSCI Emerging Markets ETF (IEMG), —rounded out the top three.

According to a Bank of America Merrill Lynch survey of 207 investors with a total of $586 billion under management, money managers are a net 20 percent underweight U.S. stocks. That’s despite the major averages setting new records on an almost weekly basis.

There are a few takeaways here, all supportive of equities. One is that the survey suggests there is lots of money that could be put to work in stocks. Another is that there aren’t a lot of natural sellers left, since anybody who wanted to sell has already done so. And finally, the most successful investors say that the time to buy is when everyone else is selling.

Investors will focus on quarterly earnings to see if high valuations are justified in the face of mixed economic data, tepid inflation and policy gridlock in Washington.

Analysts estimate an 8.7 percent rise in second-quarter earnings and a 4.6 percent increase in revenue for the S&P 500 companies from a year earlier. The S&P tech sector has been the best performing sector this year despite concerns about stretched valuations as investors look for growth sectors immune to policy uncertainties.

The exception is IBM, down 4.2 percent today to a one-year low after the company’s quarterly revenue came in below expectations – that’s 21 consecutive quarters of declining revenue for Big Blue. The stock was the biggest drag on the Dow and the S&P 500.

Wall Street has a new bond trading king. Morgan Stanley rose 2.1 percent after the Wall Street bank reported better-than-expected profit and bond trading revenue declines that were modest compared with arch-rival Goldman Sachs. Goldman was down 0.5 percent.

While revenue from fixed income fell during a quiet second quarter, Morgan Stanley still reported fixed income sales and trading revenue of $1.2 billion – and while that is down 4 percent from last year, it was better than the stunning 40 percent drop reported Tuesday by rival Goldman Sachs over the same period.

Morgan Stanley has bested Goldman in fixed income revenue for two quarters now, with $2.9 billion of fixed income trading revenue in the first half of the year versus Goldman’s $2.8 billion.

CSX fell 6.5 percent after the third-largest U.S. railroad operator’s forecast missed expectations. Other railroad companies such as Union Pacific fell 2 percent, while Kansas City Southern edged down 0.7 percent.

American Express’ profit fell less than expected in the second quarter, as higher spending by card members made up for increased costs from offering rewards. AmEx said card member spending was up 8 percent in the second quarter ended June 30. Revenue was flat and net income came in better than estimates. American Express dropped 1% in trading today.

T-Mobile beat revenue and profit estimates, and added more customers than expected in the most recent quarter. Shares gained 5%.

Vertex Pharmaceuticals jumped as much as 26 percent to an all-time high after the company reported positive results for its cystic fibrosis treatment. The stock was the biggest boost on the S&P and the Nasdaq.

Spices maker McCormick & Co has won the battle to buy Reckitt Benckiser’s North American food business, paying a higher than expected $4.2 billion. Reckitt said in April it was reviewing options for the unit, which includes French’s mustard and Frank’s RedHot sauce, to cut debt following its $16.6 billion purchase of baby formula maker Mead Johnson.

The Senate Republican plan to repeal and replace Obamacare could not muster enough support for a vote Monday. Yesterday, President Trump said he wanted to just repeal the Affordable Care Act, and come up with a replacement down the road. Today, the Congressional Budget Office released an estimate saying that just a repeal would result in 17 million more uninsured within a year, and 32 million more uninsured within 9 years.

Today, it is back to repeal and replace, and Trump wants the senators to stay in Washington until they get it done. Polling shows just 12% of Americans support the Senate healthcare bill.  Meanwhile, their counterparts in the House looked to reset matters with a fresh budget proposal.

The House Republicans’ spending plan aims to balance the federal budget within a decade, reducing the deficit by $6.5 trillion, partially by cutting billions of dollars from entitlement programs such as Medicare and Social Security. Like the proposal the White House released in May, the House proposal is a blueprint, not a bill set in stone. It also assumes the Senate health package will become law, an increasingly unlikely outcome.

But even if this budget is not passed as written, it puts House Republicans’ financial priorities on full display. The House budget proposes increasing the base national defense budget by $70 billion, from $551 billion in fiscal year 2017 to $621 billion in fiscal year 2018. That’s more than the $574 billion in base defense spending recently proposed by the White House.

Also included in the proposal is $75 billion to fight terrorism, as well as “significant funding” on resources for border security, which includes construction on a controversial border wall between the U.S. and Mexico.

The House budget proposes reducing spending on entitlement programs such as Medicare by $203 billion next year, instructing 11 House committees to find ways to reduce spending. These cuts would in part come from programs like Medicare, which could face $487 billion in cuts over the next decade, and Social Security, which faces $4 billion in cuts in that same time frame.

The proposal assumes that the Senate GOP health bill will become law, resulting in what the Congressional Budget Office estimates would be $834 billion in Medicaid cuts over the next decade.

The House proposal also recommends reducing funding for food stamp programs, noting that spending on such initiatives doubled between 2001 and the start of the financial crisis. Spending on the Supplemental Nutrition Assistance Program, or SNAP, increased from about $18 billion in 2001 to about $33 billion in 2009, according to the USDA.

The House proposal mandates that the chamber’s Ways and Means Committee pass a tax reform bill that does not increase the deficit, reduces overall tax rates and simplifies the tax code. The budget also stipulates that such a bill should repeal the alternative minimum tax and reduces the corporate tax rate. The budget instructs the committee to pass this reform through a process called reconciliation, which was primarily designed to pass budgetary laws.

This means that if a tax reform plan is passed by the House, it would only need majority support in the Senate, and won’t be subject to a filibuster. That gives the Senate’s Republican leadership additional wiggle room to pass the measure; with 52 Senators, the GOP can afford two defections.

However, the same strategy did not help avoid the internal party discord that derailed their efforts to repeal and replace the Affordable Care Act.

Supreme Court rejected parts of Trump’s travel ban. The three-sentence order by the justices,  widened the definition of which citizens from six mostly Muslim countries covered by the travel ban are still eligible to travel in the US. And that will include grandparents, cousins and other relatives of a person in the US.

The court plans to hear arguments on the travel ban on Oct. 10; the latest scuffle centered on the rules that will apply in the interim.

Crude closed above $47 a barrel for only the second time since early June as US inventories fell by 4.73 million barrels last week as measured by data from the Energy Information Administration. Gasoline supplies shrank 4.44 million barrels, the most since March.

Financial Review

Welcome Back

Sinclair Noe — July 5, 2017

Podcast: Play in new window | Download (Duration: 13:16 — 7.6MB)

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DOW – 1 = 21,478
SPX + 3 = 2432
NAS + 40 = 6150
RUT – 6 = 1420
10 Y – .01 = 2.33%
OIL – 1.46 = 45.61
GOLD + 3.50 = 1227.70
BITCOIN – 0.36% = 2619.68 USD
ETHEREUM – 2.87% = 266.25

Welcome back. A holiday shortened trading week kicked off today with FOMC minutes and will finish with a G20 meeting and the jobs report on Friday. Today, the Fed released minutes of its Federal Open Market Committee meeting from June 13-14.

We know the Fed raised its fed funds target rate for a second time this year to a range of 1 percent to 1.25 percent, while describing monetary policy as “accommodative” in their statement. They reiterated their support for continued gradual rate increases. Beyond that, the Fed was divided on the timing of when to begin shrinking its massive balance sheet.

Fed officials updated their balance-sheet policy in the gathering, laying out a path of gradual reductions with caps. The central bank wants to start winding down the $4.5 trillion bond portfolio without roiling longer-term interest rates, while gradually raising the policy rate. The minutes indicated that the committee wants to begin the balance-sheet process this year, maybe within a couple of months – without naming an exact date.

The Fed said in June it would runoff maturing principal payments on Treasuries initially at $6 billion per month, increasing by $6 billion every three months over 12 months, until it reaches $30 billion. For agency and mortgage-backed securities debt, the cap starts at $4 billion, and rises by $4 billion every three months until it hits a $20 billion a month.

The minutes said, “several participants endorsed a policy approach” where the labor market would undershoot their estimate of full employment “for a sustained period.” Meanwhile, several other participants “expressed concern that a substantial and sustained unemployment undershooting might make the economy more likely to experience financial instability or could lead to a sharp rise in inflation.”

Financial conditions were also debated at the meeting, with some participants arguing that “increased risk tolerance” among investors could be lifting asset prices. A few others expressed concern that “subdued market volatility” could lead to financial stability risks.

The minutes showed Washington political gridlock is also starting to creep into the outlook of the Fed’s business contacts. “Some large firms indicated that they had curtailed their capital spending, in part because of uncertainty about changes in fiscal and other government policies.”

Factory orders sank 0.8% in May following a smaller decline in April. Factory orders were up 4.8 percent from a year ago. Activity is slowing against the backdrop of a moderation in oil prices and declining motor vehicle sales. Motor vehicle manufacturers reported on Monday that auto sales fell in June for a fourth straight month, leading to a further increase in inventories, which could weigh on vehicle production.

Nationally, home prices rose 6.6% compared to a year ago, according to a home price index from data provider CoreLogic. Prices rose 1.2% from April to May. Arizona posted 6.1% price growth over the past year, and 0.8% from April to May. The cost of rent is growing much faster than inflation – and wages.

Overall single-family rents rose 3.1% for the year in May, while rental costs in the affordable single-family rental segment of the market, which includes properties with rents less than 75% of the regional median, grew 4.7%. Wages rose 2.5% in May compared to a year ago.

Two weeks ago, crude oil slipped into a bear market, then it rallied. Today, oil prices fell sharply, ending the longest winning streak this year, as Russia was said to oppose any proposal to deepen OPEC-led production cuts. They will stick with current production limits but they won’t go for additional output cuts.

After the close, the American Petroleum Institute reported Wednesday a much larger-than-expected drop of 5.8 million barrels in U.S. crude supplies for the week ended June 30. Supply data from the Energy Information Administration will be released Thursday morning.

The death of the internal combustion engine might be just down the road. Volvo will become the first major car manufacturer to go all electric, with the Swedish company saying that every new car in its range will have an electric power train available from 2019.

The company said the announcement marks “the historic end” of cars solely powered by petrol or diesel and “places electrification at the core of its future business”. Volvo – which is owned by China’s Geely – will launch five fully electric cars across its range between 2019 and 2021.

Two of these new cars will be in the company’s Polestar high performance sub-brand, which is being revived. The rest of the company’s range will be available with “plug-in hybrid” power trains and 48-volt “mild hybrid” systems, which give an extra “kick” to the acceleration of normally powered cars.

Meanwhile, other countries are pushing forward with legislation to reduce greenhouse gas emissions that will impact car manufacturing: Germany recently mandated that all vehicles sold in the country must have zero emissions by 2030, effectively outlawing sales on solely gas-powered vehicles; Sweden is aiming to have net-zero emissions of greenhouse gases by 2045; and the EU is tightening the restrictions on how much carbon dioxide vehicles can emit by 2021.

By starting the move to a fully electrified catalogue of offerings now, Volvo is ensuring it can continue to sell its vehicles in some of the largest car-buying markets soon.

Volvo’s announcement comes in the same week that Tesla announced its low-cost Model 3 electric car will go sale. The latest Tesla car – priced at around $35,000 – is aimed at bringing electric cars to the mass market, rather than being the preserve of early adopters of technology or those with deep pockets.

Tesla reports deliveries are flat-lining. Tesla reported quarter-by-quarter shipment declines for the second time in the past year. After the market closed on Monday, the company reported more than 22,000 vehicle deliveries in the second quarter. In addition to stoking fear about whether demand has peaked, these figures cast doubt on whether Tesla can pull off a steep production ramp for the cheaper Model 3 sedan.

The Tesla investment thesis hinges on the success of Model 3, and the ability for the company to ramp production, make the car profitably and deliver good initial build quality. Tesla plunged as much as 6.1 percent today to $331, the steepest intraday decline since May 4.

O’Reilly’s stock plunged $41.64, or 18.9%, to suffer the biggest one-day price and percentage decline since it went public in April 1993. Volume ballooned to 12.8 million shares in recent trade, which was nine times the full-day average. The auto parts retailer said second-quarter same-store sales rose 1.7% from a year, well short of its guidance of 3% to 5% growth.

O’Reilly said the disappointing sales results, in the wake of a slowdown during the final two months of the quarter, will have a “consequent impact” on profitability. There seem to be 2 long term trends at play here; first, brick and mortar retailers are struggling almost across the board; second, auto sales have been extremely strong the past 3 years – meaning people have been buying new rather than repairing.

US credit card processor Vantiv agreed to buy Britain’s Worldpay for about $10 billion. Payments companies have become targets for credit card companies and banks seeking to capitalize on a switch from cash transactions to paying by smartphone or other mobile devices.

Tech stocks moved higher today, breaking a 4-day slump. A funny thing happened while we were celebrating the Fourth. A computer glitch sent shares in dozens of US technology companies including Apple, Amazon and Microsoft to the same price, leading some to apparently lose billions in market value.

The bug showed many stocks on the Nasdaq exchange to briefly be reported as $123.47 on Bloomberg, Reuters and Google Finance data. It was triggered after financial information providers wrongly interpreted a Nasdaq data test as live prices, leading to brief pandemonium on trading floors.

Amazon’s shares were shown falling from almost $950, a drop of 87 per cent, Google owner Alphabet’s fell by 86 per cent and Apple fell by 14.3 per cent. Other companies that have share prices well below $123.47 saw them briefly rocket. Microsoft shares jumped almost 80 per cent, giving the company a valuation of more than $1 trillion and gaming company Zynga rose by more than 3,000 per cent.

The glitch occurred in after-hours trading after the Nasdaq had closed early ahead of the July 4 holiday and led several stocks to be halted. The Nasdaq stock exchange says the glitch stemmed from a routine daily data test that was moved up by several hours because trading closed early on July 3.

Erroneous prices apparently based on test data showed up on Bloomberg terminals used by professional traders, as well as on websites like Google used by non-pros. The root of the error can probably be found somewhere along the chain between Nasdaq and a small number of third-party vendors who distribute market data. Perhaps someone failed to heed a notice of the early data test, or didn’t receive it in the first place.

So far, it doesn’t seem like anyone lost much—if any—money, so the main harm is reputational. But it is increasingly a fact of modern life that mundane, simple human errors now have the potential to spiral rapidly and cause problems for people all over the world.

It also reveals the vulnerability of an interconnected world. If someone really wants to do serious harm, a glitch that could not be easily undone might shake financial institutions to their core.

Financial Review

Cats and Dogs

Sinclair Noe — May 25, 2017

Podcast: Play in new window | Download (Duration: 13:16 — 7.6MB)

DOW + 70 = 21,082
SPX + 10 = 2415
NAS + 42 = 6205
RUT + 0.88 = 1383
10 Y – .01 = 2.25%
OIL – 2.50 = 48.82
GOLD – 3.20 = 1256.40
BITCOIN + .29% = 2483.51
ETHEREUM - 8.01% = 174.63

The S&P 500 and Nasdaq hit record closing highs. The surprising part is that retail led the charge.

Best Buy beat profit expectations, reported a surprise increase same-store sales and provided an upbeat outlook. The net profit for the quarter dropped to $188 million, or 60 cents a share, from $229 million, or 70 cents a share, in the same period a year ago. Still they blasted through analyst estimates.

Best Buy shares jumped 22% today.

Tommy Hilfiger owner PVH was the second-biggest S&P gainer with a 4.8-percent jump to a near 6-month high on strong results.

Dollar Tree reported earnings that matched estimates. Sales rose 4%, while same-store sales rose 0.5%.

Sears posted a quarterly loss on an adjusted basis. Revenue dropped. Same-store sales fell 11.2% in the quarter. But Sears recently announced cost cutting measures and they still have cash on hand for operations.

Today, shares popped 12%.

The trade gap in goods—services are excluded—widened to $67.6 billion in April from $65.1 billion in March, the government said in its advanced report. The full report will be released on June 2. Exports of goods fell in April, while imports expanded; that means the trade gap will likely cut into second quarter gross domestic product.

There had been hope for a big bounce back in the second quarter to make up for extremely sluggish first quarter growth of 0.7 percent, which had been blamed on temporary factors like weather.

Housing data this week was also disappointing when new home sales fell 11.4 percent and existing home sales fell by 2.3 percent in April.

Initial jobless claims rose by 1,000 to 234,000 in the seven days stretching from May 14 to May 20. That’s just a few notches above the post-recession low set in February, and near the lowest level since April 1973.

The U.S. economy has been churning out new jobs at a rapid pace since 2011, pulling the unemployment rate down to 4.4% and eliciting widespread complaints from businesses that they cannot find enough skilled workers to fill open positions, although not enough to push wages significantly higher.

OPEC agreed to extend oil production cuts for another 9 months, as expected. Oil traders were not impressed, maybe even disappointed cuts weren’t extended for 12 months. Production cuts have bolstered prices in the past, at least for a while, and then the euphoria fades – it just seemed to fade real fast today.

Of course, there is more at play. The biggest beneficiary of price cuts might be the US shale producers, who are expected to increase their output by about 900,000 barrels a day this year, soaking up much of OPEC’s production cuts.

Short-term projections call for a draw down in storage tanks in the coming weeks as the summer driving season gets underway, but the oil glut is likely to continue absent a big increase in demand – and the long-term outlook for demand faces headwinds from improved efficiency and conservation.

And a move to more electric engines.

There is a definite move away from diesel. The whole idea of clean diesel is being shot down in lawsuit after lawsuit. It started with Volkswagen cheating on diesel emissions; then Mercedes, Peugeot, Renault, and Fiat Chrysler. Add GM to the list.

GM is accused in a lawsuit of rigging hundreds of thousands of diesel trucks with devices like those used by Volkswagen AG, to ensure they pass emissions tests. The proposed class-action lawsuit covers people who own or lease more than 705,000 Chevrolet Silverado and GMC Sierra pickups fitted with “Duramax” engines from the 2011 to 2016 model years.

It said GM used at least three “defeat devices” to ensure that the trucks met federal and state emission standards, even if they generated more pollution in real-world driving. The complaint was filed in the federal court in Detroit.

In a 10-to-3 decision, a federal appeals court affirmed the freeze on the second iteration of President Trump’s executive order on immigration from six majority Muslim countries. The court said that national security “is not the true reason” for the order, despite Trump’s insistence to the contrary, saying it “drips with religious intolerance, animus and discrimination.”

Writing for the majority, Chief Judge Roger Gregory said Mr. Trump’s statements on the campaign trail concerning Muslims showed that the revised order was the product of religious hostility. Such discrimination, he wrote, violates the First Amendment’s ban on government establishment of religion.

Trump issued his initial order on Jan. 27, a week into his presidency. Less than two weeks later, the Court of Appeals for the Ninth Circuit affirmed an order halting it. Though Trump vowed to fight the ruling, he did not appeal to the Supreme Court. Instead, he issued a revised executive order. Now that it has been struck down, he is again faced with the choice of whether to appeal to the Supreme Court.

President Trump was in Brussels for a NATO meeting and he intensified his accusations that NATO allies were not spending enough on defense and warned of more attacks like this week’s Manchester bombing unless the alliance did more to stop militants.

In unexpectedly abrupt remarks as NATO leaders stood alongside him, Trump said certain member countries owed “massive amounts of money” to the United States and NATO — even though allied contributions are voluntary, with multiple budgets.

His scripted comments contrasted with NATO’s choreographed efforts to play up the West’s unity by inviting Trump to unveil a memorial to the Sept. 11, 2001, attacks on the United States at the new NATO headquarters building in Brussels.

Now, two of Germany’s leading newspapers are reporting that in a meeting with the EU’s top leadership he insulted Germany, calling the Germans “bad, very bad” for their running a trade surplus with the US and threatening to cut off car imports to the US.

The European Union said it doesn’t share a common position with Trump on Russia, while differences remain in key policy areas, including climate change and trade, adding to signs of strain in the world’s closest political and economic alliance.

Senate Republicans are weighing a two-step process to replace Obamacare that would postpone a repeal until 2020, as they seek to draft a more modest version than a House plan that the nonpartisan Congressional Budget Office analysts said would undermine some insurance markets.

Republicans say they may first act to stabilize premium costs in Obamacare’s insurance-purchasing exchanges in 2018 and 2019. Major insurers have said they will leave the individual market in several states. A Senate plan is likely to continue subsidies that help low-income Americans with co-pays and deductibles.

The Congressional Budget Office said Wednesday that the House plan narrowly passed May 4 would result in 23 million more people without insurance and, in some states, plans that are too costly for older or sicker people. A Quinnipiac University national poll released today said Americans voters disapprove of the House measure by 57 to 20 percent.

Nvidia has enjoyed a particularly charmed existence since November 8. The graphics-chip maker’s stock price has exploded 95% higher since then, the biggest gain in the S&P 500 by almost 30 percentage points.

On one hand, the company has been targeted by large speculators as a stock likely to decline, as reflected by the roughly $3 billion in short positions held by hedge funds. But it’s also one of the favorite stocks for millennial investors. And while share prices across the technology industry have soared since the election, Nvidia has even more going for it than strength by association and the adoration of millennials

On Wednesday, SoftBank announced a $4 billion stake in the company, sending shares climbing even higher. In the grand scheme of things, this discrepancy between large institutions and individual investors is nothing new to the stock market. Some people get drawn in by the hype and the prospect of a quick profit, while others get worried that valuations are overextended.

The United States can expect an Atlantic hurricane season with more than the usual number of storms. The season, which begins June 1 and runs to Nov. 30, is likely to produce 11 to 17 named storms.

Experts at the National Oceanic and Atmospheric Administration say as many as nine of those could become hurricanes, with winds of 74 miles per hour or higher, and as many as four could be major hurricanes with winds of 111 m.p.h. or greater, also known as Category 3 or higher.

In an average season, 12 named storms develop, and three of them become major hurricanes. The agency said there was only a 20 percent chance of a below-normal season this year. In 2016, NOAA forecast 10 to 16 named storms; fifteen storms developed, including four hurricanes of Category 3 or higher.

Phoenix is the nation’s fifth largest city. Estimates released today by the U.S. Census Bureau show Phoenix last July surpassed Philadelphia, its closest population rival, for the first time after losing the title in 2010.  The 2016 data puts Phoenix’s total population at 1,615,017.

The average 88 people per day the city added between July 1, 2015 and July 1, 2016 gives Phoenix another national distinction: It’s the fastest-growing city in the country, based on numeric increase. Phoenix isn’t the only place growing in Arizona. Maricopa County has the nation’s highest annual population increase among counties, according to recent census statistics.

Drama in D.C. Takes Toll on Stocks

Charles Schwab: On the Market

Posted: 5/17/2017 4:15 PM ET

Drama in D.C. Takes Toll on Stocks

The drama surrounding Washington has finally caught up to the U.S. equity markets, as the political turmoil pressured stocks in a spike of volatility. Treasuries were sharply higher amid the uncertainty and gold prices soared, while crude oil prices gained ground after the sixth-straight weekly drop in government oil inventories, and the U.S. dollar was modestly lower. News on the equity front was a mixed bag, highlighted by Target's quarterly results and the continued legal wrestling match between Apple and Qualcomm.

The Dow Jones Industrial Average (DJIA) tumbled 373 points (1.8%) to 20,607, the S&P 500 Index lost 43 points (1.8%) to 2,357, and the Nasdaq Composite plunged 159 points (2.5%) to 6,011. In heavy volume, 991 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.41 to $49.07 per barrel and wholesale gasoline was unchanged at $1.60 per gallon. Elsewhere, the Bloomberg gold spot price jumped $22.99 higher to $1,260.23 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 97.51.

Target Corp. (TGT $55) reported Q1 earnings-per-share (EPS) of $1.22, or $1.21 ex-items, versus the $0.91 FactSet estimate, as revenues declined 1.1% year-over-year (y/y) to $16.0 billion, compared to the projected $15.7 billion. Q1 same-store sales declined 1.3% y/y, compared to the forecasted 3.7% decrease. TGT issued Q2 EPS guidance that had a midpoint above expectations, while reaffirming its full-year same-store sales outlook and noting that its better-than-expected Q1 performance raises the probability that its current year profits will be above the midpoint of its prior forecast. Shares were nicely higher.

The legal battel between Dow member Apple Inc. (AAPL $150) and Qualcomm Inc. (QCOM $55) is escalating after Qualcomm announced that it is filing a breach of contract complaint against the manufacturers of Apple's iPhone and iPad for refusing to pay for use of its licensed technologies. The complaint comes as Qualcomm said the manufacturers now are refusing to pay royalties on the Apple products they produce, saying that they must follow Apple's instructions not to pay. The four manufacturers are Hon Hai Precision Industry Co. Ltd. (HNHPF $7), also known as Foxconn, Pegatron Corp., Wistron Corp., and Compal Electronics Inc. AAPL and QCOM were lower.

Urban Outfitters Inc. (URBN $20) was lower after posting Q1 EPS of $0.10, below the projected $0.16, as revenues were flat y/y at $761 million, south of the expected $770 million. Q1 same-store sales declined 3.1% y/y, versus the forecasted 2.3% decrease.

Advanced Micro Devices Inc. (AMD $11) gave back some of yesterday's rally that came courtesy of unconfirmed reports that the company has a licensing deal for its graphic chips with Dow member Intel Corp. (INTC $35). Analysts are expressing skepticism regarding the deal and are digesting the company's long-term forecasts delivered at yesterday's investor day.

Mortgage applications drop

The MBA Mortgage Application Index fell 4.1% last week, following the previous week's 2.4% gain. The drop came as a 5.7% decrease for the Refinance Index was met with a 2.7% decline for the Purchase Index. The average 30-year mortgage rate remained at 4.23%.

Treasuries finished noticeably higher, as the yield on the 2-year note declined 6 basis points (bps) to 1.24%, the yield on the 10-year note fell 11 bps to 2.22%, and the 30-year bond rate dropped 10 bps to 2.90%. 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.

For a look at the action in the stock markets, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, Is The Stock Market Just Quiet Or Is It Too Quiet? on the Markets & Economy page at www.schwab.com, where you can also find Schwab's Chief Investment Strategist Liz Ann Sonders' article, Strange Brew: Heightened Uncertainties, Yet Plunging Volatility…What Gives? Follow Jeff and Liz Ann on Twitter: @jeffreykleintop and @lizannsonders.

The domestic economic calendar will close out the week tomorrow with the release of weekly initial jobless claims, forecasted to tick higher to a level of 240,000 from the prior week's 236,000, as well as the Philly Fed Manufacturing Index, expected to move slightly lower to 18.5 for May from the 20.0 posted in April, with a number above zero indicating expansion in activity. Rounding out the day will be the Index of Leading Economic Indicators (LEI), with economists anticipating a 0.4% m/m rise in April, matching that seen in March.

Europe and Asia lower as U.S. political concerns fester

European equities finished broadly lower, with the euro and British pound gaining ground amid the continued drop in the U.S. dollar as the global markets grappled with heightened political risk concerns in the U.S. In economic news, eurozone core consumer price inflation was unrevised at a 1.2% y/y increase, as expected, and the region's construction output declined, while the U.K. employment change rose much more than expected. Bond yields in the region moved lower. The heightened political uncertainty in the U.S. comes as elections loom in the U.K., Germany and Italy, while Brexit negotiations continue. 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?.

Stocks in Asia finished mostly lower following some mixed earnings and economic data, while exacerbated political uncertainty in the U.S. dampened sentiment. Japanese equities declined, with the yen gaining ground as the U.S. dollar continued to fall, while reports showed the nation's machine orders—a gauge of capital spending—rose at a smaller amount than expected and industrial production declined for March. Mainland Chinese stocks and those traded in Hong Kong fell, with recent optimism regarding increased infrastructure spending by the government fading, and concerns about heightened regulatory crackdowns and recent soft economic data lingering.

Markets in Australia tumbled, as strength in basic materials was more than offset by weakness in technology and financials, while a report showed consumer confidence in the nation declined. Finally, South Korean securities dipped, while listings in India bucked the trend to finish higher, bolstered by some upbeat earnings reports in the nation. For our latest analysis of the global markets and elevated geopolitical concerns, see Schwab's Director of International Research, Michelle Gibley's CFA, article, Different Drivers: Why Emerging Market Stocks Aren't All the Same on the Insights & Ideas page at www.schwab.com, as well as Schwab's Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com.

Tomorrow's international economic calendar will include employment data from Australia, GDP from Japan, and retail sales from the U.K.

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 Mixed, but Mostly Lower

Charles Schwab: On the Market

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

Stocks Mixed, but Mostly Lower

U.S. stocks closed the regular trading session mixed as more disappointing retail earnings reports coupled with a lower-than-expected advance read for April retail sales to hamper the consumer discretionary sector. Financials led the laggards as Treasury yields dropped on the heels of a cooler-than-expected inflation report; however, tech issues outperformed their peers to deliver a positive finish to the Nasdaq. The U.S. dollar was lower and crude oil prices were mostly unchanged, while gold managed minor gains.

The Dow Jones Industrial Average (DJIA) declined 23 points (0.1%) to 20,897, the S&P 500 Index ticked 4 points (0.1%) lower to 2,391, and the Nasdaq Composite increased 5 points (0.1%) to 6,121. In moderate volume, 776 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.01 to $47.84 per barrel and wholesale gasoline added $0.02 to $1.58 per gallon. Elsewhere, the Bloomberg gold spot price moved $2.79 higher to $1,227.84 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 99.22. Markets were mixed for the week, as the DJIA declined 0.5%, the S&P 500 Index lost 0.4%, and the Nasdaq Composite increased 0.3%.

J.C. Penney Co. Inc. (JCP $5) reported a Q1 loss of $0.58 per share, or a profit of $0.06 per share ex-items, compared to FactSet's estimate of a $0.21 per share shortfall, as revenues declined 3.6% year-over-year (y/y) to $2.7 billion, below the projected $2.8 billion. Q1 same-store sales declined 3.5% y/y, versus the expected 0.7% decrease. The company noted that February was "very challenging," but it was pleased with its same-store sales for the combined March and April period, which improved significantly versus February. JCP reaffirmed its full-year guidance. Shares traded solidly lower.

Nordstrom Inc. (JWN $41) posted Q1 earnings of $0.37 per share, including several items that may be impacting comparability to the estimated profit of $0.28 per share, with revenues increasing 2.7% y/y to $3.3 billion, roughly in line with forecasts. Q1 same-store sales decreased 0.8% y/y, compared to the expected 0.6% decline. JWN reaffirmed its full-year guidance. Shares were under heavy pressure.

Retail sales and consumer price inflation slightly miss forecasts

Advance retail sales (chart) for April rose 0.4% month-over-month (m/m), below the Bloomberg forecast of a 0.6% gain, and compared to March's upwardly revised 0.1% gain. Also, last month's sales ex-autos were up by 0.3% m/m, south of expectations of a 0.5% gain, and following the positive revision to a 0.3% rise from the flat reading seen in the previous month. Sales ex-autos and gas were higher by 0.3% m/m, missing estimates of a 0.4% rise, and versus March's favorably revised 0.4% gain. The retail sales control group, a figure used to help calculate GDP, rose 0.2%, compared to the projected 0.4% rise, and the prior month's figure was revised higher to a 0.7% increase from the previously reported 0.5% increase.

Sales of building materials, electronics & appliances, and autos were higher for the month, while furniture, food & beverage, clothing and general merchandise sales declined. The bright spot was nonstore retail sales—which include online activity—as they rose 1.4% m/m and jumped 11.9% y/y. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, discusses in his article, Consumer Discretionary Sector Rating: Marketperform, that the status of the U.S. consumer looks to us to be quite solid and is showing signs of improving, but the performance of the discretionary sector doesn't always mirror the health of the consumer environment. Brad cites a shift in the spending mix, with online sales rising while traditional department store sales have been relatively tepid. Also, consumers seem to be somewhat reticent to spend on traditional retail items and underemployment is still a concern. Read more on the Markets & Economy page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

The Consumer Price Index (CPI) (chart) was up 0.2% m/m in April, in line with estimates, while March's 0.3% decrease was unrevised. The core rate, which strips out food and energy, rose 0.1% m/m, below expectations of a 0.2% increase and compared to March's unrevised 0.1% dip. Y/Y, prices were 2.2% higher for the headline rate, south of forecasts of a 2.3% rise, while the core rate was up 1.9%, below projections of a 2.0% gain. March y/y figures showed an unrevised 2.4% rise and an unadjusted 2.0% increase for the headline and core rates respectively.

The preliminary University of Michigan Consumer Sentiment Index (chart) surprisingly improved this month to 97.7, from the prior month's 97.0 level, where it was expected to remain. The current economic conditions component was unchanged m/m, while the outlook portion improved. The 1-year inflation forecast ticked higher to 2.6% from 2.5%, while the 5-10 year inflation outlook dipped to 2.3% from 2.4%.

Business inventories (chart) rose 0.2% m/m in March, matching forecasts, and versus February's downwardly revised 0.2% increase.

Treasuries traded nicely higher following the data, with the yield on the 2-year note declining 5 basis points (bps) to 1.29%, the yield on the 10-year note falling 6 bps to 2.33%, and the 30-year bond rate decreasing 3 bps 2.99%.

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.

Schwab's Chief Investment Strategist Liz Ann Sonders offers a look at the low volatility market action as of late in her article, Strange Brew: Heightened Uncertainties, Yet Plunging Volatility…What Gives? on the Markets & Economy page at www.schwab.com. Liz Ann notes that volatility has been plumbing historical depths, but it may not be reflecting investor complacency, while the Fed's plans for its balance sheet, more than rate hikes, could bring on spikes in volatility. Follow Liz Ann on Twitter: @lizannsonders.

Finally, with political uncertainty festering, exacerbated by this week's ousting of FBI Director James Comey, 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 higher following earnings and economic data, Asia mixed to close out the week

European equities mostly nudged to the upside, with the markets digesting some mixed earnings reports on both sides of the pond, along with a plethora of economic data. Germany reported Q1 GDP growth of 0.6% quarter-over-quarter, matching forecasts and a slight acceleration from the 0.4% expansion posted in Q4. France reported stronger-than-expected Q1 wages and nonfarm payroll growth, while eurozone industrial production unexpectedly dipped in March. The euro gained ground on the U.S. dollar, while the British pound modestly extended yesterday's decline that came in the wake of the Bank of England's expected unchanged monetary policy decision. Bond yields in the region were mostly lower. Political uncertainties remained in focus, amid Brexit negotiations, and ahead of elections in the U.K., Germany and Italy later this year. Schwab's Jeffrey Kleintop, CFA, and Randy Frederick offer analysis in the 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?.

Stocks in Asia finished mixed on the heels of the lackluster session in the U.S. yesterday as retail sector earnings reports disappointed, while the yen rebounded somewhat to weigh on Japanese markets, with some mixed earnings reports stymieing sentiment. Australian securities traded lower, South Korean shares decreased and Indian listings moved to the downside. However, Chinese stocks recovered from recent selling pressure that has come courtesy of softer-than-expected economic data and festering concerns about regulatory crackdowns. After the closing bell, China reported stronger-than-expected new yuan loans and aggregate financing—a gauge of total credit issued—for April, while Hong Kong's Q1 GDP growth topped forecasts with a 4.3% rate of expansion. For our latest analysis of the global markets, see Schwab's Director of International Research, Michelle Gibley's CFA, article, Different Drivers: Why Emerging Market Stocks Aren't All the Same on the Insights & Ideas page at www.schwab.com, as well as Schwab's Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com.

Stocks mixed as retail data and politics hamper conviction

Stocks followed up a three-week winning streak with divergent performance as a waning earnings season provided a downside catalyst, while global conviction remained constrained by festering political uncertainty. Q1 earnings season is wrapping up with the retail sector putting on the final stamp, though disappointing sales results from Macy's Inc. (M $24) and Kohl's Corp. (KSS $36) fostered concerns, while Dow member Walt Disney Co's (DIS $110) results showed continued struggles at ESPN to exacerbate uneasiness toward the traditional media industry. However, of the 452 companies that have reported Q1 results, about 64% have exceeded sales forecasts and 78% have topped earnings estimates, per data compiled by Bloomberg. Global political uncertainty remained as elections loom in Europe and as U.S. President Trump's abrupt firing of FBI Director Comey appeared to cause concerns to flare up about the timing and possibility of promised business-friendly policy implementation.

Chinese economic data continued to pare global economic optimism and facilitate continued volatility in the commodity sector. However, technology issues continued to rally and crude oil prices rebounded to help lift the energy sector. For analysis of the tech and energy sectors, see Schwab's Brad Sorensen's, CFA, latest Schwab Sector Views: Is Energy an Opportunity or a Trap? on the Markets & Economy page at www.schwab.com. Treasury yields reversed to the downside late in the week on Friday's softer-than-expected inflation and retail sales reports, causing financials to extend weekly losses. The U.S. dollar ticked higher as June Fed rate hike expectations remained elevated.

Next week's economic calendar will bring a plethora of data giving us a look at activity after the soft patch in Q1, with a focus on the housing sector in the form of the May NAHB Housing Market Index and April housing starts and building permits. Also, the week will end with April Leading Indicators, which will be preceded by last month's industrial production and capacity utilization report.

As noted in the latest Schwab Market Perspective: Sell in May…or Settle In?, U.S. stocks are again trading near record highs and despite entering a traditionally soft seasonal time of the year, the investing landscape remains healthy. Economic data has improved since the seasonally-weak first quarter; on track for a June rate hike by the Fed (and at least one more after that this year). Meanwhile, earnings season has bested even elevated expectations and the fiscal stimulus remains on the horizon to the cheers of business leaders. Chinese economic indicators are showing signs of slowing, which could lead to a near-term retrenchment in emerging market equities. Read more on the Markets & Economy page at www.schwab.com.

International reports due out next week include: Australia—employment change. China—retail sales, fixed asset investment, industrial production and property prices. India—trade balance. Japan—machine orders and Q1 GDP. Eurozone—new car registrations, trade balance, Q1 GDP and consumer price inflation, along with German investor confidence. U.K.—inflation statistics, employment change and retail sales.

Stocks Cut Prices on Disappointing Retail Earnings

Charles Schwab: On the Market

Posted: 5/11/2017 4:15 PM ET

Stocks Cut Prices on Disappointing Retail Earnings

U.S. stocks finished the regular trading session well-off the lows, but still in the red as early morning pressure mounted on the heels of some disappointing earnings figures, which weighed on the retail sector, ahead of some key consumer reports expected tomorrow. Treasuries gained ground and the U.S. dollar was flat despite a hotter-than-expected wholesale inflation report, while gold and crude oil prices were higher. In central bank action, the Bank of England kept its monetary stance unchanged as expected.

The Dow Jones Industrial Average (DJIA) declined 24 points (0.1%) to 20,920, the S&P 500 Index ticked 5 points (0.2%) lower to 2,394, and the Nasdaq Composite decreased 13 points (0.2%) to 6,116. In moderately-heavy volume, 863 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.50 to $47.83 per barrel and wholesale gasoline added $0.02 to $1.56 per gallon. Elsewhere, the Bloomberg gold spot price moved $6.64 higher to $1,225.59 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 99.64.

Macy's Inc. (M $24) reported Q1 earnings-per-share (EPS) of $0.23, or $0.24 ex-items, compared to the $0.36 FactSet estimate, as revenues dropped 7.5% year-over-year (y/y) to $5.3 billion, below the projected $5.5 billion. Q1 same-store sales fell 5.2% y/y, versus the expected 2.7% decline. M reaffirmed its full-year guidance. Shares closed sharply lower.

Kohl's Corp. (KSS $37) posted Q1 profits of $0.39 per share, versus the forecasted $0.29, as revenues were 3.2% lower y/y at $3.8 billion, below the projected $3.9 billion. Quarterly same-store sales decreased 2.7% y/y, compared to the estimated 1.2% decline. KSS was solidly lower.

Whole Foods Market Inc. (WFM $37) announced fiscal Q2 EPS of $0.31, or $0.37 ex-items, versus estimates of $0.37, with revenues rising 1.1% y/y to $3.7 billion, roughly in line with expectations. Q2 same-store sales declined 2.8% y/y, compared to the forecasted 3.0% decrease. WFM lowered its full-year EPS and revenue outlooks, while announcing a 29% increase of its quarterly dividend to $0.18 per share, and a new $1.25 billion share repurchase program. WFM also announced changes, including additions, to its Board, as well as the appointment of a new Chief Financial Officer. WFM traded higher.

Symantec Corp. (SYMC $31) reported a fiscal Q4 loss of $0.23 per share, or earnings of $0.28 ex-items, compared to the projected $0.28, as revenues rose 35.0% y/y to $1.2 billion, roughly in line with expectations. The company's Q1 and full-year revenue guidance came in below forecasts, while its EPS outlooks for the periods were mixed. SYMC finished lower.

Verizon Communications Inc. (VZ $46) announced that it signed an agreement to acquire Straight Path Communications Inc. (STRP $178) for $184.00 per share, or a total consideration of approximately $3.1 billion in an all-stock transaction. The agreement terminates STRP's previously announced deal to be acquired by AT&T Inc. (T $38). Shares of STRP were sharply lower, though they have nearly doubled AT&T's initial takeover proposal of $95.63 per share, while VZ and T were little changed.

Producer price inflation tops forecasts, jobless claims surprisingly decline

The Producer Price Index (PPI) (chart) showed prices at the wholesale level in April rose 0.5% month-over-month (m/m), versus Bloomberg's expectation of a 0.2% gain and compared to March's unrevised 0.1% dip. The core rate, which excludes food and energy, was up 0.4%, versus forecasts of a 0.2% advance and March's unrevised flat reading. Y/Y, the headline rate was 2.5% higher, above projections of a 2.2% increase, and the core PPI increased 1.9% last month, above of estimates of a 1.6% gain. In March, producer prices were 2.3% higher and up 1.6% for the headline and core rates, respectively.

Weekly initial jobless claims (chart) declined by 2,000 to 236,000 last week, below forecasts of 245,000, with the prior week’s figure unrevised at 238,000. The four-week moving average rose by 500 to 243,500, while continuing claims fell by 61,000 to 1,918,000, south of estimates of 1,980,000.

Today's disappointing earnings reports and hotter-than-expected inflation reading set the stage for tomorrow's economic calendar, which will bring key reads on consumer spending, sentiment and purchasing power. April retail sales are projected to rise 0.6% m/m, after March's 0.2% decline, and excluding autos, sales are forecasted to grow 0.5% after the prior month's flat reading. Stripping out autos and gas, sales are expected to increase 0.4% on the heels of the 0.1% gain in March.

As noted in our recent article, Is the Retail Sector Really Dying?, the retailing sector will likely face more turmoil as a trimmed down and modernized industry reinvents itself. We don't think investors should totally shun the sector as the gloom hanging over the group may be obscuring some potential bright spots. Read more on the Insights & Ideas page at www.schwab.com and follow Schwab on Twitter: @schwabresearch. For a look at the potential of the sector, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest look at our Consumer Discretionary Sector Rating: Marketperform, on the Markets & Economy page at www.schwab.com.

Also, this month's preliminary University of Michigan's Consumer Sentiment Index is anticipated to remain at April's 97.0 level and the Consumer Price Index (CPI) and core CPI are both estimated to be up 0.2% m/m in April, after falling 0.3% and 0.1% in March, respectively. The headline figure is expected to dip to a gain of 2.3% y/y from 2.4% and the core rate is projected to remain at a 2.0% increase. Business inventories for March will round out the day and are expected to have ticked 0.1% higher after rising 0.3% in February.

Treasuries finished higher, with the yields on the 2-year and 10-year notes declining 2 basis points (bps) to 1.34% and 2.39%, respectively, while the 30-year bond rate dipped 1 bp to 3.03%.

For analysis of the bond markets, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, as well as Schwab's Vice President of Trading and Derivatives, Randy Frederick's and Chief Fixed Income Strategist, Kathy Jones' 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.

Schwab's Chief Investment Strategist Liz Ann Sonders offers a look at the low volatility market action as of late in her article, Strange Brew: Heightened Uncertainties, Yet Plunging Volatility…What Gives? on the Markets & Economy page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

Finally, with political uncertainty festering, exacerbated by this week's ousting of FBI Director James Comey, 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 lower on data, Asia mostly higher

European equities finished lower, with the markets digesting a plethora of mixed earnings reports on both sides of the pond, while global political uncertainty continues to fester and the Bank of England (BoE) expectedly kept its monetary policy stance unchanged. The British pound saw some pressure versus the U.S. dollar following the BoE's decision, with Bloomberg pointing out that the pound had gained ground leading up to the decision amid speculation that there could be more than one dissenting vote. In other U.K. economic news, industrial and manufacturing production both unexpectedly declined m/m in March and the nation's trade deficit widened more than expected. The euro was little changed against the greenback and bond yields in the region were mostly higher. For analysis of the political uncertainty amid Brexit negotiations, and ahead of elections in the U.K., Germany and Italy later this year, 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?. 

Stocks in Asia finished mostly to the upside, with the recent weakness in the yen helping lift Japanese equities, while Japan's trade surplus also narrowed by a smaller amount than had been expected in March. Stocks trading in mainland China and Hong Kong rebounded slightly from recent selling pressure that has come from lingering regulatory crackdown concerns and a patch of softer-than-expected economic data, bolstered by optimism amid reports that Chinese authorities stepped in to support the markets, per Bloomberg. South Korean securities advanced with the markets digesting this week's Presidential election, which delivered a victory for Democratic Party of Korea Moon. Indian listings finished flat and Australian equities ticked higher. For our latest analysis of the global markets, see Schwab's Director of International Research, Michelle Gibley's CFA, article, Different Drivers: Why Emerging Market Stocks Aren't All the Same on the Insights & Ideas page at www.schwab.com, as well as Schwab's Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com.

The international economic docket for tomorrow will include wholesale prices, CPI and industrial production from India, credit card balances from Australia, GDP and CPI from Germany, non-farm payrolls from France and industrial production from the Eurozone.

Stocks Straddle Unchanged Mark

Charles Schwab: On the Market

Posted: 5/10/2017 4:15 PM ET

Stocks Straddle Unchanged Mark

U.S. stocks were mostly unchanged, though the Dow was decisively lower in earlier action amid some disappointing earnings results from Walt Disney Co. A jump in crude oil prices fueled by a larger-than-expected drop in oil inventories powered gains for energy listings, while investors also digested yesterday's firing of FBI Director James Comey. In economic news, import prices topped forecasts, weekly mortgage applications rose, Treasuries and gold were lower and the U.S. dollar was nearly unchanged.

The Dow Jones Industrial Average (DJIA) fell 33 points (0.2%) to 20,943, the S&P 500 Index ticked 3 points (0.1%) higher to 2,400, and the Nasdaq Composite rose 9 points (0.1%) to 6,129. In moderately-heavy volume, 821 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil jumped $1.45 to $47.33 per barrel and wholesale gasoline added $0.05 to $1.54 per gallon. Elsewhere, the Bloomberg gold spot price moved $1.64 lower to $1,219.59 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 99.61.

Dow member Walt Disney Co. (DIS $110) reported fiscal Q2 earnings-per-share (EPS) of $1.50, versus the $1.41 FactSet estimate, as revenues rose 3.0% year-over-year (y/y) to $13.3 billion, below the projected $13.4 billion. Earnings at its parks and resorts and studio entertainment segments rose solidly y/y, but its media networks unit's income decreased, as its cable networks profits declined and revenue missed forecasts, bogged down by higher programing costs and subscriber losses at ESPN. Shares were solidly lower.

Electronic Arts Inc. (EA $108) posted fiscal Q4 EPS of $1.81, compared to the projected $1.63, on adjusted revenues of $1.1 billion, roughly in line with estimates. EA issued full-year earnings guidance that topped expectations and announced a new $1.2 billion stock repurchase program. Shares rallied.

NVIDIA Corp. (NVDA $121) announced Q1 profits of $0.79 per share, or $0.85 ex-items, versus the expected $0.81, as revenues rose 48.0% y/y to $1.9 billion, but down 11.0% sequentially, roughly in line with forecasts. The graphic chipmaker issued Q2 revenue guidance that topped estimates. Shares finished nicely higher.

Priceline Group Inc. (PCLN $1,824) saw pressure after issuing Q2 earnings guidance that came in below forecasts, which accompanied a mixed Q1 profit report that showed bottomline results topped estimates but revenues were a tad shy of expectations.

Import prices rise more than expected, mortgage applications increase

The Import Price Index (chart) rose 0.5% month-over-month (m/m) for April, above the Bloomberg projection of a 0.1% gain, and compared to March's upwardly revised 0.1% increase. Compared to last year, prices were up by 4.1%, north of forecasts calling for a 3.6% rise, and following March's upwardly revised 4.3% increase.

The MBA Mortgage Application Index rose 2.4% last week, following the previous week's 0.1% dip. The increase came as a 3.3% gain for the Refinance Index was met with a 1.7% rise for the Purchase Index. The average 30-year mortgage rate remained at 4.23%.

Treasuries ticked lower, with the yields on the 2-year and 10-year notes increasing 1 basis point to 1.35% and 2.41%, respectively, while the 30-year bond rate was unchanged at 3.03%.

For analysis of the interest rate environment, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, where you can also find our commentary, Cash: What to Consider in the New Rate Environment. 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.

Schwab's Chief Investment Strategist Liz Ann Sonders offers a look at the recent subdued market action in her article, Strange Brew: Heightened Uncertainties, Yet Plunging Volatility…What Gives? on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders. Liz Ann notes that volatility has been plumbing historical depths, but it may not be reflecting investor complacency, while the Fed's plans for its balance sheet, more than rate hikes, could bring on spikes in volatility.

Finally, with the political front remaining in focus on the heels of yesterday's ousting of FBI Director James Comey, 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.

Tomorrow, the U.S. economic calendar will include the Producer Price Index (PPI) for April, expected to have increased 0.2% m/m after declining 0.1% in March, while excluding food and energy, the core rate is anticipated to have also increased by 0.2%. The docket will also deliver weekly initial jobless claims, forecasted to have increased to a level of 245,000 after registering 238,000 the week prior.

Europe and Asia mixed

European equities finished mixed, with oil & gas issues rebounding from recent weakness as crude oil prices recover, boosted by a much larger-than-expected drop in crude oil inventories reported in the U.S. Global political uncertainty, exacerbated by the firing of FBI Director Comey yesterday in the U.S., continued to fester, as the U.K. negotiates a Brexit ahead of a June election, while votes loom for Germany and 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?. French industrial and manufacturing production easily topped expectations for March, while the Bank of England is expected to deliver its monetary policy decision tomorrow. European Central Bank President Mario Draghi sounded a familiar upbeat economic tone in a speech today as he did last week when the central bank left its policy stance unchanged, while also noting that it is not the right time to discuss tapering its stimulus measures. The euro and British pound were little changed versus the U.S. dollar, while bond yields in the region came under pressure.

Stocks in Asia finished mixed as Chinese stocks diverged amid lingering economic concerns on the heels of softer-than-expected data and festering uneasiness regarding regulatory crackdowns, while global political uncertainty continued to constrain conviction. Shares trading in mainland China fell and those in Hong Kong rose in the wake of mixed reads on the nation's consumer and producer price inflation, with the former topping forecasts and the latter missing estimates for April. Japanese equities gained ground with the recent weakness in the yen helping the index add to gains as of late. Australian securities advanced amid the recovery in basic materials issues and as the financial sector rebounded despite recent mixed banking sector earnings results. Indian stocks rallied, bolstered by optimism following a forecast calling for a strong monsoon rainfall season. South Korean equities fell, returning to action following yesterday's break as the nation voted in Democratic Party of Korea Moon as its new President. 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.

In addition to the aforementioned decision from the Bank of England, the international economic docket for tomorrow will yield the current account, trade balance, bank lending and office vacancies from Japan, the unemployment rate from South Korea, the Wholesale Price Index from Germany and industrial production, manufacturing production, construction output and the trade balance from the U.K.