U.S. Stocks Join Global Market Decline

Charles Schwab: On the Market

Posted: 11/14/2017 4:15 PM EST

U.S. Stocks Join Global Market Decline

 

U.S. equities followed their foreign counterparts lower, as conviction waned amid continued U.S. tax reform uncertainty. Commodity issues also saw pressure on some disappointing Chinese economic data and a lowered demand forecast from the IEA, which weighed on crude oil and the energy sector. Treasury yields and the dollar were lower despite a hotter-than-expected wholesale inflation report and still-robust small business optimism, while gold was higher.

The Dow Jones Industrial Average (DJIA) fell 30 points (0.1%) to 23,410, the S&P 500 Index was 6 points (0.2%) lower at 2,579, and the Nasdaq Composite lost 20 points (0.3%) to 6,738. In moderate volume, 842 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil tumbled $1.06 to $55.70 per barrel and wholesale gasoline was $0.03 lower at $1.76 per gallon. Elsewhere, the Bloomberg gold spot price rose $2.97 to $1,281.28 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.7% at 93.80.

Dow member Home Depot Inc. (HD $168) reported Q3 earnings-per-share (EPS) of $1.82, or $1.84 ex-items, versus the $1.82 FactSet estimate, with revenues growing 8.1% year-over-year (y/y) to $25.0 billion, compared to the projected $24.5 billion. Q3 same-store sales rose 7.9% y/y, above the 5.7% gain that was expected. The company raised its full-year guidance. The world's largest home improvement retailer said though the quarter was marked by an unprecedented number of natural disasters, the underlying health of its core business remains solid. Shares were higher.

Dick's Sporting Goods Inc. (DKS $26) posted Q3 earnings of $0.35 per share, or $0.30 ex-items, compared to the expected $0.26, as revenues increased 7.4% y/y to $1.9 billion, roughly in line with forecasts. Q3 same-store sales declined 0.9% y/y, versus the projected 2.7% drop, while its gross margin was well below expectations and its inventories increased y/y. DKS issued Q4 and full-year EPS guidance that topped estimates but reaffirmed its same-store sales outlook for the year and noted that next year's earnings are expected to fall solidly. Shares were solidly lower.

TJX Companies Inc. (TJX $68) announced Q3 profits of $1.00 per share, or $1.03 ex-items, versus the forecasted $1.00, as revenues grew 6.0% y/y to $8.8 billion, below the expected $8.9 billion. Q3 same-store sales were flat y/y, compared to the estimated 2.4% gain. The parent of TJ Maxx, Marshalls and HomeGoods stores said Q4 is off to a strong start and it sees numerous opportunities for the holiday selling season, though it issued EPS guidance for the quarter that had a midpoint below estimates. Shares were lower.

Wholesale price inflation comes in hotter than expected

The Producer Price Index (PPI) (chart) showed prices at the wholesale level in October were up 0.4% month-over-month (m/m), above the Bloomberg expectation of a 0.1% gain, after matching September's unrevised increase. The core rate, which excludes food and energy, rose 0.4%, compared to forecasts of a 0.2% advance and in line with September's unrevised rise. Y/Y, the headline rate was 2.8% higher, above projections of a 2.4% gain, and the core PPI rose 2.4% last month, north of estimates of a 2.2% gain. In September, producer prices were 2.6% higher and up 2.2% for the headline and core rates, respectively.

Tomorrow, the economic docket will complete the inflation picture with the Consumer Price Index (CPI), projected to be up 0.1% m/m in October, after September's 0.5% gain, while the core CPI is expected to rise 0.2% after the prior month's 0.1% increase. Compared to last year, the CPI is forecasted to be 2.0% higher on the heels of September's 2.2% gain, while the core CPI is projected to remain at the prior month's 1.7% increase.

Also, we will get a glimpse at the consumer's propensity to spend heading into the holiday season, with the release of October retail sales, expected to be flat m/m, after September's 1.6% jump. Excluding autos, sales are forecasted to rise 0.2% after the prior month's 1.0% increase. Stripping out autos and gas, sales are estimated to grow 0.3% in the wake of September's 0.5% gain. The retail sales control group, the figure used to calculate GDP, is projected to be 0.3% higher after the prior month's 0.4% increase. Business inventories and MBA Mortgage Applications will also be released.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers timely analysis of the all-important consumer in his latest, Schwab Sector Views: 'Tis the Season…Almost. Brad notes that at this point in the economic expansion, it would be difficult to view the status of the consumer as anything less than mostly positive. For sure, there are still problems, but with unemployment historically low, wages trending higher and still low interest rates conspiring to boost consumer confidence, the picture is looking pretty positive to us.

The National Federation of Independent Business (NFIB) Small Business Optimism Index for October rose to 103.8, from September's unrevised 103.0 level, versus expectations of a gain to 104.0.

Treasuries finished higher despite the inflation data, as the yield on the 2-year note was flat at 1.68%, while the yield on the 10-year note decreased 3 basis points (bps) to 2.38% and the 30-year bond rate declined 4 bps to 2.83%.

The yield curve continues to flatten and the U.S. dollar has seen some pressure as of late as the markets grapple with the recent global market rally on a favorable economic backdrop, while fiscal and monetary policy uncertainties continue to linger. However, volatility remains subdued despite a flare-up last week as the House and Senate unveiled tax reform bills that differed in some key areas.
Amid this backdrop, check out our article, Does Low Market Volatility Portend a Market Tumble?, as well as Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest commentary, Tax Reform: Key Differences Between the Senate and House Plans.

Europe mostly lower despite upbeat data in the region, Asia mostly lower 

European stocks traded mostly lower, with the euro rallying and some Chinese economic data disappointing to weigh on commodity-related issues. The markets lost ground despite some favorable earnings and economic data in the region. German Q3 GDP growth came in at a 0.8% quarter-over-quarter pace, above projections to match the 0.6% expansion seen in Q2. Eurozone Q3 GDP expanded at a 2.5% y/y pace to match expectations. Moreover, German investor confidence was mixed on a current view and expectation standpoint, with the former topping estimates but the latter missing forecasts. U.K. inflation statistics for October came in widely cooler than anticipated. The British pound reversed modestly to the upside and bond yields in the region finished mixed.
As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, earnings season, both in the U.S. and globally, has been solid, while economic growth has accelerated across much of the globe—all supportive of an ongoing global bull market. Elevated optimism and complacency could lead to pullbacks, but we believe it would be in the context of an ongoing bull market.

Stocks in Asia finished mostly lower, with yesterday's subdued moves in the U.S. offering little to shape market direction, while some softer-than-expected Chinese economic data stymied conviction. China reported growth in retail sales and industrial production that missed forecasts for October, though its foreign direct investment and fixed asset investment both slowed last month, pressuring stocks in the mainland as well as Hong Kong. Markets in Australia were also underwater, despite an upbeat read on the nation's business confidence. Indian securities traded lower, on the heels of the data and late-yesterday's hotter-than-expected read on consumer price inflation. After the closing bell, India reported that its exports declined 1.1% y/y last month, after surging 25.7% in September. South Korea equities declined and those traded in Japan finished flat as the yen gave back some of yesterday's gains. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his latest article, 5 Reasons Investors Should Give Thanks, the record breaking streak of gains in the global stock market this year has been supported by the broadest global economic growth in a decade. Stocks appear to closely track earnings growth, even where risks are most intense. Broad economic and earnings growth is expected to continue in 2018.

Tomorrow's international economic calendar will be fairly busy, beginning with GDP and industrial production from Japan, wage data and vehicle sales from Australia, followed by CPI from France, employment figures from the U.K., and the trade balance from the Eurozone.

Financial Review

Getting Warmer

Sinclair Noe — August 8, 2017

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

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DOW – 33 = 22,085
SPX – 5 = 2472
NAS – 13 = 6370
RUT – 4 = 1410
10 Y + .03 = 2.28%
OIL – .23 = 49.16
GOLD + 3.40 = 1261.70
BITCOIN – 1.06% = 3416.49 USD
ETHEREUM + 7.34% = 286.39

President Trump said North Korea will be “met with fire and fury and, frankly, power the likes of which the world has never seen before” if Kim Jong Un’s regime continues to threaten the US. Trump was speaking with reporters in Bedminster, New Jersey.

Trump’s comments followed a report in the Washington Post, citing a Defense Intelligence Agency analysis, that North Korea successfully developed a miniaturized nuclear warhead that could fit onto its missiles. And it comes just days after the United Nations Security Council ratcheted up sanctions on North Korea, targeting about $1 billion of the nation’s approximately $3 billion in exports.

Those restrictions followed two intercontinental ballistic missile tests in July. The S&P 500 Index fell to session lows and the CBOE Volatility Index jumped 11 percent about a half hour before the end of the trading session on Wall Street. The 10-year Treasury yield rose. Crude retreated toward $49 a barrel.

The effects of climate change are already having an impact on the U.S. after average temperatures have risen dramatically over the last four decades. The U.S. Global Change Research Program Climate Science Special Report, compiled by a group of scientists from 13 federal agencies, found with high confidence that it was “extremely likely that more than half of the global mean temperature increase since 1951 was caused by human influence on climate.”

The report states: “Evidence for a changing climate abounds, from the top of the atmosphere to the depths of the oceans. Thousands of studies conducted by tens of thousands of scientists around the world have documented changes in surface, atmospheric, and oceanic temperatures; melting glaciers; disappearing snow cover; shrinking sea ice; rising sea level; and an increase in atmospheric water vapor.

Many lines of evidence demonstrate that human activities, especially emissions of greenhouse gases, are primarily responsible for observed climate changes in the industrial era. There are no alternative explanations, and no natural cycles are found in the observational record that can explain the observed changes in climate.”

The report is part of the National Climate Assessment, which has been congressionally mandated to take place at least every four years since 1990. A National Academies of Science committee reviewed the study and said it was “timely, accurate, and well-written.”

The report’s authors also described a link between climate change and severe weather events, citing: “A change in the frequency, duration, and/or magnitude of extreme weather events is one of the most important consequences of a warming climate,” with an increase in heavy precipitation, extreme heat events and tropical storms as a result.

The report says that the cost of extreme weather has exceeded $1.1 trillion since 1980. The National Academy of Sciences has signed off on the paper, and it is now awaiting approval from the Trump administration.

The New York Times released a draft of the report today. According to the Times, scientists fear that the Trump administration could either alter or suppress the findings, and for good reason. The report directly contradicts claims by Trump and members of his cabinet who say that the human contribution to climate change is uncertain, and that the ability to predict the effects is limited.

This past week, the State Department began the formal process to withdraw from the Paris climate accord, officially notifying the United Nations. Trump has instructed the Environmental Protection Agency to scrap or change regulations aimed at reducing greenhouse gases, and has started to open more public land and waters to fossil fuel activity.

Mentions of the perils of climate change have been removed from the White House’s Web site and the Department of Interior and, in April, the EPA eliminated its online climate-change section pending a review that will be focused on “updating language to reflect the approach of the new leadership.” How the Trump administration decides to handle the report remains to be seen. The EPA and 12 other agencies have until Aug. 18 to approve the report.

Shortly after the Bureau of Labor releases the monthly non-farm payroll report, we get more details in a report called Job Openings and Labor Turnover Survey; the JOLTS report is on a one month lag. The number of advertised job openings rose to a record-high 6.2 million in June.

While the record high in job openings was good news, actual hiring declined in the month, and the number of workers quitting their jobs — a gauge of confidence in the jobs market — wasn’t significantly changed. The report shows that layoffs have become more and more rare in the past year, with about one worker in 100 getting laid off per month. With layoffs so infrequent, it doesn’t take much net job creation to keep the unemployment rate trending down.

Even though the unemployment rate dropped to 4.3%, there is ongoing concern about weakness in wage growth. The Labor Department reports that 7.6 million workers held multiple jobs last month, up 2% from 7.4 million in July 2016. That’s back to highs not seen in 20 years.

And it should not be mistaken as a sign of healthy entrepreneurship. The principal reason workers hold more than one position is that no single job provides a sufficient income. In a strong economic recovery, the number of full-time workers should be rising, and the number of workers employed part-time or holding multiple jobs, should decline.

Sentiment among small-business owners skyrocketed in July as customer demand improved, despite continued gridlock in Washington. The sentiment gauge from the National Federation of Independent Business rose 1.6 points to 105.2. That snapped a five-month streak of readings that either declined or remained the same, and easily beat the consensus forecast for a decline to 103.2.

The jump in the July survey reflected better views of the labor market: owners reported having more open positions now as well as plans to hire more in the future. Survey respondents also have stronger sales expectations, and expect better business conditions, thanks in part to resilient American consumers.

The NFIB said little about Washington in the release, except to note that “stronger consumer demand” came despite dysfunction among lawmakers.

The CoreLogic Home Price Insights report shows home prices nationwide, including distressed sales, increased year over year by 6.7 percent in June 2017 compared with June 2016 and increased month over month by 1.1 percent in June 2017 compared with May 2017.

The CoreLogic HPI Forecast indicates that home prices will increase by 5.2 percent over the next 12 months. The report finds inventories tight, with unsold inventory at 1.9 percent, the lowest second quarter reading in over 30 years.

As a result, prices are marching higher and affordability is deteriorating nationally. In Arizona, home prices climbed 6.1 percent over the past 12 months, and 0.7 percent from May to June.

Disney reported a near 9 percent fall in quarterly profit, pulled down by higher programming costs and declining subscribers at its flagship sports channel ESPN. Disney also announced it will stop providing new movies to Netflix starting in 2019 and launch its own streaming service.

CVS Health forecast current quarter profit below Wall Street estimates and said it has been ordered to cooperate with investigations into possible false claims submitted to a government healthcare program and drug pricing.

The No.2 US drug store chain reported quarterly profit above Wall Street estimates on strength in its pharmacy benefits management business, which helped to more than offset a 2.6 percent drop in same-store sales. The attorney general for the Southern District of New York has sought information on possible false claims submitted regarding reimbursements for Medicare Part D prescription drugs.

Minnesota’s attorney general wants info regarding a probe into pricing of insulin and epinephrine drugs. Sanofi, Eli Lilly and Novo Nordisk were named in a proposed class action lawsuit, which alleged the firms simultaneously hiked insulin prices by over 150 percent in the past five years.Mylan, the maker of emergency epinephrine injectors EpiPen, is facing investigations after it doubled the cost of its syringes used to treat severe allergic reactions.

On Monday, a class-action lawsuit was filed against CVS Health, which alleged the company colluded with third-party PBMs to raise generic drug prices. The suit claims that the pharmacy agrees with pharmacy benefit managers, or PBMs — the middlemen of the industry who manage the list of what drugs an insurer will and will not pay for — to sell certain drugs at a higher price if a customer is paying with insurance.

US News & World Report publishes and annual “Best Hospital Honor Roll”, ranking the 20 hospitals that outperformed all others in its review based on a variety of specialties. Mayo Clinic Hospital in northeast Phoenix ranked No. 20. It was the first time the Phoenix hospital had cracked the honor roll and the first time any Arizona hospital made the top 20.

The hospital also was ranked No. 1 in Arizona and the Phoenix metro area on the publication’s overall review. Mayo Clinic in Rochester, Minnesota, where the health system is headquartered, was ranked No. 1. The Phoenix hospital was cited for excelling in: cancer; cardiology and heart surgery; ear, nose and throat; gastroenterology and gastroenterologic surgery; geriatrics; nephrology; neurology and neurosurgery; orthopedics; pulmonology; and urology.

Right now, Earth is plowing through a cloud of tiny bits of comet dust, turning the rice-grain-size debris into what many call shooting stars.  Known as the Perseid meteor shower, this recurring astronomical event is easily the most watched — and beautiful — shower every year.

The peak viewing time will be this weekend – Friday, Saturday, and Sunday, enjoy.

Early Gains Fade as Traders See North Korean Threat Upgrade

Charles Schwab: On the Market

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

Early Gains Fade as Traders See North Korean Threat Upgrade

U.S. stocks gave up gains in the final hour of trading to finish the regular trading session lower after President Trump commented on threats from North Korea. Earlier today, the Dow and S&P 500 both rose to record-highs on the heels of reports that showed domestic job openings jumped and small business optimism surprisingly improved. In equity news, upbeat earnings results from CBS, Michael Kors and Ralph Lauren initially buoyed sentiment. The U.S. dollar and gold advanced, while Treasuries and crude oil prices declined.

The Dow Jones Industrial Average (DJIA) declined 33 points (0.2%) to 22,085, the S&P 500 Index lost 6 points (0.2%) to 2,475, and the Nasdaq Composite decreased 13 points (0.2%) to 6,370. In moderate volume, 772 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined by $0.22 to $49.17 per barrel and wholesale gasoline was $0.01 lower at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price was $2.92 higher at $1,257.69 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—traded 0.2% higher at 93.62.

CBS Corp. (CBS $66) reported Q2 earnings-per-share (EPS) of $0.14, or $1.04 ex-items, versus the $0.97 FactSet estimate, as revenues grew 9.0% year-over-year (y/y) to $3.3 billion, topping the projected $3.1 billion. Ad growth missed forecasts but its revenues out of its entertainment and cable networks segments bested expectations. Shares traded higher.

Michael Kors Holdings Ltd. (KORS $45) posted fiscal Q1 EPS of $0.80, above the expected $0.62, as revenues declined 3.6% y/y to $952 million, north of the forecasted $919 million. The luxury fashion company posted stronger-than-expected same store sales in North America and Europe, while its operating profit margin easily exceeded estimates. KORS issued Q2 and full-year guidance that topped the Street's estimates. Shares rallied sharply.

CVS Health Corp. (CVS $79) announced Q2 earnings of $1.07 per share, or $1.33 ex-items, versus the projected $1.31, with revenues rising 4.5% y/y to $45.7 billion, above the forecasted $45.4 billion. CVS issued Q3 EPS guidance that was below estimates, while raising the low end its full-year profit outlook. Shares saw some pressure.

FibroGen Inc. (FGEN $50) surged after announcing favorable results from a study of its experimental idiopathic pulmonary fibrosis treatment. The announcement came as the company posted softer-than-expected Q2 results.

Ralph Lauren Corp. (RL $89) reported Q1 profits of $0.72 per share, or $1.11 ex-items, versus the estimated $0.95, as revenues decreased 13.0% y/y to $1.4 billion, compared to the expected $1.3 billion. The company's gross and operating margins both topped forecasts. RL reaffirmed its full-year guidance and shares moved decisively higher.

Job openings jump to record high, small business optimism unexpectedly improves

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, jumped to a level of 6.16 million jobs available to be filled in June—a record high—from May's upwardly revised 5.70 million level. The Bloomberg forecast called for an increase to 5.75 million. The hiring and separation rates remained at May's levels of 3.7% and 3.6% respectively.

The National Federation of Independent Business (NFIB) Small Business Optimism Index for July rose to 105.2—the highest since February—from June's unrevised 103.6 level, versus expectations of a dip to 103.5.

Treasuries were lower, with the yield on the 2-year note mostly flat at 1.36%, while the yield on the 10-year note added 1 basis point (bp) to 2.27% and the 30-year bond rate rose 2 bps to 2.85%. Schwab's Chief Fixed Income Strategist Kathy Jones offers a look at the bond markets in her article, Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' on the Fixed Income page at www.schwab.com.

The U.S. Dollar Index has regained some support on the economic data. The greenback slipped yesterday from Friday's jump from lows not seen since May 2016 that came courtesy of a stronger-than-expected July nonfarm payroll report. Schwab's Kathy Jones discusses the greenback in her article, Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

The political front remains a source of uncertainty amid multiple shakeups in the White House, a potential debt ceiling fight, and another failed attempt at health care reform that is causing concerns about the ability and timing of pro-business policy implementation. For analysis, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's articles, Health Care Reform: What Investors Should Know, and Washington Midyear Update: 4 Key Issues for Investors to Watch, on the Insights & Ideas page at www.schwab.com.

Tomorrow, the U.S. economic calendar will yield the weekly MBA mortgage applications report, which will be followed by a preliminary read on Q2 nonfarm productivity and unit labor costs with productivity forecasted to have improved 0.7% and costs estimated to have increased 1.1%. Rounding out the day, we'll receive wholesale inventories for June, expected to have increased 0.6% m/m, matching the rise seen in May.

Europe turns higher as euro drops on U.S. data, Asia mostly lower

European equities overcame early pressure and finished higher, with the euro and British pound losing ground on the dollar following a dose of upbeat U.S. employment and small business optimism data. Early pressure came amid disappointing trade reports out of China and Germany. Earnings results in the region diverged. Bond yields in the region finished mostly higher. For our latest analysis of the global markets, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, What are fund flows telling us about trends and risks in the global stock market?, as well as his commentary, An important benefit to global investors is back after 20 years on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mostly lower in the wake of China's release of its July trade activity, which showed export and import growth both came in below expectations. Japanese equities declined with the yen showing some strength late in the session. Australian securities traded lower, South Korean shares dipped and Indian listings fell. South Korean and Indian markets continued retreats from recent all-time highs, and Schwab's Jeffrey Kleintop CFA, discusses in his article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page at www.schwab.com. However, stocks trading in mainland China and Hong Kong gained ground as the trade data was met with optimism regarding corporate earnings in the region. For more on the global markets, check out Jeffrey Kleintop's 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page.

The international economic docket for tomorrow will include machine tool orders from Japan, CPI and PPI from China, consumer confidence from Australia and industrial production from Italy.

Financial Review

Quick Shock

Sinclair Noe — July 11, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

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DOW + 0.55 = 21,409
SPX – 1 = 2425
NAS + 16 = 6193
RUT + 4 = 1413
10 Y – .01 = 2.36%
OIL + .70 = 45.10
GOLD + 3.10 = 1218.20
BITCOIN – 1.35% = 2300.63 USD
ETHEREUM – 3.79% = 187.69

The Dow Jones Industrial Average erased about 160 points in 20 minutes of trading today. The reason for the quick drop – an email chain from Donald Trump, Jr. that said the Russian government backed his father’s presidential campaign and was trying to damage Hillary Clinton.

When Donald Trump Jr. was first confronted on Saturday with evidence that he met last year with a Russian lawyer, he brushed it off as merely a chat about adoptions of Russian children. Then, on Sunday, following reports he was told the lawyer had damaging material on Hillary Clinton, he said the meeting was set up on a vague promise of information “helpful” to his father’s campaign.

Finally, today, the younger Trump released a chain of emails acknowledging that he was told before meeting Natalia Veselnitskaya that her information came from the Russian government as part of an effort to boost the elder Trump’s White House bid. In the emails, Veselnitskaya is referred to as a “Russian government attorney.”

Donald Jr.’s disclosure of the messages capped days of shifting and incomplete explanations of the June 2016 meeting and contradicted months of blanket denials by Trump administration officials that anyone involved with the campaign had contacts with Russians during the election or was aware of foreign attempts to influence the contest’s outcome. Market traders digested the news and the market recovered but it shows that political news has potential to rattle Wall Street.

Helping to fuel the bounce back, Majority Leader Mitch McConnell said he’s delaying the Senate’s August recess by two weeks after divided lawmakers have been unable to agree on how to revise health-care legislation he proposed to replace Obamacare. McConnell said that the five-week break will be shortened “to provide more time to complete action on important legislative items.”

McConnell’s move provides breathing room to finish a health-care overhaul and start on a backlog of other, must-do business, including a defense policy bill. McConnell says he plans to unveil a revised health care bill on Thursday. The Congressional Budget Office will provide an assessment early next week, and a vote might follow soon thereafter – if they can muster enough votes.

Republicans appear to be at least seven votes short of the 50 they need to get a health care bill through the Senate, which is basically where they were when McConnell unveiled a draft bill more than two weeks ago. Soon after the draft bill’s release, one bloc of GOP senators (Ted Cruz of Texas, Ron Johnson of Wisconsin, Mike Lee of Utah and Rand Paul of Kentucky) argued that the bill was insufficiently conservative and did not repeal enough of Obamacare.

A separate bloc of more moderate Republican senators (Shelley Moore Capito of West Virginia, Susan Collins of Maine, Dean Heller of Nevada and Rob Portman of Ohio) said the bill was too conservative. Lisa Murkowski of Alaska, another more moderate Republican, has been noncommittal about backing the bill.

If this process were going well for Republicans, by now some of the hesitant members would have proposed changes to the bill, McConnell would have said he is adopting those changes, and these members would say they were voting for the bill, pending those changes. That full cycle has not happened yet with any of these members. Some have publicly proposed ideas that McConnell has not yet said he will adopt, presumably because he knows those ideas won’t fly with other members.

Others have not, at least publicly, given any kind of wish list, suggesting that they would like the bill to die.

Lawmakers are also months behind schedule on the budget, face a deadline to raise the debt limit and must pass an appropriations bill by Sept. 30 to avoid a government shutdown. Of interest on Wall Street was the prospect that Congress might still be able to work on tax reform.

There is some tax reform taking place, not in Washington, D.C., but Washington state. The Seattle city council voted unanimously Monday to institute an income tax on the city’s highest earners. The measure will levy a 2.25 percent tax on individuals who make more than $250,000 and joint filers who make more than $500,000.

The tax is expected to generate an estimated $140 million in new revenue for Seattle, which leaders say they hope to use to lower the burden of more regressive taxes like the city’s property tax, to plug any holes from potentially diminished federal funding, and to bolster the city’s public services.

Currently, Washington is one of the few states that don’t levy a personal or corporate income tax. No cities in Washington levy a tax on income, either. That’s partially why the Institute on Taxation and Economic Policy found in 2015 that the state has most regressive taxation system in the entire country, with low- and middle-income residents paying far more in state and local income taxes compared to top earners.

Traders are also looking ahead to the start to the next earnings season. Key companies, including such major banks as JPMorgan Chase, Wells Fargo and Citigroup are scheduled to report on Friday. By and large, financials are expected to post mediocre trading revenue this quarter.

After four straight quarters of rising income from trading, the biggest U.S. investment banks spent the past few months in a renewed slump. Shareholders will soon see how dull it’s been. Analysts estimate the five largest firms will say their combined revenue from trading dropped 11 percent from a year earlier to $18.4 billion — the smallest haul for a second quarter since 2012.

Small-business sentiment fell again in June as business owners grew increasingly frustrated with Washington gridlock. The monthly sentiment tracker from the National Federation of Independent Business ticked down 0.9 points to 103.6, the fifth-straight month of declines or unchanged readings.

In June, four of the index’s 10 components increased, while five declined and one remained unchanged. Notably, the gauge of expected business conditions fell six points during the month, a move NFIB called “significant.”

The latest Job Openings and Labor Turnover Survey, known as JOLT, shows the number of job openings in the U.S. fell sharply in May as companies hired the most people since 2004. Job openings fell by 301,000 in May to 5.66 million, just one month after reaching the second highest level ever.

The catalyst appears to have been a big surge in hiring. Some 429,000 people were hired in May, marking the biggest increase since March 2004. The quits rate, meanwhile, rose a tick to match a post-recession high of 2.2%. Quits measure how many people leave their jobs by their own choice. A higher number suggests Americans are confident enough about the economy to more readily change jobs.

The snapshot of the labor market in May points to a strong labor market in which companies are willing to hire and layoffs remain near decade lows.

A day ahead of Federal Reserve Chair Janet Yellen’s testimony to Congress on the state of the U.S. economy, two of her colleagues cited low wage growth and muted inflation as reasons for caution on further interest rate increases.

Fed Governor Lael Brainard supported the June rate rise and today she said she embraced the plan to reduce the balance sheet “soon,” but suggested her support for any future rate increases will depend in part on how inflation shapes up.

Meanwhile, Minneapolis Federal Reserve Bank President Neel Kashkari said he finds it hard to believe that the U.S. economy is in danger of overheating when wage growth is so low. Kashkari said that when businesses tell him they cannot find skilled workers, he tells them to provide training and to pay more.

Net neutrality is the idea that internet service providers (ISPs) treat everyone’s data equally—whether that’s an email from your mother, a bank transfer or a streamed episode of The Handmaid’s Tale. It means that ISPs don’t get to choose which data is sent more quickly, and which sites get blocked or throttled.”

One of the key fights over the future on the Internet is back on the battlefield this week, as net neutrality is once again at risk. About 200 internet companies and activist groups are coming together this week to mobilize their users into opposing US government plans to scrap net neutrality protections.

The internet-wide day of action, scheduled for Wednesday 12 July, will see companies including Facebook, Google, Amazon, and others notify their users that net neutrality – a founding principle of the open internet – is under attack.

Today is Amazon Prime Day, but if you want a better deal, as in free – try visiting a 7-11 convenience store, Slurpees are free today. Or Try Chick-fil-A, for a free sandwich – if you are dressed like a cow, or wearing something that looks like a cow.

This might be the best deal to be found. If you are 62 years of age or older, you can get a lifetime pass to any and all National Parks for just $10, and you can take a friend along for free, for the rest of your life. But come Aug. 28, that fee will raise to $80. The pass grants lifetime entry to more than 2,000 sites and parks across the country. Those who purchase the passes while they are $10 will still be able to use them without an additional charge.

Financial Review

Computer Says

Sinclair Noe — June 13, 2017

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

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DOW + 92 = 21,328 (record)
SPX + 10 = 2440 (record)
NAS + 44 = 6220
RUT + 6 = 1425 (record)
10 Y un = 2.21%
OIL – .13 = 45.95
GOLD + .60 = 1267.10
BITCOIN + 1.48% = 2779.42
ETHEREUM – 1.97% = 387.89

The Dow Jones Industrial Average and the S&P 500 Index ended at all-time highs, while the Nasdaq 100 Index bounced back from its biggest two-day drop since September.

European and emerging-market equities advanced. Sterling rose for the first time since the U.K. election. Ten-year Treasury yields held near 2.21 percent and the dollar slipped versus major peers before the Fed is projected to raise rates Wednesday.

Tech stocks enjoyed a bit of a rebound but there are still concerns about valuations. A Bank of America Merrill Lynch report found a record 44 percent of fund managers polled in a monthly survey see equities as overvalued, up from 37 percent in May.

The technology-heavy Nasdaq Composite Index was named the most crowded trade, with 57 percent of investors saying Internet stocks are expensive and 18 percent calling them “bubble-like.’’ In the ninth year of a bull market, stocks are expensive.

So, what was behind the recent two-day sell-off in tech? Did investors just get nervous? Are tech stocks fundamentally overvalued? Computer says…. No. The quants were just rebalancing.

According to a new report from JPMorgan quantitative investing based on computer formulas and trading by machines directly are leaving the traditional stock picker in the dust and now dominating the equity markets. The report estimates “fundamental discretionary traders” account for only about 10 percent of trading volume in stocks. Passive and quantitative investing accounts for about 60 percent, more than double its share a decade ago.

Figures from market structure research firm TABB Group point to similar gains in machine-driven trade volume, while the overall number of shares traded has declined. A subset of quantitative trading known as high-frequency trading accounted for 52 percent of May’s average daily trading volume.

Crude tumbled in early trading on a report that at the same time as OPEC and its partners agreed last month on prolonging production cuts, the group’s output was climbing the most since November as members exempt from the deal restored lost supply. Oil then reversed and gained amid estimates that U.S. supplies declined.

The producer price index was flat last month following a sharp 0.5% increase in April. Still, inflation is more widespread after being largely invisible in 2016. The 12-month rate of wholesale inflation stood at a 2.4% in May, up from zero a year earlier and just a notch below a five-year high.

The flat reading in wholesale inflation in May, as expected, was tied to falling prices for gas and fuels used to heat and cool homes. The wholesale cost of gasoline sank 11.2%. The wholesale cost of food also fell for the first time in six months. Core wholesale costs slipped 0.1% in May, when stripping out the volatile categories of energy, food and retail trade margins.

The core rate of inflation was up 2.1% over the past 12 months.

The Corelogic Home Price Index shows home prices nationwide, including distressed sales, increased year over year by 6.9 percent in April 2017 compared with April 2016 and increased month over month by 1.6 percent in April 2017 compared with March 2017. Corelogic forecasts that home prices will increase by 5.1 percent on a year-over-year basis from April 2017 to April 2018.

Arizona posted 6% year-over-year growth in home prices, with 0.7% increase March to April. Corelogic forecasts Arizona home prices will increase 6.3% over the next 12 months.

The National Federation of Independent Business said its small-business optimism index held steady at a seasonally adjusted 104.5 in May from the prior month. In May, five of the 10 index components gained, four declined and one remained unchanged. A net 28% of owners reported plans to make capital outlays, well below historic levels.

Duke University/CFO Magazine conducted a survey of US chief financial officers. The share of CFOs who are more optimistic about the economy is the lowest since before the presidential election. A jump in sentiment about near-term fixes to tax and health-care policy has given way to increased doubt as Congress stays fixated on investigating Russia’s role in the U.S. election.

The Federal Reserve’s Federal Open Market Committee met today. Tomorrow they will conclude their meeting and issue a statement – almost certainly announcing a 25-basis point increase in the fed funds target rate. Fed officials have penciled in three rate hikes this year. A rate hike tomorrow would be the second rate hike of the year.

Fed officials have said they are not worried about the strength of the economy. They view weak first quarter growth as transitory and believe inflation will resume rising toward the central bank’s 2% target. The interest-rate decision is straightforward. Monetary policy works with a lag, so the Fed must think ahead.

The big question is whether the central bank will start to shrink its $4.5 trillion balance sheet in September or December, assuming the economy stays on course. The balance-sheet decision is slightly more complicated. It has three parts: The Fed must choose when to start shrinking its holdings, how quickly to shrink them once it has started, and how small the balance sheet should be when the holdings are back to normal.

When to start shrinking the balance sheet is partially dependent on the path of interest rate hikes. Once interest rates are at more normal levels, the Fed will likely begin to let its bond holdings mature and fall off the balance sheet based on a set timetable. This coming policy shift isn’t yet imminent, because interest rates need to rise a bit more first. But it’s fast approaching, and this week isn’t too soon for the Fed to start being clearer about its intentions.

Attorney General Jeff Sessions offered an aggressive defense of his conduct surrounding the Russia investigation, telling an open Senate hearing any allegations he had colluded with Moscow to undermine the election were an “appalling and detestable lie”. Sessions recused himself from the Russia investigation in March, citing his role as a key foreign-policy adviser in the Trump campaign.

His abstention came one day after The Washington Post reported Sessions, during his Senate confirmation process, had failed to disclose two meetings during the presidential campaign with the Russian ambassador to the United States.

Meanwhile Bloomberg is reporting Russia’s cyberattack on the U.S. electoral system before Donald Trump’s election was far more widespread than has been publicly revealed, including incursions into voter databases and software systems in almost twice as many states as previously reported.

In all, the Russian hackers hit systems in a total of 39 states. The new details, seem to confirm a classified National Security Agency document recently disclosed by the Intercept.

In November, Steven Mnuchin pledged the wealthy would not see “an absolute” tax cut under the administration’s developing tax plan. That is, whatever reduction in tax rates would be offset by fewer deductions, so the net result would be the same for the wealthy. During Mnuchin’s confirmation hearing to become Treasury Secretary, Mnuchin repeated his pledge, earning the nickname “The Mnuchin Rule”.

Today, during a Senate Budget Committee hearing Mnuchin walked back the rule, indicating tax reform might result in a windfall for the wealthy.

Verizon has completed its purchase of Yahoo’s internet business for $4.48 billion. The acquisition, which was first announced last July, aims to combine Yahoo’s operating business with AOL, which it purchased in 2015. The merger will form Oath, a division of Verizon that is expected to house more than 50 media and technology brands.

Verizon plans to layoff more than 2,000 people, or the equivalent of 15 percent of Oath’s new workforce. Tim Armstrong, AOL’s former chief executive, will lead Oath as its CEO. Marissa Mayer, Yahoo’s CEO, is out.

Uber CEO, Travis Kalanick, will step away from the company for an unspecified period. But that won’t likely change the day-to-day lives of the more than 5,000 Uber employees as much as the changes the company is committing to make to their recruiting, retention, and workplace-culture policies, detailed in a report known as the Holder Report.

Financial Review

Farewell, Goodbye

Sinclair Noe — January 10, 2017

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DOW – 31 = 19,885
SPX unchanged = 2268
NAS + 20 = 5551
RUT + 13 = 1370
10 Y + .01 = 2.38%
OIL – 1.16 = 50.80
GOLD + 6.50 = 1188.30

World stock markets nudged back toward recent multi-month highs, aided by a rally in commodity prices. The US dollar index slumped to a low of 101.51 in overnight action, breaking slightly below the lows of mid-December. The post-Brexit British pound moved lower; it’s the gift that keeps on giving, as the FTSE 100 closed in record territory for the 9^th straight session.

The Dow Industrials flirted with 20,000 again but it was nothing more than coy flirtation – moving within 42 points then slipping away. The S&P 500 was flat; not a fraction – no change at all. The Nasdaq posted its third straight record high close.

The home purchase sentiment index compiled by mortgage finance provider Fannie Mae fell in December, its fifth straight monthly decline. Tight inventories, rising mortgage rates and higher home prices are taking a toll on Americans’ attitudes toward home ownership. The overall index dropped 0.5% to 80.7 in December; down 2.5% from one year ago.

The National Federation of Independent Business said its optimism index jumped 7.4 points to 105.8, the highest level in 12 years. Small business owners overwhelmingly expect business conditions to improve under the new administration. Most of the December improvement came from the “expectations” components of the index. Owners say now is a good time to expand. Job creation plans increased 1 point, to a 9-year high, in December, but actual hiring was basically flat during the month.

Consumer credit expanded at a seasonally adjusted annual rate of 7.9%, or $24.6 billion, in November. The Federal Reserve reported that revolving credit, such as credit cards, jumped 13.5% while nonrevolving credit, such as car and student loans, rose 5.9%.

The Labor Department published its Job Openings and Labor Turnover Survey, also known as JOLTS. There were 5.5 million openings on the last day of November. That was 1.3% higher than October. The number of hires rose 1.1% to 5.2 million. The number of people who quit jobs voluntarily also rose, to 3.1 million. That was the second-highest level since before the recession.

Quits are tracked as a measure of worker confidence in the ability to land another job. The JOLTS report shows employers are slow to fire but also slow to hire. There were some signs of tightening in the labor market; the ratio of the unemployed per job opening dipped to 1.3, from 1.4 in each of the prior three months.

Meanwhile, confirmation hearings are underway for President-elect Trump’s cabinet nominees. Tomorrow, Trump holds his first news conference since before the election, but he was still making news today, calling for the immediate repeal of Obamacare.

Trump, who seemed unclear on the timing of already scheduled votes in Congress this week, demanded a repeal vote “probably sometime next week” and adding, “the replace will be very quickly or simultaneously, very shortly thereafter.” The Senate is planning a vote related to repeal on Thursday morning and the House could vote on Friday; the problem is the replacement, which doesn’t yet exist.

Later tonight, President Obama will give his farewell address in Chicago at 7PM Arizona time (9 ET). This is traditional for most two-term presidents. Most farewell addresses are forgettable, with 2 notable exceptions: the first presidential farewell delivered by George Washington, which was framed with warnings to the young nation about the dangers of sectionalism, overzealous partisanship, and of permanent foreign alliances; and the second noteworthy farewell address was from President Eisenhower, where he warned that the new “conjunction of an immense military establishment and a large arms industry” — which he dubbed “the military-industrial complex” — could pose grave dangers to American liberties and US democracy.

Arizona Governor Doug Ducey delivered the State of the State address yesterday. Ducey said he was ready to make “a commitment our educators can take to the bank.” That includes promises of increased state aid and higher teacher pay. And he had special programs designed to get teachers into schools in areas of high poverty. But Arizonans must wait until Friday when the governor releases his budget proposal to find out what that means in dollars and cents.

Apple has submitted a proposal to expand its manufacturing capabilities at a site in Mesa, Arizona where it already produces certain components for its consumer products. The notice shows Apple seeking to expand its production capabilities at the site in Mesa to be able to produce finished products and utilize foreign status materials/components — including a laundry list of core electronics components, such as printed circuit board assemblies, lithium polymer batteries and monitors.

If it’s approved, however, the Arizona facility would mark an unusual instance of a U.S. tech company manufacturing and assembling a finished product domestically, where labor costs are higher.

Yahoo will rename itself Altaba Inc and Chief Executive Officer Marissa Mayer will step down from the board after the closing of its deal with Verizon. Yahoo has a deal to sell its core internet business, which includes its digital advertising, email and media assets, to Verizon for $4.8 billion.

The terms of that deal could be amended – or the transaction may even be called off – after Yahoo last year disclosed two separate data breaches; one involving some 500 million customer accounts and the second involving over a billion. I wonder how many high level corporate board meetings were required to come up with the new name – Altaba – and I’m not sure how to pronounce it, but it should throw the hackers off the trail for a while.

Wall Street’s largest back-office processing service, Depository Trust & Clearing Corp, is partnering with IBM to upgrade how payments and record-keeping for credit-default swaps are handled by putting the system on a blockchain by early next year. If you’re wondering what blockchain is, it is basically a digital ledger that can publish a continuously growing list of ordered records through peer-to-peer transactions, without the need for a third party.

This is the technology behind Bitcoin; and while Bitcoin might be a bit dodgy, many of the world’s biggest banks and corporations are trying to harness the technology to make the likes of transacting cross-border payments, issuing debt and recording health data more efficient – or in this case record keeping for derivatives. And if it works here, look for it to eventually spread to the Options Exchanges and stock exchanges, etc.

Bank of America is being accused of stiffing the FDIC, the government agency that insures people’s deposits against a bank failure. The FDIC filed a lawsuit in federal court demanding that Bank of America pay $542 million it owes to the regulator’s deposit insurance fund.

The lawsuit claims Bank of America underreported a key risk metric by tens of billions of dollars during the final three quarters of 2013 and all of 2014. The FDIC said that allowed BofA to appear less risky than it really was – and avoid paying the FDIC an average of $77 million each quarter into the agency’s deposit insurance fund.

Volkswagen is considering a $4.3 billion settlement to resolve civil and criminal allegations stemming from its emissions-cheating scandal. The agreement, which has yet to be finalized, would lead to a financial expense that exceeds current provisions. It also includes a guilty plea to some criminal charges, strengthening compliance systems and installing an independent monitor for three years

Alibaba is leading a $2.6 billion bid to privatize Intime Retail Group, which operates 29 department stores and 17 shopping malls in China, giving the e-commerce giant a firmer foothold in bricks and mortar.

Jack Ma, executive chairman of Alibaba, met with Donald Trump to pitch the U.S. president-elect on how the company can create one million small business jobs in America.

Valeant is selling assets. The embattled drug-maker announced plans to sell three skincare brands to L’Oreal for $1.3 billion.

American Apparel has a new owner. The Canadian apparel maker Gildan Activewear won the auction for the failed retailer American Apparel with its bid of about $88 million.

Add another retailer to the casualty list – The Limited has shut down all 250 of its stores and laid off 4,000 workers. Sun Capital, the private-equity firm that owns The Limited, attributed the decision in part to falling foot traffic at shopping malls.

They issued a statement saying: “We’re sad to say that all The Limited stores nationwide have officially closed their doors. But this isn’t goodbye. The styles you love are still available online—we’re just a quick click away 24 hours a day.” I’m not sure, but certainly sounds like goodbye.

Markets Lose Steam Late in the Day

Charles Schwab: On the Market

Posted: 1/10/2017 4:15 PM ET

Markets Lose Steam Late in the Day

U.S. equities trimmed early gains to finish mixed, as investors looked to be cautious ahead of tomorrow's press conference by President-elect Donald Trump to expound on his policy preferences. Treasuries were little changed, despite a 12-year high in small business optimism, while gold and the U.S. dollar were higher and crude oil lost ground. Meanwhile, shares of Chipotle Mexican Grill were able to shrug disappointing 4Q guidance, and Valeant Pharmaceuticals announced it will sell some of its assets.

The Dow Jones Industrial Average (DJIA) declined 32 points (0.2%) to 19,856, the S&P 500 Index was nearly unchanged at 2,269 and the Nasdaq Composite advanced 20 points (0.4%) to 5,552. In moderate-to-heavy volume, 918 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.14 to $50.82 per barrel and wholesale gasoline lost $0.02 to $1.55 per gallon. Elsewhere, the Bloomberg gold spot price rose $6.38 to $1,187.48 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 102.00.

Chipotle Mexican Grill Inc. (CMG $414) issued 4Q earnings and same-store sales guidance that came in below the Street's expectations. The burrito chain also announced an additional $100 million to its share repurchase program. Shares reversed sharply to the upside to finish solidly higher, as the report also showed December same-store sales jumped 14.7% year-over-year (y/y), fostering some optimism that sales at the company, which have been hampered by a string of e.coli and norovirus outbreaks, may be starting to recover. However, the company did note that "sales comparisons are lapping an easier compare due to lower sales levels in November and December 2015."

Valeant Pharmaceuticals International Inc. (VRX $16) announced that it has agreed to sell three skin-care brands to L'Oreal SA (LRLCY $37) for $1.3 billion in cash. Also, the company said it agreed to sell its Dendreon Pharmaceuticals Inc. to Chinese conglomerate Sanpower Group Co. for $820 million. Shares were higher.

Small business optimism jumps

The National Federation of Independent Business (NFIB) Small Business Optimism Index for December jumped to 105.8 from November's 98.4 level, well above the Bloomberg forecast calling for an improvement to 99.5. This was the highest reading since December 2004, adding credence to Schwab’s Chief Investment Strategist Liz Ann Sonders' view in her latest article, Luminous Times: Looking Ahead With Optimism About 2017, that the presidential election fostered rising business, consumer and investor confidence, but you could have looked in the rearview mirror on Election Day and seen an improvement in the economy along with a return to positive earnings growth. She concludes that we remain optimistic that this is an ongoing secular bull market in U.S. stocks; and the risk of it ending swiftly is low. Read more at www.schwab.com/marketinsight and follow Liz Ann and Schwab on Twitter: @lizannsonders and @schwabresearch.

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, increased to a level of 5.52 million jobs available to be filled in November, from October's downwardly revised 5.45 million level, and slightly above the Bloomberg forecast of 5.50 million. The hiring rate remained at 3.6% and the separation rate ticked higher to 3.5% from 3.4%.

Wholesale inventories (chart) rose 1.0% month-over-month (m/m) in November, versus the favorably revised 0.1% dip in October and forecasts of a 0.9% gain. Sales increased 0.4% m/m, versus the expected 0.5% gain and the inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—rose to 1.32 months from October's 1.31 months level.

Treasuries finished flat, as the yields on the 2-year and 10-year notes, as well as the 30-year bond, were unchanged at 1.19%, 2.38% and 2.97%, respectively.

Bond yields and the U.S. dollar have been choppy and moderated somewhat from elevated levels that came courtesy of post-election optimism, the string of upbeat economic data, and the Fed's December rate hike and a faster-than-previously-forecasted pace of rate increases for 2017. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the bond markets in a video with Schwab's Vice President of Trading and Derivatives, Randy Frederick titled, How Should Bond Investors Prepare in Light of Fed Outlook for 2017? at www.schwab.com/insights. Kathy also addresses the potential changes facing the fixed income market and the jump in the greenback in her articles, Changing Conditions: A Bond Market FAQ and Will the U.S. Dollar Bull Market Continue in 2017?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

With the stock markets posting a sharp rally in the first week of 2017 and the potential for sideways movement and/or potential pullbacks in the New Year, see Senior Vice President of the Schwab Center for Financial Research, Mark Riepe's, CFA, latest podcast, 7 Principles for Investing Success, at www.schwab.com/insights.

The only item on tomorrow's economic calendar is MBA Mortgage Applications.

Europe ticks higher as miners rally, Asia mixed as Japan returns to action 

European equities finished mostly higher, with basic materials being bolstered by mining issues as French manufacturing and industrial production both rose much more than expected in November, and mixed Chinese inflation data showed the nation's producer price inflation easily bested forecasts. Financials declined amid festering banking sector concerns and the British pound paused from yesterday's drop that came amid a flare-up in "hard" Brexit uncertainty on the heels of comments from U.K. Prime Minister May over the weekend. For commentary on the Brexit vote fallout, see Schwab's Director of International Research, Michelle Gibley's, CFA, article, Keep Calm and Carry On: The Brexit Shock That Wasn't. The euro is dipping versus the U.S. dollar, while bond yields in the region are mostly moving to the upside.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, notes in his latest article, The CURE for a calm Market: Four risks for 2017, that after a calm post-election climb, developments in China, United Kingdom, Russia, and Europe may bring a return of stock market volatility. However, Jeff points out that better and broader global economic growth should help offset these risks and result in stock market gains for 2017. Read these articles at www.schwab.com/oninternational, where you can also find Jeff's commentary, 5 Reasons International Stocks May Underperform In 2017. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed following the lackluster session in the U.S. yesterday, while Japanese equities fell in their return to action following yesterday's holiday, with a stronger yen weighing on export-related issues. Mainland Chinese stocks declined, though listings in Hong Kong gained ground. The mixed action came on increased buying activity of Hong Kong stocks amid the exchange link with Shanghai, per Bloomberg, and as traders digested mixed reads on the nation's consumer and producer price inflation statistics for December, which saw the former miss forecasts and the latter easily top expectations. Markets in Australia dropped on the heels of a smaller-than-expected rise in the country's retail sales for November and weakness in financials, which overshadowed a gain in basic materials stocks. Meanwhile, stocks India advanced, snapping a recent losing streak on gains in mining and auto issues, while South Korean equities traded lower. Schwab's, Michelle Gibley, CFA, offers timely analysis of emerging markets in her latest article, Emerging Markets: Why They Deserve a Place in Your Portfolio. Read more at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

Economic reports scheduled on tomorrow's international calendar include: South Korea's unemployment rate, Japan's Leading Index, and industrial production from Spain and the U.K.

Financial Review

Inside the Stagecoach

Sinclair Noe — September 13, 2016

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

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DOW – 258 = 18,066
SPX – 32 = 2127
NAS – 56 = 5155
10 Y + .06 = 1.73%
OIL – 1.39 = 44.90
GOLD – 9.00 = 1319.40

Stocks opened in negative territory and then slipped further. Any rallies were half-hearted at best. Two months of tranquility was pierced Friday when the S&P 500 tumbled in its worst rout since the Brexit vote.

Things aren’t any better in the $13.6 trillion Treasury market. Ten-year notes were stuck in their tightest monthly range in a decade up until September.

Stocks exited the tightest trading range in history last week when European Central Bank President Mario Draghi downplayed the need for more measures to boost growth and Boston Fed President Eric Rosengren warned against waiting too long to raise interest rates. Fed rate-hike expectations are falling.

Dovish commentary from Federal Reserve Governor Lael Brainard has pushed back expectations for a September interest-rate hike. In a note out late Monday, economists at Goldman Sachs cut their forecast for a rate increase at the Sept. 20-21 meeting to a probability of 25% from 40% previously. It also lifted the odds for a December tightening to 40% from 30%. This is the third time this month the Goldman economists have changed their stance on the September meeting.

But don’t expect the volatility to just vanish. Abrupt breaks in calm have not been easily resolved in the past. In the five prior instances when turbulence spiked as it did Friday, the S&P 500’s daily swings averaged 1.5 percent in the next 20 days. That’s 2.5 times the move in the previous 20 days.

Oil futures dropped after the International Energy Agency cut its crude forecast, warning that supply will continue to outpace demand well into 2017. Global oil consumption growth sagged to a two-year low in the third quarter as demand faltered in China and India, while record output from OPEC’s Gulf members is compounding the glut.

As recently as last month, the IEA had expected the market to return to equilibrium this year. The agency downgraded its global oil demand predictions by about 100,000 barrels a day for this year to growth of 1.3 million barrels a day and cut its forecast for 2017 by 200,000 barrels to growth of 1.2 million a day. And as demand weakens, “Global inventories will continue to grow: stockpiles in July smashed through the 3.1-billion-barrel wall.”

With its first long-range electric car, General Motors has released figures that show it’s focused on beating Tesla at its own game. The new Bolt will be rated at 238 miles on a single charge when it comes to showrooms later this year, giving it a longer range than the Model 3, which is expected to have a range of least 215 miles and isn’t expected to go on sale until 2017. The Bolt is also likely to be priced at about $37,500, close to the same price point as Tesla’s first mass-market car.

The record-breaking installations of solar panels in the U.S. continues with 2 gigawatts installed in just the second quarter of this year, according to new data from GTM Research and the Solar Energy Industries Association (SEIA).

The solar industry installed 2,051 megawatts between April and June, marking the eleventh consecutive quarter in which the U.S. saw more than a gigawatt of solar capacity added to the grid. The volume of installations also marks 43 percent growth from the same quarter in 2015.

Nevada regulators are set to decide this week on a settlement between Berkshire Hathaway’s utility, NV Energy, SolarCity and the state’s consumer advocate to roll back rate increases for customers who installed rooftop solar systems prior to this year.

The three-member Nevada Public Utilities Commission has scheduled a September 16 vote on a proposal to shield more than 32,000 rooftop solar customers from increases that took effect in January.

Last year, NV Energy proposed increased charges and reduced payments to rooftop solar customers, saying the existing model forced non-solar customers to subsidize those who did use the green power. SolarCity, Sunrun and other solar installers stopped taking customers in the state soon after a December decision by the commission to raise rates on all solar homes.

They sued after regulators denied an appeal of the ruling. The proposal would put existing solar homes back onto the rates they paid before the increases started. NV Energy asked the PUC to grandfather those rates for as many as 20 years.

Phoenix-based Freeport-McMoRan will sell its deep-water Gulf of Mexico assets to Anadarko Petroleum for $2 billion. The deal is expected to close before year’s end. Freeport’s sale all-but ends a disastrous diversification from copper and gold mining into energy drilling, a move that received widespread investor criticism and is at the heart of the company’s 66% share price collapse over the past three years and the suspension of its quarterly dividend.

Fewer Americans lived in poverty in 2015 and median incomes charted their first increase since the Great Recession, according to data released today by the Census Department. The official poverty rate fell 1.2 percentage points between 2014 and 2015 to 13.5%, and the number of people in poverty fell by 3.5 million.

The threshold for a family of two adults and two children to be considered living in poverty was $24,036. Real median household income rose 5.2% during the year, the first annual increase in median household incomes since 2007. Earnings also increased: 1.5% for full-time year-round male workers, and 2.7% for female workers. That was the first significant annual increase in median earnings for either gender since 2009.

A measure of small-business sentiment declined in August as owners became more hesitant, with election worries at the forefront. The National Federation of Independent Business small-business optimism index fell 0.2 points to 94.4. The outlook for business conditions in the next six months had the most dramatic change, dropping seven points.

Boeing reports Chinese airlines are likely to purchase 6,810 planes worth just over $1 trillion in the next 20 years as they expand fleets to cater to growth in tourism.  Boeing will also unveil its T-X trainer plane today, designed jointly with Sweden’s Saab AB. The company is counting on the model to train generations of U.S. fighter pilots, and keep alive its St. Louis manufacturing base.

A second Hanjin vessel will dock and unload at the Port of Los Angeles after more than a week stranded off the Southern California coast. The move raised hopes that gridlock could be easing after a U.S. bankruptcy judge issued an order Friday allowing the financially ailing Hanjin Shipping Co. provisional protection from creditors so vessels could dock and unload products.

Meanwhile, the South Korean government is sticking to its hard-line stance on Hanjin Shipping. Government money will not be used to bail out the shipping company, although aid may be extended to small-to-medium sized businesses jolted by the process.

Starting in 2011, Wells Fargo employees opened 2 million bank and credit card accounts in customers’ names without their knowledge. The goal was to generate fees for the company and hit aggressive sales targets for employees.

After an investigation, the bank was accused of improperly opening accounts by the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the Los Angeles prosecutor. Last week we told you the bank and regulators had settled for $185 million. But wait, there’s more.

The Senate Banking Committee has scheduled a hearing for September 20^th to investigate the matter. Moody’s, a credit rating agency, issued a warning that the settlement may have a negative effect on Wells’ debt because of image concerns and called the incident “highly disturbing.” Today, Treasury Secretary Jack Lew said Wells Fargo had participated in “bad behavior,” and that the accusations showed bank regulation should not be rolled back.

Wells CEO John Stumpf, in an interview with the Wall Street Journal, said that there “was no incentive to do bad things” at Wells and laid the blame on the employees rather than the culture of the firm.

CFO John Shrewsberry said the fraudulent accounts were not opened in order to generate revenue for the bank. Instead, a few employees opened them to boost their performance. The bank claims that 5,300 lower level employees were fired in relation to the cross-selling shenanigans, however that number is now in question.

That figure covers terminations over the period that the regulators investigated, from 2011 through 2015. The regulators did not start investigating until 2014.

Most of the firings were probably not related to the scandal. Or if they were firing employees for opening phony accounts, it means upper management was aware of fraudulent activity and failed to report it.

But wait, there’s more. Wells Fargo executive Carrie Tolstedt tendered her resignation in June and is scheduled to leave the bank at the end of the year. Wells Fargo says her retirement is not a result of the findings of the investigation.

She is in line to receive roughly $125 million in stock and other compensation from the bank; a golden parachute. Tolstedt was in charge of community banking during the entire time the “sandbagging” operation took place.

Her success in cross selling was repeatedly cited in annual proxies as the reason for her $9 million a year in compensation, plus the retirement package. When she resigned, John Stumpf said Tolstedt had been one of the bank’s most important leaders and “a standard-bearer of our culture and a champion for our customers.”

I’m not sure what kind of culture Stumpf champions, but it looks like modern day bandits are more likely to be inside the stagecoach than outside it.