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

Back-to-Back Hat Trick

Sinclair Noe — September 13, 2017

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DOW + 39 = 22,158
SPX + 1 = 2498
NAS + 5 = 6460
RUT + 2 = 1426
10 Y + .02 = 2.19%
OIL + 1.16 = 49.39
GOLD – 8.90 = 1323.50

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	3,902.2	$64.61B	$2.21B	41.76%	1	+1.36%	-14.17%
	Ethereum	ETH	279.47	$26.37B	$909.52M	17.21%	0.0714781	+1.45%	-14.93%
	Bitcoin Cash	BCH	514.71	$8.39B	$339.79M	6.43%	0.129744	+1.73%	-19.26%
	Ripple	XRP	0.19988	$7.71B	$101.57M	1.92%	0.0000515	+0.95%	-9.81%
	Litecoin	LTC	62.510	$3.28B	$494.06M	9.35%	0.01587	+1.13%	-20.89%
	Dash	DASH	301.50	$2.28B	$27.52M	0.52%	0.0773939	+1.25%	-11.71%
	NEM	XEM	0.23201	$2.10B	$9.07M	0.17%	0.00005972	+0.52%	-21.64%
	Monero	XMR	115.00	$1.73B	$102.05M	1.93%	0.0294635	+4.65%	-3.81%
	IOTA	MIOTA	0.55283	$1.53B	$31.14M	0.59%	0.00014149	-2.31%	-22.97%
	Ethereum Classic	ETC	14.3866	$1.35B	$100.72M	1.91%	0.00363666	+2.64%	-22.47%

Stocks closed near session highs. Most of the day the S&P and Nasdaq traded in negative territory, while the Dow Industrials flipped from positive to negative in a tight range. And the S&P 500 is now pushing 2500. That seems pretty high; some might say overvalued.

Although the dollar index is up for the past 3 days, since the start of the year, the Dollar Index is down about 11%, so from an international investors view, investing in the S&P 500 has been a losing proposition.

In real numbers, stocks are rising, which is what matters most. Going back to the lows of 2009, the S&P 500 is now up 269%, surpassing the 266% advance notched during the 1949 to 1956 bull market, and that means the current bull market is the third strongest in US history.

At 8 1/2 years, the bull market is already the second longest ever, trailing only the 1990-2000 run during the dot-com era. If you look at annualized returns, the market has been running at a less-than red hot 17%.

Trump kicked off his morning with a pair of tweets urging lawmakers to pass tax cuts and reform. Trump hosted a bipartisan round table with lawmakers at the White House to discuss big issues including tax reform and infrastructure.

It’s mid-September and Republicans still can’t pass a budget. That’s because the budget fight is really about tax reform: a clash between Republican leadership and a caucus of arch-conservatives who see this moment — months before any major tax bill is likely to come before the full House — as their best chance to force deep cuts to both tax rates and social welfare spending.

The only way to get any deal passed is through reconciliation. In budget reconciliation, each committee is instructed on how much savings it must produce to pass a “reconciliation bill.” So, how do you solve a problem like cutting taxes without blowing up the deficit? In any scenario, Republicans are relying on projections of increased economic growth from tax cuts to offset the revenue losses from those cuts.

But under most projections, growth alone won’t be enough to offset the full losses from the deepest tax cuts, and that leaves spending cuts. But Republican leadership has promised an increase in defense spending, so that means big spending cuts elsewhere. Democrats and Republicans are unlikely to work together, and the Republican Party is polarized between its own moderates and conservatives.

No budget resolution means no tax reform. Do you know the tax reform plan? No, and you are not alone. The tax reform plan has not seen the light of day. House Speaker Paul Ryan said a tax-reform “outline” will be released the week of Sept. 25 that reflects the consensus of the two congressional tax committees and the Trump administration. Ryan said the House Ways and Means Committee and the Senate Finance Committee would take input after the outline is released and produce bills “in the weeks ahead.”

Congress won’t vote again this year to raise the debt ceiling, Senate Majority Leader Mitch McConnell says. He said the deal passed by Congress to extend the borrowing limit to December 8 doesn’t eliminate the so-called “extraordinary measures” the Treasury secretary can use to keep borrowing.

Meanwhile, the Treasury Department reported this morning that the federal government ran a budget deficit of $108 billion in August, just slightly more than in the same month a year ago. For the fiscal year to date, however, the shortfall is running well ahead of where it was in August of last year. Through this August, the deficit is $674 billion, up 9% from the year-ago period. So far, this fiscal year, spending is up 3% compared to a year ago, and receipts are up 2%.

A handful of Republican senators will fight to repeal Obamacare until the last possible moment. They have less than three weeks. Sens. Bill Cassidy and Lindsey Graham have unveiled the latest version of their health care bill to repeal and replace Obamacare; they have until the end of September to pass the bill using the special budget procedure that allows the legislation to advance without any Democratic votes.

The bottom line is cuts to federal health care spending, in the name of more state flexibility. On its face, this new legislation would encounter many of the same problems that earlier Republican health care bills did: Medicaid cuts and coverage losses. Meanwhile, bipartisan talks have gotten underway for a narrow bill to help stabilize, not roll back, the health care law.

Senator Bernie Sanders unveiled the 2017 version of his “Medicare-for-all” legislation, shifting talk of single payer on Capitol Hill from an abstract conversation over whether the government should provide universal health coverage to a concrete discussion of a specific bill.

Everything from primary care to hospital stays would be covered under the plan without a requirement for out-of-pocket spending on deductibles and co-payments. And patients could still use private insurance programs to cover services deemed not medically necessary by doctors, like cosmetic surgery.

With Republicans in control of Congress, single payer won’t pass, but the idea of single-payer universal health care is gaining popular approval, a recent poll from the Kaiser Family Foundation finds 53% of Americans support the idea.

Inflation at the wholesale level rebounded toward the end of summer, but most of the increase reflected higher gasoline prices. The producer price index, or PPI, rose 0.2% last month. A nearly 10% jump in the cost of gas accounted for most of the increase in wholesale inflation last month. Wholesale food costs, on the other hand, posted the biggest decline in more than two years.

The latest snapshot on wholesale prices, however, indicated that inflation is still muted. Aside from fuel, prices of most other goods and services were little changed. The price of fuel could remain elevated for a while after all the damage caused to refining operations in the Houston area after Hurricane Harvey.

What’s more, Hurricane Irma caused widespread fuel shortages in Florida that could keep pressure on fuel costs nationwide as supplies are rushed to the state. The increase in prices in August pushed the 12-month rate of wholesale inflation to 2.4% from 1.9%, just a tick below a five-year high. The yearly change in the so-called core rate of inflation, however, was unchanged at 1.9%.

Gasoline prices nationwide have surged to $2.65 a gallon from $2.34 in mid-August as flooding from Harvey disrupted fuel supplies, according to American Automobile Association data. The rise in gasoline prices is one reason why bond markets are starting to price in faster inflation.

Hurricane Irma just went from bad to worse. Eight people are dead and more than 100 have been evacuated to hospitals from a nursing home that had no air conditioning. The nursing home, the Rehabilitation Center at Hollywood Hills, had electricity but the transformer that powered the air conditioning failed. The police and state authorities were conducting a criminal investigation into the deaths. Florida Power and Light was alerted to the power outage on Tuesday but they did not send help.

An apology from Equifax CEO in USA Today about the company’s massive cybersecurity breach wasn’t enough. Shares dropped 15% today. Equifax’s stock is now down 30% since the company first revealed the data breach, which exposed sensitive personal information of 143 million Americans, last Friday.

Equifax CEO Richard Smith wrote in an op-ed piece in USA Today  that Equifax is “devoting extraordinary resources to make sure this kind of incident doesn’t happen again.” But Smith did not address the fact that three Equifax executives, including its chief financial officer, sold nearly $2 million in shares in August — just after Equifax learned of the security breach but weeks before it decided to tell consumers and investors.

Financial Review

Double Dog Dare

Sinclair Noe — August 10, 2017

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DOW – 204 = 21,844
SPX – 35 = 2438
NAS – 135 = 6216
RUT – 24 = 1372
10 Y – .03 = 2.21%
OIL – 1.00 = 48.56
GOLD + 8.90 = 1286.80
BITCOIN – 0.11% = 3441.49 USD
ETHEREUM + 0.43% = 301.57

The S&P 500 declined 1.45 percent, the worst decline since May. The Nasdaq composite dropped 2.1 percent, with Apple, Alphabet, Amazon and Netflix all trading lower. It was a broad-based decline on Wall Street. The CBOE Volatility Index (VIX), a gauge of fear in the market, soared more than 40 percent to trade at 15.98. It also hit its highest level since May.

President Trump said North Korea would face “fire and fury” if it threatened the United States. North Korea dismissed the warnings as a “load of nonsense”, and outlined plans for a missile strike near the Pacific territory of Guam.

And today, Trump ratcheted up his rhetoric, saying his “fire and fury” comments may not have been tough enough, and North Korea should be “very, very nervous”. China is the largest trading partner with North Korea and China has called for dialogue to end the crisis but has otherwise been quiet.

China’s interests do not include a unified Korean Peninsula.  When it comes to assessing global geopolitics like the situation with North Korea, we don’t know how this will play out. It could be a brilliant bluff or it could be very dangerous bravado.

Here’s what we might see in the marketplace: stocks tend to react badly to the prospect of war but the exact reaction varies significantly, Treasuries generally move higher – pushing yields lower (The yield on the benchmark 10-year note touched 2.20 percent Thursday, its lowest level since June, although it is worth noting that junk bonds have taken a hit recently – and that may be separate from concerns about war; the cost of protecting high-yield bonds against default in the credit-default swap market has climbed to the highest since mid-July), oil and other commodities tend to jump ahead of a geopolitical event and sell off afterwards.

And of course, gold has started to shine again.

Pimco told investors to pare U.S. equities and junk bonds, but keep exposure to real assets, such as inflation-linked debt, commodities and gold. T. Rowe Price cut its stock allocation to the lowest level since 2000. Morgan Stanley strategists said investors should consider betting against U.S. junk-bonds as recent price weakness may be the beginning of a correction.

Geopolitical turmoil tends to drive volatility but not necessarily trends. In other words, the contrarian play usually works. Warren Buffett has described the strategy as “stay calm when all hell breaks loose.”

Meanwhile, it is a big distraction from other issues such as tax reform, the debt ceiling and healthcare – which you probably thought was a moot point by now. Senate Majority Leader Mitch McConnell is refusing to sign-up for an ambitious White House timeline on tax reform that calls for legislation to sail through by fall.

And he’s now engaged in an extraordinary war of words with the Trump White House. McConnell said he thought Trump “had excessive expectations about how quickly things happen in the democratic process …” This drew a sharp rebuke from Trump and his senior aide Dan Scavino.

The White House is going to need good will from McConnell on tax reform. And they’ve already blown through the initial, absurd, August deadline. Increasing pressure and publicly ripping McConnell is going to make tax reform and the rest of Trump’s agenda even harder to pass.

Meanwhile, there is a very real deadline for a deal on the debt ceiling. Mark your calendar. You can see this one coming: The government will run out of cash on Sept. 29 and cannot borrow more money unless Congress raises the debt ceiling.

This is a perennial crisis, and markets have a well-rehearsed pattern of worry followed by relief. Lawmakers are on recess until Sept. 5, and they plan to take a week off in September. So that leaves 12 working days for Congress to raise the borrowing limit. It’s difficult to give Congress the benefit of the doubt on getting this done.

The White House is usually focused on this priority, but in the wake of the health-care defeat in the Senate, White House budget director Mick Mulvaney initially said that Congress should hold off on all other issues, including the debt ceiling, until it went back to health care. He later changed his position and said Congress should raise the debt ceiling.

McConnell and House Speaker Paul Ryan will push for a clean debt ceiling increase, but some number of more conservative members will vote against that, meaning Democrats will need to provide votes to ensure a successful vote. But it’s not clear what conditions Democrats will demand in exchange for their votes.

Senate Minority Leader Chuck Schumer said earlier this summer that Democratic votes may be hard to come by if Republicans insist on passing a large tax cut for the wealthy. And the White House is pushing for funding for a border wall with Mexico to be included in a debt bill, in exchange for lifting spending caps.

PredictIt has become the go-to prediction market for observing U.S. political events. PredictIt offers weekly debt ceiling markets through the end of October, and at the time of this writing, its participants give less than a 5 percent chance of the debt ceiling being raised by Sept. 15, and less than a 15 percent chance of it being raised by Sept. 22.

If the Trump administration’s Sept. 29 estimate is right, then we could be looking at another tense period for markets like we had in the summer of 2011, when the debt ceiling standoff caused Standard and Poor’s to lower the U.S. credit rating.

Of course, it’s possible the real deadline will be a week earlier or a couple weeks later, given volatility in tax receipts. So, if you mark your calendar, be sure to use a pencil.

Also, today, Trump declared the opioid epidemic a national emergency and said his administration was drafting papers to make it official – this comes about a week after a White House commission on the opioid crisis led by New Jersey Governor Chris Christie recommended the president declare it a national emergency.

The declaration could help unlock more support and resources to address the drug overdose epidemic, such as additional funding and expanded access to various forms of treatment, and it gives the government more flexibility in waiving rules and restrictions to expedite action.

National emergencies are typically declared for short-term crises, such as the Zika virus outbreak or a natural disaster. It is unclear what Trump’s declaration will mean for a complex, long-term public health problem.

Producer prices fell in July, recording their biggest drop in nearly a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate hike. The Labor Department said its producer price index for final demand slipped 0.1 percent last month, weighed by decreasing costs for services. That was the largest decline since August 2016 and reversed June’s 0.1 percent gain.

In the 12 months through July, the PPI increased 1.9 percent after rising 2.0 percent in the year through June. Core PPI, which excludes food, energy and trade services was unchanged last month. The core PPI increased 1.9 percent in the 12 months through July.

Shares of retailers Macy’s and Kohl’s declined after quarterly results failed to assure investors that a comeback was taking hold. Same-store sales dropped 2.5 percent at Macy’s and 0.4 percent at Kohl’s. Dillard’s sank as much as 16 percent to $61.50 after posting a surprise loss in its second quarter.

Lots of people like to talk these days about how the retail industry is undergoing a structural shift due to changes in how consumers like to shop. But weakness in the retail sector is probably being impacted by consumer debt as well.

Household debt outstanding — everything from mortgages to credit cards to car loans — reached $12.7 trillion in the first quarter. Household net worth stands at a record $94.8 trillion, thanks to rebounding home values and soaring stock portfolios. But that increase has primarily benefited the nation’s wealthiest.

For most Americans, whose median household income, adjusted for inflation, is lower than it was at its peak in 1999, borrowing has been the answer to maintaining their standard of living. The average family of four is living paycheck to paycheck.

And just when you think you’ve got it all figured out. Nordstrom reported second-quarter earnings and sales that topped analysts’ expectations, sending shares of the stock higher after market close. Same-store sales were also positive, a rare outcome among department stores of late. Nordstrom said its results this period was fueled by more customers ringing up purchases online.

Nordstrom’s stock was last climbing more than 3 percent higher in after-hours trading on the news.

Graphics chipmaker Nvidia saw its stock fall more than 7 percent after it reported stronger-than-expected earnings for the second quarter. Earnings came in at $1.01 per share, topping estimates of 70 cents. Revenue was up 56 percent year over year and beat estimates. They raised guidance slightly.

A new international report has confirmed that 2016 was the hottest year for the planet in 137 years of record keeping. It was the third year in a row to break the record. The report was released by the American Meteorological Society.

Almost 500 scientists from more than 60 countries participated in the project. Global sea surface temperatures reached a new record high, and Arctic sea ice extent at the end of its annual growth season was at its lowest maximum level in the nearly 40 years of satellite records.

Every month, at least 12 percent of land surfaces were in severe drought conditions or worse — a record long stretch.

Stocks Sink in a Wave of Global Equity Declines

Charles Schwab: On the Market

Posted: 8/10/2017 4:15 PM ET

Stocks Sink in a Wave of Global Equity Declines

U.S. stocks fell, joining a broad-based global equity decline as the global markets dialed back risk appetites on the increased tension between the U.S. and North Korea. Technology and financial issues led the drop, followed closely by consumer discretionary stocks as uneasiness toward the retail sector remains despite better-than-expected earnings results from Kohl's and Macy's. In economic news, wholesale price inflation came in cooler than estimated, gold was higher and Treasury yields, crude oil prices and the U.S. dollar were lower.

The Dow Jones Industrial Average (DJIA) declined 205 points (0.9%) to 21,844, the S&P 500 Index lost 36 points (1.4%) to 2,438, and the Nasdaq Composite tumbled 135 points (2.1%) to 6,217. In moderate to heavy volume, 859 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil decreased by $0.97 to $48.59 per barrel and wholesale gasoline was unchanged at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price was $8.25 higher at $1,285.55 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—traded 0.2% lower at 93.40.

Kohl's Corp. (KSS $40) reported Q2 earnings-per-share (EPS) of $1.24, compared to the $1.19 FactSet estimate, as revenues decreased 0.9% year-over-year (y/y) to $4.1 billion, roughly in line with expectations. Q2 same-store sales declined 0.4% y/y, compared to the projected 1.5% drop. The company said traffic momentum that it saw in the combined March/April period accelerated in Q2, and though transactions for the quarter were lower than last year, July transactions increased. Shares finished sharply lower amid concerns about the continued sluggishness in sales.

Macy's Inc. (M $21) posted Q2 EPS of $0.38, or $0.48 ex-items, versus the projected $0.46, with revenues decreasing 5.4% y/y to $5.6 billion, just above the expected $5.5 billion. Quarterly same-store sales decreased 2.8% y/y, versus the forecasted 3.3% decline. M reaffirmed its full-year sales outlook and shares fell due to concerns about the persistent subdued department store sales.

Dillard's Inc. (DDS $62) announced a Q2 loss of $0.58 per share, compared to the estimated EPS of $0.18, as revenues decreased 1.7% y/y to $1.4 billion, mostly in line with expectations. Q2 same-store sales decreased 1.0% y/y, versus the anticipated 3.3% decline. Shares tumbled.

With the markets having scrutinized a plethora of retail results, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: Time to "Energize" Your Portfolio? American consumers' mood has certainly improved and we'll be watching to see if that translates into more spending and more pricing power for retailers. For now, we believe that companies in the extremely competitive sector will still be fighting for every dollar, resulting in our marketperform rating for the consumer discretionary sector. Read more on the Markets & Economy page at www.schwab.com. Follow us on Twitter: @schwabresearch.

Wholesale price inflation cooler than expected, jobless claims rise

The Producer Price Index (PPI) (chart) showed prices at the wholesale level in July were down 0.1% month-over-month (m/m), versus the Bloomberg expectation to match June's 0.1% increase. The core rate, which excludes food and energy, also dipped 0.1%, compared to forecasts of a 0.2% advance and June's unrevised 0.1% increase. Y/Y, the headline rate was 1.9% higher, below projections of a 2.2% increase, and the core PPI rose 1.8% last month, missing estimates of a 2.1% gain. In June, producer prices were 2.0% higher and up 1.9% for the headline and core rates, respectively.

Tomorrow, the economic calendar will culminate with the highly-anticipated release of the Consumer Price Index, projected to show a 0.2% m/m increase in prices at the headline level for July, after being flat in June, while the core rate is also expected to increase 0.2% after the prior month's 0.1% gain. Compared to last year, prices are forecasted to be 1.8% higher, up from June's 1.6% rise, and core inflation is estimated to remain at the prior month's 1.7% pace. Core prices are anticipated to post the third-straight month below the Fed's 2.0% target, but the markets continue to expect the Central Bank to raise rates one more time this year and begin the process of shrinking its behemoth $4.5 billion balance sheet.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Fed Keeps it on the QT, to date, the Fed has raised rates four times; yet over that same period, financial conditions have actually loosened. This is why the Fed feels it can continue to tighten policy in the face of lower inflation. Easier financial conditions, despite higher rates, have supported economic growth as well as the stock market. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Weekly initial jobless claims (chart) rose by 3,000 to 244,000 last week, above forecasts of 240,000, with the prior week’s figure being revised higher by 1,000 to 241,000. The four-week moving average declined by 1,000 to 241,000, while continuing claims decreased 16,000 to 1,951,000, south of estimates of 1,960,000.

Treasuries traded higher, with the yield on the 2-year note slipping 1 basis point (bp) to 1.33% and the yields on the 10-year note and the 30-year bond dipping 4 bps to 2.20% and 2.78%, respectively.

Treasury yields extended yesterday's dip but the U.S. Dollar Index paused from a slight rebound as the inflation data met skittish global markets amid the flared-up geopolitical tensions. For analysis of the bond markets and the greenback see Schwab's Chief Fixed Income Strategist Kathy Jones' articles, Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' on the Fixed Income page at www.schwab.com and Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page. Follow Kathy on Twitter: @kathyjones.

Europe extends yesterday's drop, Asia declines as N Korean uneasiness lingers

European equities added to yesterday's drop, leading a global market slide with festering concerns about escalated tensions between North Korea and the U.S. continuing to dampen sentiment. All major sectors traded lower, with some economic data in the region also disappointing. French industrial production fell more than expected in June and manufacturing output in the U.K. came in flat for June. Moreover, the U.K. trade deficit widened unexpectedly in June. The euro was flat and the British pound dipped versus the U.S. dollar, while bond yields in the region finished mixed. For our latest analysis of the global markets, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, 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 lower for a second day as the global markets remain uneasy regarding recently flared-up geopolitical tensions. The escalation came amid reports that North Korea said it was examining a plan to strike the U.S. territory of Guam with missiles on the heels of a warning from U.S. President Donald Trump and the recent increased U.N. sanctions against North Korea. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com. Japanese equities dipped ahead of tomorrow's holiday, with the yen stabilizing from yesterday's jump to help the markets but a read on the nation's key machine orders—a gauge of capital investment—unexpectedly fell in June. Stocks trading in both South Korea and India declined. Australian securities nudged lower. Mainland China and Hong Kong saw shares fall, with the North Korean tensions joining this week's disappointing trade data and softer-than-expected inflation figures.

The international economic docket for tomorrow will be light, offering local car sales and industrial production from India and CPI from Germany and France.

Stocks Continue to Tick Higher

Charles Schwab: On the Market

Posted: 7/13/2017 4:15 PM ET

Stocks Continue to Tick Higher

U.S. stocks finished with mild gains as Fed Chair Janet Yellen concluded her two-day monetary policy commentary in front of the Senate this afternoon. Tech and financial issues led the advance as Treasury yields rebounded from yesterday's declines and the Street is awaiting a plethora of key banking sector earnings reports tomorrow. The U.S. dollar was nearly unchanged, crude oil prices were higher and gold was lower.

The Dow Jones Industrial Average (DJIA) gained 21 points (0.1%) to 21,553, the S&P 500 Index advanced 5 points (0.2%) to 2,448, and the Nasdaq Composite increased 13 points (0.2%) to 6,274. In moderate volume, 768 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.59 to $46.08 per barrel and wholesale gasoline was $0.01 higher at $1.53 per gallon. Elsewhere, the Bloomberg gold spot price shed $2.13 to $1,218.38 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 95.74.

Target Corp. (TGT $53) got a boost after the retailer said it expects Q2 earnings-per-share (EPS) to be at the high end of its previous guidance, which was above the FactSet estimate. TGT cited improved traffic and sales trends through the first two months of the quarter.

TGT's report offered some optimism to the struggling retail sector and tomorrow the group will remain in focus as the economic calendar is set to deliver tretahe June retail sales report and the preliminary July University of Michigan Consumer Sentiment Index. Retails sales are projected to rebound from May's slip and consumer sentiment is forecasted to dip slightly. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers a relatively positive view on the American consumer in his latest Schwab Sector Views: Christmas in July! (Status of the Consumer), but points out some clouds on the horizon that keep us, and should keep you, at least somewhat cautious. Read more on our marketperform rating on the consumer discretionary sector on the Markets & Economy page at www.schwab.com and be sure to follow us on Twitter: @schwabresearch.

Delta Air Lines Inc. (DAL $55) reported Q2 EPS of $1.68, or $1.64 ex-items, versus estimates of $1.66, as revenues rose 3.3% year-over-year (y/y) to $10.8 billion, roughly in line with expectations. DAL offered mixed Q3 guidance. Shares traded lower.

For more on the stock markets, which remain near record high levels, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, Where's the Next Bubble?, in which he notes that there don't seem to be any classic bubbles near bursting at the moment—at least not among the ones most commonly referenced as potential candidates. But remember that bubbles are sometimes only seen in hindsight, which is why we always council diversification. Read more on the Markets & Economy page at www.schwab.com, and be sure to follow Jeff on Twitter: @jeffreykleintop.

Jobless claims top forecasts, wholesale price inflation ticks higher

Weekly initial jobless claims (chart) declined by 3,000 to 247,000 last week, above the Bloomberg forecast of 245,000, with the prior week’s figure being revised higher by 2,000 to 250,000. The four-week moving average rose by 2,250 to 245,750, while continuing claims fell 20,000 to 1,945,000, south of estimates of 1,950,000.

The Producer Price Index (PPI) (chart) showed prices at the wholesale level in June were up 0.1% month-over-month (m/m), above expectations to match May's flat reading. The core rate, which excludes food and energy, was also up 0.1%, versus forecasts of a 0.2% advance and May's unrevised 0.3% increase. Y/Y, the headline rate was 2.0% higher, topping projections of a 1.9% increase, and the core PPI rose 1.9% last month, below estimates of a 2.0% gain. In May, producer prices were 2.4% higher and up 2.1% for the headline and core rates, respectively.

Federal Reserve Chairwoman Janet Yellen concluded her two-day semi-annual Congressional monetary policy testimony in front of the Senate Banking Committee. Her testimony didn't deviate much from what she told the House yesterday, which fostered a dovish takeaway in the markets and appeared to ease concerns about the pace of further rate hikes. Yellen noted that the Fed will begin to shrink the balance sheet this year and inflation continues to run below its target, partly due to a few unusual reductions in certain categories of prices. However, the part of her testimony that garnered the most attention was when she said the fed funds rate remains somewhat below its neutral level and "because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance."

Treasuries were under pressure, with the yields on the 2-year and 10-year notes gaining 2 basis points (bps) to 1.36% and 2.34%, respectively, while the yield on the 30-year bond rose 3 bps to 2.91%.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' in the second half of 2017, we expect 10-year Treasury yields to remain in a 2% to 2.5% range, consistent with the eight-year "lower for longer" theme in the bond market. Kathy notes that we believe the Federal Reserve to continue to tighten monetary policy and reduce its balance sheet gradually, assuming inflation doesn't slip further. Read more on the Fixed Income page at www.schwab.com, where Kathy also discusses, Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page. Follow Kathy on Twitter: @kathyjones.

Inflation, one of the two policy mandates for the Fed, has seen a recent retreat to boost the level of uncertainty regarding future Central Bank actions, setting the stage for tomorrow's Consumer Price Index (CPI) to possibly garner heightened scrutiny. The headline figure is expected to tick 0.1% higher m/m and core CPI is projected to rise 0.2%, resulting in y/y gains of 1.7%—below the Fed's 2.0% target—for both figures. As noted in the latest Schwab Market Perspective: Smooth Sailing for Stocks?, combine the upward move in yields with a modest rebound in some commodities, folks may be wondering if the reflation story is again gaining traction. We believe it's too early to buy into that, especially with inflation readings remaining low, but it is something to keep an eye on, and could potentially add some more choppiness to the waters as we sail through the summer months. Read more on the Markets & Economy page at www.schwab.com.

Additional releases on tomorrow's domestic docket will include the Fed's June industrial production and capacity utilization report, forecasted to show production increased 0.3% m/m and utilization ticked higher to 76.8%, and business inventories, expected to have increased 0.3% m/m in May after declining by 0.2% in April.

The political front continues to garner attention, with a revised Senate healthcare bill being revealed and scrutinized to see if it has the support to pass a procedural vote. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend discusses in his latest article, Washington Midyear Update: 4 Key Issues for Investors to Watch, dysfunction, drama and ethical issues in the White House have combined with Republican infighting on Capitol Hill to bog down the policy agenda. There's growing concern among congressional Republicans that the much-anticipated policy changes will need to be significantly scaled back—or that they may not happen at all. Read more on the Insights & Ideas page at www.schwab.com.

Europe modestly adds to yesterday's rally, Asia mostly higher following data and Fed

European equities mostly ticked to the upside following yesterday's broad-based rally that stemmed from the dovish takeaway of U.S. Fed Chairwoman Janet Yellen's monetary policy testimony that seemed to ease rate hike jitters. Also, global sentiment may have received a boost from some upbeat Chinese economic data. The euro declined and the British pound rose versus the U.S. dollar, while bond yields in the region gained ground. Schwab's Jeffrey Kleintop, CFA, offers his article, Are bonds signaling a major stock market peak? on the Markets & Economy page at www.schwab.com, while Jeff and Vice President of Trading and Derivatives, Randy Frederick offer the video, How Do U.S. Equity Market Valuations Compare to Other Developed Markets?, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick. Brexit negotiations continued to garner attention, while the economic calendar showed German consumer price inflation rose in line with forecasts.

Stocks in Asia finished mostly higher as the global markets cheered yesterday's testimony from U.S. Fed Chair Yellen that eased fed rate hike concerns, while some China data was favorable. Shares trading in mainland China and Hong Kong advanced, aided by reports that showed the nation's exports rose more than expected and key lending statistics topped forecasts. Schwab's Jeffrey Kleintop, CFA, offers analysis of the global economic outlook in his 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page at www.schwab.com. Australian securities gained ground. South Korean equities managed a move higher after the Bank of Korea expectedly kept its benchmark interest rate unchanged, while Indian stocks advanced despite late-yesterday's data showing consumer price inflation came in a bit cooler than expected and industrial production rose at a smaller pace than projected. Both indexes reached record highs and for a look at emerging markets, see Schwab's Jeffrey Kleintop's, CFA, article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the Markets & Economy page at www.schwab.com. However, Japanese equities finished flat as the yen gained ground on the monetary policy comments out of the U.S. and as the markets digested the Bank of Japan's recent bond buying operations.

The international economic calendar will continue to be light tomorrow, offering industrial production and capacity utilization from Japan, wholesale prices from India and CPI and trade data from Italy.

Stocks Advance Ahead of Fed's Policy Stance

Charles Schwab; On the Market

Posted: 6/13/2017 4:15 PM ET

Stocks Advance Ahead of Fed's Policy Stance

U.S. stocks traded higher as technology issues recovered from a two-session slide to lead the advance, though gains may have been limited ahead of tomorrow's Fed monetary policy decision, with a rate hike widely anticipated. Treasuries were mixed but mostly flat despite a hotter-than-expected wholesale price inflation report. The U.S. dollar dipped, gold saw minor gains and crude oil prices were also higher.

The Dow Jones Industrial Average (DJIA) increased 93 points (0.4%) to 21,328, the S&P 500 Index gained 11 points (0.5%) to 2,440, and the Nasdaq Composite jumped 45 points (0.7%) to 6,220. In moderately-heavy volume, 825 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.38 to $46.46 per barrel and wholesale gasoline was $0.01 higher at $1.50 per gallon. Elsewhere, the Bloomberg gold spot price increased $0.74 to $1,266.92 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 97.00.

Dow member Merck & Co. Inc. (MRK $63) announced that it has paused the enrollment in two trials of its treatment for blood cancer, multiple myeloma, as it looks into reports of deaths for patients using the drug. MRK traded lower.

Cheesecake Factory Inc. (CAKE $53) fell sharply after the restaurant reported that it expects Q2 same-store sales to decline 1.0% year-over-year (y/y), versus the FactSet expectation of a 1.7% gain. The company noted heightened volatility in week-to-week sales trends, indicative of uncertainty on the part of many consumers, as well as pockets of softness, notably in the East and Midwest.

The technology sector recovered somewhat from a rollover that led a two-day slip in the equity markets from record high territory. Concerns have flared up about the rally in the group that has led the stock market run. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: Technology—Too Far or Room to Run?, the tech run likely won't go on forever—nothing does—but we don't see the unabashed enthusiasm for the group that would make us more concerned, and valuations aren't extended to the point that we believe investors should start to worry. That doesn't mean investors who have developed too large a position in tech relative to their risk tolerances shouldn't rebalance and take some profits. But we continue to see positive developments and believe the run in the tech sector still has further to go. Read more on the Markets & Economy page at www.schwab.com. Follow Schwab on Twitter: @schwabresearch.

Producer price inflation mostly tops forecasts, small business optimism holds steady

The Producer Price Index (PPI) (chart) showed prices at the wholesale level in May were flat month-over-month (m/m), matching the Bloomberg expectation and compared to April's unrevised 0.5% gain. The core rate, which excludes food and energy, was up 0.3%, versus forecasts of a 0.1% advance and April's unrevised 0.4% increase. Y/Y, the headline rate was 2.4% higher, above projections of a 2.3% increase, and the core PPI increased 2.1% last month, topping estimates of a 1.9% gain. In April, producer prices were 2.5% higher and up 1.9% for the headline and core rates, respectively.

The National Federation of Independent Business (NFIB) Small Business Optimism Index for May remained at April's unrevised 104.5 level, matching expectations.

Treasuries were mixed and little changed, with the yield on the 2-year note increasing 1 basis point (bp) to 1.36%, while the yields on the 10-year note and the 30-year bond decreased 1 bp to 2.21% and 2.86%, respectively.

Recently, bond yields have rebounded somewhat from a bout of pressure that stemmed from heightened political uncertainty on both sides of the Atlantic, as well as some mixed economic data. Also, the two-day Federal Open Market Committee's (FOMC) monetary policy meeting, which began today (economic calendar), is expected to yield a 25 bp increase to the target federal funds rate. However, the markets have grappled with the timing and frequency of further rate hikes and the likelihood that the Central Bank will begin the process of shrinking its huge balance sheet later this year. Tomorrow's statement accompanying the decision, as well as updated economic projections and subsequent press conference by Chairwoman Janet Yellen, are poised to garner heavy scrutiny. For analysis of the Fed meeting, see our article, Will the Fed Hike Rates This Week? on the Insights & Ideas page at www.schwab.com.

Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the Fed's potential changes to its bloated balance sheet and the impact on the bond markets, pointing out in her article, Will the Fed Reduce Its Balance Sheet? What Bond Investors Should Know that we don't believe it should be cause for alarm as the Treasury market should be able to absorb a gradual decline in the Fed’s bond holdings without pushing yields significantly higher. However, she adds, the impact on the mortgage-backed securities market might be greater. Read more on the Fixed Income page at www.schwab.com and follow Kathy on Twitter: @kathyjones.

Also, Chief Investment Strategist Liz Ann Sonders notes in her recent article, Gimme Three Steps … and a Stumble?, that reducing the gargantuan balance sheet is a form of tightening and the transition from quantitative easing (QE) to quantitative tightening (QT) begs the question whether we are heading into another period of heightened volatility. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Before the FOMC concludes its meeting tomorrow, we will get some key May economic reports, with the Consumer Price Index expected to show core inflation was just shy of the Fed's target of 2.0% y/y, along with retail sales, projected to continue to nudge higher m/m. Weekly MBA mortgage applications will also be released, as well as April business inventories.

As noted in the latest Schwab Market Perspective: Goldilocks…or the Three Bears?, modest growth, low inflation and a cautious Fed are combining to make things "just right" for investors. Additionally, the apparent improving global trade trend could help contribute to further stock market gains and support large-cap outperformance. But the risk of a pullback and/or sharp acceleration in volatility is elevated courtesy of both domestic and world political uncertainty, and the potential of a Fed misstep. Read more on the Markets & Economy page at www.schwab.com.

Europe mostly higher and Asia stabilizes as tech stocks rebound 

European equities finished mostly higher, with the technology sector rebounding from yesterday's drop, while the markets looked ahead to tomorrow's monetary policy decision in the U.S., as well as decisions out of the U.K., Switzerland and Japan this week. The U.K. remained in focus amid heightened political uncertainty as Prime Minister May deals with the fallout from last week's surprising election that resulted in a hung parliament. The election fostered uncertainty regarding the timing of Brexit negotiations and whether they will yield hard or softer exit terms. 

For commentary on the political front check out Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, and follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. Also, U.K. consumer price inflation came in hotter than expected, sending the British pound higher versus the U.S. dollar to hamstring U.K. stocks. Bond yields in the nation are getting a boost from the data. Schwab's Jeffrey Kleintop discusses the recent action in the global bond markets and what it may be signaling in his latest article, Are bonds signaling a major stock market peak? on the Markets & Economy page at www.schwab.com. In other economic news, German investor confidence came in mixed, with the current conditions component unexpectedly improving, while the outlook portion surprisingly declined. The euro was little changed versus the greenback and bond yields in the region were mixed.

Stocks in Asia finished mixed to mostly higher on the heels of yesterday's decline that came courtesy of the rollover in the U.S. technology sector from a recent rally, while the markets look to monetary policy decisions out of the U.S., Japan and the U.K. this week. Japanese equities dipped with the yen paring some of yesterday's gains on increased global uncertainties and a disappointing read on the nation's capital spending. Indian stocks finished flat, as the markets pause near record highs and digest data showing the nation's consumer price inflation was cooler than expected, though industrial production topped forecasts. Shares trading in mainland China and Hong Kong advanced, while South Korean listings also moved to the upside, with technology issues showing some signs of stabilization in the region from the flare-up in volatility yesterday. Australian securities returned to action from yesterday's holiday in positive fashion, rallying amid a recovery in the financial sector. For a look at the global economic front, see Jeffrey Kleintop's video, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com.

Tomorrow, the international economic docket will include industrial production and capacity utilization from Japan, retail sales and industrial production from China, wholesale prices from Australia, CPI from Germany, industrial production from the Eurozone and employment data from the U.K.

Financial Review

More Shoes

Sinclair Noe — May 11, 2017

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

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DOW – 23 = 20,919
SPX – 5 = 2394
NAS – 13 = 6115
RUT – 9 = 1390
10 Y – .01 = 2.40%
OIL + .46 = 47.79
GOLD + 6.00 = 1225.80

This morning, we got two pieces of economic data that show the U.S. economy remains strong, with producer prices — a measure of inflation — rising 0.5% over the prior month, more than the 0.2% that was expected.

With last month’s jump in prices, the PPI shot up 2.5% in the 12 months through April. That was the biggest gain since February 2012.  Core PPI, which excludes food, energy prices and trade, rose 0.7% in April after a 0.1% gain in March. Core PPI increased 2.1% in the 12 months through April.

Additionally, initial jobless claims also topped expectations, totaling just 236,000 last week, with continuing filings for unemployment insurance hitting the lowest in 28 years. The Bank of England on Thursday left its key interest rate at 0.25%, meeting widely held expectations.

 It was an ugly day for retail stocks. Macy’s reported earnings per share of $0.24, less than the $0.35 expected by analysts, on same-store sales that dropped 4.6%. Macy’s shares were slammed for a 17% loss today.

Also in retail earnings, Kohl’s reported earnings per share that topped estimates though same-store sales declined more than expected during the quarter. Kohl’s reported adjusted earnings per share of $0.39, topping estimates for $0.29, while same-store sales fell 2.7%, more than the 1.1% expected by analysts. Kohl’s dropped almost 8% today.

Nordstrom reported better-than-expected quarterly earnings and quarterly revenue in line with expectations but it didn’t escape the pall over department stores in general. Nordstrom said it earned $63 million, or 37 cents a share, in the first quarter, compared with $46 million, or 26 cents a share, in the year-ago period. Net sales reached $3.3 billion, compared with net sales of $3.2 billion a year ago. Comparable-store sales for the first quarter decreased 0.8%. Shares dropped 4.5%.

In an interview today with NBC’s Lester Holt, President Trump called fired FBI chief James Comey a “showboat” and “grandstander”. Trump said he would have fired Comey even without a recommendation to do so by the two top Justice Department officials. That ran counter to previous administration explanations from White House aides and Vice President Pence of Comey’s dismissal.

Trump also gave further details of his account that Comey informed him three times that he was not under investigation. That interview airs tonight.

Meanwhile, on Capitol Hill, acting FBI Director Andrew McCabe directly contradicted the White House on two points related to Comey’s firing and the law enforcement agency’s investigation into Russia’s meddling in the presidential election.

McCabe said there is an investigation, it is significant and it is underway and will continue but he sidestepped the question of whether Comey directly told Trump on 3 occasions that there was no investigation. A day after the White House said Comey had “lost the confidence” of his employees, McCabe said Comey had a strong and positive relationship with the clear majority of FBI employees.

Senator John McCain, who heads the Armed Services Committee, and is no admirer of Vladimir Putin, defended Comey as an honorable man and called the firing “unprecedented,” which is true. 

Republican Richard Burr of North Carolina, who heads the Senate Intelligence Committee said today: “I am troubled by the timing and reasoning of Director Comey’s termination. I have found Director Comey to be a public servant of the highest order, and his dismissal further confuses an already difficult investigation by the Committee.”

Trump has been in office 110 days, and he’s already fired his acting attorney general, his national security adviser, and now the head of the FBI, all of whom have played key roles in the Russia investigation. What does it all mean? Well, at this point, not much. These people served at the pleasure of the president. Trump certainly has the authority to fire them.

Trump’s Director of National Intelligence Dan Coats and CIA chief Mike Pompeo, testified to a senate committee today that they agreed with a finding that Russian president Putin had directed an effort to hack and disrupt the US election, but we do not know what, if anything has turned up in the investigation into possible collusion between the Russians and Trump and/or his campaign.

If there is a connection, it would be very bad for Trump. If there is no connection, that fact will only be established after much hand wringing and gnashing of teeth. Right now, we just don’t know how this will play out.

At a security conference in Munich, Senator McCain said, “This scandal is going to go on. I’ve seen it before. I guarantee you there will be more shoes to drop, I can just guarantee it. There’s just too much information that we don’t have that will be coming out.”

Yesterday, I said the firing of Comey will consume all the oxygen in Washington. Today there was no talk of the American Health Care Act, no talk of tax reform, no talk of infrastructure stimulus. Well, maybe someone was talking about it but all eyes and ears were on the Comey situation. For today, the Trump agenda was stalled, probably tomorrow as well – possibly into the near future.

Halfway around the world, in a speech at the Bombay Stock Exchange, William Dudley, head of the New York Federal Reserve gave a full-throated economic and even political argument for resisting trade barriers that he said would hurt growth and living standards in both the United States and around the world.

“Protectionism can have a siren-like appeal,” said Dudley. “Viewed narrowly, it may be potentially rewarding to particular segments of the economy in the short term. Viewed more broadly, it would almost certainly be destructive to the economy overall in the long term.”

Dudley said he was speaking out because “we are at a particularly important juncture” in which trade issues could imperil the long-term health and productivity of the economy and “the economic opportunities available to our people.”

Barriers to trade are very costly, he said, because they blunt export opportunities, make everyday goods more expensive, and they can often “backfire” by harming workers who can no longer compete in a global economy.

Don’t look now, but banks are failing again in America. The past several years has been relatively placid for the banking industry. After the wholesale failure of the system during the financial crisis, banks gradually recovered their footing. Aided by essentially free money from the Federal Reserve, bailouts, and widespread federal and central bank guarantees, banks once again became rock-solid American institutions.

As the expansion rolled on, companies and individuals did a much better job keeping up with their financial obligations. The result: record profits for banks and an extremely low rate of bank failure. In 2016, banks covered by the Federal Deposit Insurance Corporation reported $171.3 billion in profits.

Only five banks failed last year, and they were small, a total of just 18 branches and a mere $277 million in assets between them. In 2015, seven banks in the continental U.S. failed; they had combined assets of $826 million.

So far, this year, five banks have already failed—as many as in all of 2016. More important, the banks that are failing are significantly larger. Last week, Guaranty Bank of Milwaukee ($1 billion in assets and 118 branches) bit the dust. The week before, it was First NBC Bank of New Orleans ($4.7 billion in assets and 29 branches).

The U.S. economy is, by most accounts, rolling along. The current expansion is now in its 95^th month. The economy has added payroll jobs for a record 79 months, and the unemployment rate is at 4.4 percent. When expansions get longer, a few things happen. Banks, consumers, and companies all get more confident about their ability to handle debt, which leads to more credit being extended.

At the same time, lenders seeking growth start to become more aggressive about putting money in the hands of people. Once all the people who can easily afford to purchase cars have taken car loans or mortgages, banks must seek out more marginal borrowers to keep boosting their profits.

And once credit gets distributed a little too widely, borrowers begin to default—even if nothing else changes in the economy or the climate for credit.

For the first time in a decade, the Federal Reserve is raising interest rates—thus increasing the cost of borrowing and servicing debt. Before December 2015, when the Fed boosted the federal funds rate from zero to 0.25 percent, it had been 9.5 years since the Fed last raised the interest rates it controls.

Janet Yellen has since raised rates in 0.25 percent increments twice. Yes, interest rates are still remarkably low, and the moves have been small. But it’s the direction that matters. For a decade, people in the economy had been conditioned to think that interest rates don’t really go up—and they borrowed and planned accordingly.

After hitting the lowest level since 2006 in the third quarter of 2016, mortgage delinquency rates rose in the fourth quarter to 4.8 percent. The delinquency rate on credit card loans, while still at a very low level, rose for three straight quarters in 2016. The volume of auto loans that are delinquent is rising rapidly.

All these metrics will likely continue to rise. This doesn’t mean we’re headed for another financial meltdown, merely that the business cycle has not been repealed and this cycle is in the late stages.