Stocks Finish Mostly lower, Snap Weekly Winning Streaks

On the Market

Posted: 11/10/2017 4:15 PM EST

Stocks Finish Mostly lower, Snap Weekly Winning Streaks

 

U.S. stocks came off the worst levels of the day, but still finished the regular trading session mostly lower as the major domestic indexes snapped their recent weekly winning streaks with market participants weighing the potential for tax reform after the Senate released its plan yesterday. Treasury yields advanced and the U.S. dollar ticked lower, while crude oil prices and gold also lost ground. In equity news, Dow member Walt Disney's outlook overshadowed its softer-than-expected quarterly results, while J.C. Penney and NVIDIA rallied following their earnings reports. 

The Dow Jones Industrial Average (DJIA) declined 40 points (0.2%) to 23,423, the S&P 500 Index was 2 points (0.1%) lower at 2,582, and the Nasdaq Composite ticked nearly 1 point higher to 6,751. In moderate volume, 853 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.43 to $56.74 per barrel and wholesale gasoline was $0.01 lower at $1.81 per gallon. Elsewhere, the Bloomberg gold spot price was $9.49 lower at $1,275.58 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% lower at 94.39. Markets were lower for the week, as the DJIA decreased 0.5%, while the S&P 500 Index and the Nasdaq Composite declined 0.2%.

Dow member Walt Disney Co. (DIS $105) reported fiscal Q4 earnings-per-share (EPS) of $1.13, or $1.07 ex-items, versus the $1.15 FactSet estimate, as revenues declined 3.0% year-over-year (y/y) to $12.8 billion, below the projected $13.3 billion. Revenues at its media and networks unit missed expectations, along with its studio segment, while its parks and resorts topped forecasts. The Street appears to be positive about the company's outlook that included the announcement of new Star Wars Trilogy, details of its new streaming service that will launch in the new year, and investments to bolster its parks and resorts division that was the lone segment to show growth in Q3. Shares traded nicely higher.

J.C. Penney Co. Inc. (JCP $3) posted a Q3 loss of $0.41 per share, or $0.33 per share ex-items, compared to the expected $0.42 shortfall that the Street had projected, with revenues decreasing 1.8% y/y to $2.8 billion, roughly in line with estimates. Q3 same-store sales increased 1.7% y/y, well above the forecasted 0.6% gain. The company said it took aggressive actions to clear slow-moving inventory, allowing for an improved apparel assortment heading into the holiday season. Shares rallied.

NVIDIA Corp. (NVDA $216) announced Q3 EPS of $1.33, above the expected $0.95, with revenues jumping 32.0% y/y to $2.6 billion, topping the estimated $2.4 billion. The chip company issued Q4 guidance that bested forecasts and it increased its quarterly dividend by 7.1% to $0.15 per share. Shares gained solid ground.

Hertz Global Holdings Inc. (HTZ $20) reported Q3 earnings of $1.12 per share, or $1.42 ex-items, versus the estimated $1.35, as revenues rose 1.0% y/y to $2.6 billion, roughly in line with projections. The company said its operating turnaround plan, focused on growth through enhanced fleet, service, brands and technology, is showing encouraging progress. Shares traded solidly lower.

Consumer sentiment surprisingly declines from 13-year high 

The preliminary University of Michigan Consumer Sentiment Index (chart) pulled back from a 13-year high, dropping to 97.8 in November, from 100.7 in October, and compared to the Bloomberg expectation of an improvement to 100.8. The current economic conditions and expectations components of the report both fell. The 1-year inflation forecast rose to 2.6% from October's 2.4% rate, while the 5-10 year inflation outlook remained at the prior month's level of 2.5%.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers timely analysis of the all-important consumer heading into the key holiday period in his latest, Schwab Sector Views: 'Tis the Season…Almost. Brad notes that the status of the American consumer is vital to the overall economy, and the holiday season can go a long way to determining the fate of retailers. Low unemployment, increasing wages, and high confidence among consumers paint a positive picture for both the holiday season and the overall economy. The retail sector may not be as dire as you have been led to believe.

Treasuries traded lower with the yield on the 2-year note rising 3 basis points (bps) to 1.66%, the yield on the 10-year note gaining 6 bps to 2.40%, and the 30-year bond rate advancing 7 bps to 2.88%.

The U.S. dollar came under pressure and Treasury yields gave up gains yesterday as volatility ramped up along with tax reform uncertainty. This stemmed from the Senate unveiling its tax bill details, which differed in some key areas from the last week's House bill, notably its call for a delay of the corporate tax cut to until 2019. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend delivers his latest commentary, Tax Reform: Key Differences Between the Senate and House Plans, noting that we continue to suggest that investors take no action at this time. Investors need to understand that the bill can and will change dozens of times in the weeks ahead, making specific analysis of how the bill affects any particular taxpayer’s situation nearly impossible. Until we have more detail, investors should not overreact. And while the bills are beginning to move forward, passage of tax reform remains far from a certainty.

Europe extends yesterday's drop, Asia mostly lower

Most European equity markets added to yesterday's drop, with exacerbated U.S. tax reform uncertainty, which led to a jump in volatility on Thursday, festering to stymie sentiment. Also, U.K. Brexit negotiations continued but remain in a deadlock and the markets digested a mixed bag of earnings and economic reports. U.K. and French manufacturing and industrial production data all came in stronger than expected, while the U.K. trade deficit narrowed. The euro and the British pound rose versus the U.S. dollar, while bond yields in the region moved higher. For a look at global stock investing, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, U.S. vs international: what do earnings tell us about what may be ahead?.

Stocks in Asia finished mostly lower following the declines and ramped up volatility in the U.S. yesterday as tax reform uncertainty was exacerbated by the Senates bill that differed in several key areas from the House's plan. The yen gained ground on the increase in volatility to weigh on Japanese equities. South Korean and Australian securities declined. Mainland Chinese shares ticked higher as U.S. President Trump continued his tour of Asia and on the heels of the government's announcement that it will ease limits on foreign equity ownership, while stocks trading in Hong Kong dipped. Indian equities gained ground ahead of a read on industrial production. After the closing bell, India's industrial production rose by a smaller amount than expected for September. With volatility relatively flaring up to hamper the global markets, Schwab's Jeffrey Kleintop, CFA, and Randy Frederick discuss in the video, Is An Optimistic Outlook for Global Equities Warranted?.

Stocks snap winning streak as data yields to fiscal concerns

U.S. stock markets snapped a string of 8-straight weekly gains with the economic docket relatively quiet and earnings season winding down to open the door further for fiscal uncertainty to shape market action. Last week's House tax-reform bill continued to garner scrutiny and uncertainty regarding a timely passage was exacerbated by the Senate's plan that differed substantially and caused volatility to flare up. Financials fell despite gains in Treasury yields and healthcare stocks saw some pressure amid the political uneasiness, while technology issues, which have led the global rally, slipped. The U.S. dollar came under modest pressure as risk aversion nudged higher in the second-half of the week. Over 90% of S&P 500 companies have reported and 67% have topped revenues forecasts and 77% have bested earnings estimates, per data compiled by Bloomberg.

Next week's economic calendar will heat back up, with inflation a focus courtesy of the Producer Price Index (PPI) and Consumer Price Index (CPI), and the consumer heading into the holiday season in the form of retail sales. Moreover, housing activity will be on display as the NAHB Housing Market Index will be followed by housing starts and building permits. The Fed's Industrial production and capacity utilization report will round out the heavy dose of data.

As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?,
the long-running bull market continues and has shown few signs of faltering. Even modest pullbacks have failed to gain any momentum and the uptrend has been largely intact throughout the course of 2017. But there are signs that the potential for a “melt up” is heightened. Additional support for the ongoing bull market could come from the holiday shopping season, which is shaping up to be a good one, as well as ramped up capital spending and productivity as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her articles, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle and One Thing Leads to Another: Productivity's Rebound.

International reports due out next week that deserve a mention include: Australia—employment change and consumer confidence. China—lending statistics, retail sales, and industrial production. India—trade balance, CPI and PPI. Japan—Q3 GDP and industrial production. Eurozone—industrial production, Q3 GDP, trade balance and CPI, along with German investor confidence. U.K.—CPI and PPI, employment change and retail sales.

Another Sluggish Day on the Street

Charles Schwab: On the Market

Posted: 11/8/2017 4:15 PM EST

Another Sluggish Day on the Street

 

With little in the way of news to sway the U.S. equity markets soundly in one direction or the other, stocks finished with modest gains, led again by the tech sector, after spending most of the day crowding the unchanged mark. Tax reform continued to garner attention as the Senate is expected to deliver its bill this week, while global trade was also in focus as President Trump continues his Asian tour and China posted mixed trade data. Crude oil prices came under pressure following a bearish government oil inventory report and gold was higher. Treasury yields ticked slightly higher and the U.S. dollar was little changed.

The Dow Jones Industrial Average (DJIA) gained 6 points to 23,548, the S&P 500 Index was 4 points (0.1%) higher at 2,594, and the Nasdaq Composite gained 21 points (0.3%) to 6,789. In moderate volume, 881 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.39 to $56.81 per barrel and wholesale gasoline was unchanged at $1.82 per gallon. Elsewhere, the Bloomberg gold spot price was $5.32 higher at $1,280.62 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 94.88.

Take-Two Interactive Software Inc. (TTWO $118) reported a fiscal Q2 loss of $0.03 per share, or earnings-per-share (EPS) of $1.61 ex-items, versus the FactSet estimate calling for EPS of $0.74, as net bookings grew 20.3% year-over-year (y/y) to $577 million, above the expected $516 million. The video game company raised its full-year outlook and issued net bookings guidance for the holiday season that easily topped expectations. Shares were sharply higher.

Humana Inc. (HUM $243) posted Q3 profits of $3.44 per share, or $3.39 ex-items, compared to the forecasted $3.26, on revenues of $13.3 billion, roughly in line with expectations, but premiums were a bit shy of expectations. HUM raised its full-year earnings outlook but offered little in terms of guidance for next year. Shares were sharply lower.

Snap Inc. (SNAP $13) announced a Q3 loss of $0.36 per share, compared to the $0.33 per share shortfall that the Street had anticipated, with revenues rising 62.0% y/y to $208 million, below the projected $236 million. The social media company's global daily active users and average revenue per user both missed expectations. Shares fell sharply. Separately, SNAP disclosed that China's Tencent Holdings Ltd. (TCEHY $50) has taken a 10% stake in the company.

Wendy's Co. (WEN $15) reported Q3 EPS of $0.06, or $0.09 ex-items, versus the projected $0.12, as revenues declined 15.4% y/y to $308 million, just shy of the expected $310 million, due to lower ownership of company-operated restaurants. The fast-food chain's North American same-store sales rose 2.0% y/y, south of the estimated 2.6% gain. WEN lowered its full-year profit outlook and shares were solidly lower.

Mortgage applications flat

The MBA Mortgage Application Index was flat last week, following the prior week's 2.6% decline. The unchanged reading came as a 0.5% decrease in the Refinance Index was offset by a 0.5% gain in the Purchase Index. The average 30-year mortgage rate fell 4 basis points (bps) to 4.18%.
Treasuries dipped, as the yields on the 2-year and 10-year notes, along with the 30-year bond, all inched 1 bp higher to 1.64%, 2.32% and 2.79%, respectively.

Treasury yields and the U.S. dollar remained subdued as a positive global economic backdrop continues to be met with looming Fed leadership changes, and market grappling with uncertainty regarding the long road to tax reform.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, One Thing Leads to Another: Productivity's Rebound, although there remains a long runway between the House bill put forth on tax reform and a bill that could pass through the Senate, a more competitive tax code would likely grow the capital stock, which should boost productivity.

Schwab's Chief Fixed Income Strategist Kathy Jones and Vice President of Trading and Derivatives, Randy Frederick discuss in the video, Should a Change in Fed Leadership Matter to Investors?, while Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest commentary, House Tax Reform Bill: What Investors Need to Know.

Tomorrow's economic calendar will remain light, beginning with weekly initial jobless claims, forecasted to rise modestly to 232,000 from the prior week's 229,000, followed by wholesale inventories, with economists expecting a 0.3% month-over-month increase for September, matching that seen in August.

Europe and Asia mixed on global trade focus and U.S. tax reform uncertainty
European equities finished mixed, with banking stocks being hamstrung by disappointing quarterly results from the sector in the region. The markets also grappled with global trade uncertainty as U.S. President Donald Trump remained on his tour of Asia and China posted a mixed trade report. U.S. tax reform scrutiny festered to keep conviction in check. The euro was little changed, while the British pound added to recent losses versus the U.S. dollar. Bond yields in the region traded mixed. In economic news, Spanish industrial output for September came in stronger than expected. With the global markets pausing from their rally, Schwab's Liz Ann Sonders and Randy Frederick note in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?, that there seems to be no end in sight to the bull market in equities, but that doesn’t mean there’s nothing to worry about.

Stocks in Asia finished mixed as the markets focus on global trade relations as U.S. President Trump continued his tour of the region and as China's October trade data painted a divergent picture as exports missed expectations and imports continued to rise solidly. For a look at the global trade picture, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his article, Top Five Trade Issues Investors Should Be Watching. Japanese equities dipped, with the yen gaining some ground, while Australian securities finished flat. Mainland Chinese stocks ticked higher and those traded in Hong Kong declined, while listings in India were also lower and South Korean markets saw a modest gain.

More data from China will take center stage on tomorrow's international economic calendar, including the Asian nation's CPI, PPI, and lending statistics, while Germany and the U.K. will report trade figures.

Stocks Mostly Flat as New Fed Chief Announced

Charles Schwab: On the Market

Posted: 11/2/2017 4:15 PM EDT

Stocks Mostly Flat as New Fed Chief Announced

 

U.S. stocks finished the regular trading session mostly unchanged amid some favorable reports on weekly jobless claims and preliminary Q3 productivity and as President Trump announced Jerome Powell is expected to succeed Janet Yellen as the next Federal Reserve Chair. The markets also grappled with the details of this morning's release of the House's tax reform proposal. Treasury yields and the U.S. dollar were lower, while gold and crude oil prices traded slightly higher. In earnings news, Facebook and Tesla were under pressure after announcing their quarterly results following yesterday's closing bell.

The Dow Jones Industrial Average (DJIA) rose 81 points (0.3%) to 23,516, the S&P 500 Index was nearly unchanged at 2,580, and the Nasdaq Composite decreased 2 points to 6,715. In moderately heavy volume, 910 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.24 to $54.54 per barrel and wholesale gasoline added $0.03 to $1.77 per gallon. Elsewhere, the Bloomberg gold spot price gained $1.52 to $1,276.18 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 94.69.

Facebook Inc. (FB $178) reported Q3 earnings-per-share (EPS) of $1.59, versus the $1.28 FactSet estimate, as revenues rose 47.0% year-over-year (y/y) to $10.3 billion, topping the projected $9.9 billion. Daily and monthly active users were roughly in line with expectations, but its higher-than-expected outlook for capital expenditures and security investments was well above forecasts, and the company said this will impact profitability. Shares traded lower.

Tesla Inc. (TSLA $298) posted a Q3 loss of $3.70, or $2.92 per share ex-items, versus the expected $2.31 per share shortfall, with revenues rising 29.9% y/y to $3.0 billion, compared to the forecasted $2.9 billion. The company lowered its production target for its Model 3 due to constraints at its battery manufacturing facility. Shares finished sharply lower.

Yum Brands Inc. (YUM $79) announced Q3 EPS of $1.18, or $0.68 ex-items, versus the forecasted $0.67, as revenues declined 5.0% y/y to $1.4 billion, roughly in line with expectations. Q3 same-store sales grew 3.0% y/y, compared to the estimated 1.9% increase. The parent of Taco Bell, KFC and Pizza Hut maintained its full-year guidance. Shares rallied.

Kraft Heinz Co. (KHC $77) reported Q3 EPS of $0.77, or $0.83 ex-items, compared to the expected $0.82, as revenues grew 0.7% y/y to $6.3 billion, mostly in line with expectations. The company's organic sales growth slightly missed forecasts as sales declined more than expected in North America, overshadowing solid growth in the rest of the world. Shares were lower.

Jobless claims decline unexpectedly, Q3 productivity jumps

Weekly initial jobless claims (chart) decreased by 5,000 to 229,000 last week, below the Bloomberg forecast of an increase to 235,000, with the prior week’s figure being revised higher by 1,000 to 234,000. The four-week moving average fell by 7,250 to 232,500, while continuing claims dropped 15,000 to 1,884,000, south of estimates of 1,894,000.

Preliminary Q3 nonfarm productivity (chart) rose 3.0% on an annualized basis, versus expectations of a 2.6% gain, following the unrevised 1.5% increase seen in Q2. Unit labor costs gained 0.5%, above the forecast calling for a 0.4% gain. Unit labor costs were revised higher to a rise of 0.3% in Q2.

Today's employment data precedes tomorrow's fully-loaded economic docket, headlined by the October nonfarm payroll report, which is expected to show job growth of 310,000, rebounding from September's hurricane-impacted 33,000 decline. Private sector employment is projected to rise by 301,000 after falling 40,000 the month prior. The unemployment rate is forecasted to remain at 4.2% and average hourly earnings are estimated to rise 0.2% month-over-month after, building on September's 0.5% gain, and be up 2.7% y/y. Also, the September trade deficit is expected to widen to $43.2 billion, and September factory orders are projected to match August's 1.2% m/m rise, while the ISM non-Manufacturing Index and Markit's Services PMI Index are estimated to show growth remained solid.

Economic growth remains steady and a relatively new bright spot may be emerging as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle. Liz Ann also points out that tax reform—if we get it—would be an additional kicker, and the House's bill released today is garnering heavy scrutiny. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend and Vice President of Trading and Derivatives, Randy Frederick, discuss in the video, Where Does Tax Reform Stand?.

Friday's reports are not likely to sway already elevated expectations of a December Fed rate hike, which was reinforced by the Central Bank's monetary policy decision yesterday, but could impact the outlook for the frequency of rate hikes next year. We expected two-to-three rate hikes in 2018, meaning the market's expectations may have to rise to meet the Fed's as Liz Ann notes in her analysis of yesterday's decision titled, Fed Stands Pat in November; Gets Ready to Go in December.

Also, the markets are grappling with today's expected pick of Fed Governor Jay Powell as the next Chairman of the Central Bank by President Donald Trump, along with the release of the House tax reform bill and the Bank of England's decision to raise rates as expected.

For analysis of the Fed and President Donald Trump's pick for the next Chairman check out our article, Fed Chairman: Why Trump's Choice Matters. President Trump's expected pick of Fed Governor Jay Powell as the next Fed Chairman today is also fostering uncertainty and Schwab's Chief Fixed Income Strategist Kathy Jones and Randy Frederick discuss in the video, Should a Change in Fed Leadership Matter to Investors?.

Treasuries finished higher, with the yield on the 2-year note flat at 1.61%, while the yields on the 10-year note and the 30-year bond declined 3 basis points to 2.35% and 2.83%, respectively. Treasury yields and the U.S. dollar dipped amid the aforementioned fiscal and monetary policy uncertainties, as well as the Bank of England's decision to raise rates today.

Europe mixed, pound falls despite BoE rate hike, Asia mostly lower amid earnings

European equity markets finished mixed, with the markets grappling with the details of the U.S. tax reform bill that was released today, while digesting the expected rate hike by the Bank of England (BoE), which included a more dovish forecast for further increases. The British pound fell on the BoE's decision and outlook to help the U.K. markets move higher. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the changed global monetary policy landscape in his article, How the Shift by Central Banks May Affect the Stock Market. The markets also awaited the Fed leadership announcement in the U.S., while losses for financials were limited by a rally in shares of Credit Suisse Group AG (CS $16) on the heels of the company's sharp increase in profits. Markit reported that eurozone manufacturing output continued to depict solid growth. The euro traded higher versus the U.S. dollar and bond yields were lower.

Stocks in Asia finished mostly lower on some mixed earnings data in the region, while the markets digested yesterday's unchanged Fed monetary policy decision. Also, caution appeared to set in ahead of the Bank of England's monetary policy decision, as well as the release of the House's tax reform bill and President Trump's pick for the next head of the Fed in the U.S. Japanese equities gained ground. Australian securities dipped with financials seeing some pressure, while shares trading in mainland China and Hong Kong also declined. Stocks trading in South Korea and India finished lower. For analysis of the global market rally, see Schwab's Liz Ann Sonders' and Randy Frederick's video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?.

The international economic docket for tomorrow will yield reads on the services sector from China, India, Australia and the U.K., with Australia also expected to report retail sales.

Record High Rally Pauses

Charles Schwab: On the Market

Posted: 10/30/2017 4:15 PM EDT

Record High Rally Pauses

 

U.S. equities took a breather from their recent tech-fueled rally to fresh record highs ahead of a heavy slate of economic and earnings reports, with investors eyeing Dow member Apple's results and the Fed monetary policy decision later in the week. Caution also ensured amid uncertainty ahead of President Trump's pick for the next Fed Chief this week. Treasury yields and the U.S. dollar gave back some of their recent runs, despite an upbeat personal spending report and solid read on regional manufacturing activity. Crude oil and gold are moved higher.

The Dow Jones Industrial Average (DJIA) fell 85 points (0.4%) to 23,349, the S&P 500 Index decreased 8 points (0.3%) to 2,573, and the Nasdaq Composite ticked 2 points lower to 6,699. In moderate volume, 871 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.25 to $54.15 per barrel and wholesale gasoline lost $0.01 to $1.71 per gallon. Elsewhere, the Bloomberg gold spot price rose $2.87 to $1,276.22 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 94.50.

Lennar Corp. (LEN $56) announced an agreement to merge with CalAtlantic Group Inc. (CAA $49) in a transaction valued at $9.3 billion, including $3.6 billion of net debt. Under the terms of the deal, each share of CAA stock will be exchanged for 0.885 shares of LEN. Shares of CAA rallied over 20%, while LEN traded lower.

Vistra Energy Corp. (VST $19) and Dynegy Inc. (DYN $12) announced an agreement to combine, with the latter merging into the former, creating a company projected to have a market capitalization in excess of $10 billion. Under the terms of the deal, DYN shareholders will receive 0.652 shares of VST for each share owned. VST fell and DYN traded solidly higher.

Personal income and spending rise, with the latter topping forecasts

Personal income (chart) rose 0.4% month-over-month (m/m) in September, matching the Bloomberg forecast, and compared to August's unrevised 0.2% increase. Personal spending gained 1.0% last month, above expectations of a 0.9% increase, and versus August's unrevised 0.1% gain. The September savings rate as a percentage of disposable income was 3.1%. The PCE Deflator was 0.4% higher, in line with expectations and versus the prior month's unrevised 0.2% gain. Compared to last year, the deflator was 1.6% higher, matching estimates and compared to August's unrevised 1.4% rise. Excluding food and energy, the PCE Core Index was 0.1% higher m/m, matching expectations, and the index was 1.3% higher y/y, in line with estimates calling for it to match August's unrevised increase.

The Dallas Fed Manufacturing Activity Index unexpectedly jumped further into expansion territory (a reading above zero). The index rose to 27.6 in October—the highest since March 2006—from 21.3 in September, and versus forecasts of a dip to 21.0. Manufacturing activity has ramped up along with business capital spending (capex) and Schwab's Chief Investment Strategist Liz Ann Sonders points out that capex may be in for an even sharper recovery in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle.

Treasuries were higher, as the yield on the 2-year note decreased 2 basis points (bps) to 1.57%, while the yields on the 10-year note and the 30-year bond rate dropped 4 bps to 2.37% and 2.88%, respectively.

Treasury yields and the U.S. dollar have given back some gains seen as of late, that have come courtesy of Fed leadership speculation, an upbeat global economic outlook, and optimism regarding U.S. tax reform. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend and Vice President of Trading and Derivatives, Randy Frederick, discuss tax reform in the video, Where Does Tax Reform Stand?.

This week, earnings season will remain robust, but a fully-loaded economic calendar will likely go a long way in shaping market direction, continuing tomorrow with the S&P CoreLogic Case-Shiller Home Price Index, with economists anticipating that home prices in the 20-city composite increased 5.9% y/y during August and 0.40% m/m on a seasonally-adjusted basis, as well the Consumer Confidence Index, forecasted to have moved higher to a level 121.4 for October following the 119.8 posted in September. The Chicago Purchasing Managers Index will also be reported, expected to have moved lower for this month to a reading of 60.0 from the 65.2 registered in the month prior, while the Employment Cost Index will sum up the day's docket.

However, the headlining events for the week will likely be the midweek Federal Open Market Committee (FOMC) monetary policy decision, the ISM Manufacturing and non-Manufacturing 

Indexes, monthly auto sales, and the nonfarm payroll report.

A flood of upbeat earnings reports from some heavyweights in the tech sector bolstered the markets to end last week and Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers timely analysis of our outperform rating we have held for some time on the group in his latest, Schwab Sector Views: Technology Trick or Treat?. As noted in the latest Schwab Market Perspective: Stocks Aren't so Spooky, we believe the bull market will continue, and suggest investors remain at their target allocations, but worry a bit about complacency. Third quarter earnings season has been solid so far and economic growth has picked up. But the pick of the next Fed chair—expected this week—could cause an uptick in volatility. Globally earnings have been strong as well and are helping to support stocks, but geopolitical and trade issues could cause some consternation.

Europe and mixed ahead of monetary policy decisions, data

European equity markets finished mixed, with Spanish stocks rallying amid apparent eased political concerns as the Spanish government called for elections in December after taking control of Catalonia last week in response to the region's parliament declaring independence. Economic data in the region was mostly positive, with German retail sales rising for September, while eurozone economic confidence improved more than expected for this month. Global monetary policy remained in focus as this week's decisions in the U.S. and Japan will be followed by Thursday's announcement from the Bank of England amid the backdrop of stalled Brexit talks and last week's dovish takeaway from the European Central Bank's decision to trim and extend its stimulus measures. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market, and talks with Randy Frederick in the video about Is An Optimistic Outlook for Global Equities Warranted?. The euro and British pound traded higher versus the U.S. dollar, while bond yields in the region were lower.
 
Stocks in Asia finished mixed, with the markets taking a breather that has been bolstered by late last week's host of favorable earnings reports out of the U.S. tech sector. Japanese stocks finished flat, pausing from a recent run that has taken the island nation's markets to highs not seen since 1996, with the yen choppy and a report showing the nation's retail sales rose in line with forecasts. Also, traders awaited the Bank of Japan monetary policy decision tomorrow, which will be followed by Wednesday's Fed decision. Mainland Chinese stocks and those traded in Hong Kong were bogged down by flared-up concerns as the bond markets came under pressure. The upbeat earnings sentiment also supported markets in India and South Korea, while strength in the energy sector helped lift Australian securities.

A slew of data from Japan in addition to the Bank of Japan's monetary policy meeting will highlight tomorrow's international economic calendar, including employment data, industrial production, construction orders, housing starts and trade figures, while a look at China's manufacturing activity is set for release, as well as GDP, CPI, PPI and consumer spending from France, PPI and CPI from Italy, and CPI and GDP from the Eurozone.

Stocks Trade in Red Shade

Charles Schwab: On the Market

Posted: 8/23/2017 4:15 PM ET

Stocks Trade in Red Shade

U.S. stocks were unable to breech the unchanged mark during the trading session, closing lower as last night's speech by President Trump cast a shadow over global trade issues and has market participants pondering a possible government shutdown. Volume remained on the lighter side, while on Friday Fed Chair Yellen will speak at the Central Bank's annual symposium in Jackson Hole, WY. Treasury yields and the U.S. dollar were lower and crude oil prices and gold were higher. In other economic developments, Markit business activity reports indicated expansion in both the manufacturing and service sectors continued in August.

The Dow Jones Industrial Average (DJIA) declined 88 points (0.4%) to 21,812, the S&P 500 Index was 8 points (0.3%) lower at 2,444, and the Nasdaq Composite decreased 19 points (0.3%) to 6,278. In light-to-moderate volume, 682 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.58 to $48.41 per barrel and wholesale gasoline was up by $0.03 to $1.62 per gallon. Elsewhere, the Bloomberg gold spot price increased $5.35 to $1,290.42 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 93.16.

Lowe's Companies Inc. (LOW $73) reported Q2 earnings-per-share (EPS) of $1.68, or $1.57 ex-items, versus the $1.62 FactSet estimate, as revenues increased 6.8% year-over-year (y/y) to $19.5 billion, below the projected $19.6 billion. Q2 same-store sales rose 4.5% y/y, compared to the expected 4.3% increase. LOW lowered its full-year EPS outlook, while reaffirming its revenue guidance. Shares traded solidly lower.

Salesforce.com Inc. (CRM $93) posted Q2 EPS of $0.02, or $0.33 ex-items, versus the projected $0.32, with revenues rising 26.0% y/y to $2.6 billion, above the forecasted $2.5 billion. The company raised its full-year guidance slightly. Shares dipped.

Intuit Inc. (INTU $136) announced fiscal Q4 profits of $0.09 per share, or $0.20 ex-items, compared to the estimated $0.17, as revenues grew 12.0% y/y to $842 million, north of the forecasted $809 million. INTU issued Q1 and full-year EPS guidance that was below expectations, while its revenue outlook for the year came in above expectations. Shares finished lower.

American Eagle Outfitters Inc. (AEO $12) reported Q2 EPS of $0.12, or $0.19 ex-items, versus the $0.16 expectation, as revenues increased 3.0% y/y to $845 million, topping the estimated $824 million. Q2 same-store sales grew 2.0% y/y, compared to the 0.4% dip that was forecasted. AEO issued Q2 EPS guidance with a midpoint below projections, while its same-store sales outlook was roughly in line with expectations. Shares were nicely higher.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA points out in his latest article, Earnings may be about to do something they've never done before, the earnings estimates for the world's companies have risen back to $30 again for the fourth time in 10 years. Without a rise in earnings above $30, stock prices may find it difficult to move any higher. Thanks to solid global growth supporting all the major regions of the world a break out above $30 now appears more likely than it has in a decade. Read more on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop.

Business activity continues to show expansion, new home sales fall

The preliminary Markit U.S. Manufacturing PMI Index unexpectedly dipped to 52.5 in August, from July's 53.3 level and compared to the Bloomberg expectation of an increase to 53.5. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector this month accelerated more than expected, rising to 56.9 from July's 54.7 level, above forecasts calling for a rise to 55.0. Readings above 50 for both reports denote expansion in activity.

New home sales (chart) dropped 9.4% month-over-month (m/m) in July to an annual rate of 571,000, well below the forecasts calling for 610,000 units and the upwardly revised 630,000 unit pace in June. The median home price was up 6.3% y/y to $313,700. New home inventory increased to 5.8 months of supply at the current sales pace from 5.2 in June. Sales fell sharply m/m in the Northeast and West, dipped in the South, but were up in the Midwest. Y/Y, sales are down in all regions except the West. New home sales are based on contract signings instead of closings.

Tomorrow, the economic calendar will complete the July housing sales picture with the release of existing home sales, projected to show contract closings on previously-owned homes rose 0.5% m/m to an annual rate of 5.55 million units. As low inventory has led to an acceleration in home prices that has outpaced income growth, affordability is a major factor threatening the continued housing recovery. The price and supply data of the report are likely going to garner the highest scrutiny. For analysis of real estate stocks and the impact of the housing market on the other major sectors, check out Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: What Makes the World Go Around?, on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

The MBA Mortgage Application Index dipped 0.5% last week, following the previous week's 0.1% gain. The decline came as a 0.3% rise in the Refinance Index was more than offset by a 1.5% drop for the Purchase Index. The average 30-year mortgage rate remained at 4.12%.

Treasuries traded higher with the yield on the 2-year note dipping 2 basis points (bps) to 1.31%, the yield on the 10-year note dropping 5 bps to 2.17% and the 30-year bond rate declining 4 bps to 2.75%.

Treasury yields and the U.S. dollar remained choppy ahead of Friday's key Fed symposium in Jackson Hole, Wyoming, where Fed Chief Janet Yellen and European Central Bank (ECB) President Mario Draghi are expected to speak. Both regions face subdued inflation and modest economic expansion and the markets will likely be looking for clues to the timing of the beginning of the Fed's reduction of its behemoth balance sheet and whether the Central Bank has one more rate hike in it this year. Also, focus will be on if the ECB's Draghi delivers a new policy message on tapering its stimulus measures, though reports have speculated that he will not deliver any new policy commentary.

As noted in the latest Schwab Market Perspective: Volatility Returns!, the Federal Reserve is likely to embark on its quantitative tightening (QT) plan, in order to slowly unwind its bloated balance sheet. We have confidence that the Fed has little desire to jolt the financial markets, but it and the market are in uncharted territory as unwinding a $4.5 trillion balance has never been done historically. We continue to believe this will be an additional volatility-driver. Read more on the Markets & Economy page at www.schwab.com.

Tomorrow's economic calendar will also yield weekly initial jobless claims, forecasted to have moved higher to a level of 238,000 from 232,000 last week and the latest Kansas City Fed Manufacturing Index, expected to tick higher to 11 in August from the 10 registered in July with a reading above zero denoting expansion in activity.

Europe sees pressure after yesterday's gain, Asia mixed on trade concerns

European equities gave back some of yesterday's advance, with the euro gaining ground on the U.S. dollar after an upbeat economic report in the region. The markets also continued to grapple with exacerbated global trade and political uncertainty in the wake of a speech last night by U.S. President Donald Trump. The stock markets shrugged off Markit's preliminary read on eurozone business activity for August that showed growth in unexpectedly accelerated, led by the manufacturing sector. The British pound was lower versus the greenback and bond yields in the region finished mixed. ECB President Mario Draghi spoke today but offered no new clues to any policy shifts at the central bank, ahead of Friday's speech in Jackson Hole, Wyoming.

Schwab's Jeffrey Kleintop, CFA points out in his article, What are fund flows telling us about trends and risks in the global stock market?, the underlying distribution of money flows appears to be driven by fundamentals or diversification, rather than purely by performance or geopolitical risk aversion, suggesting a trend that is more deeply rooted (although some markets may be vulnerable in the event of an escalation of geopolitical risk). Investors may want to consider these trends as they consider the global diversification in their own portfolio. Read more on the Markets & Economy page at www.schwab.com.

Stocks in Asia finished mixed following yesterday's gains, with the markets grappling with exacerbated trade concerns amid recent actions by the U.S. toward China and as President Trump delivered a speech last night that appeared to raise concerns about the future of NAFTA and the possibility of a U.S. government shutdown. For a look at the global landscape, see Schwab's Jeffrey Kleintop's, CFA, article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Japanese equities increased on the heels of yesterday's drop in the yen and as a report showed the growth in the nation's manufacturing output accelerated slightly in August. Australian securities declined amid weakness in financials, healthcare and technology issues, and Chinese stocks dipped. Markets in Hong Kong were closed due to Typhoon Hato. Indian shares advanced, led by property-related stocks, and South Korean equities ticked higher.

Tomorrow, the international economic docket will yield the Leading Index from Japan, business confidence from France and GDP, the Index of Services and total business investment from the U.K.

Stocks Trade in Red Shade

Charles Schwab: On the Market

Posted: 8/23/2017 4:15 PM ET

Stocks Trade in Red Shade

U.S. stocks were unable to breech the unchanged mark during the trading session, closing lower as last night's speech by President Trump cast a shadow over global trade issues and has market participants pondering a possible government shutdown. Volume remained on the lighter side, while on Friday Fed Chair Yellen will speak at the Central Bank's annual symposium in Jackson Hole, WY. Treasury yields and the U.S. dollar were lower and crude oil prices and gold were higher. In other economic developments, Markit business activity reports indicated expansion in both the manufacturing and service sectors continued in August.

The Dow Jones Industrial Average (DJIA) declined 88 points (0.4%) to 21,812, the S&P 500 Index was 8 points (0.3%) lower at 2,444, and the Nasdaq Composite decreased 19 points (0.3%) to 6,278. In light-to-moderate volume, 682 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.58 to $48.41 per barrel and wholesale gasoline was up by $0.03 to $1.62 per gallon. Elsewhere, the Bloomberg gold spot price increased $5.35 to $1,290.42 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 93.16.

Lowe's Companies Inc. (LOW $73) reported Q2 earnings-per-share (EPS) of $1.68, or $1.57 ex-items, versus the $1.62 FactSet estimate, as revenues increased 6.8% year-over-year (y/y) to $19.5 billion, below the projected $19.6 billion. Q2 same-store sales rose 4.5% y/y, compared to the expected 4.3% increase. LOW lowered its full-year EPS outlook, while reaffirming its revenue guidance. Shares traded solidly lower.

Salesforce.com Inc. (CRM $93) posted Q2 EPS of $0.02, or $0.33 ex-items, versus the projected $0.32, with revenues rising 26.0% y/y to $2.6 billion, above the forecasted $2.5 billion. The company raised its full-year guidance slightly. Shares dipped.

Intuit Inc. (INTU $136) announced fiscal Q4 profits of $0.09 per share, or $0.20 ex-items, compared to the estimated $0.17, as revenues grew 12.0% y/y to $842 million, north of the forecasted $809 million. INTU issued Q1 and full-year EPS guidance that was below expectations, while its revenue outlook for the year came in above expectations. Shares finished lower.

American Eagle Outfitters Inc. (AEO $12) reported Q2 EPS of $0.12, or $0.19 ex-items, versus the $0.16 expectation, as revenues increased 3.0% y/y to $845 million, topping the estimated $824 million. Q2 same-store sales grew 2.0% y/y, compared to the 0.4% dip that was forecasted. AEO issued Q2 EPS guidance with a midpoint below projections, while its same-store sales outlook was roughly in line with expectations. Shares were nicely higher.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA points out in his latest article, Earnings may be about to do something they've never done before, the earnings estimates for the world's companies have risen back to $30 again for the fourth time in 10 years. Without a rise in earnings above $30, stock prices may find it difficult to move any higher. Thanks to solid global growth supporting all the major regions of the world a break out above $30 now appears more likely than it has in a decade. Read more on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop.

Business activity continues to show expansion, new home sales fall

The preliminary Markit U.S. Manufacturing PMI Index unexpectedly dipped to 52.5 in August, from July's 53.3 level and compared to the Bloomberg expectation of an increase to 53.5. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector this month accelerated more than expected, rising to 56.9 from July's 54.7 level, above forecasts calling for a rise to 55.0. Readings above 50 for both reports denote expansion in activity.

New home sales (chart) dropped 9.4% month-over-month (m/m) in July to an annual rate of 571,000, well below the forecasts calling for 610,000 units and the upwardly revised 630,000 unit pace in June. The median home price was up 6.3% y/y to $313,700. New home inventory increased to 5.8 months of supply at the current sales pace from 5.2 in June. Sales fell sharply m/m in the Northeast and West, dipped in the South, but were up in the Midwest. Y/Y, sales are down in all regions except the West. New home sales are based on contract signings instead of closings.

Tomorrow, the economic calendar will complete the July housing sales picture with the release of existing home sales, projected to show contract closings on previously-owned homes rose 0.5% m/m to an annual rate of 5.55 million units. As low inventory has led to an acceleration in home prices that has outpaced income growth, affordability is a major factor threatening the continued housing recovery. The price and supply data of the report are likely going to garner the highest scrutiny. For analysis of real estate stocks and the impact of the housing market on the other major sectors, check out Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: What Makes the World Go Around?, on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

The MBA Mortgage Application Index dipped 0.5% last week, following the previous week's 0.1% gain. The decline came as a 0.3% rise in the Refinance Index was more than offset by a 1.5% drop for the Purchase Index. The average 30-year mortgage rate remained at 4.12%.

Treasuries traded higher with the yield on the 2-year note dipping 2 basis points (bps) to 1.31%, the yield on the 10-year note dropping 5 bps to 2.17% and the 30-year bond rate declining 4 bps to 2.75%.

Treasury yields and the U.S. dollar remained choppy ahead of Friday's key Fed symposium in Jackson Hole, Wyoming, where Fed Chief Janet Yellen and European Central Bank (ECB) President Mario Draghi are expected to speak. Both regions face subdued inflation and modest economic expansion and the markets will likely be looking for clues to the timing of the beginning of the Fed's reduction of its behemoth balance sheet and whether the Central Bank has one more rate hike in it this year. Also, focus will be on if the ECB's Draghi delivers a new policy message on tapering its stimulus measures, though reports have speculated that he will not deliver any new policy commentary.

As noted in the latest Schwab Market Perspective: Volatility Returns!, the Federal Reserve is likely to embark on its quantitative tightening (QT) plan, in order to slowly unwind its bloated balance sheet. We have confidence that the Fed has little desire to jolt the financial markets, but it and the market are in uncharted territory as unwinding a $4.5 trillion balance has never been done historically. We continue to believe this will be an additional volatility-driver. Read more on the Markets & Economy page at www.schwab.com.

Tomorrow's economic calendar will also yield weekly initial jobless claims, forecasted to have moved higher to a level of 238,000 from 232,000 last week and the latest Kansas City Fed Manufacturing Index, expected to tick higher to 11 in August from the 10 registered in July with a reading above zero denoting expansion in activity.

Europe sees pressure after yesterday's gain, Asia mixed on trade concerns

European equities gave back some of yesterday's advance, with the euro gaining ground on the U.S. dollar after an upbeat economic report in the region. The markets also continued to grapple with exacerbated global trade and political uncertainty in the wake of a speech last night by U.S. President Donald Trump. The stock markets shrugged off Markit's preliminary read on eurozone business activity for August that showed growth in unexpectedly accelerated, led by the manufacturing sector. The British pound was lower versus the greenback and bond yields in the region finished mixed. ECB President Mario Draghi spoke today but offered no new clues to any policy shifts at the central bank, ahead of Friday's speech in Jackson Hole, Wyoming.

Schwab's Jeffrey Kleintop, CFA points out in his article, What are fund flows telling us about trends and risks in the global stock market?, the underlying distribution of money flows appears to be driven by fundamentals or diversification, rather than purely by performance or geopolitical risk aversion, suggesting a trend that is more deeply rooted (although some markets may be vulnerable in the event of an escalation of geopolitical risk). Investors may want to consider these trends as they consider the global diversification in their own portfolio. Read more on the Markets & Economy page at www.schwab.com.

Stocks in Asia finished mixed following yesterday's gains, with the markets grappling with exacerbated trade concerns amid recent actions by the U.S. toward China and as President Trump delivered a speech last night that appeared to raise concerns about the future of NAFTA and the possibility of a U.S. government shutdown. For a look at the global landscape, see Schwab's Jeffrey Kleintop's, CFA, article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Japanese equities increased on the heels of yesterday's drop in the yen and as a report showed the growth in the nation's manufacturing output accelerated slightly in August. Australian securities declined amid weakness in financials, healthcare and technology issues, and Chinese stocks dipped. Markets in Hong Kong were closed due to Typhoon Hato. Indian shares advanced, led by property-related stocks, and South Korean equities ticked higher.

Tomorrow, the international economic docket will yield the Leading Index from Japan, business confidence from France and GDP, the Index of Services and total business investment from the U.K.

Stocks Lower as DC Shuffle Continues

Charles Schwab: On the Market

Posted: 8/18/2017 4:15 PM ET

Stocks Lower as DC Shuffle Continues

Unable to hold gains, U.S. stocks finished to the downside but were off the lows of the day after battling back from morning pressure on the heels of reports that Steve Bannon, a key advisor to President Trump, submitted his resignation. Treasuries were slightly lower, crude oil prices rallied and the U.S. dollar and gold ticked to the downside. In equity news, Deere & Co just missed on its Q3 sales figures, while Foot Locker's results added to the recent woes for the retail sector. In economic news, consumer sentiment rose to its strongest level since January.

The Dow Jones Industrial Average (DJIA) lost 76 points (0.4%) to 21,675, the S&P 500 Index declined 4 points (0.2%) to 2,426, and the Nasdaq Composite shed 5 points (0.1%) to 6,217. In moderate volume, 921 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rallied $1.42 to $48.51 per barrel and wholesale gasoline was $0.03 higher at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price gained $1.54 to $1,286.60 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 94.42. Markets were lower for the week, as the DJIA decreased 0.8%, the S&P 500 Index fell 0.7% and the Nasdaq Composite was 0.6% lower.

Deere & Co. (DE $117) reported fiscal Q3 earnings-per-share (EPS) of $1.97, above the $1.93 FactSet estimate, as net sales of equipment grew 16.6% year-over-year (y/y) to $6.8 billion, just shy of the projected $6.9 billion. Shares were under heavy pressure.

Foot Locker Inc. (FL $34) posted Q2 profits of $0.39 per share, or $0.62 ex-items, versus the expected $0.90, as revenues decreased 4.4% y/y to $1.7 billion, south of the forecasted $1.8 billion. Q2 same-store sales fell 6.0% y/y, compared to the expected 0.8% gain. Shares fell sharply.

Gap Inc. (GPS $23) announced Q2 EPS of $0.68, or $0.58 ex-items, compared to the forecasted $0.52, on previously reported revenues of $3.8 billion. Q2 same-store sales grew 1.0% y/y, versus the estimated 0.1% increase. GPS raised its full-year EPS outlook. Shares gave up early gains and closed lower.

Ross Stores Inc. (ROST $59) rallied after the off-price retailer raised its full-year EPS guidance after posting Q2 earnings of $0.82 per share, above the forecasted $0.77, and same-store sales growth of 4.0% y/y that bested the 2.0% expectation. Revenues of $3.4 billion were roughly in line with estimates.

Expectations drive surprising jump in consumer sentiment

The preliminary University of Michigan Consumer Sentiment Index (chart) rose to 97.6 in August—the strongest since January's thirteen-year high—from the prior month's 93.4 level, and compared to the Bloomberg expectation for it to tick higher to 94.0. The current economic conditions component declined more than expected month-over-month, while the expectations measure posted the biggest jump since December 2011. The 1-year inflation forecast remained at July's 2.6% rate, while the 5-10 year inflation outlook dipped to 2.5% from 2.6%.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: What Makes the World Go Around?, the industrial sector is often overlooked but is at the center of much of what occurs in the global economy. Brad adds that high consumer confidence could help industrials, along with improving global growth and a solid U.S. economy. However, the diversity of the group and monetary and fiscal uncertainty keep us from upgrading the sector … for now. Read more on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

Treasuries finished mostly lower, with the yields on the 2-year and 10-year notes gaining 1 basis point (bp) to 1.31% and 2.19%, respectively, while the 30-year bond rate was nearly unchanged at 2.78%.

Treasury yields have been jittery, slipping to the downside this month, while the U.S. Dollar Index has shown some signs of relative stabilization. The markets have grappled with mostly upbeat economic data, though low inflation persists, and flared-up monetary policy uncertainty regarding the Fed and European Central Bank (ECB), while the growing dysfunction in the White House appears to be starting to impact sentiment. Finally, tensions between North Korea and the U.S. seem to be fading.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Twist and Shout: United States Takes on North Korea … Implications for Stocks we don't believe significant military escalation is the likely outcome of the battle of wills between President Trump and North Korea’s Kim Jong Un. But it is a year ending in "7" and there are other forces at work which could keep stocks in a choppy pattern for the next couple of months. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Europe pares losses, Asia mostly lower

European equities came off the worst levels of the day but remained mostly lower following yesterday's late-day drop in the U.S.. Risk aversion ramped back up as the exacerbated political dysfunction in the U.S. fostered concerns and the terror attack in Spain further weighed on sentiment. These added to already elevated geopolitical concerns on the heels of the recently ramped up concerns toward North Korea, along with flared-up monetary policy uncertainty toward the ECB and Fed. This comes ahead of next week's key Fed symposium in Jackson Hole, Wyoming, with heads of both central banks set to speak. Travel and leisure issues led to the downside following the terror attack in Spain. The euro was modestly higher and the British pound dipped versus the U.S. dollar, while bond yields in the region finished mixed. In economic news, eurozone construction output declined in June.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA points out in his article, What are fund flows telling us about trends and risks in the global stock market?, that the money coming into ETFs is flowing into a broad range of stock markets featuring a preference for international stocks and revealing a surprising disconnect with the performance and geopolitical risk of the underlying markets. Read more on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mostly lower on the heels of the drop in the U.S. yesterday, as the global markets rein in risk appetites in the face of political dysfunction in the U.S., along with Fed and ECB monetary policy uncertainty, while geopolitical concerns linger in the wake of the terror attack in Spain and amid the recently flare-up tensions between the U.S. and North Korea. Japanese equities fell with the yen rallying on the heightened risk aversion, while Australian securities decreased. Shares trading in Hong Kong and India were lower and South Korean stocks also dipped, but remained near all-time highs despite the North Korean uneasiness. However, mainland Chinese stocks finished flat. Amid this backdrop, Schwab's Jeffrey Kleintop, CFA, offers his articles, Missiles and Markets: An investor guide to geopolitical risks and The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page at www.schwab.com.

Back-to-back weekly loss as sentiment swings negative and volatility ticks higher

All looked well to begin the week, with fading tensions between North Korea and the U.S. helping the markets rebound from last week's drop. However, as the week matured sentiment swung to the negative side and volatility flared-up. The woes for the retail sector continued following disappointing guidance from Dow member Wal-Mart Stores Inc. (WMT $79), as well as reports from Coach Inc. (COH $40) and Dick's Sporting Goods Inc. (DKS $27), while Dow component Home Depot Inc's (HD $147) stronger-than-expected report failed to please the Street. Target Corp's (TGT $56) favorable results and a much stronger-than-expected July retail sales report were not enough to offset losses for the consumer discretionary sector. Q2 earnings season is all but in the books and profit growth for the S&P 500 is running just north of 9.0% and sales expansion above 5.0%, per data compiled by Bloomberg.

Moreover, a plethora events and reports this week suggesting growing dysfunction in the White House finally started to show signs of testing stock market resiliency, while minutes from July meetings by the Fed and ECB exacerbated monetary policy uncertainty. Risk aversion regained momentum to stymie an early-week rally in Treasury yields and lift the U.S. dollar, utilities and gold, while applying late-week pressure to market leaders technology and financials. Energy stocks led the weekly decline for the markets, despite Friday's spike in crude oil prices.

Volatility could remain next week as Federal Reserve Chairwoman Janet Yellen and ECB President Mario Draghi are set to speak Friday at the Central Bank's key symposium in Jackson Hole, Wyoming. Leading up to the speeches, next week's economic calendar will bring Markit's August business activity reports, July new and existing home sales, and the preliminary July durable goods report.

As noted in the latest Schwab Market Perspective: Volatility Returns!, Geopolitical, U.S. political and "bubble" concerns rose recently, putting a dent in the market's recent run. U.S. political turmoil is likely to keep market volatility elevated in the near term, along with the Fed's likely commencement of slowly unwinding its bloated balance sheet, but we believe the bull market still has legs. U.S. economic growth continues to be fairly healthy, and earnings season was positive for both bottom- and top-line growth; lending support to the bulls. But the storm in Washington is picking up velocity, especially as the upcoming debt ceiling fight looms large. Read more on the Markets & Economy page at www.schwab.com.

International reports due out next week that deserve a mention include: Japan—Consumer price inflation. Eurozone—Markit's business activity reports, along with German Q2 GDP and business and investor sentiment indexes. U.K.—Q2 GDP.

Stocks Stretch Win Streak to Five after Last Wednesday's Dive

Charles Schwab: On the Market

Posted: 5/24/2017 4:15 PM ET

Stocks Stretch Win Streak to Five after Last Wednesday's Dive

U.S. stocks continued to trend higher following the afternoon release of the minutes from the Fed's last meeting, which made reference to balance sheet normalization and after showing some early resiliency in the wake of a disappointing April existing-home sales report and a sovereign credit downgrade of China. Gold was higher, while the U.S. dollar, crude oil prices and Treasury yields were lower. In equity news, Dow member GE, along with Lowe's and Tiffany released some lackluster earnings reports, while Intuit, the maker of TurboTax, rallied sharply after announcing its quarterly results.

The Dow Jones Industrial Average (DJIA) increased 75 points (0.4%) to 21,012, the S&P 500 Index added 6 points (0.2%) to 2,404, and the Nasdaq Composite gained 24 points (0.4%) to 6,163. In moderately-light volume, 797 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil moved $0.11 lower to $51.36 per barrel and wholesale gasoline was $0.01 lower at $1.65 per gallon. Elsewhere, the Bloomberg gold spot price increased $5.93 to $1,257.15 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 97.12.

Lowe's Companies Inc. (LOW $80) reported Q1 earnings-per-share (EPS) of $0.70, or $1.03 ex-items, as revenues rose 10.7% year-over-year (y/y) to $16.9 billion, versus the projected $17.0 billion. Q1 same-store sales grew 1.9% y/y, below the forecasted 3.1% gain. LOW lowered its full-year profit outlook, while reaffirming its revenue and same-store sales guidance. Shares closed solidly lower.

Tiffany & Co. (TIF $85) posted Q1 EPS of $0.74, compared to the expected $0.70, with revenues rising 1.0% y/y to $900 million, below the projected $915 million. Q1 same-store sales declined 3.0% y/y, versus the estimated 1.6% increase. The upscale retailer said higher fashion and designer jewelry sales contrasted with softness in other categories. TIF maintained its earnings guidance for the year. Shares traded decisively lower.

Intuit Inc. (INTU $138) announced fiscal Q3 earnings of $3.70 per share, or $3.90 ex-items, versus the estimated $3.87, as revenues rose 10.3% y/y to $2.5 billion, roughly in line with projections. The maker of TurboTax said a "hard-fought" tax season delivered the revenue as it promised and its QuickBooks franchise saw continued momentum. INTU issued Q4 guidance that topped expectations and raised its full-year EPS and revenue outlooks. Shares rallied.

Dow member General Electric Co. (GE $28) saw some pressure after it reaffirmed its full-year EPS guidance, while Chief Executive Officer Jeffrey Immelt warned that its 2018 earnings estimate is at the high end of expectations where markets are today and hitting goals will require additional cost contingencies.

Existing home sales fall more than expected, Fed meeting minutes released 

Existing-home sales in April decreased 2.3% month-over-month (m/m) to a 5.57 million annual rate compared to the Bloomberg forecast of a 5.65 million pace, and down from March's negatively revised 5.70 million rate, which was the fastest pace since February 2007. Sales of single-family homes declined 2.4% m/m and purchases of multi-family structures decreased 1.6%, but both were up y/y. The median existing-home price was up 6.0% y/y at $244,800. Unsold inventory came in at a 4.2-month pace at the current sales rate, up from March's 3.8 months pace and the 4.6 months rate a year ago. Inventory of homes for sale is up 7.2% y/y. Sales declined in all regions except for the Midwest. Existing home sales are based on contract closings instead of signings and account for the majority of the housing sales market.

National Association of Realtors (NAR) Chief Economist Lawrence Yun said, "Demand is easily outstripping supply in most of the country and it's stymieing many prospective buyers from finding a home to purchase." The report follows yesterday's disappointing new home sales report, but as noted in the latest Schwab Market Perspective: Sell in May…or Settle In?, after a long downturn, we're starting to see an encouraging uptick in both home ownership and household formations. This suggests that consumer confidence is starting to translate into some economy-boosting action. Read more on the Markets & Economy page at www.schwab.com.

The MBA Mortgage Application Index rose 4.4% last week, following the previous week's 4.1% decline. The increase came as a 10.5% surge in the Refinance Index more than offset a 0.8% dip for the Purchase Index. The average 30-year mortgage rate dropped 6 basis points (bps) to 4.17%.

At 2:00 p.m. ET, the minutes from the Fed's May 2nd-3rd monetary policy meeting were released. The minutes noted that "members agreed that the slowing in growth during the first quarter was likely to be transitory," and after assessing current conditions Committee members agreed to maintain the target range for the federal funds rate at 3/4 to 1 percent. Additionally, the participants discussed issues pertaining to potential changes to the Committee's policy regarding reinvesting principal payments from securities in its System Open Market Account. Most policymakers favored an approach where the Committee would determine a set of slowly but surely increasing caps, or limits, on the dollar amounts of Treasury and agency securities that would be allowed to run off each month and to only allow the amounts of the repayments that exceeded the caps to be reinvested each month, with the final value of the caps to be maintained until the size of the balance sheet is normalized. It was agreed that discussions of potential changes to the Committee's reinvestment policy will be continued in its June 13th-14th meeting.

Schwab’s Chief Investment Strategist Liz Ann Sonders points out in her video, June Rate-Hike Highly Likely?, on the Insights & Ideas page at www.schwab.com, with Vice President of Trading and Derivatives, Randy Frederick, that shrinking the Fed balance sheet is a form of policy tightening and we are probably going to hear a lot more about a transition from quantitative easing (QE) to quantitative tightening (QT). Liz Ann addresses the question of why shrink the balance sheet now in her latest article, Gimme Three Steps … and a Stumble?, noting that allowing the balance sheet to shrink gives ammunition back to ease policy when the next recession occurs. But the Fed is navigating uncharted waters in trying to shrink such a gargantuan balance sheet; which is why the process is likely to be very gradual, but also why periods of market volatility could ensue. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann and Randy on Twitter: @lizannsonders and @randyafrederick.

Tomorrow, the U.S. economic calendar will include wholesale inventories, expected to have increased 0.2% to match the previous month's rise, weekly initial jobless claims, forecasted to have ticked higher to level of 238,000 from 232,000 and the Kansas City Fed Manufacturing Index, anticipated to have increased to a level of 10 from April's 7, with a level above 0 indicating expansion in activity.

Treasuries traded higher, with the yields on the 2-year and 10-year notes declining 3 bps to 1.29% and 2.25%, respectively, while the 30-year bond rate ticked 2 bps lower to 2.92%. For analysis of the bond markets, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, where you can also find Schwab's Randy Frederick's and Chief Fixed Income Strategist, Kathy Jones' video, Fed Rate-Hike Cycle: How Can Bond Investors Prepare? Follow Kathy and Schwab on Twitter: @kathyjones and @schwabresearch.

Europe mostly lower, Asia mostly higher

European equities finished mostly to the downside, with caution appearing to prevail ahead of today's release of the Fed's May meeting minutes in the U.S. and tomorrow's OEPC meeting, which is highly-expected to result in an extension of production cuts. Crude oil prices were choppy following a recent rally in anticipation of the extended production cuts, while oil inventories in the U.S. fell more than expected again. For a look at the energy sector, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Is Energy an Opportunity or a Trap?, on the Markets & Economy page at www.schwab.com. The markets digested the credit rating downgrade of China by Moody's Investor Service, which was accompanied by a change to the country's outlook to stable from negative. Basic materials were slightly lower on the downgrade. Germany reported another favorable sentiment gauge, as the nation's consumer confidence unexpectedly improved for June. The euro and British pound declined modestly versus the U.S. dollar and bond yields in the region traded mixed.

Political and geopolitical uncertainty lingered ahead of elections in the eurozone and U.K. later this year, while U.S. President Donald Trump continues his first international trip, and in the wake of this week's deadly terrorist attack in the U.K. and last weekend's missile test by North Korea. For analysis, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, as well as Jeff's article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mostly to the upside, with conviction being held in check ahead of today's May meeting minutes from the Fed in the U.S., and tomorrow's OPEC meeting that is expected to deliver an extension of production cuts. The markets shrugged off the downgrade of China's credit rating by Moody's Investor Service, which noted a possible "material rise" in economy-wide debt and the potential for economic growth to slow. However, Moody's changed its outlook for the country to stable from negative. Shares trading in both mainland China and Hong Kong ticked higher amid a late-session rebound. For a discussion on China and the emerging market landscape, see Schwab's Director of International Research, Michelle Gibley's CFA, article, 5 Big Risks Posed by China (And Why They Shouldn't Crash Global Markets in 2017) on the International Investing page at www.schwab.com, as well as her latest, Different Drivers: Why Emerging Market Stocks Aren't All the Same on the Insights & Ideas page at www.schwab.com. Japanese equities rose, aided by some weakness in the yen. Australian and South Korean securities advanced, while Indian stocks declined, retreating modestly from near record highs, amid some recent mixed earnings reports.

The international economic docket for tomorrow will be light, yielding industrial orders from Italy and GDP and business investment from the U.K.