Stocks Trade Down Despite Upbeat Domestic Data

Charles Schwab: On the Market

Posted: 1/19/2017 4:15 PM ET

Stocks Trade Down Despite Upbeat Domestic Data

U.S. stocks traded lower despite some strong domestic economic reports and ahead of tomorrow's inauguration of President-elect Trump. Treasuries and gold were lower, while the U.S. dollar and crude oil prices were higher. In equity news, earnings were in focus, headlined by solid results from Netflix.

The Dow Jones Industrial Average (DJIA) decreased 72 points (0.4%) to 19,732, the S&P 500 Index was 8 points (0.4%) lower at 2,264 and the Nasdaq Composite declined 16 points (0.3%) to 5,540. In moderate volume, 753 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.23 to $52.12 per barrel and wholesale gasoline shed $0.02 to $1.53 per gallon. Elsewhere, the Bloomberg gold spot price ticked $0.44 higher to $1,204.74 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 0.2% to 101.12.

Netflix Inc. (NFLX $138) reported 4Q EPS of $0.15, above the $0.13 FactSet estimate, on a 35% year-over-year (y/y) jump in revenues to $2.4 billion, slightly above the $2.3 billion forecast. The media streaming service provider said an addition of 5.12 million net international subscribers drove quarterly growth, well above estimates of 3.75 million, and that it added 1.93 million net domestic subscribers, also above projections. Shares rallied.

Shares of CSX Corp. (CSX $46) finished solidly higher after the Wall Street Journal reported that Harrison Hunter, outgoing Chief Executive Officer of Canadian Pacific Railways Ltd. (CP $150), will team up with activist investor Paul Hilal to take on CSX in pursuit of a leadership position at the U.S. railway, according to a person familiar with the matter. Billionaire hedge fund manager Bill Ackman, who Hilal worked with for years before starting his own fund, recruited Hunter five years ago to instigate a successful proxy fight against CP to replace it’s then-CEO, Fred Green by mid-2012. CP announced that Keith Creel will replace Hunter and become President and CEO effective Jan 31, 2017. Shares of CP were higher, as the news overshadowed its earnings miss, and lower-than-expected revenues for the 4Q.

BB&T Corp. (BBT $45) posted a 4Q profit, excluding charges, of $0.73 per share, in line with the FactSet estimate, on revenues of $2.7 billion, a shade lower than the $2.8 billion expected. The North-Carolina lender’s Chairman and CEO Kelly S. King said, "While higher interest rates created $34M in pre-tax charges, revenue growth was strong, expense control was solid and we are well-positioned for future interest rate increases." Shares traded lower.

Economic news upbeat

Housing starts (chart) for December rose 11.3% month-over-month (m/m) to an annual pace of 1,226,000 units, above the Bloomberg forecast of a 1,200,000 unit rate. November starts were upwardly revised to an annual pace of 1,102,000. Single-family units rose a modest 4.0% m/m, and multi-unit construction jumped a whopping 53.9% m/m, while both indicators were also higher compared to last year. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, inched 0.1% lower m/m in December to an annual rate of 1,210,000, after November’s favorably revised 1,212,000 rate, and below the expected annual pace of 1,230,000 units. Permits for single-family and multi-family units were higher m/m. Compared to the same period last year, single family permits were up, while multi-family permits were lower.

Weekly initial jobless claims (chart) declined 15,000 to 234,000 last week, below forecasts of 254,000, with the prior week’s figure revised to 249,000 from 247,000. The four-week moving average decreased by 10,250 to 246,750, the lowest level in the average since November 1973, while continuing claims fell by 47,000 to 2,046,000, south of estimates of 2,083,000.

The Philly Fed Manufacturing Index (chart) in January jumped further into a level depicting expansion (a reading above zero) after surging to 23.6 from 19.7 in December, and compared to estimates of a decline to 16.0.

Treasuries were mostly lower with the yield on the 2-year note nearly unchanged at 1.22%, the yield on the 10-year note advancing 4 bps to 2.47%, and the 30-year bond rate increasing 3 bps to 3.04%.

Treasury yields and the U.S. dollar have seen erratic moves as of late, courtesy of ramped up political uncertainty ahead of President-elect Donald Trump's inauguration this week and volatility in the currency markets following comments from Trump, as well as Brexit remarks from U.K. Prime Minister May. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the bond markets and the recent rally in the greenback in her articles, Changing Conditions: A Bond Market FAQ and Will the U.S. Dollar Bull Market Continue in 2017?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

Tomorrow, the U.S. economic calendar will be void of any major releases.

Europe and Asia mixed

European equities finished mixed, paring an early lift from strong economic data in the U.S., after dovish comments from European Central Bank (ECB) President Mario Draghi following the Central Bank’s decision to leave its benchmark interest rate unchanged, as widely expected. The ECB also kept its asset purchase program in place, where it will continue its purchases of 80 billion euros until March, at which time it will then lower that amount to 60 billion euros through the rest of the year. At his customary press conference following the decision, Draghi elicited a dovish tone, indicating that the recent uptick in inflation was due to oil and base effects. Draghi also reiterated the ECB’s recent stance that it would increase the size and scope of its quantitative strategy in the event that financial conditions tightened or its outlook worsened. Other economic news in the region was light, with Spain’s trade deficit narrowing in November, while prices at the wholesale level in Switzerland were a bit cooler than forecasts. The euro cooled and was modestly lower following Draghi’s comments, and the British pound gained ground vs. the U.S. dollar, while bond yields in the region were higher.

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

Stocks in Asia finished mixed in lackluster trading ahead of the inauguration of U.S. President-elect Donald Trump, as concerns over potential trade policy changes lingered, while a host of key Chinese economic data is slated for release tonight. Japanese equities rose, buoyed by a continued decline in the yen versus the U.S. dollar, while Australian listings gained ground following a better-than-expected employment report in the nation. Chinese stocks lost ground, with yesterday’s decline in crude oil a drag on energy issues. Liquidity/currency concerns remained a focus as the government injected funds into the system ahead of the Lunar New Year holiday, which begins at the end of this month. Some caution may have also kept markets in the Asian nation in check ahead of the release of its 4Q GDP report tonight, as well as Friday’s upcoming inauguration of President-elect Trump. For more on China, 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).

Indian securities advanced and South Korean equities inched higher as the recent volatility in the U.S. dollar continues to be a factor on emerging markets. Schwab's Michelle Gibley, CFA, offers timely analysis of emerging markets in her latest article, Emerging Markets: Why They Deserve a Place in Your Portfolio at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

The international economic docket for tomorrow will include department store sales from Japan, PPI from Germany and retail sales from the U.K. In addition to the aforementioned Chinese GDP report, the country is expected to deliver reads on industrial production and retail sales.

Stocks Flat on Data and Political Uncertainty

Charles Schwab: On the Market

Posted: 1/18/2017 1:15 PM ET

Stocks Flat on Data and Political Uncertainty

U.S. stocks are little changed and European equites finished mixed, with the global markets digesting a plethora of divergent earnings and economic data, as well as flared-up political uncertainty ahead of Friday's inauguration of President-elect Donald Trump. Energy stocks are being bogged down by falling crude oil prices while Treasury yields and the U.S. dollar are recovering from yesterday's drops. Gold is trading lower.

At 12:51 p.m. ET, the Dow Jones Industrial Average is dipping 0.2%, the S&P 500 Index is flat, and the Nasdaq Composite is ticking 0.1% higher. WTI crude oil is falling $1.14 to $51.34 per barrel, Brent crude oil is dropping $1.27 to $54.20 per barrel, and wholesale gasoline is off $0.04 at $1.56 per gallon. Elsewhere, the Bloomberg gold spot price is declining $4.12 to $1,212.95 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is rising 0.4% at 100.74.

Dow member Goldman Sachs Group Inc. (GS $234) reported 4Q earnings-per-share (EPS) of $5.08, above the FactSet estimate of $4.76, with revenues rising 12.3% year-over-year (y/y) to $8.2 billion, topping the projected $7.8 billion. The company said after a challenging first half, it performed well for the remainder of the year as the operating environment improved. Shares are lower in choppy action.

Target Corp. (TGT $67) lowered its 4Q and full-year guidance after reporting that its same-store sales for the holiday period decreased 1.3% y/y. TGT noted early season sales softness and disappointing traffic and sales trends. Shares are solidly lower.

Citigroup Inc. (C $57) posted 4Q EPS of $1.14, above the expected $1.12, as revenues declined 8.0% y/y to $17.0 billion, below the forecasted $17.3 billion. Net interest margin came in below the Street's forecasts. C is trading to the downside.

CSX Corp. (CSX $37) announced 4Q earnings of $0.49 per share, one penny below the estimated $0.50, with revenues rising 9.0% y/y to $3.0 billion, above the projected $2.9 billion. Shares are losing ground.

United Continental Holdings Inc. (UAL $74) reported 4Q EPS ex-items of $1.78, north of the estimated $1.73, as revenues ticked 0.2% higher y/y to $9.1 billion, slightly above the expected $9.0 billion. 4Q passenger revenue per available seat mile (PRASM), a key industry metric, declined 1.6% y/y. UAL is trading lower.

CPI matches forecasts, homebuilder sentiment dips and industrial production rebounds

The Consumer Price Index (CPI) (chart) was up 0.3% month-over-month (m/m) in December, in line with the Bloomberg estimate, while November's 0.2% increase was unrevised. The core rate, which strips out food and energy, rose 0.2% m/m, matching expectations and November's unrevised rise. Y/Y, prices were 2.1% higher for the headline rate, in line with forecasts, while the core rate was up 2.2%, matching projections. November y/y figures showed an unrevised 1.7% rise and an unadjusted 2.1% increase for the headline and core rates respectively.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month dipped to 67 compared to expectations for it to remain at December's downwardly revised 69 level, which was still the highest since before the housing crisis. A 50 mark separates good and poor conditions.

Tomorrow, the economic calendar will bring a look at December housing construction activity, in the form of housing starts and building permits, with starts forecasted to rebound 8.9% m/m to an annual rate of 1,187,000 units, and permits projected to rise 1.1% to an annual rate of 1,225,000 units. Starts fell in November from October's highest rate since July 1982 and the housing market has added to our view in the latest Schwab Market Perspective: A Perfect Mix?, that economic data and corporate earnings growth are conspiring with a boost in consumer and business confidence to ignite "animal spirits." Read more at www.schwab.com/marketinsight.

Industrial production (chart) rose 0.8% m/m in December, compared to estimates of a 0.6% increase, and following November's downwardly revised 0.7% drop. Manufacturing production ticked 0.2% higher m/m and utilities output jumped, while mining production were flat. Capacity utilization rose to 75.5% from November's downwardly revised 74.9%, and compared to projections for a 75.4% rate. Capacity utilization is 4.5 percentage points below its long-run average.

The MBA Mortgage Application Index increased 0.8% last week, following the previous week's 5.8% gain. The increase came as the Refinance Index jumped 6.8%, more than offsetting a 5.2% drop for the Purchase Index. The average 30-year mortgage rate fell 5 basis points (bps) to 4.27%.

Treasuries are lower in afternoon action, with the yield on the 2-year note rising 3 bps to 1.18%, the yield on the 10-year note gaining 5 bps to 2.38%, and the 30-year bond rate advancing 4 bps to 2.98%.

Treasury yields and the U.S. dollar are regaining some of yesterday's pullbacks that came courtesy of ramped up political uncertainty ahead of President-elect Donald Trump's inauguration this week and volatility in the currency markets following Brexit comments from U.K. Prime Minister May. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the bond markets and the recent rally in the greenback in her articles, Changing Conditions: A Bond Market FAQ and Will the U.S. Dollar Bull Market Continue in 2017?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

Today's robust economic calendar will culminate with the Fed in focus, courtesy of the 2:00 p.m. ET release of the Fed's Beige Book—an anecdotal look at national economic activity—used as a tool by the Federal Open Market Committee (FOMC) to prepare for its two-day monetary policy meeting scheduled to end February 1st. Finally, Federal Reserve Chairwoman Janet Yellen is scheduled to talk in the final hour of trading at the Commonwealth Club in San Francisco.

With the stock markets remaining near record levels, Schwab’s Chief Investment Strategist Liz Ann Sonders offers her latest article, Not Fade Away: Will High Consumer/Business Confidence Fade or Persist?, at www.schwab.com/marketinsight, and be sure to check out our article, The Trump Effect: Can the Post-Election Rally Continue at www.schwab.com/insights. Follow Liz Ann and Schwab on Twitter: @lizannsonders and @schwabresearch.

Europe mixed following yesterday's wild ride in the currency markets

European equities finished mixed, following some divergent earnings and economic data, while the British pound reversed some of yesterday's rally and the U.S. dollar gained back some of yesterday's slide. The volatility in the currency markets has come from comments from U.S. President-elect Donald Trump and U.K. Prime Minister (PM) May. Trump noted that the U.S. dollar was already "too strong," while U.K. PM May eased "hard" Brexit concerns, despite saying that the country will seek to exit the European Union's (EU) single market. May noted that the U.K. parliament will get a vote on the final Brexit deal and adding that she was confident a deal can be reached with the EU and will seek a "smooth and orderly Brexit." For commentary on the Brexit vote fallout, see Schwab's Director of International Research, Michelle Gibley's, CFA, article, Keep Calm and Carry On: The Brexit Shock That Wasn't. Eurozone consumer price inflation rose in line with forecasts for December, while U.K. employment fell by a smaller amount than anticipated in November. The euro was lower versus the greenback and bond yields in the region traded mostly to the upside. Shares of Burberry Group PLC. (BURBY $20) gained solid ground after the U.K. luxury retailer offered upbeat 3Q results, while Pearson PLC. (PSO $7) tumbled after the British publisher cut its profit outlook.

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

The U.K. FTSE 100 Index was up 0.4%, Germany's DAX Index rose 0.5%, France's CAC-40 Index and Spain's IBEX 35 Index dipped 0.1%, Switzerland's Swiss Market Index ticked 0.1% higher, and Italy's FTSE MIB Index advanced 0.3%.

Trump, Brexit Uncertainty Sap Stocks, Dollar

Charles Schwab: On the Market

Posted: 1/17/2017 4:15 PM ET

Trump, Brexit Uncertainty Sap Stocks, Dollar

U.S. equities finished the first trading session of a shortened week lower, as comments from President-elect Donald Trump ahead of his inauguration this week sparked some political uncertainty, pressuring the U.S. dollar. Moreover, the British pound rallied as U.K. Prime Minister May offered details of her country's Brexit plans. A continued pullback in Treasury yields pressured financials, despite stronger-than-expected quarterly results from Morgan Stanley. Meanwhile, gold jumped and crude oil prices ticked higher.

The Dow Jones Industrial Average (DJIA) decreased 59 points (0.3%) to 19,827, the S&P 500 Index was 7 points (0.3%) lower at 2,268 and the Nasdaq Composite declined 35 points (0.6%) to 5,539. In moderate volume, 882 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.11 higher to $52.48 per barrel and wholesale gasoline lost $0.01 to $1.60 per gallon. Elsewhere, the Bloomberg gold spot price rose $13.03 to $1,215.76 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—tumbled 0.8% to 100.36.

Morgan Stanley (MS $42) reported 4Q earnings-per-share (EPS) of $0.81, above the $0.65 FactSet estimate, as revenues rose 16.9% year-over-year (y/y) to $9.0 billion, topping the projected $8.5 billion. The company said it had solid results in its sales & trading and advisory unit, and record revenues in wealth management, while managing expenses prudently. MS added that it is optimistic about opportunities in 2017 and beyond. Shares finished solidly lower.

Dow member UnitedHealth Group Inc. (UNH $161) posted 4Q EPS ex-items of $2.11, versus the expected $2.07, as revenues rose 8.9% y/y to $47.5 billion, north of the projected $47.4 billion. UNH reaffirmed its 2017 guidance, though the outlook was mostly below expectations. Shares came under pressure. .

Tiffany & Co. (TIF $80) announced that its same-store sales for the holiday period declined 2.0% y/y, while noting that it expects 2016 EPS to decline by no more than a mid-single digit percentage. Shares were lower.

J.C. Penney Co. Inc. (JCP $7) announced an agreement with Dow member Nike Inc. (NKE $54) to put Nike shops in over 600 JCP stores. Shares of both companies were higher.

Reynolds American Inc. (RAI $58) gained solid ground after British American Tobacco PLC. (BTI $113) announced a deal where it will acquire the remaining 57.8% of RAI that it does not already own for $59.64 per share in cash and stock, in a deal valued at about $49.4 billion.

Growth in regional manufacturing activity slows more than expected

The Empire Manufacturing Index showed output from the New York region slipped but remained in expansion territory (a reading above zero) for January. The index declined to 6.5 from December's downwardly revised 7.6 level, with the Bloomberg forecast calling for an 8.5 reading.

Today's data kicks off another shortened week for the U.S. markets, with a heating up 4Q earnings season continuing to vector some attention away from the economic calendar, which will begin to heat up tomorrow with the release of the Consumer Price Index (CPI), forecasted to have increased 0.3% month-over-month (m/m) during December, following the 0.2% m/m rise in November, while the core rate, which excludes food and energy, is expected to have risen 0.2% m/m, matching the prior month's reading, as well as the Federal Reserve's industrial production and capacity utilization report, with economists expecting a 0.6% m/m increase in production, rebounding from the 0.4% m/m decline, and for capacity utilization to have ticked higher to 75.4% from November's 75.0% level. Rounding out the day will be the January NAHB Housing Market Index, forecasted to show a reading of 69, a shade lower than the 70 registered in December, but well above the 50 level that marks the demarcation point of homebuilders characterizing the housing market as good versus poor.

As noted in the Schwab Market Perspective: A Perfect Mix?, the conditions for a continuation of the long-running equity bull market appear to be intact. The recent digestion of gains since the election is a healthy process as it forestalls a potentially dangerous "melt-up" scenario, at least for now. Economic data and corporate earnings growth are conspiring with a boost in consumer and business confidence to ignite "animal spirits." Add in a Federal Reserve that is slowly normalizing monetary policy, but still remains accommodative, and we see a good mix for further equity gains. Manufacturing has rebounded around the globe, and could continue on a positive trajectory in the first half of 2017. Read more at www.schwab.com/marketinsight.

Treasuries were higher, with the yield on the 2-year note declining 5 basis points (bps) to 1.14%, the yield on the 10-year note dropping 7 bps to 2.33%, and the 30-year bond falling 6 bps to 2.93%.

Treasury yields and the U.S. dollar are pulling back amid posturing on comments from President-elect Donald Trump ahead of his inauguration this week and as the British pound is rallying following Brexit comments from U.K. Prime Minister May. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the bond markets and the recent rally in the greenback in her articles, Changing Conditions: A Bond Market FAQ and Will the U.S. Dollar Bull Market Continue in 2017?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

Against the backdrop of the late-2016 rally in the stock markets, Schwab’s Chief Investment Strategist Liz Ann Sonders and Vice President of Trading and Derivatives, Randy Frederick offer their latest video, Record Territory: Could the Bull Market Continue in 2017? Watch the video at www.schwab.com/insights, where you can also find Senior Vice President of the Schwab Center for Financial Research, Mark Riepe's, CFA, latest podcast, 7 Principles for Investing Success, as well as our 2017 Schwab Market Outlook.

Europe mostly lower, Asia mixed as traders digest comments out of U.S. and U.K.

European equities finished mostly lower, with the currency markets in focus following comments from U.S. President-elect Donald Trump and U.K. Prime Minister (PM) May. Trump noted that the U.S. dollar was already "too strong," while U.K. PM May eased "hard" Brexit concerns, despite saying that the country will seek to exit the European Union's (EU) single market. May noted that the U.K. parliament will get a vote on the final Brexit deal and adding that she was confident a deal can be reached with the EU and will seek a "smooth and orderly Brexit." The British pound rallied sharply and the U.S. dollar fell noticeably. For commentary on the Brexit vote fallout, see Schwab's Director of International Research, Michelle Gibley's, CFA, article, Keep Calm and Carry On: The Brexit Shock That Wasn't. German investor confidence improved in January but by a smaller amount than expected. The euro gained ground on the greenback and bond yields in the region finished mostly to the downside.

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

Stocks in Asia finished mixed, ahead of a speech by U.K. Prime Minister May on Brexit plans, while the U.S. dollar is falling in the wake of comments from U.S. President-elect Donald Trump, which warned that the greenback is too strong while suggesting he is open to changes in global trade policy, notably with China. For more on Trump's trade policies, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, President Trump and Global Trade: How Will Campaign Promises Play Out? at www.schwab.com/oninternational. Japanese equities fell sharply, with the yen gaining ground amid the U.S. dollar's drop, while broad-based weakness led Australia's markets lower. However, mainland Chinese stocks and those in Hong Kong advanced, with the markets in China snapping a string of weakness, bolstered by the government's efforts to boost liquidity ahead of the Lunar New Year holiday, which will begin at the end of this month. Also, a host of China data is slated for this week, headlined by the release of its 4Q GDP report. For more on China, 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) at www.schwab.com/oninternational.

South Korean stocks gained ground, though stocks in India declined, despite some strength in emerging market currencies in the wake of the pressure on the greenback. Schwab's Michelle Gibley, CFA, offers timely analysis of emerging markets in her latest article, Emerging Markets: Why They Deserve a Place in Your Portfolio at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

Tomorrow's international economic calendar will offer CPI from Germany and the Eurozone, as well as employment data from the U.K.