Financial Review

Holy Cow

Sinclair Noe — November 2, 2016

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DOW – 77 = 17,959
SPX – 13 = 2097
NAS – 48 = 5105
10 Y – .02 = 1.80%
OIL – 1.16 = 45.51
GOLD + 8.70 = 1297.50

The Federal Reserve wrapped up a two-day meeting of its policy-making committee, and delivered the expected news that it would not adjust rates during the final days of a presidential election. However, the Fed’s post-meeting statement reinforced expectations that Fed officials do not plan to wait much longer.

The Federal Open Market Committee issued a statement that said: “The committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives,” adding “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.”

The Fed’s assessment of economic conditions was also just a little more upbeat than the September statement. The most significant change reflected evidence of stronger inflation. The November statement said inflation “has increased somewhat,” rising closer to the Fed’s preferred annual pace of 2 percent.

The health of the economy has continued to improve. The unemployment rate stood at 5 percent in September, close to a historically normal level. Inflation rose 1.2 percent over the 12 months ending in September, up from 0.8 percent during the 12 months ending in July. And the economy expanded at an annual pace of 2.9 percent in the third quarter.

Fed fund futures are now pricing in an 80% chance of a rate hike in December, but that is not a guarantee. The Fed has repeatedly backed away from planned increases when the economic data has taken a turn for the worse. And the biggest uncertainty right now is the election Tuesday.

The S&P 500 index has dropped for the past 7 trading sessions and yesterdays’ declines saw the benchmark index drop below key support levels. It is longest losing streak in five years, and it happens to be one of the strangest slumps in recent history as well. The last time the index fell for seven straight days was in late November 2011, when the market tanked 8.6%.

Back then investors were gripped by fears over the Eurozone economy and the so-called fiscal cliff. But the current pullback is very shallow, with the index down only 2.5%, having fallen less than 1% at each of those days. What is even stranger is the fact that the S&P 500 has been positive at some point in each of the last seven sessions before ending in negative territory.

The big earnings report today came after the closing bell. Facebook reported a 55 percent rise in quarterly revenue, to $7 billion, beating analysts’ average estimate of $6.9 billion. Net income jumped to $2.37 billion, or 82 cents per share, in the quarter from $891 million, or 31 cents per share, in the third quarter of 2015. Excluding items, the company earned $1.09 per share. On that basis, analysts had expected 97 cents per share.

Facebook said about 1.79 billion people were using its site monthly, up 16 percent from a year earlier. Facebook gained 80 million monthly users in the third quarter and for the first time now has more than 1 billion daily users on mobile.

Shares have been down for 8 straight sessions in Europe with major indices in Germany, France, the UK and Spain all dropping more than 1% today on weak corporate earnings. Germany’s Lufthansa announced its adjusted earnings before interest and taxes fell 6.5% in Q3, while Denmark’s Maersk reported quarterly profits that slumped 43% on lower freight prices.

Payroll provider ADP said that businesses added 147,000 jobs in October, down from 202,000 in September, a figure that was revised strongly higher. The hiring was led by hotels, restaurants and entertainment firms, which added 38,000 positions, followed by health care, which gained 34,000.

Manufacturers shed 1,000 jobs and construction companies cut 15,000. The ADP data cover only private businesses and often diverge from the official figures, but is used as a guide to the government’s monthly jobs report.

Hackers linked to the Russian military have exploited a previously undisclosed Windows security flaw, according to Microsoft, as President Putin looks to strip the software out of government offices and firms. Senior intelligence officials say Putin is planning to replace all foreign software with domestic alternatives, and has already blocked LinkedIn, which is being bought by Microsoft.

A major gasoline pipeline that is a crucial supply source for the U.S. East Coast could reopen as early as Saturday after an explosion in Alabama killed one worker and injured five others. Gasoline futures shot up as much as 15%yesterday on the New York Mercantile Exchange, but gave back gains in the afternoon on news of the weekend reopening. The 5,500-mile Colonial Pipeline is owned by Koch Industries, Royal Dutch Shell and others.

A barrel of West Texas Intermediate dropped below $46 a barrel. The market remains weighed down by record output from the world’s largest exporters, and mounting uncertainty that OPEC and its rivals can do much to tackle a two-year global surplus. The drop in crude prices and the structure of Brent futures means that oil traders can once again take advantage of contango – where oil for delivery today is cheaper than oil in future months – by storing oil in tankers at sea.

Chinese online shopping giant Alibaba Group reported a 55 percent rise in second-quarter revenue, beating analyst estimates on the back of core e-commerce sales and strong media and entertainment growth.

Yum China (ticker symbol YUMC) officially began trading today after spinning off from Yum Brands (ticker symbol YUM)—the fast-food operator behind Taco Bell, Pizza Hut, and KFC restaurants.

And the company—with over 20,000 KFC units, 16,000 Pizza Hut units, and 6,000 Taco Bell units—sees this split as a new chapter of growth, with goals to triple its store count globally; that works out to a new KFC store every 5 hours. The new Yum Brands will focus on US growth along with international growth outside of China. Meanwhile, the China business will have a specific country focus for Pizza Hut and KFC.

Broadcom Limited said today that it had entered into a definitive agreement to acquire Brocade Communications Systems for $5.9 billion. The price breaks down to $12.75 per share in an all-cash transaction.

Time Warner, which two weeks ago agreed to sell itself to AT&T, boosted its outlook for the year as improvement in its TV and film businesses pushed quarterly results above expectations. Revenue increased in all three of the company’s segments – up 8.8% for Turner, 4.3% for Home Box Office and 6.6% for Warner Bros.

If it’s not one thing it’s another. Wells Fargo has agreed to pay $50 million to settle a class-action lawsuit that accused the bank of overcharging hundreds of thousands of homeowners for appraisals ordered after the homeowners defaulted on their mortgage loans. The proposed settlement calls for Wells Fargo to automatically mail checks to more than 250,000 customers nationwide whose home loans were serviced by the bank between 2005 and 2010. The checks will typically be for $120. If a judge signs off on the settlement, as expected, the checks will be distributed next year.

When a borrower falls behind on a loan, mortgage contracts typically let the lender order an appraisal of the home’s current value. The cost of that appraisal, known as a “broker price opinion,” can be passed on to the borrower, but Wells Fargo used one of its own subsidiaries to conduct appraisals and then routinely marked up the cost. A $50 million fine is a drop in the bucket for Wells Fargo, but it isn’t the first drop and likely not the last; drop by drop, soft water can wear away hard stone.

A US appeals court today agreed to revisit a challenge to an Arizona voting law which restricted the ability of advocates to collect absentee ballots by hand. A three judge 9th U.S. Circuit Court of Appeals had earlier upheld the Arizona law, but the full court on Wednesday voted to rehear the case before an 11-judge panel. Five conservative 9th Circuit judges dissented from the decision to rehear the case, saying it was made too close to Election Day.

A survey of policy- and decision-makers by the University of Colorado concludes there is a very real prospect of Colorado River water supply cuts to Arizona and Nevada in January 2018. The Colorado River Future Project focusing on critical issues for the river surveyed some 65 water managers, municipal and agricultural customers, conservationists plus government officials at the tribal, state, federal and congressional levels.

The results acknowledge that more river water than is available is promised to interests in Arizona, California, Colorado, Nevada, New Mexico, Utah and Wyoming – and Mexico. It points to a continuing 16-year drought diminishing the amount of promised water and says the most urgent need is to firm up contingency plans and extend water-use agreements.

So far, the level has barely remained above the point that would trigger a shortage declaration and cuts of 11.4 percent to Arizona’s usual water allotment, and 4.3 percent of Nevada’s supply. Combined, that amount of water would serve more than 625,000 homes. Officials have warned of possible cuts in January 2018.

There is a price on baseball history. Right now, it’s about $19,500 each for two cozy seats behind the visiting Chicago Cubs dugout for a winner-takes-all faceoff with the Indians in Cleveland tonight.

Fans snatched those prime seats off secondary-market ticket brokerage StubHub. Business has been brisk for the site and its rivals, as the Cubs try to end the longest championship drought in professional sports at 108 years. The Indians and their fans are equally hungry for a first World Series title since 1948.

Stocks Continue Post Fed Advance

Charles Schwab: On the Market

Posted: 9/22/2016 4:15 PM ET

Stocks Continue Post Fed Advance

U.S. stocks joined in a broad-based global equity advance as the markets continued to react positively to yesterday's Fed decision to hold off on raising rates, though it hinted at a year-end rate hike the central bank also lowered its projection for the pace of future increases. Treasuries and gold were higher, while the U.S. dollar was under pressure and crude oil prices extended an advance. In economic news, weekly jobless claims surprisingly fell, existing home sales dropped and the Leading Index declined.

The Dow Jones Industrial Average (DJIA) rose 99 points (0.5%) to 18,392, the S&P 500 Index gained 14 points (0.7%) to 2,177, and the Nasdaq Composite increased 44 points (0.8%) to 5,340. In moderate volume, 839 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.98 to $46.32 per barrel, wholesale gasoline was unchanged at $1.40 per gallon and the Bloomberg gold spot gained $2.11 to $1,337.28 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 95.41.

Bed Bath & Beyond Inc. (BBBY $43) reported 2Q earnings-per-share (EPS) of $1.11, below the $1.16 FactSet estimate, as revenues declined 0.2% year-over-year (y/y) to $3.0 billion, compared to the projected $3.1 billion. 2Q same-store sales declined 1.2% y/y, versus the expected 0.5% gain. BBBY reaffirmed its full-year EPS outlook. Shares finished nicely higher.

Red Hat Inc. (RHT $80) posted 2Q earnings ex-items of $0.55 per share, one penny north of estimates, as revenues grew 19.0% y/y to $600 million, compared to the projected $590 million. RHT issued stronger-than-expected 3Q guidance and raised its full-year outlook. Shares rallied.

AutoZone Inc. (AZO $748) announced fiscal 4Q EPS $14.30, versus the expected $14.25, as revenues rose 3.3% y/y to $3.4 billion, roughly in line with estimates. 4Q same-store sales increased 1.0% y/y, below the forecasted 2.1% rise. AZO announced an additional $750 million to its share repurchase program. Shares lost modest ground.

Dow member Cisco Systems Inc. (CSCO $32) and Salesforce.com Inc. (CRM $75) announced a global strategic alliance. The two companies will jointly develop and market solutions that join Cisco's collaboration, IoT and contact center platforms with Salesforce Sales Cloud, IoT Cloud and Service Cloud. Shares of both companies closed higher.

Existing home sales decline, jobless claims surprisingly drop

Existing-home sales in August decreased 0.9% month-over-month (m/m) to a 5.33 million annual rate compared to the Bloomberg forecast of a rise to a 5.45 million pace. July's figure was downwardly revised to a 5.38 million annual rate. Compared to last year, sales were 0.8% higher. The median existing-home price was up 5.1% y/y at $240,200. Housing supply came in at a 4.6-month pace at the current sales rate. Sales were solidly higher in the Northeast, while declining in all other regions, as single-family home sales declined, while condominium and co-op sales jumped. National Association of Realtors (NAR) Chief Economist Lawrence Yun said recent job growth is not yielding higher home sales as inventory is not picking up to tame price growth and replace what is being quickly sold.

As noted in the Schwab Market Perspective: Round and Round We Go…, economic data appeared to be perking up in June and July, aided by better housing reports, but the recent round of data has thrown some cold water on the hopes for a sustainable uptick in growth. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his article, Real Estate Sector: Marketperform, positives of low interest rates, an improving economy, and favorable apartment trends are counterbalanced by the potential for rising rates, a changing consumer, and a potential inflection point for the favorable apartment trends, leading to our marketperform rating. Read these articles at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Weekly initial jobless claims (chart) decreased by 8,000 to 252,000 last week, versus estimates of an increase to 261,000, with the prior week's figure unrevised at 260,000. The four-week moving average declined by 2,250 to 258,500, while continuing claims dropped 36,000 to 2,113,000, south of the estimated level of 2,140,000.

The Conference Board's Index of Leading Economic Indicators (LEI) (chart) declined 0.2% m/m in August, versus projections calling a flat reading. Support came from the components pertaining to stock prices and the yield curve, while the index was bogged down by average workweek and ISM new orders.

The Kansas City Fed Manufacturing Activity Index for September rose to 6 from August's -4 level, compared to forecasts of a gain to -3, with a reading north of zero depicting expansion.

Treasuries were higher, with the yield on the 2-year note flat at 0.77%, while the yields on the 10-year note and the 30-year bond decreased 3 basis points to 1.62% and 2.34%, respectively. Bond yields extended yesterday's declines as the Fed held its monetary policy steady, noting that "the case for an increase in the federal funds rate has strengthened, but decided, for the time being, to wait for further evidence of continued progress toward its objectives." For more on this topic, see our latest article, Fed Stands Pat, but Hints at Future Rate Hike at www.schwab.com/insights, and follow Schwab on Twitter: @schwabresearch.

Tomorrow, the U.S. economic calendar will cool down, with the lone major release expected to be Markit's preliminary Manufacturing PMI Index for September, which is forecasted to remain at the 52.0 level posted in August, with a reading above 50 denoting expansion in activity.

Europe and Asia higher following Fed decision

European equities traded nicely higher, amid a broad-based rally across the sectors, while the global markets digested the decision by the U.S. Federal Reserve to hold off on raising rates, but hint at a possible rate hike this year. However, the Fed lowered its projections to a more gradual pace of hikes down the road, which is weighing on the U.S. dollar and the nation's bond yields. The euro and British pound moved higher versus the greenback, while bond yields in the region lost ground. Amid the likely continued volatility surrounding the timing of the next Fed rate hike, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, reminds investors, Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think. Read these articles at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop. In economic news, French business confidence unexpectedly improved for September.

Stocks in Asia finished higher on the heels of yesterday's decision in the U.S. to not hike rates, which followed the Bank of Japan's decision to change its monetary policy focus to targeting the yield curve and committing to overshooting its inflation target, boosting the global financial sector. However, volume was light as Japanese markets were closed for a holiday. Stocks in China and Australia increased, with basic materials stocks rallying and oil & gas issues showing some strength. South Korean and Indian equities also rallied in the wake of the U.S. monetary policy decision. For a look at the global economic front, Schwab's Jeffrey Kleintop, CFA, offers his article, World Tour: An Around The World Look At the Economic Landscape at www.schwab.com/oninternational.

The international economic docket for tomorrow will be limited, offering the All Industry Activity Index from Japan and Markit's preliminary Manufacturing PMIs for Germany, France and the Eurozone.

Stocks Trim Early Losses but Finish Lower

Charles Schwab: On the Market

Posted: 8/30/2016 4:15 PM ET

Stocks Trim Early Losses but Finish Lower

Domestic stocks finished lower amid heightened monetary policy uncertainty ahead of Friday's highly anticipated labor report, with expectations of a possible one or two rate hike before year end giving a boost to the U.S. dollar to pressure crude oil prices. Gold was lower and Treasuries were mixed, though a better-than-expected read on consumer confidence may have bolstered rate hike expectations. In equity news, the EU said Dow member Apple was granted undue tax benefits in Ireland, while Modelez International halted its pursuit of Hershey.

The Dow Jones Industrial Average (DJIA) declined 49 points (0.3%) to 18,454, the S&P 500 Index shed 4 points (0.2%) to 2,176, and the Nasdaq Composite decreased 9 points (0.2%) to 5,223. In moderate volume, 743 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.63 to $46.35 per barrel, wholesale gasoline declined $0.03 to $1.37 per gallon and the Bloomberg gold spot price decreased $12.03 to $1,311.35 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 96.07.

Hershey Co. (HSY $100) is falling after Mondelez International Inc. (MDLZ $45) announced it has ended discussions with the company regarding a possible combination of the two companies. MDLZ said it determined that there is no actionable path forward toward an agreement following discussions and taking into account recent shareholder developments at HSY. MDLZ traded nicely higher.

Dow member Apple Inc. (AAPL $106) was in focus after the European Union (EU) Commission ruled that Apple was granted undue tax benefits in Ireland of up to 13 billion euros ($14.5 billion). The EU Commission said Ireland must recover from Apple the unpaid tax for the period since 2003 and through 2014, but noted that the amount that Irish authorities should recover could be reduced if other countries were to require Apple to pay more taxes on profits for this period. AAPL and the Irish government both said they will fight the decision. Shares finished lower.

Abercrombie & Fitch Co. (ANF $18) reported a 2Q loss ex-items of $0.25 per share, compared to the expected $0.20 per share shortfall, as revenues declined 4.0% year-over-year (y/y) to $783 million, roughly in line with forecasts. 2Q same-store sales declined 4.0% y/y, versus the expected 4.2% decrease. Shares traded sharply lower after the company said same-store sales are expected to remain challenging through the second half of the year, with a disproportionate effect from flagship and tourist locations.

Potash Corp. of Saskatchewan Inc. (POT $18) and Agrium Inc. (AGU $96) rallied sharply after the two agriculture companies confirmed reports that they are in preliminary merger discussions. The companies said no decision has been made and no agreement has been reached, while there can be no assurance that any transaction will result from these discussions.

United Continental Holdings Inc. (UAL $51) jumped after the airline announced that Scott Kirby has been named president of United Airlines. Kirby held the position of president of American Airlines Group Inc. (AAL $37) since the merger of American and U.S. Airways.

Consumer confidence tops forecasts

The Consumer Confidence Index (chart) rose to 101.1 in August—the highest since September 2015—from the downwardly revised 96.7 level in July and compared to the Bloomberg estimate of 97.0. Sentiment towards the present situation and expectations of business conditions both improved. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—grew to 2.6 from the 0.9 posted in July.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a rise in home prices of 5.1% y/y in June, in line with expectations. Month/month (m/m), home prices were lower by 0.1% on a seasonally adjusted basis for June, matching forecasts.

Treasuries finished mixed, with the yield on the 2-year note losing 1 basis point (bp) to 0.80%, while the yield on the 10-year note ticked 1 bp higher to 1.57% and the 30-year bond rate rose 2 bps to 2.23%. For analysis on the bond markets see our latest article, The Return of the "Bond Vigilantes," at www.schwab.com/insights and follow Schwab on Twitter: @schwabresearch.

Also, for the latest on the subdued market action in the "dog days" of summer, Schwab's Chief Investment Strategist, Liz Ann Sonders offers her latest article, All Summer Long: Will the Extreme Lull in Volatility Persist? at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Ahead of the opening bell tomorrow, the U.S. economic calendar will offer the ADP Employment Change report, forecasted to show private sector payrolls added 175,000 jobs during August, as well as MBA Mortgage Applications. Shortly after trading commences, we will receive the Chicago Purchasing Managers Index, with economists expecting a reading of 54.0 for August, down from the 55.8 registered in July, which will be followed by pending home sales, expected to have increased 0.7% m/m in July.

Europe and Asia higher higher

European equities traded higher, with financials and technology issues leading the way in the wake of the recently boosted U.S. Fed rate hike expectations and eased concerns about the health of the global economy, bolstered by today's upbeat read on U.S. consumer confidence. Also, the euro continued its recent weakness versus the U.S. dollar to aid sentiment, though the global markets remained cautious ahead of Friday's key August nonfarm payroll report in the U.S. However, mining issues saw some pressure, hamstringing the U.K. markets in a return to action following yesterday's holiday, as metal prices were lower and Citigroup offered a bearish outlook for the sector. The British pound dipped versus the greenback, while bond yields in the region finished mixed. In economic news, German consumer price inflation came in cooler than expected for August, while eurozone business and economic confidence slipped for this month. In the U.K. consumer credit decelerated more than expected and mortgage approvals missed forecasts for last month. With global uncertainty remaining elevated to open the door for some possible increased volatility, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think. Read both articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mostly to the upside though conviction remained subdued as the global markets tread lightly amid the recently heightened rate hike expectations in the U.S. ahead of Friday's employment report. Japanese equities dipped following yesterday's rally that was fueled by Bank of Japan's Governor Kuroda's reiterated pledge to deploy further stimulus measures if needed. For more on Japan's potential increased stimulus measures see Jeffrey Kleintop's, CFA, article, What investors need to know about helicopter money at www.schwab.com/oninternational. The downside pressure was pared as Japan reported some relatively better-than-expected July economic data and the yen saw late-day weakness. Japan's overall household spending fell for the fifth-straight month, but by a smaller amount than anticipated, along with retail sales, while the nation's jobless rate unexpectedly dipped. Chinese stocks rose with banking stocks finding support ahead of the sector's earnings releases. Australian securities traded higher, with basic materials and oil & gas issues rebounding from yesterday's declines. Equities in India rallied on optimism that the nation's planned issuance of a new benchmark 10-year bond will boost demand for the nation's debt, per Bloomberg. Finally, South Korean stocks finished higher.

The international docket for tomorrow will remain robust, with releases expected to include industrial production, housing starts, construction orders and vehicle production from Japan, a consumer sentiment read from China, 2Q GDP from India and private sector credit from Australia. Reports from across the pond will include consumer confidence from the U.K., retail sales from Germany and PPI and CPI from France.

Financial Review

Very, Very Quiet

Sinclair Noe — August 23, 2016

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DOW + 17 = 18,547
SPX + 4 = 2186
NAS + 15 = 5260
10 Y + .0 = 1.55%
OIL + .69 = 48.10
GOLD – 1.70 = 1337.90

The S&P 500 index hit an intra-day record high of 2193. The Nasdaq Composite hit an intra-day record high of 5275; those indices could not hold on for record closes. Approximately 96% of the companies in the S&P 500 have already reported second quarter results, approximately 79% of them beat earnings expectations and 56% exceeded revenue estimates. Still, earnings declined about 3.7% for the second quarter; that marks the fifth consecutive quarter of declining earnings.

Analysts are now anticipating third quarter earnings will decline .9%. If you believe the profit forecasts of U.S. companies, stocks are massively overpriced. The S&P 500 is currently trading at roughly 18 times next year’s projected earnings. That’s the highest markup since 2002. Still, the indices are hovering near record highs. You can’t call it irrational exuberance; irrational maybe but there is no sign of exuberance.

The markets have been quiet, very, very quiet. The past 30 days have been the least volatile of any 30-day period in more than two decades. Only five days during the most recent stretch saw the S&P 500 move by more than 0.5% in either direction, the lowest since the fall of 1995. The market has now been serene for so long, you actually have cause to worry about the calm. Periods of extreme calm in the market have often signaled a coming storm.

Among the points in recent history when the market approached its current level of stability was January 2007, months before the collapse of Bear Stearns. For now, investors seem complacent, at least as measure by the VIX, the volatility index; that could change when Fed Chair Janet Yellen speaks this week at the Jackson Hole economic symposium.

Oil prices started lower but finished higher as the market digests reports indicating that Iraq is preparing to ramp up its export levels. Goldman Sachs published research showing Libya, Iraq and Nigeria — which all have suffered from severe supply disruptions — last week started to show the first signs of ramping up production.

Morgan Stanley analysts published a report warning that an output agreement between members of the Organization of the Petroleum Exporting Countries remains “highly unlikely” as the cartel members battle for market share. Yet as far as crude stocks go, in the United States anyway, there are signs that inventories will continue to tighten. Genscape, the widely watched market intelligence firm, reported that Cushing, Oklahoma crude stocks fell by 187,000 barrels.

IHS Markit’s composite Purchasing Managers’ Index dropped in Germany to a 54.4 reading from 55.3 in July. The gauge for the services sector fell to 53.3. Markit said the report signaled a weaker pace of expansion for the nation. France flash August composite PMI rose to a 10-month high of 51.6. Overall Eurozone flash composite PMI came in at 53.3 for August to top the consensus estimate of 53.1.

British manufacturing firms experienced a marked boost to their export orders in the aftermath of the June vote on European Union membership. Following the Brexit vote, the pound dropped and that helped support overseas demand.

Global retail e-commerce sales are forecast by eMarketer to increase 24% year-over-year to almost $2 trillion this year to account for 8.7% of all of retail spending. Retail e-commerce sales in North America are seen rising 15.6% to $423 billion. eMarketer expects retail e-commerce sales to balloon to more than $4 billion in 2020, to represent just short of 15% of all retail spending.

Best Buy shares jumped about 16% this morning, after the consumer electronics retailer reported fiscal second-quarter results that beat expectations, including a surprise rise in same-store sales. For the quarter ended July 30, earnings rose to $198 million, or 61 cents a share, from $164 million, or 46 cents a share, in the same period a year ago.

New-home sales jumped 12.4 percent last month to a seasonally adjusted rate of 654,000 annual units, the strongest level since October 2007. Demand is outpacing construction; just 4.3 months’ supply of new homes is available on the market, down from 5.2 months a year ago. New-home sales have climbed 12.4 percent so far this year and are up 31% compared to one year ago. Builders have started work on new housing units at a pace of more than 1 million homes a year every month since April 2015, more than doubling from a low of 478,000 in the spring of 2009.

Residential investment has made a positive contribution to overall gross domestic product for eight of the last nine quarters. In short, the housing market is healthy, even strong. In the new Census Bureau report, the median sale price for new homes actually fell, to $294,600 from $310,500 in June. That is a strong hint that there is more supply being built at the lower end of the housing market. In other words, exactly the kind of smaller houses that young adults can afford.

The housing market crash was nearly 10 years ago and much of the excess inventory from that downturn has now been consumed. Yet relatively few new houses to fulfill eventual demand were built. Mortgage rates have stayed near record lows, and job creation has been relatively strong. All that has been missing is homes in the right places and at the right prices for those young people to buy. At the same time, retiring boomers might be looking to downsize a little into a new home that doesn’t require as much maintenance. The message to home builders – if you build the right sized home at the right price, the buyers will come.

Uber is now the most used taxi app in 108 countries. That’s according to analytics provider SimilarWeb, which tracked the reach and usage of ride-hailing apps in 171 countries on Android devices. Uber has a particularly big lead in the U.S., where the app is installed on 21 percent of all Android devices, compared with just under 3 percent for its main domestic competitor Lyft. The one region where Uber has struggled is Asia, where local operators have held ground.

Volkswagen is preparing to resume full production at its factories after resolving a serious dispute with suppliers. A shortage of parts had caused major disruption at six of the automaker’s factories in Germany and forced Volkswagen to reduce hours for about 27,700 workers.

Two major auto suppliers are joining forces to develop an advanced self-driving system by 2019, which would likely place them about a year ahead of the target time being set by some automakers. Mobileye, an Israel-based maker of sensors, and Delphi Automotive, a longtime supplier to the auto industry, say they expect to co-develop a system that would be capable of at least Level 4 automated driving on a scale of five, meaning the car would be able to drive itself in almost all circumstances.

Meanwhile, the results are in… the fastest production car made in the world is….electric. Tesla released a new, 100-kilowatt-hour battery pack for the dual-motor versions of the Model S and Model X on Tuesday. The upgrade makes the Model S the first all-electric sedan with a range of more than 300 miles, and it cuts the zero-to-60 time to just 2.5 seconds.

Don’t blame the weather. Airlines are the biggest cause of flight delays in the US.  Late arrivals triggered by mechanical breakdowns, a lack of flight crews, computer glitches, and other factors attributed to the airlines were the largest category of delay last year for just the second time, and by the widest margin, since the government began collecting such data in 2003.

Almost six out of 100 flights were held up by factors attributed to the airlines. That doesn’t include the ripple of delays that a late flight inflicts on subsequent ones. And the difference is even more substantial when measured by the aggregate amount of time flights are tardy. Airline-caused delays totaled 20.2 million minutes last year — 2.7 million more than all other categories combined.

Amazon.com is working on a music subscription service that would cost about $5 a month and would only work on its Echo hardware. Tech news website Recode reports Amazon would like to launch the services in September, but has not finalized deals with major music labels and publishers.

Wells Fargo will pay $4 million after the government found it charged illegal late fees to some of its student loan borrowers. The bank agreed to pay a penalty of $3.6 million to the Consumer Financial Protection Agency. It also must set aside $410,000 to refund customers who were hit with illegal fees, which occurred between 2010 and 2013.

General Electric’s seven-year, $1.6 billion dredging campaign to remove industrial pollutants from the Hudson River was called inadequate by the New York Department of Environmental Conservation. A letter sent by the agency urged the EPA to closely scrutinize the effectiveness of GE’s dredging in its project review due to be released by April 2017. The state agency says at least 136 acres of river bottom and 35% of the PCBs discharged from a pair of GE factories along the Hudson near Albany have not been removed.

Divided Fed Ups Ante on Uncertainty

Charles Schwab: On the Market

Posted: 8/17/2016 4:15 PM ET

Divided Fed Ups Ante on Uncertainty

U.S. equities were able to recover from early losses to finish near the flat line, after the Fed's afternoon release of its July meeting minutes showed a split Committee with regards to the timing of a rate increase. Treasuries rose following the report, while crude oil prices were able to finish higher after the government's oil report showed an unexpected drop in inventories. Earnings results from the retail sector continued to fill the economic docket, while gold and the U.S. dollar were nearly unchanged.

The Dow Jones Industrial Average (DJIA) increased 22 points (0.1%) to 18,574, the S&P 500 Index gained 4 points (0.2%) to 2,182 and the Nasdaq Composite added nearly 2 points to close at 5,229. In moderate volume, 777 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.21 higher to $46.79 per barrel, wholesale gasoline added $0.03 to $1.45 per gallon and the Bloomberg gold spot price ticked $0.21 higher to $1,346.56 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 94.79.

Target Corp. (TGT $71) reported 2Q earnings-per-share (EPS) ex-items of $1.23, above the $1.13 FactSet estimate, as revenues dropped 7.2% year-over-year (y/y) to $16.2 billion, roughly in line with forecasts. 2Q same-store sales declined 1.1% y/y, versus the projected 0.7% decrease. TGT issued softer-than-expected 3Q EPS guidance and lowered its full-year profit and same-store sales outlooks. Shares were solidly lower.

Lowe's Companies Inc. (LOW $77) posted 2Q profits ex-items of $1.37 per share, compared to the expected $1.42, with revenues growing 5.3% y/y to $18.3 billion, below the forecasted $18.4 billion. Quarterly same-store sales increased 2.0% y/y, compared to the projected 4.2% gain. LOW lowered its full-year EPS outlook and announced stronger-than-expected revenue guidance, while reaffirming its same-store sales forecast. Shares finished noticeably lower.

Urban Outfitters Inc. (URBN $36) announced 2Q earnings of $0.66 per share, topping the expected $0.55, as revenues rose 3.0% y/y to $891 million, versus the estimated $886 million. Same-store sales increased 1.0% y/y, compared to the projected flat reading. Shares were nicely higher.

Shares of Cree Inc. (CREE $23) were sharply lower after the LED lighting company issued softer-than-expected 1Q guidance after its fiscal 4Q EPS ex-items of $0.19 came in a penny shy of expectations.

Fed minutes show split Fed

The Federal Open Market Committee's (FOMC) July meeting minutes, released in afternoon action, showed a somewhat divided Fed, with two members of the Committee wanting a rate hike sooner. Most members noted uncertainty in the aftermath of Brexit, while also being unsure of the inflation outlook, needing more confidence in the pace of price increases. However, the overriding consensus was that the Committee saw little risk in a sharp increase in inflation, and that it was prudent to accumulate more data before taking any further steps to remove policy accommodation. With uncertainty regarding Fed policy festering to cause some volatility outside the stock markets, Schwab's Chief Investment Strategist, Liz Ann Sonders notes in her latest commentary, With a Little Help From My Friends: On Africa, Economy and Earnings we continue to believe a rate hike is on the table for this year. The combination of Fed policy uncertainty and the contentious election season could mean the recent lull in volatility will not persist into the fall. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

The MBA Mortgage Application Index fell 4.0% last week, after rising 7.1% in the previous week. The fall came as a 4.2% decrease for the Refinance Index was accompanied by a 3.9% decline for the Purchase Index. The average 30-year mortgage rate dipped 1 basis point (bp) to 3.64%.

Treasuries moved higher following the Fed minutes, as the yield on the 2-year note fell 2 bps to 0.74%, while the yields on the 10-year note and the 30-year bond declined 3 bps to 1.55% and 2.26%, respectively. For analysis on the fixed income markets see the video from Schwab's Managing Director of Trading and Derivatives, Randy Frederick and Collin Martin, CFA, titled  Tempered Expectations for Bond Returns: Why Hold Bonds?, at www.schwab.com/insights. Also, Schwab's Chief Fixed Income Strategist, Kathy Jones addresses in her latest article, What Does Strong Job Growth Mean for Bond Investors?, at www.schwab.com/marketinsight. Follow Randy, Kathy and Schwab on Twitter: @randyafrederick, @kathyjones and @schwabresearch.

Tomorrow's economic calendar will begin with weekly initial jobless claims, forecasted to tick lower to 265,000 from the prior week's 266,000, followed by the Philly Fed Manufacturing Index, with economists expecting the gauge of activity to move back into expansion territory, as denoted by a reading above zero, by posting a level of 2.0 for August, following July's -2.9 figure. Rounding out the day will be July's Index of Leading Economic Indicators, expected to match June's 0.3% rise.

Europe lower, Asia mixed ahead of Fed report

European equities moved lower, with technology stocks leading the way along with a pullback in the mining sector, while caution likely prevailed as the global markets eyed today's release of the July policy meeting minutes in the U.S. The euro dipped versus the U.S. dollar after yesterday's rally, and bond yields in the region were mostly lower. The British pound lost some ground compared to the greenback, despite an unexpected drop in July jobless claims. The pound advanced yesterday following a hotter-than-expected rise in consumer price inflation, with data out of the nation post the vote in late June to leave the European Union, known as a Brexit, being highly scrutinized for implications of the economic impact of the Brexit vote. Reads on U.K. retail sales and public sector net borrowing are due out later this week. For more on the potential impact of the Brexit vote, read Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Brexit's Impact on Sectors, Part Two at www.schwab.com/marketinsight.

Stocks in Asia finished mixed amid some likely caution ahead of today's release of the U.S. FOMC's July meeting minutes, amid the backdrop of heightened Fed policy uncertainty, which has contributed to volatility in the currency and bond markets. Amid the elevated uncertainty in the markets, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop. Japanese equities rose, trimming yesterday's loss, with the yen giving back some of its rally that has come courtesy of the Fed policy uncertainty and lingering disappointment regarding monetary policy actions from the Bank of Japan. Moreover, yesterday's extension of the rebound in crude oil prices boosted the global energy sector, which helped Australia's markets eke out a slight gain. Mainland Chinese securities finished flat and those trading in Hong Kong declined slightly, following the approval of the long-planned stock-trading link between Hong Kong and Shenzhen, which expectations of have bolstered the Chinese markets. Per Bloomberg, this is another step toward opening China's $6.5 trillion equity market to international investors, and may start in about four months. Elsewhere, stocks in both India and South Korea moved to the downside.

Items on tomorrow's international economic calendar include: trade figures from Japan, employment data from Australia and France, the aforementioned retail sales out of the U.K., and CPI from the Eurozone.

Stocks Take a Little off the Top, Trimming Recent Gains

Charles Schwab: On the Market

Posted: 8/16/2016 4:15 PM ET

Stocks Take a Little off the Top, Trimming Recent Gains

U.S. stocks took a breather after the recent record-run, with the major domestic indexes exhaling the previous session's gains amid some volatility in the currency markets and a surprise rise in U.K. inflation. The U.S. dollar was lower, while gold, crude oil prices and Treasuries were higher. In economic news, housing starts and industrial production reports came in better than expected and core consumer price inflation was cooler than forecasted.

The Dow Jones Industrial Average (DJIA) decreased 84 points (0.5%) to 18,552, the S&P 500 Index shed 12 points (0.5%) to 2,178 and the Nasdaq Composite lost 35 points (0.7%) to 5,227. In moderate volume, 736 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil was $0.84 higher at $46.58 per barrel, wholesale gasoline added $0.02 to $1.42 per gallon and the Bloomberg gold spot price ticked $7.21 higher to $1,346.61 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.9% lower to 94.79.

Dow member Home Depot Inc. (HD $136) reported 2Q earnings-per-share (EPS) of $1.97, in line with the FactSet estimate, as revenues increased 6.6% year-over-year (y/y) to $26.5 billion, mostly matching forecasts. 2Q same-store sales grew 4.7% y/y, versus the projected 4.8% gain. HD raised its full-year EPS outlook, while reaffirming is sales guidance. Shares gave up early gains and finished modestly lower.

Advance Auto Parts Inc. (AAP $160) announced 2Q EPS ex-items of $1.90, below the forecasted $2.11, with revenues decreasing 4.8% y/y to $2.3 billion, versus the anticipated $2.2 billion. 2Q same-store sales declined 4.1% y/y, compared to the projected 4.5% decrease. The company said its 2Q results "were not acceptable" and it is moving thoughtfully and swiftly to make the necessary changes across a number of critical areas. AAP traded solidly lower.

Dick's Sporting Goods Inc. (DKS $59) reported 2Q earnings of $0.82 per share, well above the expected $0.69, as revenues grew 7.9% y/y to $2.0 billion, topping the forecasted $1.9 billion. Quarterly same-store sales rose 2.8% y/y, compared to the estimated 2.2% decline. DKS issued stronger-than-expected 3Q profit guidance and raised its full-year earnings outlook. Shares rallied.

Hain Celestial Group Inc. (HAIN $39) tumbled after delaying the release of its 4Q and full-year financial results, as it reviews its accounting for revenue associated with concessions that were granted to certain U.S. distributors. HAIN also said it is evaluating its internal control over financial reporting.

With 2Q earnings season wrapping up, Schwab's Chief Investment Strategist, Liz Ann Sonders discusses in her latest commentary, With a Little Help From My Friends: On Africa, Economy and Earnings whether earnings growth can squeak its way back into the green in the third quarter, at www.schwab.com/marketinsight. Follow Liz Ann on Twitter: @lizannsonders.

Housing construction activity mixed, core consumer price inflation misses

Housing starts (chart) for July rose 2.1% month-over-month (m/m) to an annual pace of 1,211,000 units, above the Bloomberg forecast of a 1,180,000 unit rate. June's starts were downwardly revised to an annual pace of 1,186,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, dipped 0.1% m/m in July to an annual rate of 1,152,000, after June's unrevised 1,153,000 rate, and below the expected annual pace of 1,160,000 units.

The Consumer Price Index (CPI) (chart) was flat m/m in July, matching forecasts, while June's 0.2% rise was unrevised. The core rate, which strips out food and energy, ticked 0.1% higher m/m, below expectations of a 0.2% rise and June's unrevised 0.2% increase. Y/Y, prices were 0.8% higher for the headline rate, south of forecasts of a 0.9% rise, while the core rate was up 2.2%, missing projections of a 2.3% increase. May y/y figures showed an unrevised 1.0% rise and an unadjusted 2.3% increase for the headline and core rates respectively.

Industrial production (chart) rose 0.7% m/m in July, versus estimates of a 0.3% increase, and following June's downwardly revised 0.4% gain. Manufacturing and mining production rose, while utilities output jumped. Capacity utilization rose to 75.9% from June's unrevised 75.4%, and compared to projections for a 75.6% rate. Capacity utilization is 4.1 percentage points below its long-run average.

Treasuries finished lower, with the yields on the 2-year and 10-year notes rising 2 basis points (bps) to 0.75% and 1.58%, respectively, while the 30-year bond rate ticked 1 bp higher to 2.29%. For analysis on the fixed income markets see the video from Schwab's Managing Director of Trading and Derivatives, Randy Frederick and Collin Martin, CFA, titled Tempered Expectations for Bond Returns: Why Hold Bonds?, at www.schwab.com/insights. Also, Schwab's Chief Fixed Income Strategist, Kathy Jones addresses in her latest article, What Does Strong Job Growth Mean for Bond Investors?, at www.schwab.com/marketinsight. Follow Randy, Kathy and Schwab on Twitter: @randyafrederick, @kathyjones and @schwabresearch.

Today's reports showed housing starts unexpectedly rose and industrial production posted a back-to-back monthly gain, while the cooler-than-expected core consumer inflation followed an unexpected dip in July wholesale inflation. The data is likely preserving Fed rate hike uncertainty ahead of tomorrow's release of the Federal Open Market Committee's (FOMC) July meeting minutes (economic calendar). As noted in the recent Schwab Market Perspective: Is the Recent Rally for Real?, The FOMC upgraded their assessment of the financial situation through their statement, and had enough positive things to say about the economy to put the possibility of a hike at some point in 2016 firmly back on the table. And that possibility, along with the uncertainty that is a hallmark of the Fed as of late, will likely contribute to bouts of volatility. Read more at www.schwab.com/marketinsight.

The domestic docket for tomorrow will also include the weekly MBA Mortgage Applications report.

Europe and Asia lower as currency moves eyed

European equities traded lower, with the euro and British pound gaining solid ground on the U.S. dollar as recently eased U.S. Fed rate hike expectations was met with a surprising rise in U.K. inflation data for July. U.K. consumer price inflation accelerated 0.6% y/y versus expectations for it to remain at June's 0.5% increase. This was one of the first pieces of data for the markets to digest as they begin to assess the impact of the late-June vote in the U.K. to leave the European Union, known as a Brexit. The ensuing tumble in the pound following the Brexit vote led to the biggest jump in import costs in more than four years, per Bloomberg. Later this week, the U.K. will deliver reads on jobless claims, retail sales and public sector borrowing for July that are likely to garner attention. For more on the potential impact of the Brexit vote, read Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Brexit's Impact on Sectors, Part Two at www.schwab.com/marketinsight. In other economic news German investor confidence rebounded by a smaller-than-expected amount for this month. Bond yields in the region traded higher. Oil & gas issues were higher as crude oil prices added to a recent run.

Stocks in Asia finished lower, despite more record highs in the U.S. yesterday, with Japanese declines leading the way in the wake of a strong rally in the yen. The yen's ascent received a boost from waning U.S. Fed rate hike expectations, along with lingering disappointment and uncertainty regarding monetary policy actions from the Bank of Japan. Amid this backdrop, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop. Securities trading in mainland China and Hong Kong declined, even as the long-planned stock-trading link between Hong Kong and Shenzhen has been approved, taking another step toward opening China's $6.5 trillion equity market to international investors, per Bloomberg. Australian listings dipped as strength in oil & gas and basic materials stocks were overshadowed by weakness in the financial and telecom sectors. South Korean equities inched lower in a return to action following yesterday's holiday, while trading in India also resumed after a Monday break, with stocks declining despite the recent drop in the U.S. dollar as a hotter-than-expected read on the nation's wholesale price inflation for July likely weighing on sentiment.

Tomorrow, the international economic calendar will be light, offering employment data from the U.K.

Bulls Run Down Another Record

Charles Schwab: On the Market

Posted: 8/15/2016 4:15 PM ET

Bulls Run Down Another Record

U.S. stocks finished the trading session with solid gains, leading to another round of record-setting closes for the Dow, S&P 500 and Nasdaq as crude oil prices continued to climb and a report on domestic homebuilder sentiment showed improvement. Treasuries and the U.S. dollar were lower and gold inched higher, while a read on regional manufacturing activity unexpectedly fell back into contraction territory. In M&A news, Mid-America Apartment Communities agreed to acquire Post Properties for approximately $3.9 billion.

The Dow Jones Industrial Average (DJIA) increased 59 points (0.3%) to 18,635, the S&P 500 Index added 6 points (0.3%) to 2,190 and the Nasdaq Composite gained 29 points (0.6%) to 5,262. In moderate volume, 728 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil was $1.25 higher at $45.74 per barrel, wholesale gasoline added $0.03 to $1.40 per gallon and the Bloomberg gold spot price ticked $3.64 higher to $1,339.61 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.1% lower to 95.61.

Sysco Corp. (SYY $52) reported fiscal 4Q earnings-per-share (EPS) ex-items of $0.64, above the $0.61 FactSet estimate, as revenues rose 2.2% year-over-year (y/y) to $13.6 billion, compared to the expected $13.7 billion. Shares gave up early gains and finished modestly lower.

Mid-America Apartment Communities Inc. (MAA $96) announced an agreement to acquire rival apartment real estate investment trust (REIT), Post Properties Inc. (PPS $68), for about $3.9 billion. Under the terms of the deal, each share of PPS will be converted into 0.71 shares of newly issued MAA common stock. MAA traded solidly lower, while PPS closed nicely higher.

Homebuilder sentiment improves modestly

The August National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month ticked higher to 60 from July's downwardly revised 58 figure, matching the Bloomberg estimate. Builder confidence remains above the key 50 mark, which separates good and poor conditions. The NAHB said builder confidence remains solid in the aftermath of weak GDP reports that were offset by positive job growth in July.

Today's report kicked off some key housing data for the week as it will be followed by tomorrow's look at construction activity in the form of housing starts and building permits. As noted in the , Schwab Market Perspective: Is the Recent Rally for Real?, the housing market is continuing to look healthy, helping us remain relatively optimistic the current bull market will continue for the foreseeable future. Read the whole perspective at www.schwab.com/marketinsight.

The Empire Manufacturing Index showed output from the New York region unexpectedly fell into contraction territory (a reading below zero) for August. The index dropped to -4.2 from July's unrevised 0.6 level, with forecasts calling for an improvement to 2.0.

Treasuries were lower, with the yield on the 2-year note increasing 2 basis points (bps) to 0.73%, the yield on the 10-year note gaining 4 bps to 1.56%, and the 30-year bond rate rising 5 bps to 2.28%. For analysis on the fixed income markets see the video from Schwab's Managing Director of Trading and Derivatives, Randy Frederick and Fixed Income Director Collin Martin, CFA, titled Tempered Expectations for Bond Returns: Why Hold Bonds?, at www.schwab.com/insights. Follow Randy on Twitter: @randyafrederick. Also, Schwab's Chief Fixed Income Strategist, Kathy Jones addresses in her latest article, What Does Strong Job Growth Mean for Bond Investors?, at www.schwab.com/marketinsight. Follow Kathy on Twitter: @kathyjones.

This week's U.S. economic calendar will likely be headlined by Wednesday's release of the minutes from the Federal Reserve's July meeting. Schwab's Chief Investment Strategist, Liz Ann Sonders communicates in her recent article A Hopeful Transmission: Fed Holds Rates Steady, But…, that it’s clear the FOMC would like to continue to normalize rates, albeit gradually. Although no specific timing was mentioned, the FOMC repeated that it expects “economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” Read the whole article at www.schwab.com/marketinsight and be sure to follow Liz Ann on Twitter: @lizannsonders.

Additional notable releases expected tomorrow include the Consumer Price Index (CPI) and the Fed's industrial production and capacity utilization report.

Europe ticks higher to begin week, Asia mixed following Japan GDP report

European equities gained modest ground, with oil & gas issues leading the way amid the continued rebound in crude oil prices and automakers also advanced to lend some support. However, global growth concerns continued to fester to dampen conviction, following a disappointing GDP report out of Japan, which followed last week's mostly softer-than-expected Chinese economic data. Amid this backdrop, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversificationat www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop. The euro gained ground and the British pound was lower versus the U.S. dollar, while bond yields in the region moved mostly higher. Markets in Italy were closed for a holiday. 

Stocks in Asia finished mixed in lighter-than-usual volume with markets in South Korea and India closed for holidays, while investors digested a disappointing Japanese 2Q GDP report. Equities in Japan declined with the yen showing some strength despite the nation reporting a 0.2% quarter-over-quarter annualized rate of expansion, versus the projected 0.7% growth and the 2.0% expansion posted in 1Q. Mainland Chinese stocks rallied and securities in Hong Kong advanced amid continued optimism that the start date for the exchange link between Hong Kong and Shenzhen could be announced soon, while M&A optimism toward the real estate market lingered and stimulus expectations remained in the wake of last week's plethora of mixed economic data. Following the Japanese GDP report and last week's China data, Schwab's Jeffrey Kleintop discussesFive ways investors can make the most of slower growth at www.schwab.com/oninternational. Finally, stocks in Australia ticked higher, buoyed by strength in financials that more than offset a drop in the basic materials sector.

The international economic docket for tomorrow will yield wholesale prices from India and the Wage Price Index from Australia. Releases from across the pond will include the CPI and PPI from the U.K., the trade balance for the Eurozone and the Zew Economic Sentiment Survey from Germany

Equity Exchanges Mostly Lower After Flat Retail Sales

Charles Schwab: On the Market

Posted: 8/12/2016 4:15 PM ET

Equity Exchanges Mostly Lower After Flat Retail Sales

After yesterday's record-setting performance, U.S. stocks finished mostly lower, though the Nasdaq eked out a gain, on the heels of a disappointing July retail sales report, which coupled with some softer-than-expected China data to dampen sentiment. Treasuries rallied and the U.S. dollar was lower as additional domestic data revealed an unexpected decline in wholesale price inflation. Gold was lower and crude oil prices finished higher.

The Dow Jones Industrial Average (DJIA) decreased 37 points (0.2%) to 18,575, the S&P 500 Index shed 2 points (0.1%) to 2,184 and the Nasdaq Composite added 5 points (0.1%) to 5,233. In moderate volume, 698 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil was $1.00 higher at $44.49 per barrel, wholesale gasoline added $0.01 to $1.37 per gallon and the Bloomberg gold spot price declined $3.28 to $1,335.50 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.1% lower to 95.72. Markets were mostly flat but slightly higher for the week, as the DJIA and the Nasdaq increased 0.2% and the S&P 500 advanced nearly 0.1%.

J.C. Penney Co. Inc. (JCP $11) reported a 2Q loss ex-items of $0.05 per share, better than the $0.14 per share shortfall that FactSet had estimated, as revenues rose 1.5% year-over-year (y/y) to $2.9 billion, roughly in line with forecasts. 2Q same-store sales grew 2.2% y/y, mostly matching estimates. JCP reaffirmed its full-year guidance and shares finished higher.

Nordstrom Inc. (JWN $51) posted 2Q earnings-per-share (EPS) of $0.67, above the expected $0.56, with revenues declining 1.4% y/y to $3.7 billion, roughly in line with forecasts. Quarterly same-store sales decreased 1.2% y/y, compared to the projected 2.2% drop. JWN raised its full-year EPS outlook and reaffirmed its revenue guidance. Shares rallied.

NVIDIA Corp. (NVDA $63) achieved 2Q profits of $0.40 per share, topping the projected $0.37, as revenues rose 24.0% y/y to $1.4 billion, roughly matching estimates. NVDA issued stronger-than-expected 3Q revenue guidance. Shares gained solid ground.

Retail sales, inflation and consumer sentiment data miss expectations

Advance retail sales (chart) for July were flat month-over-month (m/m), versus the Bloomberg forecast of a 0.4% gain and June's upwardly revised 0.8% rise. Last month's sales ex-autos were lower by 0.3%, compared to the expected 0.1% increase, and following June's upwardly revised 0.9% rise. Sales ex-autos and gas dipped 0.1%, versus estimates of a 0.3% rise, and compared to June's favorably revised 0.8% increase. Finally, the retail sales control group, a figure used to help calculate GDP, was flat, compared to the projected 0.3% rise and June's unrevised 0.5% increase. Auto and nonstore retail sales—which include online spending—were bright spots but performance elsewhere was lackluster, with sales at gasoline stations falling solidly.

The Producer Price Index (PPI) (chart) in July declined 0.4% m/m, versus expectations of a 0.1% increase. The core rate, which excludes food and energy, decreased 0.3%, compared to forecasts of a 0.2% rise. Y/Y, the headline rate was down 0.2%, versus projections of a 0.2% rise, and the core PPI was 0.7% higher, below estimates of a 1.2% gain. For analysis of the inflation environment on the bond markets, see Schwab's Fixed Income Director Collin Martin's, CFA, article titled, Do TIPS Make Sense When Inflation is Low?, at www.schwab.com/onbonds and follow Schwab on Twitter: @schwabresearch.

The preliminary University of Michigan Consumer Sentiment Index (chart) ticked higher to 90.4 this month from July's 90.0 level, and compared to the expected 91.5 figure. The economic conditions portion of the report deteriorated, though the outlook component improved. The 1-year inflation outlook fell to 2.5% from 2.7%, while the 5-10 year inflation estimate remained at 2.6%.

Business inventories (chart) increased 0.2% m/m in June, above forecasts of a 0.1% rise, and matching May's unrevised gain. Sales jumped 1.2%, and the inventory-to-sales ratio—the time it would take to deplete inventories at the current sales pace—dipped to 1.39 months pace from May's 1.40 rate.

Today's mixed data appeared to catch the markets by surprise and likely dampened Fed rate hike expectations. However, as noted in the recent Schwab Market Perspective: Is the Recent Rally for Real?, the healthy job market and subsequent higher wages after years of stagnation, along with a continued solid housing sector, appear poised to buoy consumer confidence and retail sales in the second half. We believe the bull market will continue, but risks remain and bumps are inevitable. Read more at www.schwab.com/marketinsight.

Treasuries were higher, with the yields on the 2-year note and the 30-year bond declining 4 basis points (bps) to 0.71% and 2.23%, respectively, while the yield on the 10-year note fell 5 bps to 1.51%. For more analysis on the bond markets see the video from Schwab's Managing Director of Trading and Derivatives, Randy Frederick and Collin Martin, CFA, titled Tempered Expectations for Bond Returns: Why Hold Bonds?, at www.schwab.com/insights. Also, Schwab's Chief Fixed Income Strategist, Kathy Jones addresses in her latest article, What Does Strong Job Growth Mean for Bond Investors?, at www.schwab.com/marketinsight. Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones.

Europe flat amid a flood of global data

European equities finished little changed, with the global markets digesting some softer-than-expected economic reports in China and the U.S., along with a plethora of earnings and economic data in the region. Eurozone 2Q GDP came in at a 0.3% quarter-over-quarter rate to match forecasts as growth in German output topped forecasts but Italian GDP was unexpectedly flat. In other economic news, eurozone industrial production rose slightly more than expected for June, while U.K. construction output fell by a slightly smaller amount than expected.

Yesterday, the Stoxx Europe 600 Index erased the sharp drop that ensued following the late-June vote in the U.K. to leave the European Union (EU), known as a Brexit. Pledges by central banks, notably the Bank of England, which last week cut its benchmark interest rate and surprisingly boosted its asset purchases, along with some relatively upbeat global economic data have helped ease concerns about the impact of the Brexit vote. For more, read Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Brexit's Impact on Sectors, Part Two at www.schwab.com/marketinsight. Also, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversificationand Five ways investors can make the most of slower growth. Read both articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop. The euro rose and the British pound was lower versus the U.S. dollar, while bond yields in the region declined.

Stocks in Asia moved higher to close out the week, following yesterday's gains in the U.S. and Europe, as crude oil prices rebounded solidly and earnings reports were mostly better than expected. Also, the markets shrugged off a plethora of July Chinese economic data that slightly missed forecasts. Japanese equities returned to action following yesterday's holiday break, managing gains that were bolstered by some weakness in the yen. Chinese stocks advanced with property-related issues leading the way on optimism that merger activity in the group could accelerate, per Bloomberg. China's industrial production and retail sales both grew but missed forecasts, while a double-digit rise in fixed asset investment matched expectations. After the closing bell, Chinese new yuan loans and aggregate financing—a gauge of total credit issued—both came in well short of estimates, while Hong Kong's 2Q GDP returned to growth after contracting in 1Q. Amid the flood of data, Schwab's Jeffrey Kleintop, CFA, offers in his article, Trust but Verify: Five Independent Indicators of China's Economy and Schwab's Director of International Research, Michelle Gibley, CFA, discusses 5 Reasons China Won't Crash the Global Economy in 2016. Read both articles at www.schwab.com/oninternational. Australian securities found some support from resource-related issues, while South Korean equities also ticked higher. Finally, some strength in banking stocks helped push Indian listings higher.

Choppy week yields simultaneous record highs in U.S.

U.S. stocks finished little changed for the week in choppy action as the global markets continued to grapple with a divergent and uncertain monetary policy landscape, along with mixed earnings and economic reports. With earnings season coming down the home stretch, results from the retail sector were mostly upbeat in contrast to Friday's disappointing July retail sales report. Per data compiled by Bloomberg, of the 457 companies in the S&P 500 that have reported thus far, nearly 56% have topped sales forecasts, while about 78% have bested profit projections. Dampened Fed rate hike expectations weighed on the U.S. dollar and Treasury yields, while supply speculation bolstered crude oil prices. Energy and consumer discretionary stocks showed some strength, partially offset by weakness in financial and healthcare issues. On Thursday, the S&P 500, Dow and Nasdaq simultaneously posted record highs for the first time since December 1999, while European markets erased the heavy losses seen in the wake of the Brexit vote fallout.

Schwab's Jeffrey Kleintop, CFA, notes in his article, Earnings estimates are rebounding: what it means for stocks, the end of the downtrend in earnings estimates over the past year and a half has helped to support stocks in recent months, even in the face of negative geopolitical developments. However, if earnings estimates should roll back over due to a shock or deterioration in the global economic data, stocks are unlikely to be as resilient to geopolitical developments. Read the whole article at www.schwab.com/marketinsight.

Economic lineup set for week ahead

Next week's U.S. economic calendar will bring an abundance of reports, with Wednesday's release of the minutes from the Federal Reserve's July meeting likely to garner some attention. Schwab's Liz Ann Sonders communicates in her recent article A Hopeful Transmission: Fed Holds Rates Steady, But…, that it’s clear the FOMC would like to continue to normalize rates, albeit gradually. Although no specific timing was mentioned, the FOMC repeated that it expects “economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” Read the whole article at www.schwab.com/marketinsight and be sure to follow Liz Ann on Twitter: @lizannsonders.

Some housing data may command attention in the form of the NAHB Housing Market Index, housing starts and building permits. As noted in the Schwab Market Perspective, the housing market is continuing to look healthy, with new home sales rising another 3.5% in June. Read the whole perspective at www.schwab.com/marketinsight.

Additional notable reports expected to be released include the Empire Manufacturing Index, Consumer Price Index, Industrial Production and Capacity Utilization, and the Leading Index.

Next week's international reports: Japan—preliminary 2Q GDP, industrial production and capacity utilization, trade data, machine tool orders and the All Industry Activity Index. U.K.—house prices, CPI, PPI, employment data and retail sales. Germany—the Wholesale Price Index, CPI, preliminary 2Q GDP, PPI and the Zew Economic Sentiment Survey. Eurozone—preliminary 2Q GDP, trade data, construction output and CPI.