Markets Break Out of Midday Anxiety

Charles Schwab: On the Market

Posted: 11/28/2017 4:15 PM EST

Markets Break Out of Midday Anxiety

U.S. equities were solidly in the green, with the major indexes notching fresh highs, shrugging continued tax reform uncertainty and anxiety over North Korea's latest missile test. The gains came courtesy of a 17-year high in Consumer Confidence, reports of record-breaking Cyber Monday figures, and a more than two-decade high in regional manufacturing activity. Treasury yields were slightly lower and the U.S. dollar gained ground, while crude oil prices fell ahead of Thursday's OPEC meeting, and gold reversed to the downside.

The Dow Jones Industrial Average (DJIA) jumped 256 points (1.1%) to 23,837, the S&P 500 Index rose 26 points (1.0%) to 2,627, and the Nasdaq Composite gained 34 points (0.5%) to 6,912. In moderate-to-heavy volume, 834 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.12 lower to $57.99 per barrel and wholesale gasoline lost $0.02 to $1.77 per gallon. Elsewhere, the Bloomberg gold spot price decreased $1.28 to $1,293.24 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—moved 0.4% higher to 93.25.

Arby's Restaurant Group Inc., owned by Roark Capital Group, announced an agreement to acquire Buffalo Wild Wings Inc. (BWLD $156) for $157 per share in cash, for a total transaction value of about $2.9 billion, including the assumption of debt. BWLD traded solidly higher.

Dow memberUnitedHealth Group Inc. (UNH $216) issued mixed 2018 guidance with its earnings-per-share outlook having a midpoint below the Street's expectations, while its revenue forecast was above estimates. UNH reaffirmed its 2017 guidance. Shares were higher.

Thor Industries Inc. (THO $154) rallied nearly 20% after posting fiscal Q1 earnings-per-share (EPS) of $2.43, well above the $1.84 FactSet estimate, as revenues grew 30.6% year-over-year (y/y) to $2.2 billion, north of the forecasted $2.0 billion. The Recreational Vehicle (RV) maker said industry demand remains exceedingly high and it believes the industry will continue to grow for the foreseeable future.

Consumer Confidence hits fresh 17-year high, home prices rise more than expected

The Consumer Confidence Index (chart) unexpectedly rose to a fresh 17-year high of 129.5 in November from the upwardly revised 126.2 in October, and compared to the Bloomberg estimate of a 124.0 reading. Both the Present Situation Index and the Expectations Index of business conditions for the next six months increased. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 20.2 from the 19.6 level posted in October.

Consumer sentiment is running high and has shown up in record high Cyber Monday sales that came on the heels of robust year-over-year (y/y) Black Friday weekend sales to bolster the outlook for the holiday season. Also, as Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in our article, Holiday Shopping Season: Are Consumers Set to Stuff Some Stockings?, a strong consumer bodes well for the overall U.S. economy as consumer spending makes up nearly 70% of economic output.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 6.2% year-over-year (y/y) gain in home prices in September, versus the Bloomberg expectation of a 6.0% gain. Month-over-month (m/m), home prices were up 0.5% on a seasonally adjusted basis for September, above forecasts calling for a 0.3% rise.

The advance goods trade deficit widened much more than expected to $68.3 billion in October, from the unrevised $64.1 billion in September, and compared to expectations of $64.9 billion.
Preliminary wholesale inventories unexpectedly declined, dropping 0.4% m/m in October, versus forecasts for a 0.4% increase, and following September's downwardly revised 0.1% rise.

The Richmond Fed Manufacturing Activity Index jumped to 30 in November, the highest since 1993, from 12 in October, and versus estimates of a rise to 14, with a reading above zero denoting expansion.

Treasuries were mostly higher, with the yield on the 2-year note flat at 1.74%, while the yields on the 10-year note and the 30-year bond dipped 1 basis point to 2.32% and 2.76%, respectively.
The broadest global economic growth in a decade and solid earnings performance have conspired to keep stocks near record highs and be up every month this year. However, the U.S. dollar has pulled back and the markets appear to be getting a bit concerned with what the recent flattening of the yield may be signaling.

In his latest article, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, addresses the question Are Stocks too Expensive?, noting that although world stock market valuations are above average, similar valuations have produced double-digit gains over the following 12 months during the past 50 years. Jeff concludes that valuations support a globally diversified portfolio offering the best diversification benefits in 20 years.

The markets are also grappling with OPEC's looming production meeting this week, as well as flared-up European political uncertainty, which has joined scrutiny of U.S. tax reform. The Senate could vote on its tax reform plan this week after the House passed its bill two weeks ago, with several key differences setting the stage for a complicated reconciliation process.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, we believe the prospects for a tax reform bill being signed into law before the end of the year are improving, but we still think it is too early for investors to take any drastic action. The bill is virtually certain to be changed many times in the weeks ahead. If and when a tax bill passes, there will be time to review the details and amend your tax and financial plans accordingly.

Tomorrow, investors will get the second look (of three) at Q3 Gross Domestic Product, the broadest measure of economic output, with economists expecting a revised 3.2% quarter-over-quarter (q/q) rate of expansion from the 3.0% in the first report, personal consumption to be adjusted slightly higher to 2.5% from the previously-reported 2.4%, and the GDP Price Index and core PCE to remain at their initial increases of 2.2% and 1.3%, respectively. Later in the morning pending home sales will be reported, with the conduit of existing home sales expected to have increased 1.2% m/m during October, while in afternoon action the Fed will release its Beige Book. MBA Mortgage Applications will also be reported (economic calendar).

Europe higher as U.K. bank stress test results were positive, Asia mixed

European equity markets traded higher, with energy stocks rebounding from a recent pullback that has come amid the weakness in crude oil prices leading up to this week's OPEC meeting. Financials were modestly higher as the markets digest the Bank of England's (BoE) banking sector stress test results that showed all banks passed with no need to strengthen their capital positions for the first time, per Bloomberg. However, U.K. banks were mixed as BoE Governor Carney continued to warn about the risk of a bumpy Brexit process for the sector. Brexit talks remain deadlocked but developments in Ireland, which averted an election, appeared to help ease some of the concerns. Moreover, reports suggesting German coalition talks could resume helped cool political uneasiness, along with polls in Spain ahead of next month's vote in Catalonia. However, uncertainty regarding U.S. tax reform continued to fester.

Schwab's Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans. The euro and the British pound were lower versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mixed on the heels of the lackluster session in the U.S. yesterday. The markets remained relatively skittish amid lingering U.S. tax reform and European political uncertainties, the looming OPEC meeting that has weighed on crude oil prices, exacerbated by flared-up geopolitical concerns after reports suggested Japan had noticed radio signals that North Korea could be making preparations for another missile launch. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. However, despite some resurfacing uneasiness, Asian markets remain near record levels and Jeffrey Kleintop, CFA, notes that the global market rally seen this year has been fostered by broad economic growth and is expected to continue in 2018 in his latest article, 5 Reasons Investors Should Give Thanks.
Stocks in Japan and Hong Kong finished flat, with the yen paring gains seen on the North Korean reports, while headlines regarding the possibility that China could limit investor flows into Hong Kong-listed shares stymied conviction. Meanwhile, mainland Chinese equities rose, rebounding from a recent fall, while those listed in South Korea also moved to the upside, but markets in Australia and India declined.

Items on tomorrow's international economic calendar include retail sales and the trade balance from Japan, consumer spending and GDP from France, CPI from Spain and Germany, and confidence data from the Eurozone.

Markets Mixed

Charles Schwab: On the Market

Posted: 9/26/2017 4:15 PM EDT

Markets Mixed

 

U.S. equities finished mixed and near the flatline, unable to hold onto an early morning advance, as ramped up North Korean rhetoric and festering geopolitical anxiety were met with uncertainty from Federal Reserve Chair Janet Yellen's speech today in Cleveland. Treasuries, gold and crude oil prices all finished lower, while the U.S. dollar gained ground. News on the economic front was mixed, as September new home sales surprisingly decreased, consumer confidence inched lower and regional manufacturing activity unexpectedly jumped further into expansion territory.

The Dow Jones Industrial Average (DJIA) declined 12 points (0.1%) to 22,284, the S&P 500 Index was nearly unchanged at 2,497, and the Nasdaq Composite gained 10 points (0.2%) to 6,380. In moderate volume, 737 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.39 to $51.88 per barrel and wholesale gasoline was $0.02 lower at $1.65 per gallon. Elsewhere, the Bloomberg gold spot price tumbled $14.64 to $1,296.14 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 93.02.

After the close yesterday, Red Hat Inc. (RHT $110) reported Q2 earnings per share (EPS) of $0.77 ex-items, versus the $0.67 FactSet estimate, while revenues jumped 20.6% year-over-year (y/y) to $723 million. The open source solutions company's CEO stated that strong demand for technologies that enable hybrid cloud computing contributed to accelerated revenue growth in the first half of the fiscal year. Shares of RHT were nicely higher.

Darden Restaurants Inc. (DRI $78) today announced Q1 EPS of $0.99 ex-items, matching the FactSet estimate, while its consolidated revenues increased 12.9% y/y to approximately $1.9 billion. The company reaffirmed its fiscal 2018 financial outlook, which includes the expected full financial impact of hurricanes Harvey and Irma. DRI shares finished lower.

Amid a host of developments including the recent war of words between President Trump and North Korea's Kim Jong Un, raging culture wars, potential healthcare reform, uninvited and unwanted hurricanes, toxic partisan conflict in DC; and the Fed taking a giant step toward policy normalization, Schwab's Chief Investment Strategist Liz Ann Sonders, dives deep to provide us an update on investor sentiment. Read her latest article Comfortably Numb? An Update on Investor Sentiment, on the Market Commentary page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

New home sales unexpectedly decline, regional manufacturing surprises to the upside

New home sales (chart) surprisingly declined 3.4% month-over-month (m/m) in August to an annual rate of 560,000, below the forecasts calling for 585,000 units and the upwardly revised 580,000 unit pace in July. The median home price was up 0.4% y/y to $300,200. New home inventory increased to 6.1 months of supply at the current sales pace from 5.7 in July. Sales fell m/m in the Northeast, South, and West, but were flat in the Midwest. New home sales are based on contract signings instead of closings. The impact of the three recent major hurricanes may increase the volatility of the economic data for a few months.

The Consumer Confidence Index (chart) dipped to a level of 119.8 in September from the downwardly revised 120.4 in August, and compared to the Bloomberg estimate of a 120.0 reading. The Present Situation Index declined, while the Expectations Index of business conditions for the next six months rose marginally. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—declined to 14.5 from the 16.0 level posted in August.

The Richmond Fed Manufacturing Activity Index jumped to 19 in September, versus an unrevised level of 14 in August and compared to the Bloomberg expectation of a decline to 13, with a reading above zero denoting expansion.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.8% y/y gain in home prices in July, versus the Bloomberg expectation of a 5.7% increase. Month-over-month (m/m), home prices were up nearly 0.4% on a seasonally adjusted basis for July, topping forecasts calling for a 0.2% rise.

Federal Reserve Chair Janet Yellen addressed the National Association for Business Economics today in Cleveland, where the Fed head noted that trends in employment, wages and prices may have shifted from what the central bank forecasters had originally expected. Yellen indicated that though the central bank expects that longer-run inflation should trend toward its two percent target, the Fed is making room for the possibility that it could be wrong.

Treasuries were lower, as the yields on the 2-year and 10-year notes, as well as the 30-year bond all advanced 2 basis points to 1.44%, 2.24% and 2.78%, respectively.

The markets continue to digest last week's monetary policy decision from the Fed, which expectedly signaled an October start for the reduction of the Central Bank's massive $4.5 trillion balance sheet, but resuscitated expectations for another rate hike in December. The Fed's decision is discussed by Schwab's Liz Ann Sonders in her commentary, The Fed's on the QT, on the Market Commentary page at www.schwab.com, where you can also find Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market.

Tomorrow's economic calendar will hold preliminary durable goods orders, forecasted to have gained 1.5% m/m during August following July's 6.5% plunge, while ex-autos, orders are expected to gain 0.4% m/m. As well, pending home sales will be reported, with economists anticipating a 0.2% m/m decline for August after falling 0.8% in July, and MBA Mortgage Applications will round out the day.

European equities lack decisive direction, Asia finishes mostly lower

European equities oscillated between gains and losses before ultimately closing mixed amid the rising tension between North Korea and the United States and as the outgoing government of Germany's Chancellor Merkel rejected a proposal to pool euro-area sovereign debt. The proposal, supported by French President Macron, would have been aimed at utilizing the region's bailout fund, the European Stability Mechanism (ESM), with a goal of granting additional powers to the ESM to turn it into a sort of European Monetary Fund. The German Chancellor is in the midst of complex coalition talks in an attempt to build a new government. For analysis of the political front, see Schwab's Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond?, on the Insights & Ideas page at www.schwab.com. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Elsewhere, a recent speech by U.K. Prime Minister Theresa May seemingly failed to spark trade negotiation optimism; though some European Finance Ministers said the speech was constructive and likely a step in the right direction as EU leaders will have their first chance to approve trade talks in mid-October. The British Prime Minister is meeting with the President of the European Council today, while their counterparts held a fourth round of Brexit discussions in Brussels. For a look at the process, see our article, Brexit Begins: What's Next for the U.K?, on the Insights & Ideas page at www.schwab.com. The euro and British pound dipped versus the U.S. dollar and bond yields in the region were mixed. In economic developments, import prices for Germany rose in line with forecasts, business confidence in France missed expectations and finance loans for housing in the U.K. increased, but were lower than projections.

Stocks in Asia finished mostly to the downside, but losses were limited as the markets seemingly attempted to stabilize amid the recent host of catalysts. Mainland Chinese equities and those traded in Hong Kong advanced modestly, after both indexes came under pressure yesterday amid increased measures aimed at curbing the country's housing market where record home sales helped to spark a surge in Chinese property developers this year. Japanese securities decreased amid strength in the yen, and as minutes released from the Bank of Japan's July meeting indicated some optimism regarding consumer price inflation. Separately, the island nation also released economic data that showed producer price inflation slightly exceeded expectations. Markets in Australia declined, led lower by consumer discretionary issues, stocks in South Korea fell amid the festering North Korean rhetoric, while Indian listings were also lower. For analysis of global investing amid this backdrop, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page at www.schwab.com.

Tomorrow's international economic calendar will be light with the only item of note being industrial orders from Italy.

Stocks Advance Ahead of Fed Policy Stance

Charles Schwab: On the Market

Posted: 7/25/2017 4:15 PM ET

Stocks Advance Ahead of Fed Policy Stance

U.S. stocks traded higher, though the Nasdaq was relatively flat, courtesy of a plethora of mostly upbeat earnings reports and as an unexpected jump in Consumer Confidence preceded tomorrow's Fed monetary policy decision. Treasury yields gained ground as additional reports from the domestic docket showed a rise in home sales and better-than-expected regional manufacturing activity. The U.S. dollar overcame early losses and gold was lower. Overseas, European markets were broadly higher.

The Dow Jones Industrial Average (DJIA) advanced 100 points (0.5%) to 21,613, the S&P 500 Index was 7 points (0.3%) higher at 2,477, and the Nasdaq Composite increased 1 point to 6,412. In moderate to heavy volume, 1.1 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil gained $1.55 to $47.89 per barrel and wholesale gasoline was $0.04 higher at $1.57 per gallon. Elsewhere, the Bloomberg gold spot price decreased $4.75 to $1,250.55 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 94.10.

Alphabet Inc. (GOOGL $969), parent company of Google, reported Q2 earnings-per-share (EPS) of $5.01, above the $4.44 FactSet estimate, as revenues excluding traffic acquisition costs (TAC) rose 19.4% y/y to $20.9 billion, roughly in line with expectations. The TAC figure came in above expectations and weighed on margins, which missed the Street's expectations. Shares traded solidly lower.

Dow member Caterpillar Inc. (CAT $115) posted Q2 EPS of $1.35, or $1.49 ex-items, compared to the estimated $1.26, with revenues rising 9.6% y/y to $11.3 billion, topping the expected $11.0 billion. The heavy equipment maker raised its full-year guidance, citing its first half performance and current quotation and ordering activity. CAT was solidly higher.

Dow component DuPont (DD $85) announced Q2 profits of $0.97 per share, or $1.38 ex-items, versus the expected $1.29, as revenues rose 5.0% y/y to $7.4 billion, topping the forecasted $7.3 billion. DD gained ground.

Dow member United Technologies Corp. (UTX $120) reported Q2 EPS of $1.80, or $1.85 ex-items, versus the projected $1.78, as revenues grew 3.0% y/y to $15.3 billion, mostly in line with forecasts. UTX raised the lower end of its full-year profit outlook and increased its revenue guidance. Shares saw pressure as the company's updated revenue guidance had a midpoint below estimates.

Dow component 3M Co. (MMM $199) posted Q2 profits of $2.58, including a $0.33 per share benefit due to its divestiture efforts that may be impacting comparability to the Street's $2.54 expectation. Revenues rose 1.9% y/y to $7.8 billion, south of the estimated $7.9 billion. MMM raised the low end of its full-year guidance. Shares were under solid pressure.

Dow member McDonald's Corp. (MCD $159) announced Q2 EPS of $1.70, versus the expected $1.62, as revenues decreased 3.0% y/y to $6.1 billion, above the forecasted $6.0 billion. Q2 same-store sales rose 6.6% y/y, north of the expected 3.7% gain. Shares rose solidly.

General Motors Co. (GM $36) reported Q2 earnings of $1.60 per share, or $1.89 ex-items, versus the forecast of $1.68, as revenues declined 1.1% y/y to $37.0 billion, excluding its discontinued European operations, which may have impacted the comparability to the Street's $40.3 billion expectation. GM closed slightly lower. 

Eli Lilly and Co. (LLY $82) posted Q2 EPS of $0.95, or $1.11 ex-items, versus the projected $1.05, as revenues grew 8.0% y/y to $5.8 billion, topping the estimated $5.6 billion. LLY increased its full-year guidance. Shares traded lower as the company also announced that it will delay the resubmission of a new drug application of its treatment for rheumatoid arthritis by at least 18 months.

Consumer Confidence unexpectedly jumps

The Consumer Confidence Index (chart) surprisingly improved to a four-month high of 121.1 in July from the downwardly revised 117.3 in June, and compared to the Bloomberg estimate of a 116.5 reading. Both sentiment toward the present situation expectations of business conditions for the next six months increased. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 16.1 from the 13.6 level posted in June.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.7% gain in home prices y/y in May, versus expectations of a 5.8% increase. Month-over-month (m/m), home prices were up 0.1% on a seasonally adjusted basis for May, below forecasts of a 0.5% gain.

The Richmond Fed Manufacturing Activity Index increased to 14 in July from June's upwardly revised 11 figure, with a reading above zero denoting expansion, and versus expectations of a 7 reading.

Treasuries finished lower, with the yield on the 2-year note rising 3 basis points (bps) to 1.39%, while the yields on the 10-year note and the 30-year bond rallied 7 bps to 2.33% and 2.91%, respectively. 

Today's data helped yields and the U.S. dollar stabilize after a recent bout of pressure. The Fed began its two-day monetary policy meeting but is not expected to make any policy changes tomorrow amid a lack of updated economic projections and a subsequent press conference by Chair Yellen, who recently offered a more dovish tone.

As noted in the latest Schwab Market Perspective: Are Danger Signs Rising…or Will the Bull Run Continue?, economic uncertainty has confounded the Fed, which may raise the risk of a policy mistake and/or bouts of market volatility, while putting the potential for another rate hike this year into greater doubt. We're sticking with our forecast for one more hike this year along with the start of a gradual reduction in their balance sheet, believing the latter could come before the former. The long running bull market continues to show remarkable resiliency and we expect that to continue. However, risks have risen and a pullback is likely but solid earnings growth should continue to support stocks. Read more on the Markets & Economy page at www.schwab.com and be sure to follow us on Twitter: @schwabresearch.

Bond yields are rebounding and the U.S. dollar remains under pressure amid heightened political uncertainty and mixed economic data, while the markets grapple with global monetary policy uncertainty.

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

In addition to the aforementioned Fed rate decision, tomorrow the U.S. economic calendar will bring some housing data in the form of new home sales, expected to have increased 0.8% m/m in June after rising 2.9% the month prior, and weekly MBA mortgage applications.

Europe rebounds on data, Asia dips ahead of Fed meeting

European equity markets finished broadly higher, with financials leading to the upside as bond yields in the region recovered. With the Fed set to deliver its monetary policy decision tomorrow, the markets appeared to shrug off the continued strength in the euro versus the U.S. dollar, which has received a boost from expectations the European Central Bank is close to beginning to discuss tapering its stimulus measures. A plethora of upbeat profit reports out of the U.S. may have helped sentiment, along with an unexpected fresh record high in German business confidence for July. The British pound also gained ground on the greenback, while a report showed U.K. business optimism surprisingly improved for this month. For analysis of the global markets, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, An important benefit to global investors is back after 20 years on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop. Finally, with political uncertainty festering, Jeff and Schwab's Vice President of Trading and Derivatives Randy Frederick offer the video, Political Risk: How Should Investors Respond?, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick.

Stocks in Asia finished mostly lower as the markets await tomorrow's monetary policy meeting conclusion in the U.S., while eyeing the persistent pressure on the dollar and lingering political uncertainty in the world's largest economy. Also, the ramped up earnings season was in focus ahead of a plethora of U.S. releases, while traders digested yesterday's mixed global business activity reports. Japanese equities dipped as the yen recovered losses late in the session. Mainland Chinese stocks declined and shares trading in Hong Kong finished mostly flat. However, Australian securities advanced amid strength in major sectors of financials, basic materials and health care. South Korean and Indian equities dipped. Both of the countries stock markets retreated modestly from all-time highs. Schwab's Jeffrey Kleintop's CFA, offers his article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Overon the International Investing page at www.schwab.com, where you can also find his 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks.

The international economic calendar for tomorrow will yield small business confidence and PPI from Japan, CPI from Australia, the Consumer Confidence Index from Italy and the Index of Services from the U.K.

Bears Dominate on Tuesday

Bears Dominate on Tuesday

4:25 PM ET, 06/27/2017 - Briefing.com

[BRIEFING.COM] Wall Street took it to the chin on Tuesday as equities sold off into the closing bell, leaving the major averages at their worst marks of the day. The tech-heavy Nasdaq (-1.6%) was hit the hardest as technology and biotechnology stocks weighed. Meanwhile, the S&P 500 and the Dow settled with losses of 0.8% and 0.5%, respectively.

There was a notable jump in long-term rates on Tuesday as sovereign bond markets came under selling pressure in the wake of a morning remark from ECB President Mario Draghi that the threat of deflation is gone. The yield on the 10-yr Treasury note jumped six basis points to 2.20%, which contributed partly to the selling activity in richly-valued technology stocks and the underperformance of rate-sensitive areas like the S&P 500 utilities sector (-1.3%).

However, the heavily-weighted financial sector (+0.5%) benefited from the activity in the Treasury market as it resulted in a steepening of the yield curve, which is a positive for the financial industry's bottom line. The win marks the second in a row for the financial group and comes ahead of tomorrow's capital return plans, which will be released after the close.

Like financials, the energy sector (-0.2%) finished ahead of the broader market as crude oil cruised to its fourth-consecutive advance. Underpinned by a weaker dollar, the energy component jumped 2.0% to $44.25/bbl. Meanwhile, the U.S. Dollar Index (96.07, -1.04) tumbled 1.1% to a fresh nine-month low in reaction to the aforementioned remark from Mr. Draghi.

However, in the end, the bulls were just no match for the bears on Tuesday as ten of the eleven sectors finished in the red. The top-weighted technology group (-1.7%) finished at the very bottom of the leaderboard amid broad weakness. Alphabet (GOOGL 948.09, -24.00) was one of the sector's weakest components, dropping 2.5%, after European antitrust regulators hit the company with a $2.7 billion fine for skewing search results in favor of its own shopping site. Chipmakers also displayed notable weakness, sending the PHLX Semiconductor Index lower by 2.7%.

The lightly-weighted telecom services space (-1.4%) finished just a tick ahead of the technology group following news that Sprint (S 8.18, +0.17) has entered into exclusive talks with Charter Communications (CHTR 329.87, -2.78) and Comcast (CMCSA 39.25, -0.34) regarding a wireless deal. Wireless heavyweights Verizon (VZ 44.84, -0.91) and AT&T (T 37.70, -0.45) declined 2.0% and 1.2%, respectively, following the news.

Biotechnology stocks also exhibited notable weakness, leaving the iShares Nasdaq Biotechnology ETF (IBB 310.89, -8.65) lower by 2.7%, as investors took some money off the table following last week's biotech rally. However, the health care sector (-0.9%) held up relatively well, settling just a tick below the benchmark index.

Outside of real estate (-0.4%), the remaining laggards--consumer discretionary (-0.7%), industrials (-0.8%), materials (-0.7%), and consumer staples (-0.9%)--finished roughly in line with the broader market.

Also of note, the Senate decided to push back a vote on the Republican healthcare bill until after Congress returns from the July Fourth recess, as most expected. 

Reviewing Tuesday's economic data, which included the June Consumer Confidence Index and the April Case-Shiller 20-city Index:

The consumer confidence reading for June rose to 118.9 from the prior month's revised reading of 117.6 (from 117.9). The Briefing.com consensus expected the survey to hit 116.7.The key takeaway from the report is that consumer expectations for the short-term have been reined in some, but are still upbeat overall.The April Case-Shiller 20-city Index hit 5.7% (Briefing.com consensus 5.9%) to follow last month's unrevised 5.9% increase.

On Wednesday, investors will receive the weekly MBA Mortgage Applications Index and May Pending Home Sales (Briefing.com consensus 0.5%). The two reports will be released at 7:00 ET and 10:00 ET, respectively. 

Nasdaq Composite +14.2% YTDS&P 500 +8.1% YTDDow Jones Industrial Average +7.8% YTDRussell 2000 +3.4% YTD

Markets Lower in Return to Action

Charles Schwab: On the Market

Posted: 5/30/2017 4:15 PM ET

Markets Lower in Return to Action

U.S. equities fell modestly in their return to action from the long holiday weekend, amid some mixed economic news, and festering global political and geopolitical uncertainty. Treasuries rose amid reports showing personal income and spending matched expectations, but Consumer Confidence slipped slightly. The U.S. dollar, crude oil and gold were all slightly lower.

The Dow Jones Industrial Average (DJIA) declined 51 points (0.2%) to 21,029, the S&P 500 Index fell 3 points (0.1%) to 2,413, and the Nasdaq Composite moved 7 points (0.1%) lower to 6,203. In moderate volume, 768 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.14 lower to $49.66 per barrel and wholesale gasoline lost $0.01 to $1.62 per gallon. Elsewhere, the Bloomberg gold spot price decreased $5.26 to $1,262.84 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 97.29.

Citigroup Inc. (C $62) announced an agreement to sell its Fixed Income Analytics and Index Businesses to London Stock Exchange Group PLC (LNSTY $11) for total cash consideration of $685 million. C traded modestly lower, while LNSTY gained ground.

Ensco PLC (ESV $6) announced an agreement to acquire Atwood Oceanics Inc. (ATW $10) in an all-stock transaction valued at about $863 million. Under the terms of the deal, Atwood shareholders will receive 1.60 shares of Ensco for each share owned, valuing Atwood at $10.72 per share. ATW jumped over 20%, while ESV was lower.

Personal income and spending in line with forecasts, Consumer Confidence dips

Personal income (chart) was up 0.4% month-over-month (m/m) in April, matching the Bloomberg forecast, and compared to March's unrevised 0.2% increase. Personal spending also rose 0.4% last month, in line with expectations and March's favorably revised 0.3% gain, from an initial flat reading. The April savings rate as a percentage of disposable income was 5.3%. The PCE Deflator was up 0.2%, matching expectations, after the prior month's 0.2% decline. Compared to last year, the deflator was 1.7% higher, in line with estimates. March's y/y figure was upwardly revised to a 1.9% increase. Excluding food and energy, the PCE Core Index was up 0.2% m/m, versus expectations of a 0.1% increase, and the index was 1.5% higher y/y, matching estimates. March's y/y figure was unrevised at a 1.6% increase.

The Consumer Confidence Index (chart) declined to 117.9 in May from the downwardly revised 119.4 in April, and compared to estimates of a 119.9 reading. Sentiment toward the present situation increased slightly, though the expectations of business conditions for the next six months decreased. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 11.7 from the downwardly revised 10.9 level posted in April.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.9% gain in home prices y/y in March, versus expectations of a 5.8% increase. M/M, home prices were up 0.9% on a seasonally adjusted basis for March, above forecasts of a 0.8% gain.

The Dallas Fed Manufacturing Activity Index unexpectedly moved further to a level depicting expansion (a reading above zero). The index rose to 17.2 in May, from 16.8 in April, and compared to the expected decline to 15.4.

Treasuries finished higher, as the yield on the 2-year note dipped 1 basis point (bp) to 1.29%, while the yields on the 10-year note and the 30-year bond declined 3 bps to 2.22% and 2.89%, respectively. For analysis of the bond markets, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, where you can also find Schwab's Vice President of Trading and Derivatives, Randy Frederick's and Chief Fixed Income Strategist, Kathy Jones' video, Fed Rate-Hike Cycle: How Can Bond Investors Prepare? Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones. Also, for more on the Fed as it tries to walk the fine line between raising interest rates and reducing its bloated balance sheet, see Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, Gimme Three Steps … and a Stumble?, where she discusses the transition from quantitative easing (QE) to quantitative tightening (QT) on the Markets & Economy page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

Although this week's economic calendar will be truncated by Monday's holiday, it will bring plenty of data to digest ahead of the Fed's monetary policy meeting later in June. Tomorrow’s Fed Beige Book, the ISM Manufacturing Index and monthly auto sales are some highlights from the docket, but the week will culminate with Friday's key May nonfarm payroll report. Other reports slated for release tomorrow include the Chicago PMI Index, forecasted to decline to 57.5 this month from April’s 58.3, as well as pending home sales, with economists anticipating the pipeline of existing home sales to have increased 0.5% m/m in April following the prior month’s 0.8% decline, and MBA Mortgage Applications.

As noted in the latest Schwab Market Perspective: Unprecedented! Or Maybe Not?, U.S. markets were roiled by so-called "unprecedented" political issues but bounced back quickly. Investing based on political winds is not likely to be a successful strategy and we urge focus on economic and earnings fundamentals. The U.S. economy is bouncing back from the weak first quarter while the labor market continues to tighten. A June rate hike by the Federal Reserve remains on the table for now. Global growth has picked up, but the recent slowdown and inversion of the yield curve in China are causing some concerns. Read more on the Markets & Economy page at www.schwab.com.

Europe mostly lower, Asia mixed as global markets set to get back to action

European equities finished mostly lower with some markets returning to action following yesterday's holiday, while political uncertainty flared up ahead of next week's election in the U.K. as Brexit negotiations continue. Also, Italian election risk gained ground after Democratic Party leader Renzi pushed for an early election, while Germany is set to hold an election later this year. For analysis, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Geopolitical uncertainty also festered amid rhetoric between the U.S. and Germany regarding trade and defense. In economic news, France's Q1 GDP growth topped forecasts, while eurozone consumer, economic and business sentiment all deteriorated. The euro and British pound ticked higher versus the U.S. dollar, while bond yields traded mostly to the downside. The markets also digested some comments from European Central Bank (ECB) President Mario Draghi, which appeared to foster a dovish reaction, as he reiterated that it is still too early to consider pulling back its highly accommodative monetary policy stance. Oil & gas issues declined as crude oil prices extended last week's drop, while financials also saw some pressure on the lower bond yields, comments from the ECB's Draghi and the flared up political and geopolitical uneasiness.

Stocks in Asia finished mixed as the U.S. and some European markets returned to action following yesterday's holiday, though Chinese markets remained closed for a holiday. The markets are grappling with political uncertainty in the U.S. and Europe, along with geopolitical concerns as North Korea continued to conduct missile tests and rhetoric out of Germany toward the U.S. For analysis see, Schwab's Jeffrey Kleintop's, CFA, articles, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, as well as, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Stocks in Japan finished little changed, as traders digested data showing the nation's household spending fell more than expected but retail sales grew by a larger amount than projected, while the yen gained some ground. South Korean equities declined, while those traded in Australia overcame early weakness to finish higher, and Indian listings advanced, remaining at record high levels.

International reports for tomorrow include manufacturing and services PMIs from China, business confidence from Australia, housing data from Japan, GDP from India, employment figures and retail sales from Germany, PPI and CPI from France, as well as CPI and employment data from the Eurozone.

Rally Continues Courtesy of Profit Reports

Charles Schwab: On the Market

Posted: 4/25/2017 4:15 PM ET

Rally Continues Courtesy of Profit Reports

A number of upbeat earnings reports from Dow members gave the U.S. equity markets additional sustenance to add to yesterday's rally that was fueled by the results from the French Presidential election. Treasury yields added to their recent uptick, again benefitting financials, and crude oil ticked higher, while gold and the U.S. dollar were lower. On the economic front, Consumer Confidence slipped from a multi-year high, while new home sales surprisingly rose.

The Dow Jones Industrial Average (DJIA) soared 232 points (1.1%) to 20,996, the S&P 500 Index increased 14 points (0.6%) to 2,387, and the Nasdaq Composite broke above the 6,000 mark for the first time ever, rising 42 points (0.7%) to 6,025. In moderately-heavy volume, 930 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.33 higher to $49.56 per barrel and wholesale gasoline was unchanged at $1.63 per gallon. Elsewhere, the Bloomberg gold spot price fell $12.38 to $1,263.93 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 98.83.

Dow component Caterpillar Inc. (CAT $104) posted 1Q earnings-per-share (EPS) of $0.32 per share, or $1.28 ex-items, versus the forecasted $0.63, as revenues increased 3.8% year-over-year (y/y) to $9.8 billion, north of the expected $9.3 billion. CAT raised its full-year outlook. The company noted encouraging signs but pointed out that there continues to be uncertainty across the globe, potential for volatility in commodity prices and weakness in key markets. Shares rallied.

Dow member McDonald's Corp. (MCD $142) posted 1Q earnings of $1.47 per share, topping the expected $1.34, as revenues decreased 4.0% y/y to $5.7 billion, exceeding the forecasted $5.5 billion. Global same-store sales rose 4.0% y/y, above the expected 1.0% gain. The company said it saw a strong start to 2017, with positive same-store sales across all segments, higher global guest counts and enhanced profitability. MCD traded nicely higher.

Dow member 3M Co. (MMM $195) reported 1Q EPS of $2.16, above the FactSet estimate of $2.07, with revenues rising 3.7% y/y to $7.7 billion, topping the projected $7.5 billion. MMM raised its full-year guidance and shares were higher.

Dow member DuPont (DD $82) announced 1Q earnings of $1.52 per share, or $1.64 ex-items, compared to the projected $1.38, as revenues rose 5.0% y/y to $7.7 billion, above the estimated $7.5 billion. DD issued 2Q guidance that came in just shy of expectations. Shares were nicely higher.

Dow component Coca-Cola Co. (KO $43) reported 1Q EPS of $0.27, or $0.43 ex-items, versus the forecasted $0.44, with revenues declining 11.0% y/y to $9.1 billion, above the estimated $8.9 billion. KO raised the lower end of its full-year earnings outlook. Shares dipped.

Shares of Express Scripts Holding Co. (ESRX $60) fell after the pharmacy benefit management company announced that it will lose its biggest customer Anthem Inc. (ANTM $172) when their current contract expires in 2019. The two companies have been in a legal dispute regarding what ESRX has been charging ANTM for drugs. The news is overshadowing ESRX's earnings report and increased guidance.

Consumer Confidence dips from multi-year high, housing data remains upbeat

The Consumer Confidence Index (chart) declined to 120.3 in April from 124.9 in March, which was the highest level since December 2000, and compared to the Bloomberg estimate of a dip to 122.5. Sentiment toward the present situation and expectations of business conditions for the next six months both decreased from elevated levels. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—dipped to 11.7 from the 12.8 level posted in March.

New home sales (chart) rose 5.8% month-over-month (m/m) in March to an annual rate of 621,000, the highest since July 2016, above forecasts of 584,000 units, and compared to the downwardly revised 587,000 unit pace in February. The median home price was up 1.2% y/y at $315,100. New home inventory dipped to 5.2 months of supply at the current sales pace. Sales were up m/m in all regions, except the Midwest, but all are higher y/y. New home sales are based on contract signings instead of closings.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.9% gain in home prices y/y in February, versus expectations of a 5.8% increase. Month-over-month (m/m), home prices were up 0.7% on a seasonally adjusted basis for February, in line with forecasts.

The Richmond Fed Manufacturing Activity Index slipped but remained solidly in expansion territory (a reading above zero), after declining to 20 for April from the 22 posted in March, which was the highest since April 2010, and versus expectations of a 16 reading.

For a look at the housing market and its impact on the sectors, check out Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Housing—Building Bubble or Growing Trouble?, on the Markets & Economy page at www.schwab.com. Follow Schwab on Twitter: @schwabresearch.

Treasuries added to yesterday's decline that came in the wake of the reaction to the French Presidential election that appeared to ease political risk concerns. The yield on the 2-year note gained 4 basis points (bps) to 1.27%, while the yield on the 10-year note increased 3 bps to 2.31%, and the 30-year bond rate rose 5 bps to 2.98%. For a look at the bond markets, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, Three Reasons to Own Bonds When the Fed is Raising Interest Rates on the Markets & Economy page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

The markets remain optimistic regarding progress made on President Trump's tax-reform plans, of which we are expected to get some details tomorrow. However, political uncertainty remains elevated as discussed by Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend in his latest article, Congress Facing Possible Government Shutdown—Again, on the Insights & Ideas page at www.schwab.com.

Finally, ahead of this week's first look at Q1 GDP, which is expected to show growth slowed from Q4, see Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, ½ Full: Seeing Through a Weak Q1 on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Tomorrow's economic calendar will be light, with the only item of note being MBA Mortgage Applications.

Europe builds on yesterday's strong gains, Asia joins global rally on French election

European equities modestly extended yesterday's sharp rally that came courtesy of eased political risk after the first round of the French Presidential election suggested pro-Europe, mainstream candidate Emmanuel Macron is poised to defeat anti-EU Marine Le Pen in the final vote on May 7th. For analysis of the European political front, which includes a recently approved U.K. vote and a German election later this year, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's videos, "Brexit" Underway: How Can Investors Prep Now That Article 50 Has Been Triggered? and Why Should the French Presidential Election Be Important to Investors? on the Insights & Ideas page at www.schwab.com. Also, check out Director of International Research, Michelle Gibley's CFA, article, Europe Votes: Could More Countries Reject the EU? on the International Investing page at www.schwab.com. The markets also found support from some upbeat earnings reports on the both sides of the pond. Healthcare stocks led to the upside, aided by earnings results from Novartis AG (NVS $76), while technology issues also strengthened, even as SAP SE (SAP $102) gave up early gains that followed the German software company's sales that topped estimates for the fourth-straight quarter, per Bloomberg. The euro and British pound finished higher versus the U.S. dollar and bond yields gained ground.

Stocks in Asia finished higher after jumps in the U.S. and Europe yesterday as the global markets appeared to breathe a sigh of relief after the first round of the French Presidential election eased concerns about the country's future as a member of the European Union. Stocks are shrugging off heightened geopolitical concerns focused on North Korea, and Schwab's Jeffrey Kleintop, CFA, offers timely commentary in his article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, while he also delivers a look at the global landscape in his article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Continued weakness in the yen helped Japanese equities to extend yesterday's rally, while stocks in mainland China advanced, showing some modest resiliency in the face of heightened regulatory crackdown uneasiness, and those traded in Hong Kong jumped amid the cooled political concerns and ahead of some trade data. After the closing bell, Hong Kong's import and export growth exceeded estimates for March. Meanwhile, securities in India and South Korea finished higher as well. Markets in Australia were closed for a holiday.

Like the U.S., tomorrow's international economic calendar will be sparse, with CPI from Australia and Japan's All-Industry Index the major reports slated for release.

Stocks Seize Confident Gains

Charles Schwab: On the Market

Posted: 3/28/2017 4:15 PM ET

Stocks Seize Confident Gains

U.S. stocks seized solid gains, shaking-off recent sluggishness amid a rebound in crude oil prices and a surprising jump to a multi-year high for Consumer Confidence. Treasury yields and the U.S. dollar also managed sizable gains, with comments out of Washington suggesting last week's failed health-care reform bill likely won't derail efforts for tax reform and infrastructure spending. In equity news, Red Hat and Darden Restaurants posted upbeat quarterly results, while GM rejected a shareholder proposal. Gold was lower.

The Dow Jones Industrial Average (DJIA) advanced 151 points (0.7%) to 20,702, the S&P 500 Index increased 17 points (0.7%) to 2,359, and the Nasdaq Composite was 35 points (0.6%) higher at 5,875. In moderate volume, 824 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.64 to $48.37 per barrel and wholesale gasoline gained $0.01 to $1.64 per gallon. Elsewhere, the Bloomberg gold spot price decreased $4.20 to $1,250.66 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—advanced 0.5% to 99.71.

Red Hat Inc. (RHT $86) reported 4Q earnings-per-share (EPS) of $0.36, or $0.61 ex-items, compared to the $0.61 FactSet estimate, as revenues rose 16.0% year-over-year (y/y) to $629 million, versus the projected $619 million. The open source solutions company's closely-watched billings growth topped expectations. RHT issued 1Q revenue and full-year guidance that exceeded estimates. Shares finished solidly higher.

Darden Restaurants Inc. (DRI $83) posted fiscal 3Q EPS of $1.32, versus the expected $1.27, with revenues rising 1.7% y/y to $1.9 billion, roughly in line with forecasts. The parent of Olive Garden said its same-restaurant sales grew 0.9% y/y, topping the projected 0.3% increase. DRI raised its full-year outlooks for earnings and same-restaurant sales. Separately, the company announced an agreement to acquire Cheddar's Scratch Kitchen for $780 million in an all-cash transaction. Shares rallied.

General Motors Co. (GM $36) gained solid ground after rejecting a proposal by shareholder Greenlight Capital LLC to split GM's common stock into two separate classes: one that would receive the current dividends and one that would participate in the remaining earnings and cash flows and future growth of the company. Greenlight, which is a hedge fund run by David Einhorn, said it believes adopting this plan would lower GM's cost of capital, improve financial flexibility, and unlock between $13-38 billion of shareholder value. GM said the proposal creates unacceptable risks and is not in the best interests of shareholders and it is executing a transformational plan that is expected to return approximately $7 billion in cash to shareholders in 2017, bringing total cash returns to about $25 billion since 2012.

Ford Motor Co. (F $12) announced that it is investing $1.2 billion in three Michigan manufacturing facilities aimed at bolstering its truck and SUVs production, as well as supporting its expansion to an auto and mobility company. Shares finished higher.

Consumer Confidence jumps to highest since 2000

The Consumer Confidence Index (chart) unexpectedly surged to 125.6 in March—the highest level since December 2000—from the upwardly revised 116.1 level in February, and compared to the Bloomberg estimate of a dip to 114.0. Sentiment toward the present situation and expectations of business conditions for the next six months both solidly improved. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—jumped to 12.2 from the 7.0 level posted in February.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.7% gain in home prices y/y in January, versus expectations of a 5.6% increase. Month-over-month (m/m), home prices were up 0.9% on a seasonally adjusted basis for January, topping forecasts calling for a 0.7% gain.

The advance goods trade deficit shrunk to $64.8 billion in February, from the downwardly revised $68.8 billion in January, and compared to expectations for it to decline to $66.4 billion.

Preliminary wholesale inventories rose 0.4% m/m in February, above forecasts for a 0.2% increase, and following January's unfavorably revised 0.3% decline.

The Richmond Fed Manufacturing Activity Index surprisingly moved further into expansion territory (a reading above zero), jumping to 22 for March—the highest since April 2010—from the 17 posted in February, and versus expectations of a 15 reading.

Treasuries finished lower, with the yield on the 2-year note gaining 3 basis points (bps) to 1.30%, and the yields on the 10-year note and the 30-year bond ticking 4 bps higher to 2.41% and 3.02%, respectively.

Treasury yields and the U.S. dollar remain in focus and have pulled back as of late, along with the stock markets, courtesy of the Fed's statement and outlook after its March rate increase that appeared to ease concerns regarding a larger-than-expected acceleration in Fed interest rate hikes this year. Also, risk aversion has ramped up amid flared-up concerns regarding the implications of last week's failed healthcare bill on President Donald Trump's ability to get his business-friendly agenda through Congress.

For analysis of the Fed's actions on the bond markets, see the video by Schwab's Vice President of Trading and Derivatives, Randy Frederick and Senior Fixed Income Research Analyst, Collin Martin, CFA, titled, Fed Hiked Interest Rates, So Why Are Bond Yields Still So Low?, and Randy's and Schwab's Chief Fixed Income Strategist, Kathy Jones' video, Three Fed Hikes Seen in 2017: How Should Bond Investors Respond, at www.schwab.com/insights. Follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

However, economic data has remained solid and Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, Hard Times: Time for the Hard Data to Catch Up to the Soft Data, after a "typical" weak first quarter, economic growth should accelerate and based on history, soft data is likely to retreat, while hard data is likely to accelerate. Read more at www.schwab.com/marketinsight, and follow Liz Ann and Schwab on Twitter: @lizannsonders and @schwabresearch.

Tomorrow, the U.S. economic calendar will slow from today's pace with major releases to include pending home sales, expected to have increased 2.5% m/m in February, and the weekly MBA mortgage applications report.

Europe and Asia higher as global markets stabilize

European equities finished higher following some upbeat U.S. economic data, with the global markets appearing to calm down after a ramp up in U.S. political uncertainty, while oil & gas and basic materials issues rebounded. However, European political concerns remained as next month's key French election looms, and the U.K. is expected to trigger article 50 tomorrow to formally begin negotiations to leave the European Union. For analysis of the European political front, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Randy Frederick's video, Why Should the French Presidential Election Be Important to Investors? at www.schwab.com/insights, and Director of International Research, Michelle Gibley's CFA, article, Europe Votes: Could More Countries Reject the EU? at www.schwab.com/oninternational. Follow Jeff on Twitter: @jeffreykleintop. The economic front was relatively quiet, though the lone major report showed Italian industrial orders fell more than expected in January. The euro and British pound declined versus the U.S. dollar, while bond yields in the region were mostly lower. Shares of Wolseley PLC. (WOSYY $6) rallied after the plumbing and heating products company posted favorable first-half results.

Stocks in Asia finished mostly higher, with the U.S. markets showing some intra-day resiliency yesterday in the face of heightened political uneasiness after last week's failed healthcare reform attempt. The U.S. dollar and crude oil prices, which have come under pressure also stabilized to help sentiment. Politics in the U.S. and Europe, along with a Fed rate hike and slightly more dovish outlook earlier this month have driven some of the moves in the global currency and bond markets. For analysis of the impact of the Fed's actions on the markets in Asia, see Schwab's Michelle Gibley's, CFA, recent article, Fed Rate Hikes May Benefit Japanese Stocks, and Jeffrey Kleintop's, CFA, commentary, The Fed has China in a Tough Spotat www.schwab.com/oninternational. Japanese equities rose, with the yen retreating somewhat from a recent rally, while recoveries in resource-related issues helped lift Australian securities higher. Stocks trading in Hong Kong advanced on strength in casino operators, while optimism toward the financial sector boosted Indian listings and South Korean issues advanced following a stronger-than-expected 4Q GDP report, though mainland Chinese equities declined as the markets continue to grapple with the aforementioned impact of the Fed actions on mainland Chinese markets.

The international economic docket for tomorrow will yield retail sales and small business confidence from Japan, the Import Price Index from Germany, consumer credit from the U.K. and consumer confidence from Italy and France.

Markets Finish Lower Ahead of Trump's Speech

Charles Schwab: On the Market

Posted: 2/28/2017 4:15 PM ET

Markets Finish Lower Ahead of Trump's Speech

U.S. equities finished lower, as investors await tonight's highly-anticipated Congressional speech by President Donald Trump. Political uncertainty took center stage, with a more than 15-year high in Consumer Confidence and stronger-than-expected regional manufacturing activity taking a back seat. Meanwhile, Treasuries were mixed, gold and crude oil prices were modestly lower, while the U.S. dollar was flat.

The Dow Jones Industrial Average (DJIA) fell 25 points (0.1%) to 20,812, the S&P 500 Index declined 6 points (0.3%) to 2,363, and the Nasdaq Composite decreased 36 points (0.6%) to 5,825. In heavy volume, 1.2 billion shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.04 lower to $54.01 per barrel and wholesale gasoline lost $0.01 to $1.73 per gallon. Elsewhere, the Bloomberg gold spot price declined $3.20 to $1,249.53 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was little changed at 101.15.

Target Corp. (TGT $58) reported 4Q earnings-per-share (EPS) of $1.46, or $1.45 ex-items, below the $1.51 FactSet estimate, as revenues declined 4.3% year-over-year (y/y) to $20.7 billion, roughly in line with projections. 4Q same-store sales declined 1.5% y/y, compared to the forecasted 1.4% decrease. TGT issued 1Q and full-year EPS and same-store sales guidance that came in well below expectations. The company said the quarter reflected the impact of rapidly-changing consumer behavior, which drove very strong digital growth but unexpected softness in its stores.

In the wake of the disappointing results, TGT announced plans to combat the aforementioned headwinds, including lowering prices that are expected to pressure margins, investments of more than $7 billion over the next three years, and launching 12 new exclusive brands, projected to represent $10 billion in sales over the next two years. Shares fell sharply.

Priceline Group Inc. (PCLN $1,725) posted 4Q profits of $13.47 per share, or $14.21 ex-items, well above the estimated $12.89, as revenues rose 17.4% y/y to $2.4 billion, topping the expected $2.3 billion. The travel site registered stronger-than-expected gross bookings and accelerating growth in hotel room nights booked. Shares were nicely higher.

Shares of Valeant Pharmaceuticals International Inc. (VRX $14) fell after the company's guidance for 2017 operating earnings came in below estimates, and its outlook for a y/y drop in full-year revenue had a midpoint that missed forecasts, overshadowing its slightly stronger-than-expected 4Q results.

For a look at investing in the current bull market, see Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive: Is Passive's Dominance Over Active Set to Wane?, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

First revision to 4Q GDP unchanged, while Consumer Confidence hits multi-year high

The second look (of three) at 4Q Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 1.9%, unrevised from the first release. The Bloomberg forecast called for an adjusted 2.1% pace of expansion. 3Q GDP grew by an unrevised 3.5% rate. Personal consumption came in at a 3.0% gain for 4Q, up from the preliminary estimate of a 2.5% increase, and compared to the expectations of a 2.6% increase. Personal consumption grew by an unrevised 3.0% in 3Q. The unchanged revision came as the upward adjustment to personal consumption was met with a downward revision to business investment.

On inflation, the GDP Price Index was revised to a 2.0% gain, versus forecasts of an unrevised 2.1% increase, while the core PCE Index, which excludes food and energy, was adjusted to a 1.2% rise, compared to expectations of an unrevised 1.3% gain.

The Consumer Confidence Index (chart) rose to 114.8 in February—the highest level since July 2001—from the downwardly revised 111.6 level in January, and compared to estimates of 111.0. Sentiment toward the present situation and expectations of business conditions for the next six months both improved. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—dipped to 5.9 from the 6.0 posted in January.

The Chicago Purchasing Managers Index (chart) moved further into a level depicting expansion (above 50), after rising to 57.4 in February—the highest level since January 2015—from 50.3 in January, and versus expectations of a gain to 53.5.

The advance goods trade deficit rose to $69.2 billion in January, from the downwardly revised $64.4 billion in December, and compared to expectations of it to widen to $66.0 billion.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.6% gain in home prices y/y in December, versus expectations of a 5.4% increase. Month-over-month (m/m), home prices were up 0.9% on a seasonally adjusted basis for December, above forecasts calling for a 0.7% gain.

The Richmond Fed Manufacturing Activity Index unexpectedly moved further into expansion territory (a reading above zero), rising to 17 for February from the 12 posted in January, and versus expectations of a 10 reading.

Treasuries finished mixed, as the yield on the 2-year note was 2 basis points (bps) higher at 1.22%, the yield on the 10-year note was flat at 2.36%, while the 30-year bond declined 2 basis points to 2.97%. For a look at the bond markets, see Schwab's Director of Income Planning, Rob Williams', CFP, and Senior Research Analyst, Cooper Howard's, CFA, latest article, Short-Term Bonds: Why They Could Outperform As Interest Rates Rise, at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

Along with the host of data today, the markets continue to focus on cooled off post-election rallies in the U.S. dollar and Treasury yields, along with all-time high stock markets. Political risk in the U.S. and Europe has tempered conviction. As such, the global markets are likely anticipating tonight's speech in front of Congress by President Donald Trump, looking for details regarding his tax and regulatory reforms, along with infrastructure spending plans that have teamed up with recent solid economic data to fuel the rallies in the stock and bond markets and the greenback since the November election.

As noted in the latest Schwab Market Perspective: Not So Fast!, elevated earnings and economic expectations could lead to a pullback or more sideways action but we believe the bull market in U.S. stocks will continue. If economic data continues to surprise on the upside, a March rate hike is likely to be on the table; while there is an additional risk that the Fed may be forced to speed up the tightening process should inflation accelerate from here. Read more at www.schwab.com/marketinsight, where you can also find Schwab's Chief Fixed Income Strategist, Kathy Jones' article, What would a shake-up at the Fed mean for bond investors?. Follow Kathy on Twitter: @kathyjones. Finally, for a look at the U.S. political front, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest article, Washington's Way: Why Trump's Policy Changes Could Take Time, at www.schwab.com/insights.

Tomorrow's economiccalendar will again be busy, headlined by personal income and spending, with economists expecting a 0.3% m/m increase for both figures in January, compared to the respective 0.3% and 0.5% advances seen the month prior, as well as construction spending, forecasted to have gained 0.5% m/m in January from the 0.2% decline posted in December. Like the rest of the world, national manufacturing activity reads are on tap, with the Institute for Supply Management (ISM) Manufacturing Index expected to show a level of 56.2 during February, and Markit's final February US Manufacturing PMI to be revised to a level of 54.5, with values above 50 for both readings indicating expansion in activity. Rounding out the docket will be MBA Mortgage Applications, while in afternoon action the Federal Reserve will release its 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 March 15.

Europe higher, Asia mixed as markets eye Presidential speech in U.S.

European equities nudged higher, despite festering global political uncertainty ahead of looming key elections in France and tonight's Congressional speech from U.S. President Donald Trump. For more on the global markets and the European political risk, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, The stock market sees nothing to worry about—that may be about to change. Jeff notes that Europe's economy is performing the best in many years and stock markets are currently behaving as if there is nothing to worry about, but that may be about to change now that we are within two months of the French Presidential election. He concludes that savvy investors should be prepared for a rise in volatility in global stock markets in the coming months. Read more at www.schwab.com/oninternational, and be sure to check out Jeff's article, Five Reasons to Stay Invested Despite Heightened Uncertainty. Follow Jeff on Twitter: @jeffreykleintop. French 4Q GDP growth came in at a 1.2% y/y pace, topping forecasts of 1.1%, while shares of Meggitt PLC. (MEGGY $12) jumped after the U.K. defense and energy engineer's earnings report topped expectations. Spanish stocks were noticeable gainers, bolstered by travel-related issues and solid gains in the financial sector. The euro ticked higher and the British pound declined versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mixed with the global markets cautiously awaiting tonight's Congressional speech from U.S. President Trump, amid the backdrop of heightened political uncertainty on both sides of the Atlantic. Moreover, a plethora of data was released today, ahead of this week's global reads on manufacturing and services sector activity. Japanese equities ticked higher, giving up early gains late in the session as the yen reversed losses. Japan reported an unexpected drop in industrial production for January, though its retail sales rose more than expected m/m for last month. Chinese stocks diverged to cap off this month's rally, with those traded in Hong Kong falling, while mainland Chinese equities advanced, with the nation set to report its manufacturing and services PMIs tonight. Strength in oil & gas issues was met with weakness in other sectors to lead a decline in Australia's markets, while South Korean securities rose, but Indian listing declined ahead of its 4Q GDP report. After the closing bell, India's 4Q GDP growth decelerated to a 7.0% y/y pace, from 7.4% expansion in 3Q, and compared to expectations of a 6.1% gain.

Schwab's Director of International Research, Michelle Gibley, CFA, provides some timely analysis of global investing in her articles, Currency Hedging: 5 Things You Need to Know and 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.

Manufacturing PMI reads from across the globe will dominate tomorrow's international economic calendar, while other reports slated for release include South Korea's trade balance, and CPI from Germany.