Markets Notch Solid Weekly Gains

Charles Schwab: On the Market

Posted: 12/15/2017 4:15 PM EST

Markets Notch Solid Weekly Gains

 

U.S. equities finished out the week solidly in the green on optimism surrounding reports that final-hour tweaking of the tax reform bill appears to be enough to pass it after yesterday's uncertainty. Treasury yields were mixed as industrial production missed expectations but the prior month's jump was revised higher, crude oil prices also diverged, while the U.S. dollar and gold finished higher. Upbeat results from Costco and yesterday's jump in retail sales upped the consumer outlook.

The Dow Jones Industrial Average (DJIA) increased 143 points (0.6%) to 24,652, the S&P 500 Index was 24 points (0.9%) higher at 2,676, and the Nasdaq Composite jumped 80 points (1.2%) to 6,937. In heavy volume due to quadruple witching, or the simultaneous expiration of options and futures contracts, 2.4 billion shares were traded on the NYSE and 3.2 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.26 to $57.30 per barrel and wholesale gasoline lost $0.02 to $1.65 per gallon. Elsewhere, the Bloomberg gold spot price moved $2.84 higher to $1,255.80 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 93.93. Markets were higher for the week, as the DJIA increased 1.3%, the S&P 500 Index rose 0.8%, and the Nasdaq Composite advanced 1.4%.

Costco Wholesale Corp. (COST $193) reported fiscal Q1 earnings-per-share (EPS) of $1.45, or $1.36 ex-items, versus the $1.34 FactSet estimate, as revenues rose 13.2% year-over-year (y/y) to $31.8 billion, above the projected $31.1 billion. Q1 same-store sales grew 10.5% y/y, versus the expected 10.2% gain. Shares were nicely higher.

Oracle Corp. (ORCL $48) posted fiscal Q2 EPS of $0.52, or $0.70 ex-items, compared to the projected $0.68, with revenues rising 6.0% y/y to $9.6 billion, roughly in line with forecasts. ORCL increased its share repurchase plan by $12 billion, but the company issued Q3 guidance that was below expectations. Shares saw solid pressure.

Adobe Systems Inc. (ADBE $177) announced Q4 EPS of $1.00, or $1.26 ex-items, versus the expected $1.16, as revenues grew 25.0% y/y to $2.0 billion, mostly matching estimates. The company issued Q1 and 2018 revenue guidance that matched forecasts, while its Q1 EPS outlook was above expectations. Shares were higher.

CSX Corp. (CSX $53) announced that its Chief Executive Officer (CEO) Hunter Harrison is on medical leave due to unexpected complications from a recent illness. The board has named Chief Operating Officer James Foote as acting CEO. Shares finished decisively lower.

Shares of Sirius XM Holdings Inc. (SIRI $5) fell after announcing a decision by the Copyright Royalty Board (CRB) of the Library of Congress that will require the royalty rate it has to pay for a five-year period starting January 1, 2018 to increase. The rate will rise to 15.5% of gross revenues from its current rate of 11.0% and well above expectations.

Industrial production slightly misses, but prior month's strong gain revised higher

Industrial production (chart) rose 0.2% month-over-month (m/m) in November, slightly below the Bloomberg estimate of a 0.3% gain, but October's solid 0.9% rise was upwardly revised to a 1.2% jump. Manufacturing production ticked higher and mining output jumped, though utilities production dropped. Capacity utilization ticked higher to 77.1% from the prior month's unrevised 77.0% rate, and compared to forecasts of 77.2%. Capacity utilization is 2.8 percentage points below its long-run average.

The Empire Manufacturing Index showed output from the New York region slowed more than expected but remained solidly at a level depicting expansion (a reading above zero) for December. The index decreased to 18.0 from November's unrevised 19.4 level, with forecasts calling for a decline to 18.7.

Treasuries were mixed, as the yield on the 2-year note rose 3 basis points (bps) to 1.84% and the yield on the 10-year note was flat at 2.35%, while the 30-year bond rate dipped 3 bps to 2.68%. In her video, What Could Fixed Income Investors Expect in 2018?, Schwab's Chief Fixed Income Strategist Kathy Jones offers three reasons we think investors might want to be a bit more cautious about where they look for yield in 2018.

The Treasury yield curve continues to flatten and the U.S. dollar found support after yesterday's jump in retail sales followed Wednesday's highly-expected Fed rate hike as discussed by Schwab's Senior Fixed Income Research Analyst, Collin Martin, CFA, in his article, Fed Raises Rates, Projects More to Come in 2018, as well as Schwab's Chief Investment Strategist Liz Ann Sonders' and Vice President of Trading and Derivatives Randy Frederick's video, How Will Rate Hike Affect Investors?.

Tax reform continued to be in focus and Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend analyzes in his latest commentary, Tax Plan Set for Final Vote, the deal reached on Capitol Hill regarding a massive tax package that would cut the corporate tax rate and make sweeping changes to individual taxes. Late-yesterday's flared up uncertainty regarding if the bill has enough support is being calmed by headlines suggesting final-hour adjustments to the bill will likely be enough ahead of next week's expected vote. Also, Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of what investors should be paying attention to, in his article, Tax Reform: What Investors Should Know, while also addressing questions regarding how the potential tax overhaul may affect you as an investor in his article, Tax Reform: Frequently Asked Questions. Moreover, as you conduct your year-end tax planning, check out our latest article, Tax Reform: 11 Questions to Ask Your Advisor.

Europe and Asia mixed on U.S. tax reform uncertainty

European equity markets traded mixed, with the euro giving back early gains versus the U.S. dollar amid choppy trading to help provide some late-day support and help offset a flare-up in U.S. tax reform uncertainty ahead of an expected vote sometime next week. Technology issues remained hamstrung, and consumer discretionary stocks led to the downside. Bond yields in the region pared losses to help financials limit a downside move and German markets finished higher, while the nation's central bank upped its economic growth forecast. The U.K. markets rose as the British pound fell, pressured by increased Brexit uncertainty as talks move on to the next stage but revolve around trade, which is seen to be a tougher hurdle to overcome than previous negotiations that have been contentious. In economic news, the eurozone trade surplus narrowed more than expected for October.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his, 2018 Global Market Outlook: Three Actions to Take for the Year Ahead, in which he says stay invested: with 2018 global stock market gains potentially being in the double-digits and go global: as international stocks may outperform U.S. stocks in 2018. Jeff also urges investors to rebalance: with rebalancing back to target allocations important as 2018 gains in stocks may result in a higher risk asset allocation ahead of a potential recession and bear market.

Stocks in Asia finished mixed as the scrutiny of the deal reached on tax reform by lawmakers in the U.S. heats up as it moves closer to a final vote. Also, the markets are digesting this week's Fed rate hike that was followed by unchanged monetary policy decisions from the European Central Bank and the Bank of England yesterday. The yen moved higher to pressure Japanese equities, and while the nation's Q4 Tankan Large Manufacturing Index improved more than expected, suggesting sentiment is improving, the Tankan outlook component came in a bit below forecasts. Stocks in mainland China and Hong Kong fell amid some continued paring of solid gains seen this year amid the market uncertainty. The Global markets have been bolstered by the broadest economic growth in a decade and is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, in his article, 5 Reasons Investors Should Give Thanks. Meanwhile, stocks in Australia declined, but South Korean listings rose, and markets in India advanced amid some supporting exit polls that suggested continued support for Prime Minister Modi's party, per Bloomberg. After the closing bell, India reported a sharp jump in the country's exports for November.

Stocks move higher as tax reform and data bolster fresh record highs

Stock markets moved back to record high territory this week amid optimism tax reform successfully scaled the reconciliation hurdle clearing a way to a final vote, while a jump in retail sales suggested the health of the all-important U.S. consumer was strong. Moreover, Dow member Walt Disney Co's (DIS $111) $52 billion agreement to acquire a large portion of Twenty-First Century Fox Inc. (FOXA $35) fueled a positive M&A sentiment. The telecommunications sector extending its recent run, and consumer-related stocks rallied to lead a broad-based advance, which saw technology issues regain some of its momentum that has led the year's decisive rally as the tax-reform sector rotation out of the group seemed to ease. However, the utilities sector was the lone group in the red after the Fed's highly-expected rate hike and forecast for more to come in 2018.

Outside the stock market trading was choppy as the Fed's hike was followed by unchanged monetary policy decisions from the European Central Bank, Bank of England and Swiss National Bank. The Treasury yield curve continued to flatten, with the 2-year rate rallying but the 10-year note finished little changed and the 30-year bond yield slipped. The U.S. dollar was extending last week's gain but following a mid-week slide and flared-up tax reform uncertainty the greenback lost momentum and finished little changed to slightly down. Crude oil prices rallied early on amid exacerbated supply concerns on a key pipeline crack and a gas plant explosion overseas, but lost ground and finished near the unchanged mark on the heels of mixed oil & gas inventory data.

Next week will the last before the Christmas holiday and the economic calendar will hopefully bring more gifts than coal, with a fully-loaded sleigh of releases including: the NAHB Housing Market Index, housing starts and building permits, existing home sales, the final revision of Q3 GDP, the Leading Index, personal income and spending, durable goods orders, new home sales, and the final December University of Michigan Consumer Sentiment Index.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in our 2018 Market Outlook: U.S. Stocks and Economy, animal spirits are keeping business optimism alive and well: U.S. growth broadly—and capex and productivity specifically—should remain healthy in 2018. Late cycle tendencies should be on investors’ radar screen: A tight labor market augurs for higher wage growth, higher inflation and tighter monetary policy. Tax reform would be a plus, but skepticism is warranted: Failure to pass tax reform would dent business and investor confidence, but not necessarily actual growth or corporate earnings.

International reports due out next week include: China—property prices. Japan—trade balance and the Bank of Japan's monetary policy decision. Eurozone—consumer price inflation and German business confidence. U.K.—consumer confidence and final read on Q3 GDP.

Stocks Scale Back from Recent Highs

Charles Schwab: On the Market

Posted: 10/25/2017 4:15 PM EDT

Stocks Scale Back from Recent Highs

 

Despite a surprising jump in new home sales to near a decade high and a much stronger-than-expected rise in durable goods orders, U.S. equities lost ground amid a heavy dose of mixed earnings reports. Treasury yields ticked higher, as did gold, while the U.S. dollar was lower and crude oil prices were mixed. 

The Dow Jones Industrial Average (DJIA) fell 112 points (0.5%) to 23,329, the S&P 500 Index decreased 12 points (0.5%) to 2,557, and the Nasdaq Composite declined 35 points (0.5%) to 6,564. In heavy volume, 909 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.29 to $52.18 per barrel and wholesale gasoline increased $0.02 to $1.69 per gallon. Elsewhere, the Bloomberg gold spot price rose $1.34 to $1,277.92 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 93.70.

Dow member Boeing Co. (BA $258) reported Q3 earnings-per-share (EPS) of $3.06, or $2.72 ex-items, versus the $2.65 FactSet estimate, as revenues rose 2.0% year-over-year (y/y) to $24.3 billion, compared to the expected $24.0 billion. The company said its saw strong deliveries, but announced an additional cost of $256 million for its KC-46 Tanker program. BA raised its full-year earnings outlook, due to a lower-than-expected tax rate, but it had a midpoint that missed analysts' expectations. Shares were lower.

Dow component Visa Inc. (V $110) posted fiscal Q4 EPS of $0.90, above the projected $0.85, with revenues rising 13.9% y/y to $4.9 billion, topping the forecasted $4.6 billion. The company said it achieved double-digit payments volume growth. V said it expects earnings growth in the high mid-teens. Shares gained solid ground.

Dow member Coca-Cola Co. (KO $46) announced Q3 earnings of $0.33 per share, or $0.50 ex-items, versus the estimated $0.49, as revenues fell 15.0% y/y to $9.1 billion, exceeding the forecasted $8.7 billion. The company said its revenues declined due to a headwind from the ongoing refranchising of bottling territories, and its case volume was flat y/y, amid macroeconomic challenges with developed markets negatively impacted by weather and the cycling of strong results the prior year. KO reaffirmed its full-year guidance, and shares were modestly lower.

Shares of Dow component Nike Inc. (NKE $55) reversed solidly to the upside as the Street cheered the apparel and footwear maker's updated projections announced at its investor day.

AT&T Inc. (T $34) reported Q3 EPS of $0.49, or $0.74 ex-items, compared to the projected $0.74, as revenues decreased 2.9% y/y to $39.7 billion, below the forecasted $40.1 billion. The company said it is amid a transformation in its wireless and video businesses, while its DIRECTV NOW had another strong quarter. T maintained its full-year guidance, and shares came under pressure.

Chipotle Mexican Grill Inc. (CMG $277) posted Q3 profits of $0.69 per share, or $1.46 ex-items, versus the estimated $1.64, as revenues increased 8.8% y/y to $1.1 billion, roughly in line with forecasts. Q3 same-store sales rose 1.0% y/y, compared to the expected 1.2% gain. Shares fell sharply.

Texas Instruments Inc. (TXN $96) announced Q3 EPS of $1.26, or $1.24 ex-items, versus the expected $1.12, with revenues rising 12.0% y/y to $4.1 billion, above the estimated $3.9 billion. TXN issued Q4 guidance with midpoints above the Street's estimates. Shares were lower.

Durable goods orders easily beat estimates, new home sales surprisingly jump

September preliminary durable goods orders (chart) were up 2.2% month-over-month (m/m), compared to the Bloomberg estimate of a 1.0% gain, and August's 2.0% rise was unrevised. Ex-transportation, orders were 0.7% higher m/m, versus forecasts of a 0.5% gain and compared to August's upwardly revised 0.7% rise. Orders for non-defense capital goods excluding aircraft,
considered a proxy for business spending, grew 1.3%, well above projections of a 0.3% increase, and following the positively-revised 1.3% rise posted in the month prior.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Pumped Up Kicks: Several Important Kickers for a Strong Capex Cycle, that U.S. business capital spending has already picked up; but an even sharper recovery could be in the cards for 2018.

New home sales (chart) surprisingly surged 18.9% m/m in September to an annual rate of 667,000 units, well above the forecasts calling for a decline to 554,000 units and the upwardly revised 561,000 unit pace in August. The median home price was up 1.6% y/y to $319,700. New home inventory fell to 5.5 months of supply at the current sales pace from 6.3 in August. Sales jumped m/m in the Northeast, South, and Midwest, and were up solidly in the West. New home sales are based on contract signings instead of closings. This was the highest pace of sales since October 2007 and the biggest monthly gain since January 1992.

The MBA Mortgage Application Index fell 4.6% last week, following the prior week's 3.6% rise. The drop came as a 3.0% decrease in the Refinance Index was met with a 6.1% fall in the Purchase Index. The average 30-year mortgage rate rose 4 basis points (bps) to 4.18%.

Treasuries finished modestly lower, as the yield on the 2-year note was flat at 1.59%, while the yields on the 10-year note and the 30-year bond ticked 1 bp higher to 2.43% and 2.95%, respectively.

Tomorrow's economic calendar will be a busy one, beginning with weekly initial jobless claims, forecasted to rise to a level of 235,000 from the prior week's 222,000, as well as the advance goods trade balance, with economists anticipating the deficit to widen to $64.0 billion during September. Pending home sales is also on the docket, expected to have increased 0.3% m/m during September following the 2.6% m/m drop in August. Wholesale inventories and the Kansas City Fed Manufacturing Activity Index will round out the day.

Europe lower despite upbeat economic data, Asia mixed as Japan ends winning streak

European equities traded lower amid the down session in the U.S. as the markets digested mixed earnings reports on both sides of the pond, while caution likely set in ahead of tomorrow's monetary policy decision by the European Central Bank. The markets shrugged off positive economic data in the region that preceded the stronger-than-expected housing and manufacturing reports in the U.S. German business confidence unexpectedly improved for October, while U.K. Q3 GDP quarter-over-quarter growth of 0.4% topped forecasts calling for it to match Q2's 0.3% rate of expansion. The euro was higher versus the U.S. dollar, while the British pound rallied to stymie the U.K. markets.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick, note in the video, Is An Optimistic Outlook for Global Equities Warranted?, all of the world's top 20 economies are growing this year—a rare occurrence over the last decade, underpinning our positive outlook for global earnings. Bond yields in the region finished mixed, with the Spanish political turmoil and Brexit uncertainty lingering.

Stocks in Asia finished mixed, with most markets gaining ground on the heels of yesterday's advance in the U.S. on a host of positive earnings reports, which appeared to boost global earnings economic optimism. Mainland Chinese stocks and those traded in Hong Kong rose, equities listed in South Korea and Australia nudged higher, with the latter posting a cooler-than-expected consumer price inflation report, while markets in India rallied. However, stocks in Japan declined, snapping a 16-day winning streak that has taken the index to highs not seen since 1996, with traders assessing the recent run that has contributed to the global market rally, and Schwab's Liz Ann Sonders discusses with Randy Frederick in the video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?, that there seems to be no end in sight to the bull market in equities, but that doesn’t mean there’s nothing to worry about.

In addition to tomorrow's European Central Bank monetary policy meeting, items on the international economic calendar will include: preliminary Q3 GDP from South Korea, import/export prices from Australia, consumer confidence from Germany, employment figures from Spain, and confidence data from Italy.

Gains Garnish Stocks amid Data and Proposed Tax Overhaul

On the Market

Posted: 9/27/2017 4:15 PM EDT

Gains Garnish Stocks amid Data and Proposed Tax Overhaul

U.S. stocks gained solid ground with technology and financial shares leading an advance that followed an upbeat business spending report and an optimistic reception for the latest ambitious tax reform proposal. Treasury yields and the U.S. dollar rallied, gold was lower and crude oil prices were mixed. In earnings news, Micron topped the Streets expectations, while Dow member Nike announced quarterly results and a forecast that weighed on the blue chip index.

The Dow Jones Industrial Average (DJIA) increased 56 points (0.3%) to 22,341, the S&P 500 Index was 10 points (0.4%) higher at 2,507, and the Nasdaq Composite rallied 73 points (1.1%) to 6,453. In moderate volume, 834 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.26 to $52.14 per barrel and wholesale gasoline was $0.03 lower at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price lost $10.11 to $1,283.87 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 93.42.

Dow member Nike Inc. (NKE $53) reported fiscal Q1 earnings-per-share (EPS) of $0.57, versus the $0.48 FactSet estimate, as revenues were flat year-over-year (y/y) at $9.1 billion, roughly in line with forecasts. The company said it saw growth in international geographies and Nike Direct globally, but North American wholesale revenues declined and its gross margin fell on unfavorable changes in foreign currency exchange rates and a higher mix of off-price sales. The athletic apparel and footwear company warned that it expects North American sales to decline again in Q2 and its outlook for gross margin disappointed the Street. Shares traded solidly lower.

Micron Technology Inc. (MU $37) posted fiscal Q4 EPS of $1.99, or $2.02 ex-items, compared to the forecasted $1.82, as revenues jumped 91.0% y/y and were up 10.0% quarter-over-quarter to $6.1 billion, topping the expected $5.9 billion. The chipmaker said volumes rose and average selling prices increased. MU said it expects robust demand for its memory and storage solutions to continue into 2018 as it issued Q1 guidance that exceeded estimates. Shares rallied.

Business spending jumps again, Treasury yields and dollar rally on Fed expectations

August preliminary durable goods orders (chart) were up 1.7% month-over-month (m/m), compared to the Bloomberg estimate of a 1.0% gain, and July's 6.8% drop was unrevised. Ex-transportation, orders were 0.2% higher m/m, in line with forecasts and versus July's upwardly revised 0.8% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, rose 0.9%, well above projections of a 0.3% increase, and following the upwardly revised 1.1% rise posted in the month prior. The volatile component of nondefense aircraft and parts orders jumped to bolster the headline figure, along with a rebound in demand for motor vehicles and parts. Orders for communications equipment jumped and machinery ticked higher, while demand for computers dropped and electrical equipment and appliances was little changed

The highlight of the report is likely the back-to-back monthly jump in the business spending component, which adds credence to our view in the latest Schwab Market Perspective: A Cat and Mouse Fall, that both domestic and global economic and earnings growth continues to look healthy and we expect the bull market to continue. Read more on the Market Commentary page at www.schwab.com and follow us on Twitter: @schwabresearch.

The MBA Mortgage Application Index declined 0.5% last week, following the prior week's 9.7% drop. The decrease came as a 3.5% drop in the Refinance Index more than offset a 2.8% gain for the Purchase Index. The average 30-year mortgage rate rose 7 basis points (bps) to 4.11%.

Pending home sales fell 2.6% m/m in August, versus projections of a 0.5% decline, and following the unrevised 0.8% decrease registered in July. Compared to last year, sales were 3.1% lower. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which unexpectedly fell in August due to inadequate levels of available inventory and the upward pressure it's putting on prices.

Treasuries were lower, with the yield on the 2-year note rising 2 bps to 1.48%, the yield on the 10-year note gaining 7 bps to 2.30%, and the 30-year bond rate advancing 8 bps to 2.85%.
Treasury yields rallied, with the 10-year rate hitting a two-month high, and the U.S. Dollar Index jumped to levels not seen in over a month. Fiscal policy focus appears to be heating up as the markets began to digest the release of tax-reform proposal details, while expectations of a Fed rate hike in December were bolstered by yesterday's speech by Federal Reserve Chairwoman Janet Yellen, which seemed to foster a hawkish reaction. The comments come on the heels of last week's Fed monetary policy decision, after which its statement was viewed as a bit more hawkish, as discussed by Schwab's Chief Investment Strategist 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. Follow Liz Ann and Jeff on Twitter: @lizannsonders and @jeffreykleintop.

Amid the backdrop of a plethora of things for the market to worry about, Schwab's Liz Ann Sonders discusses the market's resiliency in her article, Comfortably Numb? An Update on Investor Sentiment, on the Market Commentary page at www.schwab.com.

Tomorrow, the U.S. economic calendar will remain busy, beginning with four major releases an hour prior to the opening bell. Early reports include the third and final read for Q2 GDP, with economists anticipating no revision to the quarterly 3.0% annualized growth rate in the second release, weekly initial jobless claims, forecasted to tick higher to 270,000 from the prior week's 259,000, the advanced goods trade balance, estimated to show that the deficit widened in August to $65.1 billion, and preliminary wholesale inventories for August, expected to have increased by 0.4% after registering a 0.6% rise for July's final print. Rounding out the day will be the September Kansas City Fed Manufacturing Index, anticipated to have decreased to a level of 15 from 16 in August, with a reading above 0 indicating expansion in activity.

Europe higher and Asia mixed amid Fed expectations

Most European equity markets finished higher, with the euro and British pound losing ground versus the U.S. dollar, which rallied on some upbeat economic data and yesterday's speech by Fed Chief Janet Yellen that bolstered expectations of a December rate hike. Bond yields in the region moved noticeably to the upside to boost the financial sector. In economic news, Italian economic and consumer confidence both topped forecasts in September. For a look at the global markets, see Schwab's Jeffrey Kleintop's, CFA, article, U.S. vs. International: What Do Earnings Tell Us About What May Be Ahead?, on the Market Commentary page at www.schwab.com.

Stocks in Asia finished mixed as the markets grappled with heightened rate hike expectations in the U.S. following the Fed Chair's speech yesterday, while shares in China and Hong Kong gained ground following an upbeat read on the nation's industrial profits. Japanese equities declined, though losses may have been limited by continued weakness in the yen as the U.S. dollar has rallied as of late. Indian stocks extending their losing streak to seven sessions as recent economic data has fostered concerns and the markets continue to retreat from record highs. South Korean and Australia securities ticked lower. For analysis of global investing amid this backdrop, see Schwab's Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page at www.schwab.com.

The international economic docket for tomorrow will yield reports on job vacancies in Australia, CPI from South Korea, CPI and GfK Consumer Confidence from Germany and consumer confidence from the Eurozone.

Fed to Begin Unwinding, Signals Another Hike

Charles Schwab: On the Market

Posted: 9/20/2017 4:15 PM ET

Fed to Begin Unwinding, Signals Another Hike

U.S. equities finished mixed, rebounding from a brief tumble that came after the Fed left rates unchanged, as expected, but signaled a December hike is likely to be in the cards. Treasury yields rose following the Fed decision, which included insight into the winding down of its behemoth balance sheet, while the U.S. dollar jumped and gold reversed to the downside. Meanwhile, crude oil prices rose following a mixed government oil inventory report and U.S. existing home sales unexpectedly dropped.

The Dow Jones Industrial Average (DJIA) increased 42 points (0.2%) to 22,413, the S&P 500 Index gained 2 points (0.1%) to 2,508, while the Nasdaq Composite declined 5 points (0.1%) to 6,456. In moderate volume, 837 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.79 to $50.69 per barrel and wholesale gasoline was unchanged at $1.66 per gallon. Elsewhere, the Bloomberg gold spot price decreased $10.39 to $1,300.76 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% higher at 92.49.

FedEx Corp. (FDX $221) reported fiscal Q1 earnings-per-share (EPS) of $2.19, or $2.51 ex-items, versus the $3.09 FactSet estimate, as revenues rose 4.1% year-over-year (y/y) to $15.3 billion, below the projected $15.4 billion. The company cited the negative impacts of the cyberattack at its TNT Express unit and Hurricane Harvey. FDX lowered its full-year profit outlook. Shares overcame early pressure and finished higher as analysts appeared to be looking past the TNT cyberattack-induced miss, noting an unchanged long-term outlook and strong fundamentals.

Bed Bath & Beyond Inc. (BBBY $23) posted fiscal Q2 EPS of $0.67, or $0.78 ex-items, compared to the forecasted $0.95, with revenues declining 1.7% y/y to $2.9 billion, missing the expected $3.0 billion. Q2 same-store sales fell 2.6% y/y, versus the estimated 0.7% decline. BBBY lowered its full-year guidance, and shares tumbled.

General Mills Inc. (GIS $52) announced fiscal Q1 profits of $0.69 per share, or $0.71 ex-items, versus the estimated $0.76, as revenues decreased 3.5% y/y to $3.8 billion, roughly in line with forecasts. GIS noted that its U.S. yogurt segment sales were down double-digits and its cereal and snacks unit sales also declined. The company's gross margin fell solidly due to higher input costs, deleverage, and unfavorable trade expense phasing. GIS reiterated its full-year guidance. Shares fell.

Adobe Systems Inc. (ADBE $150) reported Q3 EPS of $0.84, or $1.10 ex-items, versus the estimated $1.01, as revenues grew 26.0% y/y to $1.8 billion, mostly matching expectations. However, shares were lower as the company's experience cloud bookings missed expectations for the quarter, leading to a warning that its Adobe Marketing Cloud segment will not achieve its bookings goal for the year.

Fed to begin balance sheet unwinding, existing home sales surprisingly drop

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, agreeing to keep the target for its fed funds rate steady at a range of 1.00%-1.25%, a move that was widely expected. The FOMC also kept its near-term rate outlook intact, with 12 of 16 Committee members projecting at least one additional rate increase for 2017, but it lowered its longer-term outlook, indicating 11 of 16 Members forecasted three hikes in 2018. In its statement, the FOMC said that near-term risks to the economy are “roughly balanced,” that the labor market continues to be strong, and that the Committee "is monitoring inflation developments closely." In regards to the recent hurricanes, the Fed indicated that "disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term." In a separate statement, the Fed also provided details of its plan to begin to wind down its $4.5 trillion balance sheet. In a unanimous decision, the Fed will begin to taper its balance sheet by $10 billion per month—$6 billion from Treasuries and $4 billion from mortgage-backed securities—increasing by $10 billion per month every quarter for the first year.

As well, the Fed provided updated economic projections, showing a slight upward change to gross domestic product for this year, while lowering its forecasts for inflation and keeping its the unemployment rate expectations the same. In her press conference following the decision, Fed Chairwoman Janet Yellen said that she is heartened by the labor market improvement and expects the economy to expand at a moderate pace, but that the Committee is prepared to act if the economy begins to deteriorate. For more insightful analysis of the Fed’s decision, see Schwab's Chief Investment Strategist Liz Ann Sonders' article, The Fed's on the QT, on the Markets & Economy page at www.schwab.com, while you can also follow Liz Ann on Twitter: @lizannsonders.

Existing-home sales in August fell 1.7% month-over-month (m/m) to a 5.35 million annual rate—the lowest in a year—compared to the Bloomberg forecast of a 5.45 million pace, and versus July's unrevised 5.44 million rate. Sales of single-family homes dropped 2.1% m/m, but remained slightly above year ago levels, while purchases of multi-family structures rose 1.7%, but were lower y/y. The median existing-home price was up 5.6% y/y at $253,500. Unsold inventory came in at a 4.2-months pace at the current sales rate, down from the 4.5 months rate a year ago. Inventory of homes for sale declined 2.1% m/m, and are down 6.5% y/y, falling for 27 consecutive months. Sales jumped in the Northeast and rose in the Midwest, while sales fell in the South and West. Existing home sales are based on contract closings instead of signings and account for the majority of the housing sales market.

The National Association of Realtors (NAR) noted that sales in the South were hampered by Hurricane Harvey but Chief Economist Lawrence Yun said, "What's ailing the housing market and continues to weigh on overall sales is the inadequate levels of available inventory and the upward pressure it's putting on prices." Despite the supply headwinds facing existing home sales, housing demand remains solid, buoyed by the positive employment front, a key area supporting our view in the latest Schwab Market Perspective: A Cat and Mouse Fall, that the bull market will likely continue. Read more on the Markets & Economy page at www.schwab.com, as well as Schwab's Liz Ann Sonders' article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", where she notes that a boost associated with the recovery/rebuilding efforts is likely. Follow Schwab  on Twitter: @schwabresearch.

The MBA Mortgage Application Index dropped 9.7% last week, giving back most of the previous week's 9.9% jump. The fall came as an 8.5% drop in the Refinance Index was met with a 10.8% tumble for the Purchase Index. The average 30-year mortgage rate ticked 1 basis point (bp) higher to 4.04%.

Treasuries finished mostly lower, as the yield on the 2-year note rose 3 bps to 1.44%, the yield on the 10-year note gained 2 bps to 2.27%, and the 30-year bond rate was flat at 2.82%.

Tomorrow's economic calendar will begin with weekly initial jobless claims, which are forecasted to have moved higher to a level of 302,000 from the prior week's 284,000, as well as the Philly Fed Manufacturing Index, with economists anticipating a reading of 17.1 for September following August's 18.9, and culminating with the Index of Leading Economic Indicators (LEI) for August, anticipated to match July's 0.3% m/m increase.

Europe and Asia mixed as markets eye Fed decision

European equity markets finished mixed, with financials seeing some pressure though energy issues gained ground. The markets traded cautiously ahead of today's monetary policy meeting by the Fed in the U.S., which comes on the heels of the European Central Bank signaling that it will begin to discuss dialing back its stimulus measures this fall and the Bank of England noting that a rate hike could be announced in the coming months. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses the potential changes in global monetary policy in his latest article, How the Shift by Central Banks May Affect the Stock Market, noting that despite the coming shift by central banks towards trimming/tapering their balance sheets, we don't believe the bull market is at risk. Read more on the Markets & Economy page at www.schwab.com including Jeff's point that earnings, not easing, remain the key support for stock markets around the world. The euro was flat and the British pound advanced on the U.S. dollar, while bond yields in the region finished mixed. In economic news, U.K. retail sales grew much more than expected in August.

Stocks in Asia finished mixed as the markets treaded cautiously ahead of today's monetary policy meeting by the U.S. Federal Reserve, while looking to tomorrow's decision by the Bank of Japan. Mainland Chinese equities and those traded in Hong Kong gained modest ground, while markets in Australia and South Korea declined. Stocks in Japan slightly extended yesterday's jump, with the yen holding onto recent weakness and following the nation's trade report, which showed exports grew more than expected in August. Markets in India finished flat. Schwab's Jeffrey Kleintop, CFA, offers analysis of the global investing landscape in his articles, What are fund flows telling us about trends and risks in the global stock market?, and, An important benefit to global investors is back after 20 years, on the Markets & Economy page at www.schwab.com.

In addition to the Bank of Japan's monetary policy decision, the international economic calendar will offer the All-Industry Index from the island nation, industrial orders from Spain, and public sector net borrowing from the U.K.

Eased Anxieties Help Stocks Rally

Charles Schwab: On the Market

Posted: 9/11/2017 4:15 PM ET

Eased Anxieties Help Stocks Rally

The U.S. equity markets rallied, courtesy of eased geopolitical concerns amid a pause in North Korean missile tests, and as early economic assessments of losses in the aftermath of Hurricane Irma are less than feared. Treasury yields continued to recover from multi-month lows, giving financials a boost, while the U.S. dollar also rebounded from multi-year lows. Crude oil prices were higher, while gold was solidly lower.

The Dow Jones Industrial Average (DJIA) jumped 260 points (1.2%) to 22,057, the S&P 500 Index was 27 points (1.1%) higher at 2,488, and the Nasdaq Composite rallied 72 points (1.1%) to 6,432. In moderate volume, 795 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.59 to $48.07 per barrel and wholesale gasoline lost $0.02 to $1.63 per gallon. Elsewhere, the Bloomberg gold spot price dropped $18.97 to $1,327.62 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 91.87.

Insurance stocks got a boost as the markets assessed the impact of Hurricane Harvey in Texas two weeks ago and Hurricane Irma that hammered the Caribbean and made landfall in Florida over the weekend. Early reports are suggesting Irma's costs will likely be less than feared as the storm has been downgraded to a tropical storm. Airlines and travel companies also found support.

Pilgrim's Pride Corp. (PPC $28) announced an agreement to acquire poultry and prepared foods supplier Moy Park from Brazil's JBS SA (JBSAY $5) for about $1.0 billion. PPC said the acquisition is expected to be immediately accretive to earnings per share. PPC finished lower.

Teva Pharmaceutical Industries Ltd. (TEVA $19) rallied nearly 20% after the generic drug company named Kare Schultz as its new Chief Executive Officer (CEO), the former CEO of Danish drugmaker H. Lundbeck (HLUYY $57). HLUYY was sharply lower.

Treasury yields and the U.S. dollar regaining footing

Treasuries were lower amid a dormant economic calendar, as the yield on the 2-year note increased 6 basis points (bps) to 1.32%, while the yields on the 10-year note and the 30-year bond gained 8 bps to 2.13% and 2.75%, respectively. For analysis of the bond markets, see Schwab's Chief Fixed Income Strategist Kathy Jones' article, What's the Bigger Risk: Bond Market Bubble or Complacency?, on the Fixed Income page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

Treasury yields and the U.S. dollar rebounded from recent weakness that took the former to levels not seen since November and the latter to well over a two-year low, as risk aversion eases with North Korea holding off on another missile test and the impact of Hurricane Irma appears to less than feared. Downside pressure on bond yields and the greenback has come amid fading expectations of another Fed rate hike this year and as the euro surged in the wake of the European Central Bank's signal that it will likely begin discussions of tapering stimulus measures at its meeting next month

This sets the stage for this week's economic calendar to likely regain some focus, beginning with tomorrow's NFIB Small Business Optimism Index, forecasted to show a slight downtick to a level of 104.8 for August from the 105.2 posted in July, as well as the Job Openings and Labor Turnover Survey (JOLTS) report, with economists expecting the measure of unmet demand for labor to have fallen to 5.8 million jobs available to be filled in July from the 6.2 million registered in June. Stubbornly low inflation, which has kept Fed rate expectations hamstrung, will also be on display this week, courtesy of the releases of the Consumer Price Index (CPI) and Producer Price Index (PPI) for August. The all-important U.S. consumer will also garner attention as the markets digest the August retail sales report and the preliminary September University of Michigan Consumer Sentiment Index. The docket will also bring industrial production and capacity utilization.

As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, action is about to heat up as summer comes to an end but investors should remain cool. Geopolitical threats, domestic politics, and Federal Reserve actions all have the potential to add to volatility and heightens the risk of a pullback or correction. But healthy economic growth and strong corporate earnings lead us to believe that the bull market has legs. Read more on the Markets & Economy page at www.schwab.com.

Europe and Asia higher as geopolitical concerns fade and Irma downgraded

European equity markets gained solid ground, with the lack of another missile test by North Korea easing geopolitical concerns, while assessments of the U.S. economic impact of Hurricane Irma were preliminarily reported to be less than estimated as it was downgraded to a tropical storm. Insurance and travel companies got a boost, while sentiment also found some support from upbeat data out of China and Japan. The euro gave back some of a recent surge to near a three-year high versus the U.S. dollar, while bond yields recovered to also bolster the financial sector. The British pound dipped versus the greenback ahead of this week's Bank of England monetary policy decision. In economic news, Italian industrial production rose more than expected. For a look at global investing, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Vice President of Trading and Derivatives, Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished higher as North Korea held off on conducting another missile test, which is easing geopolitical concerns, while early reports of the impact of Hurricane Irma in the U.S. are suggesting the costs will be less than feared. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks, investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com. Moreover, Japan posted much stronger-than-expected machine orders—a gauge of capital spending—for July, while China's CPI and PPI figures topped forecasts. Japanese equities rallied, with the yen giving back some recent gains, while stocks in China and Hong Kong rose, as sentiment also gets a boost from reports that the People's Bank of China intends to ease requirements for financial institutions. Meanwhile, markets in South Korea, Australia and India also advanced.

Tomorrow's international economic calendar will mostly focus on reports out of the U.K., with the island nation set to release CPI, PPI, housing prices and the Retail Price Index.

Stocks Mixed as Storms Eyed

Charles Schwab: On the Market

Posted: 9/8/2017 4:15 PM ET

Stocks Mixed as Storms Eyed

U.S. stocks traded mixed as the markets paid attention to developments pertaining to Hurricane Irma, while financials advanced as Treasury yields mostly rebounded from a recent drop. The U.S. dollar was again under pressure and a dip in crude oil prices pressured energy shares though tech listings led decliners. In other equity news, Equifax traded lower in the wake of its announced massive cybersecurity breach. Gold was lower.

The Dow Jones Industrial Average (DJIA) increased 13 points (0.1%) to 21,799, the S&P 500 Index was 4 points (0.1%) lower at 2,462, and the Nasdaq Composite decreased 38 points (0.6%) to 6,360. In moderate volume, 801 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.61 to $47.48 per barrel and wholesale gasoline lost $0.01 to $1.65 per gallon. Elsewhere, the Bloomberg gold spot price was $2.49 lower at $1,346.74 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.4% lower at 91.33. Markets were lower for the holiday-shortened week, as the DJIA decreased 0.9%, the S&P 500 Index lost 0.6% and the Nasdaq Composite fell 1.2%.

Equifax Inc. (EFX $123) announced a cybersecurity incident potentially impacting approximately 143 million U.S. consumers, occurring from mid-May through July 2017. Data accessed primarily includes names, Social Security numbers, birth dates, addresses and, in some instances, driver's license numbers. In addition, credit card numbers for approximately 209,000 U.S. consumers, and certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers, were accessed. The company added that it has found no evidence of unauthorized activity on Equifax's core consumer or commercial credit reporting databases. Shares finished sharply lower.

Kroger Co. (KR $21) reported Q2 earnings-per-share (EPS) of $0.39, in line with the FactSet estimate, as revenues grew 3.9% year-over-year (y/y) to $27.6 billion, above the projected $27.5 billion. Q2 same-store sales grew 0.7% y/y, versus the 0.4% rise that was anticipated. KR reaffirmed its full-year EPS outlook. Shares were under pressure, as analysts expressed concern about the heightened uncertainty in the food retail market as the company said it will no longer provide longer-term guidance "In this dynamic operating environment."

Target Corp. (TGT $57) found pressure after the retailer posted a blog about lowering prices on thousands of items in its stores.

Consumer credit and wholesale inventories rise 

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $18.5 billion during July, above the $15.0 billion forecast of economists polled by Bloomberg, while June's figure was adjusted slightly lower to an increase of $11.8 billion from the originally reported $12.4 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $15.9 billion y/y, while revolving debt, which includes credit cards, increased by $2.6 billion.

Wholesale inventories (chart) were revised higher to a 0.6% month-over-month (m/m) gain for July, versus the Bloomberg forecast of an unrevised preliminary 0.4% increase. This was the third-straight month posting a 0.6% increase. However, sales dipped 0.1% m/m, after June's downwardly revised 0.6% gain, and compared to the expected 0.5% rise. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—ticked higher to a 1.30 months pace from June's 1.29 rate.

Treasuries finished mostly lower, with the yield on the 2-year note nearly unchanged at 1.27%, while the yields on the 10-year note and the 30-year bond gained 2 bps to 2.06% and 2.67%, respectively.

Treasury yields rebounded from a recent bout of pressure that had taken them to levels not seen since November, while the U.S. dollar continued to drop to lows not seen in over two years. Fed rate hike expectations for this year have slipped and the European Central Bank signaled that it is likely to unveil plans to dial back its stimulus measures at its meeting next month. Moreover, geopolitical and U.S. political uncertainties remain, while last week's Hurricane Harvey is being followed by a plethora of storms in the Atlantic, with Hurricane Irma continuing to track toward Florida.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, we think bond yields are likely to rise from current levels as the economy continues to improve and the Federal Reserve tightens policy, but we don’t see a bubble in the market. Read more on the Fixed Income page at www.schwab.com, and for analysis of investing styles, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?, on the Markets & Economy page. Follow Kathy and Liz Ann on Twitter: @kathyjones and @lizannsonders.

In the final hour of trading, the economic calendar will bring the release of consumer credit, expected to show consumer borrowing was $15.0 billion during July, up from the $12.4 billion posted the month prior.

Europe battles back as data and currencies in focus, Asia mixed following data 

European equity markets overcame early losses and finished mostly higher, as financials gained ground with bond yields in the region rebounding from recent pressure. The euro was relatively calm after an extended rally to levels versus the U.S. dollar not seen in well over two years. The European Central Bank (ECB) and the markets have shown some concern regarding the euro's recent surge, which was amplified by yesterday's ECB monetary policy decision that signaled plans to scale back stimulus measures could come next month. Also, the outlook for the possibility of a Fed rate hike this year has become more cloudy to bolster gains for the euro. A mixed trade report out of China, softer-than-expected German export growth, mixed industrial/manufacturing production data out of France, and relatively favorable U.K. industrial/manufacturing production were also in focus. The British pound gained solid ground on the U.S. dollar, likely weighing on the U.K. markets. Amid this backdrop, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Vice President of Trading and Derivatives, Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mixed to close out the week, with data showing Chinese exports missed forecasts but imports—a potential sign of growth in domestic output—topped forecasts, while Japan's Q2 GDP growth was revised to a slower pace of acceleration from Q1. Also, currency volatility garnered attention, with the yen extending a rally as the U.S. dollar continued to drop, hitting the strongest level versus the greenback since November, while currencies in China strengthened to help developers and airlines, per Bloomberg. Global monetary policy uncertainty after yesterday's ECB decision and as Fed rate hike expectations slip is bolstering the volatility. Tensions toward North Korea continued to fester to keep sentiment on edge, along with the potential impact of a plethora of hurricanes in the Atlantic. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com. 

Weekly gain streak ends as storms, currencies, and yields garner attention

U.S. stocks failed to extend a weekly winning streak to three as a plethora of sources of market anxiety stymied conviction. Financials came under pressure as Treasury yields fell to November lows, while the U.S. dollar tumbled to levels not seen since early 2015. Global monetary policy uncertainty lingered, as Fed rate hike expectations for this year continued to fade, the ECB hinted that detailed discussions regarding tapering are set to commence, and the Bank of Canada unexpectedly hiked rates. Just as the markets were recovering from Hurricane Harvey's impact, Irma crushed the Caribbean and tracked toward Florida.

Geopolitical concerns remained as North Korea detonated a hydrogen bomb and was reportedly preparing another ICBM test, while U.S. President Trump continued to push for global trade renegotiations. Dysfunction on the domestic political front persisted as President Trump backed a Democratic bill lumping a short-term debt limit extension to avoid a government shutdown with Hurricane relief, which passed through Congress but appeared to make some Republican Congressional members uneasy. Upbeat global economic data was overshadowed, with upbeat services sector reports out of China, the eurozone, U.K. and the U.S. having little impact. Healthcare issues led to the upside, bolstered by a plethora of upbeat experimental drug trial results, and energy stocks moved higher as crude oil prices paused from a recent tumble.

Next week, while assessing the impact of Irma and grappling with the aforementioned uncertainties, the economic calendar will likely regain some focus. Stubbornly low inflation, which has kept Fed rate expectations hamstrung, will be on display courtesy of the releases of the Consumer Price Index (CPI) and Producer Price Index (PPI) for August. The all-important U.S. consumer will also garner attention as the markets digest the August retail sales report and the preliminary September University of Michigan Consumer Sentiment Index. The docket will also bring the NFIB Small Business Optimism Index, JOLTS Job Openings, and industrial production and capacityutilization.

As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, action is about to heat up as summer comes to an end but investors should remain cool. Geopolitical threats, domestic politics, and Federal Reserve actions all have the potential to add to volatility and heightens the risk of a pullback or correction. But healthy economic growth and strong corporate earnings lead us to believe that the bull market has legs. Read more on the Markets & Economy page at www.schwab.com.

International reports due out next week that deserve a mention include: Australia—consumer confidence and employment change. China—CPI, PPI, lending statistics, retail sales and industrial production. India—trade balance, CPI, PPI and industrial production. Japan—machine orders and industrial production. Eurozone—industrial production, new car registrations and trade balance, along with German CPI. U.K.—CPI, PPI, employment change and Bank of England monetary policy decision.

Markets Mostly Flat, Discretionary Stocks Find Pressure

Charles Schwab: On the Market

Posted: 9/7/2017 4:15 PM ET

Markets Mostly Flat, Discretionary Stocks Find Pressure

U.S. stocks closed mostly flat as Dow member Walt Disney and Comcast announced warnings in regard to financial numbers this quarter and after the European Central Bank kept its monetary policy stance unchanged. The U.S. dollar touched on two-year lows and Treasury yields dropped. The potential destruction arising from Hurricane Irma added to the skittishness of the markets. Jobless claims jumped in the aftermath of Hurricane Harvey and Q2 productivity was revised higher. Crude oil and gold both rose.

The Dow Jones Industrial Average (DJIA) declined 23 points (0.1%) to 21,785, the S&P 500 Index was nearly unchanged at 2,465, and the Nasdaq Composite increased 5 points (0.1%) to 6,398. In moderate volume, 787 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.07 lower to $49.09 per barrel and wholesale gasoline lost $0.01 to $1.66 per gallon. Elsewhere, the Bloomberg gold spot price was $14.62 higher at $1,348.84 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% lower at 91.55.

Shares of GoPro Inc. (GPRO $10) jumped after the wearable action camera maker announced that it expects revenue and gross margin for Q3 to be at the high end of its previously reported guidance, citing strong demand for its GoPro products.

RH (RH $72), the furniture company formerly known as Restoration Hardware, reported a Q2 loss of $0.28 per share, or earnings-per-share (EPS) of $0.65 ex-items, versus the FactSet estimate calling for EPS of $0.47, as revenues grew 14.0% year-over-year (y/y) to $619 million, compared to the forecasted $606 million. Q2 same-store sales rose 7.0% y/y, above the projected 5.8% increase. RH boosted its full-year EPS outlook after issuing Q3 profit guidance that easily beat expectations. Shares surged over 45%.

Dow member Walt Disney Co. (DIS $97) was under solid pressure after the company noted at the Bank of America Merrill Lynch 2017 Media, Communications and Entertainment Conference that its full-year EPS will be roughly in line with the last year's $5.72, versus the Street's expectation of $5.89.

At the same conference, Comcast Corp. (CMCSA $38) said Hurricane Harvey and competition has resulted in a loss of some video subscribers that will hit its financial numbers this quarter.

Eli Lilly and Co. (LLY $82) announced steps to streamline its operations to focus better on developing new medicines and improve its cost structure, including the reduction of its workforce by 3,500 positions. Shares finished higher.

Cabela's Inc. (CAB $61) rallied after a subsidiary of Synovus Financial Corp. (SNV $41) received regulatory approval to acquire certain assets and assume certain liabilities of World's Foremost Bank, a subsidiary of the camping, hunting and fishing gear chain.

Jobless claims boosted by Hurricane Harvey, Q2 productivity revised higher

Weekly initial jobless claims (chart) surged by 62,000 to 298,000 last week, well above the Bloomberg forecast of 245,000, with the prior week’s figure being unrevised at 236,000. The jump is being mostly attributed to the impact of Hurricane Harvey. The four-week moving average rose by 13,500 to 250,250, while continuing claims declined 5,000 to 1,940,000, south of estimates of 1,945,000.

Final Q2 nonfarm productivity (chart) was revised to a 1.5% rate of growth on an annualized basis, from the preliminary estimate of a 0.9% increase, and versus expectations of a 1.3% rise. Q1 productivity was unrevised at a 0.1% gain. Unit labor costs were adjusted to a 0.2% gain, from the initial report of a 0.6% increase, and versus the forecast calling for a 0.3% rise. Q1 labor costs were revised lower to a 4.8% increase.

Treasuries rose, as the yield on the 2-year note fell 4 basis points (bps) to 1.27%, while the yields on the 10-year note and the 30-year bond dropped 6 bps to 2.05% and 2.66%, respectively. Bond yields and the U.S. dollar were back under pressure after yesterday's modest rebound, with the former falling back to lows not seen since November and the latter trading at more than a two-year low. Geopolitical and domestic political uncertainties are lingering, while the markets are grappling with global monetary policy uncertainty as Fed rate hike expectations slip and the European Central Bank (ECB) left its monetary policy stance unchanged but noted that currency volatility needs to be monitored. Also, the markets are eyeing Hurricane Irma, which is tracking toward Florida on the heels of last week's Hurricane Harvey that damaged the Texas Gulf and disrupted the oil & gas markets.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, we think bond yields are likely to rise from current levels as the economy continues to improve and the Federal Reserve tightens policy, but we don’t see a bubble in the market. Read more on the Fixed Income page at www.schwab.com, and for analysis of investing styles, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?, on the Markets & Economy page. Follow Kathy and Liz Ann on Twitter: @kathyjones and @lizannsonders.

Tomorrow, the U.S. economic calendar will deliver a read on wholesale inventories for July, expected to have increased 0.4% m/m, matching the rise seen in June, while in the final hour of trading, consumer credit will be reported and is expected to have expanded by $15.0 billion during July.

Europe mostly higher as ECB holds policy steady, Asia mixed amid China data

European equity markets traded mostly higher, despite the reaction in the currency markets after the ECB expectedly left its monetary policy stance unchanged. The euro jumped to highs not seen in over two years versus the U.S. dollar and bond yields in the region were lower to pressure financials and hamstring Italian and Spanish stocks. The markets scrutinized the customary press conference from ECB President Mario Draghi that followed the decision. He noted that the recent volatility in the currency markets is a source of uncertainty which requires monitoring for its impact on price stability, while reiterating that substantial policy accommodation is still needed. The ECB lowered its inflation outlooks for 2018 and 2019, while raising this year's GDP growth forecast and leaving its guidance for economic output in to following two years unchanged. As expected, he did not offer much on the timing of removing stimulus measures, noting that autumn may be when the groundwork for the process is detailed. The markets are anticipating next month's meeting to be the one when we get the ECB's plans for paring its stimulus measures. The euro's recent rally has been reported to be causing concern at the central bank and the markets appear to be surprised that Draghi did not offer more in terms stemming the euro's jump.

The British pound also gained ground on the greenback. In other economic news, German industrial production came in flat month-over-month in July, after falling 1.1% in June, and versus projections of a 0.5% gain. Eurozone Q2 GDP was revised higher to a 2.3% y/y pace, from the preliminary estimate of a 2.2% increase. For a look at global stock investing, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Vice President of Trading and Derivatives, Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mixed following yesterday's modest rebound in the U.S., aided by news that President Trump supported a package that included a short-term debt ceiling extension that appeared to ease political concerns somewhat. Market participants traded with some caution ahead of today's monetary policy decision from the ECB and with China expected to report trade and inflation data later this week. Japanese equities rose, with the yen paring a recent run, while South Korean stocks snapped a recent losing streak. Tensions toward North Korea had pressured the Korean markets but no new developments in the past couple days seems to be cooling concerns. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com. Shares trading in mainland China and Hong Kong traded lower. Australian securities finished flat after softer-than-expected reads on retail sales and the trade surplus, while Indian equities were little changed.

The international economic docket for tomorrow will include trade data, Q2 GDP and bank lending figures from Japan, home loans from Australia, trade data and labor costs from Germany and industrial and manufacturing production from the U.K. and France.

Stocks Mixed Amid Persistent Uncertainty

Charles Schwab: On the Market

Posted: 8/25/2017 4:15 PM ET

Stocks Mixed Amid Persistent Uncertainty

U.S. equities finished out the week mixed in a choppy session, as a morning relief rally succumbed to the recent persistent uncertainty. Early gains came as political concerns seemed to have eased somewhat, with President Trump's top economic advisor Gary Cohn suggesting he will not leave his post. However, the highly-anticipated speeches from Fed Chair Janet Yellen and ECB President Mario Draghi didn’t offer anything new to remedy swirling anxiety surrounding global monetary policy. The U.S. dollar fell following Yellen’s and Draghi’s remarks, but bounced off the lows of the day, and Treasury yields ticked lower, while gold was higher and crude oil prices were mixed.

The Dow Jones Industrial Average (DJIA) rose 30 points (0.1%) to 21,814, the S&P 500 Index added 4 points (0.2%) to 2,443, and the Nasdaq Composite shed 6 points (0.1%) to 6,266. In light-to-moderate volume, 663 million shares were traded on the NYSE and 1.4 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.44 to $47.87 per barrel and wholesale gasoline lost $0.01 at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price gained $4.42 to $1,290.82 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 92.50. Markets were higher for the week, as the DJIA increased 0.6%, the S&P 500 Index rose 0.7% and the Nasdaq Composite gained 0.8%.

Ulta Beauty Inc. (ULTA $212) reported Q2 earnings-per-share (EPS) of $1.83, above the $1.78 FactSet estimate, as revenues grew 20.6% year-over-year (y/y) to $1.3 billion, roughly matching expectations. Q2 same-store sales rose 11.7% y/y, just shy of the 12.0% increase that the Street had projected. ULTA issued Q3 EPS guidance that had a midpoint below estimates, while its revenue and same-store sales outlooks were roughly in line with projections. For the full-year, the company raised its guidance. Shares finished solidly lower.

Broadcom Ltd. (AVGO $246) posted fiscal Q3 EPS of $1.14, or $4.10 ex-items, compared to the expected $4.03, as revenues rose 18.0% y/y to $4.5 billion, roughly in line with estimates. BRCM issued Q4 revenue guidance that was mostly in line with forecasts. Shares were lower as the company suggested some areas of weakness in its hard disk drive and data center segments that are fostering some concerns on the Street.

GameStop Corp. (GME $19) announced Q2 earnings of $0.22 per share, or $0.15 ex-items, compared to the $0.18 estimate, as revenues rose 3.4% y/y to $1.7 billion, above the projected $1.6 billion. Q2 same-store sales rose 1.9%, versus the expected 2.2% decline, but its gross margin declined y/y and missed the Street's forecasts. GME reaffirmed its full-year EPS outlook and said it expects same-store sales to be at the high end of its previous guidance. Shares fell sharply on analyst concerns about the lighter-than-expected gross margin.

Early look at July manufacturing demand show core orders grew

July preliminary durable goods orders (chart) fell 6.8% month-over-month (m/m), compared to the Bloomberg estimate of a 6.0% drop, and June's 6.4% jump was unrevised. Ex-transportation, orders were 0.5% higher m/m, compared to forecasts of a 0.4% gain and versus June's unrevised 0.1% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, grew 0.4%, in line with projections, and following the unrevised flat reading posted in the month prior.

The headline figure was driven by the volatile component of transportation equipment as nondefense aircraft and parts orders fell nearly 71% m/m, more than offsetting a 48% rise in defense aircraft and parts, and following the prior month's 129% surge. Demand for computers and related products, along with electrical equipment, appliances and components led the rise in core durable goods orders, partially offset by declines in orders for communications and machinery goods.

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

Treasuries were mostly higher, as the yield on the 2-year note was little changed at 1.33%, while the yield on the 10-year note decreased 3 basis points (bps) to 2.17% and the 30-year bond rate declined 2 bps to 2.75%.

Treasury yields came under pressure in the wake of Fed Chairwoman Janet Yellen's speech at the Fed's symposium in Jackson Hole, Wyoming. Amid the backdrop of festering global monetary policy uncertainty on signs of steady economic growth but low inflation, Yellen offered little in terms of economic and monetary policy commentary, focusing on financial regulation. She pointed out progress in putting in place a regulatory and supervisory structure to lower risks to financial stability and achieving a stronger financial system. Yellen added that any changes to post-crisis financial reforms should be "modest." She did note that "substantial progress has been made" toward the Fed's economic objectives of maximum employment and price stability. The markets were looking for any clues to the possibility of another rate hike this year and if the Central Bank will begin the process of shrinking its behemoth $4.5 trillion balance sheet next month as most are expecting.

Similar to Yellen, European Central Bank President (ECB) Mario Draghi steered clear from commenting on future monetary policy in his afternoon speech at the Fed symposium, instead focusing on trade and tax regulations. The euro jumped following Draghi’s remarks, adding pressure to the U.S dollar, as the lack of commentary toward future policy only added to the recent uncertainty.

For more on the Fed gathering, see the video by Schwab's Chief Fixed Income Strategist Kathy Jones titled, Jackson Hole Agenda: What's Next for the Fed and ECB? on the Insights & Ideas page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

Europe gives up gains, Asia mostly higher as monetary policy eyed

European stocks relinquished early gains and finished mostly lower, with the euro and British pound gaining noticeable ground on the greenback after Fed Chair Janet Yellen offered few new clues to monetary policy at the highly-anticipated Fed symposium in Jackson Hole, Wyoming. Caution appeared evident ahead of today's speech by ECB President Draghi at the Fed's symposium. Bond yields in the region finished mixed. Germany reported Q2 GDP growth of 2.1% y/y, in line with forecasts, and versus the 1.9% expansion posted in Q1. In other economic news, the expectations component of the August German business confidence report unexpectedly improved, while French consumer confidence dipped as expected for this month.

Amid the backdrop of solid earnings and economic growth, along with lingering political and trade uncertainty, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA offers his articles, Earnings may be about to do something they've never done before, 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. Jeff and Vice President of Trading and Derivatives, Randy Frederick deliver the video, Political Risk: How Should Investors Respond? on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mostly higher to close out the week even as potential volatility-boosting speeches from the Fed and ECB loomed on the horizon, while U.S. political and global trade uncertainty festered. Japanese equities rose, with the yen extending yesterday's decline, and as the Asian country reported that national consumer price inflation rose in line with expectations in July, while Tokyo consumer price inflation for August came in hotter than expected. Mainland Chinese stocks and those listed in Hong Kong rallied, with earnings results in the region boosting sentiment, while securities in South Korea overcame early weakness and ticked slightly higher. For a look at emerging markets, see Schwab's Jeffrey Kleintop's CFA, article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page at www.schwab.com. Shares in Australia finished flat and Indian markets were closed for a holiday.

Stocks avoid third straight weekly decline

U.S. stocks rebounded from back-to-back weekly declines in typical late-August subdued volume. Earnings season wrapped up with mixed results from the consumer discretionary and staples sectors, but Q2 remained on track to post profit growth breaching 9.0% and revenue expansion topping 5.0%. Even as U.S. political uncertainty festered, sentiment appeared soothed by reports of progress on tax reform and as President Donald Trump's top economic advisor Gary Cohn suggested he will not leave his post. Signs of continued global growth likely buoyed the markets, with eurozone and U.S. business activity reports from Markit showing expansion persisted in August, helping overshadow disappointing U.S. existing and new home sales reports. Stocks showed some resiliency in the face of lingering global monetary policy as highly-anticipated speeches by Fed Chair Yellen and ECB President Draghi came into focus ahead their September monetary policy meetings. The U.S. Dollar Index fell back to lows not seen since May 2016 and crude oil prices continued to drop, while the Treasury yield curve flattened a bit.

Next week, low volume, politics and the geopolitical front will likely remain sources of volatility, but a robust back-end loaded U.S. economic calendar is poised to garner attention, headlined by Friday's August nonfarm payroll report. Consumer Confidence and the second (of three) read on Q2 GDP will get the ball rolling, followed by July personal income and spending data, while August releases of the ISM Manufacturing Index, final University of Michigan Consumer Sentiment Index and auto sales will join the labor report to close out the week.

As noted in the latest Schwab Market Perspective: Volatility Returns!, the latest bout of volatility illustrates why investors should stay focused on the longer-term. Risks for a more substantial pullback in the near-term still exist, as valuations remain elevated. After a weak first quarter, U.S. economic growth has rebounded, with an improving employment picture, tightening labor market, rising median wage growth, and a relatively healthy consumer. Even though past performance is no indication of future results, a prolonged bear market has never occurred outside the context of a recessionary environment. Looking at the Index of Leading Economic Indicators (LEI) from the Conference Board, there are no signs of a coming recession and the U.S. economy is getting some support from the rest of the world. Read more on the Markets & Economy page at www.schwab.com.

International reports due out next week that deserve a mention include: Australia—building approvals. China—industrial profits, Manufacturing and non-Manufacturing PMIs. India—Q2 GDP. Japan—household spending, retail sales, and industrial production. Eurozone—economic confidence, unemployment rate, consumer price inflation and Markit's Manufacturing PMI, along with German retail sales and unemployment change. U.K.—mortgage approvals and Markit's Manufacturing PMI.