Financial Review

More Drift

Sinclair Noe — June 6, 2017

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DOW – 47 = 21,136
SPX – 6 = 2429
NAS – 20 = 6275
RUT – 1 = 1394
10 Y – .03 = 2.15%
OIL + .58 = 47.98
GOLD + 14.30 = 1294.60
BITCOIN – 0.15% = 2909.82
ETHEREUM + 6.26% = 264.16

Once again stocks drifted aimlessly. We are not seeing a risk off trade, but nobody is going full hog, risk on. We are waiting for Thursday. It could be a big day.

First, we have the European Central Bank, which has remained committed to its ultra-loose monetary policy since March 2016, when it cut its key interest rate, the main refinancing operations, to zero per cent, meaning it does not charge interest to banks borrowing money.

The bank has come under sustained pressure to raise interest rates as inflation has recovered, with some economists expecting the ECB’s governing council to remove a reference to “lower” interest rates in the future.

Then there is a parliamentary election in the UK. Prime minister Theresa May squares off against Jeremy Corbin. The major issues in the election are the National Health Service (NHS), Brexit, terrorism and national security, income inequality, how much money Britain has and what it should be spent on…

I’m joking of course; the major issues are why Theresa May hates appearing in public and whether Jeremy Corbyn loves the IRA. May leads the Conservative party. Corbin leads the Labor Party. But wait, there’s more – parties that is; including: The Scottish National Party, UKIP and Liberal Democrats.

And even though Labor has closed the gap on Conservatives, there is a possibility nobody wins outright – and that might mean a coalition. Hopefully, we’ve all learned not to bet on British elections.

Back in the US, Thursday morning brings the James Comey testimony on Capitol Hill. The White House confirmed that Trump would not seek executive privilege to stop Comey from appearing before the Senate Intelligence Committee.

Comey is expected to face questions about whether Trump pressured him to cancel an investigation into former national security adviser Michael Flynn, whose links to Russia are under scrutiny. The former FBI chief will reportedly stop short of saying that Trump interfered with the agency’s probe into Flynn. Yet he is also likely to face questions about a loyalty pledge reportedly requested by Trump.

Elected on pledges to overhaul the healthcare system and slash taxes, Trump has yet to achieve a major legislative win, and time is running out before lawmakers leave Washington for the August break.

Today, he met with senior Republicans. Senate Majority Leader Mitch McConnell said Senate Republicans are “getting close” to a healthcare plan after he presented an outline at a lunchtime meeting but he declined to say when he might bring it up for a vote. Other senior Republicans, such as Senator Orrin Hatch, said they may vote by early July.

Anthem, one of the nation’s largest health insurers, announced that it will stop offering policies in the Ohio marketplace next year. While Anthem, which operates for profit Blue Cross plans in more than a dozen states, said it has not made any decision about its participation in other state’s exchanges.

Anthem has previously warned that it might leave the marketplaces because of the uncertainty over the future of the individual market and the struggle over federal law. The company said, “an increasing lack of overall predictability does not provide a sustainable path forward to provide affordable plan choices for consumers.”

The Pentagon renewed praise of Qatar for hosting a vital US air base and for its “enduring commitment to regional security,” sticking to a message of reassurance even as President Trump, via Twitter, applauded a decision by Arab powers to cut ties to the Gulf ally, calling the diplomatic isolation was just punishment for the country’s support of Islamic extremists.

He also said the action is proof that his meeting with Persian Gulf Arab leaders in Saudi Arabia earlier this month was “already paying off.” More than 11,000 US and coalition forces are deployed to or assigned to al Udeid Air Base, from which more than 100 aircraft operate.

The latest job openings and labor turnover survey — known as the JOLTS report — released by the Bureau of Labor Statistics on Tuesday showed there were 6.04 million jobs open in the US in April. In the same month, last year there were 5.64 million jobs open. This is the most ever for the series dating back to its inception in 2001.

The jump in job openings also came as hiring and firing declined slight in April. The number of unemployed workers who are new entrants to the workforce continues to fall, indicating that people like college grads who go from being out of the workforce altogether are quickly getting jobs.

The number of unemployed workers per job opening in the U.S. was at a record low of 1.2. This compares to there being more than six unemployed workers per job opening in the wake of the financial crisis.

Additionally, almost twice as many people are quitting jobs as getting laid off, a sign that workers are confident they’ll find another job. In April, the quits rate fell slightly to 2.1%, with the 3.03 million folks who quit jobs during the month coming in only slightly lower than 16-year high for total quits we saw back in January.

Scott Pruitt, administrator of the US Environmental Protection Agency, has a new favorite statistic. Pruitt claims that 50,000 coal jobs, or coal and mining jobs, had been created in the US since the fourth quarter of last year. He’s off by about 49,000.

There has been an increase of about 50,000 mining jobs since October, but that number includes oil and gas exploration and drilling, and metal mining jobs, and only about 30,000 of those were during the Trump administration, and only about 1,000 of those jobs are in coal mining.

The US coal-industry employs about 51,000 workers total. Last month, 400 coal jobs were added—not 7,000. Kansas City Power & Light announced it will shut down several generating units that burn coal. And since Octoberr of 2016, the general merchandise retail sector has lost just over 95,000 jobs, nearly twice as many jobs lost in retail as in the entire coal industry.

Meanwhile, one company – Tesla,  has about 30,000 employees and they are hiring more all the time – 1,861 job openings in the US. And the company isn’t just looking for coders. These positions are blue-collar, white-collar, skilled, unskilled. And while they are generally concentrated in Tesla’s home state of California, there are openings all over the country.

The national home price index from data provider CoreLogic was 6.9% higher than a year ago, and 1.6% higher than in March. Washington was the hottest state for prices, notching a 12% annual gain. Arizona posted a 6% annual gain in home prices. CoreLogic forecasts national home price growth of 5.1% in the coming 12 months.

Stocks hit records on Friday but have been drifting lower this week. Meanwhile the bond market has been in rally mode, up about 4.7% year-to-date. If the year ended today, it would be the best annual performance since 2011. If the pace continues through December, it would be the best performance since 2003.

When we started the year, most people were expecting the Trump administration’s pro-growth policies would spark inflation and lead to higher rates. That hasn’t happened. Meanwhile, China is buying US Treasuries again, after halting purchases last year – a move that might help cushion the blow if the Federal Reserve starts unwinding its massive bond portfolio.

The Fed is expected to raise borrowing costs next week, narrowing the rate gap between the US and China and making American debt more attractive.

The S&P 500 just posted a third straight quarter of year-over-year earnings growth, but there is a trend of more and more companies that are not posting profits. About 10% of the companies in the S&P 500 have posted losses in the last 12 months, something we haven’t seen since 2010.

No surprise that energy companies made the list of losers. A small surprise is that tech and consumer stocks are also showing up on the list. Overall, the 51 companies lost $55 billion over the last year. Trailing 12-month earnings in the S&P total about $986 billion, or $113 per share, just below an all-time high reached in 2014.

Take out the companies losing money and the total hits $1.04 trillion, or $117 per share, the highest ever. The $4-a-share gap is the widest since 2011, a year when the S&P did nothing in terms of returns.

If you are trying to figure out where in the world to invest, well ... The Korean peninsula is dealing with political uncertainty; tensions in the Middle East; South Africa’s economy has dipped into recession; Brazil is up to its chin in political corruption.

But let’s follow the money. The Institute of International Finance reports emerging markets are enjoying steady growth in capital inflows that should top $1 trillion next year, for the first time since 2014. The group expects nonresident inflows to top $970 billion this years, up from$718 billion last year, led by China, India and Brazil.

The Amazon vs. Walmart battle continues with Amazon offering its Prime subscription at a discount for US customers on government aid. Both stocks were down today.

Macy’s warned its margins could shrink further. Shares dropped over 8%. The news hit other department stores: JC Penney down 4%, Sears down 2.5%, Nordstrom down 3.6%.

Uber has fired 20 employees following an investigation by a law firm into sexual harassment and other claims. The law firm investigated 215 harassment claims going back to 2012, acted in 58 cases and took no action in 100 more cases.

Financial Review

Batten Down the Bonds

Sinclair Noe — November 14, 2016

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DOW + 21 = 18,868
SPX – 0.25 = 2164
NAS – 18 = 5218
10 Y + .10 = 2.22%
OIL + .26 = 43.67
GOLD – 7.60 = 1221.00

Another record high close for the Dow.

U.S. bond yields are sharply higher across the board following a public market holiday on Friday. The yield on the benchmark 10-year Treasury note topped 2.25%; they surged 37 basis points last week, the most in three years, amid speculation Trump’s plans to boost spending and cut taxes will widen the budget deficit and stoke inflation.

The 30-year Treasury bond yield is over 3% for the first time since January. The two-year yield crossed the 1.00% threshold for the first time since January.

The movement has also lit a fire under the greenback, with the U.S. dollar index up more than 1%, hitting 100 for the first time in almost a year.

The global bond rout is intensifying. Long-dated bonds are getting hit hardest in Europe. The selloff wiped a record $1.2 trillion off the value of bonds around the world last week. Investors rotated into stocks, as global developed-market shares beat investment-grade debt by the most since 2011 amid concern the stimulus will stoke inflation and lead the Fed to increase rates.

President-elect Donald Trump has made the first official appointments to his White House administration after a shake-up on Friday that saw VP-elect Mike Pence replace Chris Christie as the head of his transition team. RNC Chairman Reince Priebus has been selected as Chief of Staff, while Trump’s campaign Chairman and former head of news outlet Breitbart, Steve Bannon, will lead as Chief Strategist and Senior Counsel.

The common view is that the inflation trade has been reignited by the election results. If this were so, the two major inflation markers in the commodity market, gold and oil, would have rallied strongly. Instead, gold sold off approximately $70 or over 3% from its level a week before the election, while the price of oil has been slightly weaker. Industrial metals, especially copper, did see major rallies.

This was not across the board, however. Aluminum, which has almost as widespread commercial use as copper, fell about 3%, while copper was up 17% in the days immediately following the election. Tin was up around 6% and nickel 9% from a week earlier. The inflation argument came mostly from action in the global bond markets.

While it is true yields soared, they have been at unsustainably low rates for years now. Still, it looks like the bond market is sending a message about a fiscally expansive, deficit spending growth agenda – there will be price to pay.

And while the Dow and the S&P rallied following the election, the big winner was the Russell 2000 index of smaller stocks. And while small-cap stocks can outperform in inflationary environments, this rally is probably provoked by the idea that small-cap companies are less likely to do business internationally and more likely to get most of their sales domestically. The companies that tend to have most of their sales overseas are tech companies, and the tech-heavy Nasdaq hasn’t rallied at all. So, the stock rally has been selective and not broad-based.

Next, consider that the Federal Reserve will probably raise rates sooner and later. Fed funds futures rates are pricing in an 84% probability of an interest rate increase at the Fed’s meeting in December. PIMCO said the central bank may move three times by the end of 2017. Those rate hikes will hit the markets much sooner than any legislative action, which tends to move very slowly.

Japan’s economic growth handily beat expectations in the July-September period, expanding for a third straight quarter as exports recovered, but weak domestic activity cast doubt on hopes for a sustainable recovery. While GDP grew at an annualized 2.2% pace, household spending and capital investment were flat on quarter.

Mixed Chinese economic data for October came out overnight, released by the National Bureau of Statistics. Retail sales rose a weaker-than-expected 10%, slowing from the previous month’s 10.7% growth, while industrial output expanded 6.1%, matching September’s pace but remaining a hair below expectations.

After gathering in Brussels to discuss the future of Europe-U.S. relations, EU foreign ministers said the bloc would stand by its key foreign-policy positions on issues including the Iran deal, Russia’s annexation of Crimea and climate change, but vowed to work with the Trump administration. Not everyone attended the emergency meeting. Britain’s Boris Johnson called it “unnecessary.”

Colombia’s government and Marxist FARC rebels have agreed on a new peace pact to end a 52-year war, six weeks after the original was narrowly rejected in a referendum amid objections it was too favorable to the rebels. The new accord, which will be presented to Congress for a vote, includes several new provisions – from requiring FARC to surrender money and holdings to infrastructure development for the countryside.

Just one day after the IEA warned the world could drown in oil if production does not fall beneath demand sometime soon, OPEC released a new market whammy, offering up the cartel’s production figures, which largely jive with figures reported by the IEA yesterday: OPEC has increased its oil production. OPEC’s Monthly Oil Market Report revealed daily oil production for the cartel of 33.64 million barrels for October—up by 240,000 barrels per day in September—largely confirming the IEA’s report.

A little over 90% of S&P 500 companies have reported their quarterly results, and it’s become clear that the recession in corporate profits has come to an end. Since the second quarter of 2015, S&P 500 earnings reports have shown a decline in profits – year-over-year. A decline for two consecutive quarters indicates an earnings recession.

Based on the companies that have reported so far this quarter, S&P earnings will be up 2.75% from the prior year’s third quarter. Leading the comeback is the financial sector, which posted growth of 13.1% in profits from the third quarter of last year. According to FactSet, 71% of companies that have reported beat their estimates, higher than the five-year trailing average of 67%.

Samsung Electronics is buying Harman Industries for $112 a share in cash, or a total equity value of about $8 billion, placing the company in the vanguard of the auto industry. The deal – Samsung’s largest acquisition in its history – will reshape the pecking order in the global automotive supply chain.  Samsung could combine its display and semiconductor operations with a business that already provides sound, electronics, and other smart components for a new generation of digitally connected cars.

In Europe, Novartis AG is said to be in talks to acquire U.S. generic-drugs maker Amneal Pharmaceuticals in a deal which could value the closely-held company at as much as $8 billion. Siemens, meanwhile, agreed to buy software company Mentor Graphics for $4.5 billion, a premium of 21 percent on Friday’s closing price.

American Apparel files for bankruptcy. The retailer filed for Chapter 11 bankruptcy protection for the second time in just over a year, (so maybe we should call it Chapter 22) listing assets and liabilities in the range of $100 million to $500 million. The company exited court protection in early 2016 but quickly encountered trouble again.

Toyota will pay up to $3.4 billion to settle claims that some of its trucks and SUVs lacked proper rust protection, leading to premature corrosion of vehicle frames. The proposed settlement covers about 1.5 million Tacoma compact pickups, Tundra full-size pickups and Sequoia SUVs and estimates the value of frame replacements at around $15,000 per vehicle. However, Toyota admitted no liability or wrongdoing in the proposed settlement.

Hedge fund filings will give investors a chance to see what they were betting on when the third quarter ended. Hedge funds have had a tough time of it recently with some $50 billion flowing out of the industry this year. Hedge fund managers are required to disclose their holdings to the SEC in a Form 13F. Filed four times a year, the reports show which sectors these traders were betting on when the quarter ended, roughly 45 days ago.

Out of 13 western states, California and Texas have the highest number of single-family residential homes in extreme risk wildfire areas, per a new report from CoreLogic. CoreLogic’s scale has four categories: low, moderate, high and extreme risk, and 1.8 million homes across 13 western states fall into the high and extreme risk category.

While only a small percentage of the millions of homes that fall somewhere on the scale, these 1.8 million homes represent a combined total reconstruction value of nearly $500 billion. The other 27 million homes on the scale — those at low and moderate risk — have an estimated reconstruction cost value of $6.7 trillion.

Stocks Start the Week Strong

Charles Schwab: On the Market

Posted: 2/22/2016 4:15 PM ET

Stocks Start the Week Strong

Domestic equities rallied on Monday, adding to last week's solid gains, as crude oil prices jumped on the heels of a report from the International Energy Agency, which noted in its medium-term outlook that U.S. shale oil production is expected to decline. In economic news, Markit's preliminary U.S. Manufacturing PMI Index for February declined, but remained in expansion territory. In equity news, CNBC reported that Honeywell International recently approached Dow member United Technologies about a possible merger. Meantime, Treasuries and gold were lower, while the U.S. dollar advanced.

The Dow Jones Industrial Average (DJIA) rallied 229 points (1.4%) to 16,621, the S&P 500 Index advanced 28 points (1.4%) to 1,945, and the Nasdaq Composite gained 66 points (1.5%) to 4,571. In moderately-heavy volume, 1.0 billion shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil increased $1.64 to $33.39 per barrel and wholesale gasoline added $0.04 to $1.25 per gallon, while the Bloomberg gold spot price lost $18.72 to $1,208.09 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% higher at 97.37.

Dean Foods Co. (DF $19) reported 4Q earnings-per-share (EPS) ex-items of $0.36, above the $0.34 FactSet estimate, with revenues declining 15.6% year-over-year (y/y) to $2.0 billion, versus the projected $2.1 billion. DF issued stronger-than-expected 1Q EPS guidance. Shares traded solidly lower.

North American foodservice distributor, Sysco Corp. (SYY $43) announced an agreement to acquire European foodservice distributor, Brakes Group, in a transaction valued at about $3.1 billion. SYY finished solidly to the downside.

Shares of Dow member United Technologies Corp. (UTX $92) rallied on the heels of a report from CNBC that Honeywell International Inc. (HON $105) recently approached the aerospace & defense company about a potential merger. However, the report noted that UTX is said to have substantial antitrust concerns and there is no certainty a deal would get done. Neither company commented on the report. Shares of HON closed lower.

Preliminary manufacturing report shows growth slowed

The preliminary Markit U.S. Manufacturing PMI Index for February declined to 51.0 from January's 52.4 level, where economists surveyed by Bloomberg had forecasted it to remain. However, a reading above 50 denotes expansion.

As noted in the Schwab Market Perspective: Confidence is Key, the correction in stocks doesn’t yet seem to be corroborated by a sharp U.S. economic downturn. In fact, recent economic data has been encouraging, but shattered confidence can lead to a self-fulfilling prophecy. Recent economic readings from around the world also suggest that the globe is not slipping into a recession. Read more at www.schwab.com/marketinsight, and follow us on Twitter: @schwabresearch.

Treasuries were modestly lower, with the yield on the 2-year note ticking 2 basis points (bps) higher to 0.76%, while the yields on the 10-year note and the 30-year bond rose 1 bp to 1.76% and 2.61%, respectively. For more on the bond markets see Schwab's Director of Income Planning, Rob Williams', latest article, Low Rates, Volatile Markets: Income Investing Outlook 2016. Also, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers analysis of how equities can be a nice source of income that investors may want to consider in his latest Schwab Sector Views: Looking for Income. Read both articles at www.schwab.com/marketinsight and follow us on Twitter: @schwabresearch.

Tomorrow's U.S. economic calendar will be headlined by some reads on the housing market and a look at the psyche of the consumer. January existing home sales are projected to show the largest portion of the housing sales market declined 2.4% month-over-month (m/m) to an annual rate of 5.33 million units. Also, February Consumer Confidence is expected to dip to 97.2 from 98.1 in January. Other reports slated for tomorrow include: the S&P/Case-Shiller Home Price Index and the Richmond Fed Manufacturing Index, with the former forecasted to show home prices continued to rise, and the latter estimated to show growth continued modestly.

Schwab's Chief Investment Strategist, Liz Ann Sonders notes in her Q&A with Liz Ann Sonders: What's Behind the Recent Market Volatility?, recession risk is elevated, just not glaring yet. The U.S. economy remains bifurcated—manufacturing is in recession, but services are hanging in there. Market-based measures of the economy—for instance, yield spreads, the shape of the yield curve and stock market prices—are sending louder recession signals, while high-frequency economic-data-based leading indicators—like unemployment claims and some housing-based data—are not yet waving a red flag. Overall, the leading economic indicators have not rolled over to the extent typically seen before recessions. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Europe and Asia mostly higher to begin the week

European equities traded higher, with oil & gas and basic materials stocks leading the way amid rallying oil prices and as commodity issues recovered amid eased risk aversion. Stocks in the region shrugged off a disappointing read on eurozone business activity, softer-than-expected quarterly results from HSBC Holdings PLC. (HSBC $32), and heightened uncertainty regarding the U.K.'s future in the European Union (EU). Markit's preliminary Eurozone Composite PMI Index—a gauge of business activity in both the manufacturing and services sectors—declined to 52.7 in February, from 53.6 in January, and compared to the decrease to 53.3 that economists had projected. However, a reading above 50 denotes expansion.

The British pound fell the most since 2009, per Bloomberg, including a sharp drop versus the U.S. dollar, after London Mayor Boris Johnson said he will campaign for Britain to leave the EU in a June 23rd referendum. The news comes as over the weekend Prime Minister David Cameron said he would fight to keep Britain in the EU after securing a deal on membership terms with leaders in Brussels. U.K. stocks are moving higher on the strength in basic materials issues and the drop in the pound. Schwab's Director of International Research, Michelle Gibley, CFA, discusses in her article, Currency Wars: Is a Weaker Currency Good or Bad?, at www.schwab.com/oninternational, and follow Schwab on Twitter: @schwabresearch. The euro dropped versus the U.S. dollar and bond yields in the region moved mostly to the downside.

Stocks in Asia added to the solid gains posted last week, with commodity issues gaining ground as risk aversion that has ramped up to begin the year appears to be continuing to wane, while crude oil prices moved higher. Japanese equities advanced, despite a larger-than-expected slowdown in the nation's manufacturing growth in February, aided by some weakness in the yen. The yen has rallied recently on concerns about the late-January decision by the Bank of Japan (BoJ) to adopt a negative interest rate policy (NIRP). Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers a look at the BoJ's decision in his article, Negative Interest Rate Policy Adds Up To Less than Zero for Investors, noting that while the main economic risks of a NIRP have yet to be realized, increasingly negative interest rates may weigh more heavily on the stock market and pose a threat to the drivers of the global economy. Read more at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.

Mainland Chinese stocks rallied, bolstered by reports that China has replaced the head of its securities regulator, and that the government cut taxes on home transactions. Australian securities advanced amid strength in basic materials stocks, along with gains in the financial sector. Finally, equities in India ticked higher and South Korean listings finished flat in choppy trading.

The international economic docket for tomorrow will be light, offering 4Q GDP and the Ifo business climate survey from Germany and manufacturing confidence from France.

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

Stocks Mixed on the Day, but Higher for the Week

Charles Schwab: On the Market

Posted: 2/19/2016 4:15 PM ET

Stocks Mixed on the Day, but Higher for the Week

U.S. stocks finished the regular trading session in mixed fashion to wrap up a relatively positive week for equities across the globe. Crude oil prices were under pressure to weigh on the energy sector, while upbeat quarterly results and guidance from Applied Materials helped bolster gains for technology issues. Treasuries declined in the wake of a hotter-than-expected read for consumer price inflation. The U.S. dollar and gold traded lower.

The Dow Jones Industrial Average (DJIA) declined 21 points (0.1%) to 16,392, the S&P 500 Index was nearly unchanged at 1,918, and the Nasdaq Composite gained 17 points (0.4%) to 4,504. In moderately-heavy volume, 1.2 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $1.18 to $31.75 per barrel, wholesale gasoline decreased $0.01 to $0.96 per gallon, and the Bloomberg gold spot price lost $2.33 to $1,228.54 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 96.64. Markets were higher for the week, as the DJIA increased 2.6%, the S&P 500 Index added 2.8%, and the Nasdaq Composite Index gained 3.8%.

Deere & Co. (DE $77) reported fiscal 1Q earnings-per-share (EPS) of $0.80, above the $0.71 FactSet estimate, as net sales out of its equipment operations fell 14.9% year-over-year (y/y) to $4.8 billion, versus the projected $4.9 billion. The farm and construction equipment maker said its results reflected weakness in global markets. DE added that it expects full-year sales to drop 10% and be 8.0% lower in 2Q compared to the same period a year ago. DE closed solidly lower.

Applied Materials Inc. (AMAT $18) posted 1Q profits ex-items of $0.26 per share, versus the expected $0.25, with revenues decreasing 4.0% y/y to $2.3 billion, compared to the forecasted $2.2 billion. The semiconductor materials engineering company issued 2Q EPS and revenue guidance that topped estimates. Shares gained solid ground.

Nordstrom Inc. (JWN $49) announced 4Q EPS ex-items of $1.17, below the projected $1.22, as revenues increased 3.7% y/y to $4.2 billion, roughly in line with expectations. Same-store sales for the quarter rose 1.0% y/y, versus the anticipated gain of 1.1%. JWN issued full-year same-store sales and earnings outlooks that came in below forecasts, while noting that first-half profits are projected to fall 30.0% y/y, due to the impact of the sale of credit receivables in October 2015, the impact of growth initiatives, and the shift of its Anniversary Sale event from the second quarter in 2015 to the second and third quarters in 2016. Shares of JWN dropped.

Yahoo Inc. (YHOO $30) announced that its Board of Directors has formed a Strategic Review Committee of independent directors to lead its previously-announced effort in exploring strategic alternatives alongside its continued consideration of a reverse spin-off. YHOO traded higher.

Consumer price inflation tops expectations

The Consumer Price Index (CPI) (chart) was flat month-over-month (m/m) in January, versus the Bloomberg forecast of a 0.1% dip, while December's 0.1% decline was unrevised. The core rate, which strips out food and energy, rose 0.3% m/m, compared to expectations of a 0.2% increase, and December's upwardly revised 0.2% gain. Y/Y, prices were up 1.4% for the headline rate, versus forecasts of a 1.3% gain, while the core rate was 2.2% higher, north of projections of a 2.1% rise. December's y/y figures showed an unrevised 0.7% rise and an unadjusted 2.1% increase for the headline and core rates respectively.

Treasuries were mostly lower following the report, with the yield on the 2-year note rising 5 basis points (bps) to 0.74% and the yield on the 10-year note increasing 1 bp to 1.75%, while the 30-year bond rate was flat at 2.61%. For more on the bond markets see Schwab's Director of Income Planning, Rob Williams', latest article, Low Rates, Volatile Markets: Income Investing Outlook 2016. Also, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers analysis of how equities can be a nice source of income that investors may want to consider in his latest Schwab Sector Views: Looking for Income. Read both articles at www.schwab.com/marketinsight and follow us on Twitter: @schwabresearch.

Europe lower and Asia mixed to close out an upbeat week

European equities traded lower, with markets in Asia mixed and pressure on financials returning, trimming a solid weekly advance of about 4.5% for the Stoxx Europe 600 Index. Mixed earnings were in focus, while oil & gas issues were bogged down by the weakness in crude oil prices. The euro ticked higher late in the session versus the U.S. dollar and bond yields in the region were mixed. In economic news, U.K. January retail sales rose much more than forecasted.

Stocks in Asia finished mixed after the U.S. markets snapped a three-session rally yesterday, with declines in oil prices weighing on the energy sector. However, most major markets in the region finished nicely higher for the week, led by the best weekly advance in Japan in six years and the largest weekly gain in China in two months, per Bloomberg. For more on the recent wild swings in the markets, see the Schwab Center for Financial Research's article Market Volatility: What Investors Should Know, at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch. Japanese equities fell as the yen gained ground, while stocks trading in mainland China Hong Kong ticked slightly lower. Relative stability in the global markets, noticeably in the oil and commodity markets, helped boost stocks, along with signs that the Chinese government was increasing support for its slowing economy. Australian securities traded lower, with oil & gas and basic materials issues showing some weakness, while South Korean listings ticked higher to add to their weekly advance. Finally, Indian equities gained ground with automakers and financials helping extend its largest weekly gain in four months.

U.S. stocks join world market weekly rally

The domestic equity markets finished a holiday-shortened week solidly higher, joining rallies for Asia and Europe, with the global markets showing some signs of relative stability after the recent bout of heightened volatility. Robust Chinese lending statistics and a much stronger-than-expected U.S. industrial production report underpinned sentiment, while the recent flare-up in a flight-to-safety appeared to wane, with the fall in U.S. Treasury yields and the rallies for gold and the yen ebbing. Technology stocks led a broad-based advance for the major sectors, which included gains for consumer issues, despite a lowered sales outlook for Dow member Wal-Mart Stores Inc. (WMT $64). However, the wild swings in the crude oil markets continued and Fed uncertainty remained with the Federal Open Market Committee's (FOMC) minutes from its January monetary policy meeting showing policymakers voiced concerns over the recent turmoil in the markets.

For a look at the current volatile global market landscape, see Schwab's Chief Investment Strategist, Liz Ann Sonders' Q&A with Liz Ann Sonders: What's Behind the Recent Market Volatility?, in which she notes that the stock market appears reasonably valued, and higher valuations are unlikely without a return to positive earnings growth. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

U.S. economic front set to be robust

Next week, U.S. trading will return to normal and include a robust domestic economic calendar, headlined by the releases of Markit's business activity reports, Consumer Confidence, existing and new home sales, preliminary durable goods orders, and the second look (of three) at 4Q GDP.

As noted in the Schwab Market Perspective: Confidence is Key, the investing environment continues to be uncertain, with confidence among businesses and investors shaken. History, however, has proven that times like these can make or break successful investing strategies. The correction in stocks doesn’t yet seem to be corroborated by a sharp US economic downturn. In fact, recent economic data has been encouraging, but shattered confidence can lead to a self-fulfilling prophecy. Recent economic readings from around the world also suggest that the globe is not slipping into a recession. Read more at www.schwab.com/marketinsight, and follow us on Twitter: @schwabresearch.

Other key U.S. reports next week include: S&P/Case-Shiller Home Price Index, personal income and spending, and the final University of Michigan Consumer Sentiment Index.

International reports next week include: Australia—4Q Wage Price Index. China—property prices. Japan—consumer price inflation and Japan PMI Manufacturing Index. Eurozone—Markit's business activity reports and consumer price inflation, along with German 4Q GDP and business confidence. U.K.—4Q GDP and consumer confidence.

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

Stocks Close Down After Three Sessions of Gaining Ground

Charles Schwab: On the Market

Posted: 2/18/2016 4:15 PM ET

Stocks Close Down After Three Sessions of Gaining Ground

U.S. equities closed the regular trading session lower with Dow member Wal-Mart Stores weighing on the blue-chip index and as crude oil prices pared strong early gains on the heels of a divergent government energy report. Treasuries were higher with lackluster regional manufacturing and Leading Indicators reports overshadowing an unexpected drop in weekly jobless claims. Gold and the U.S. dollar traded higher.

The Dow Jones Industrial Average (DJIA) decreased 41 points (0.2%) to 16,413, the S&P 500 Index declined 9 points (0.5%) to 1,918, and the Nasdaq Composite lost 47 points (1.0%) to 4,488. In heavy volume, 1.1 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.11 to $30.77 per barrel and wholesale gasoline decreased $0.03 to $0.97 per gallon, while the Bloomberg gold spot price gained $27.58 to $1,236.08 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—inched 0.1% higher to 96.88.

Dow member Wal-Mart Stores Inc. (WMT $64) finished lower after the company reported 4Q earnings-per-share (EPS) ex-items of $1.49, above the $1.46 FactSet estimate, as revenues declined 1.4% year-over-year (y/y) to $129.7 billion, versus the projected $130.6 billion. WMT's 4Q U.S. same-store sales rose 0.6% y/y, compared to the expected 0.9% gain. The company issued 1Q EPS guidance with a midpoint below estimates, while its full-year profit outlook included a midpoint that slightly topped forecasts. WMT also lowered its full-year net sales growth guidance. Separately, the company raised its annual dividend by 2.0% to $2.00 per share. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: Looking for Income, the low yields offered by most fixed income products have driven many investors to look for income in other places—including the equity front. And for the time being, dividends have become a more important part of equity returns as stock price increases have lessened. Read more at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

NVIDIA Corp. (NVDA $30) posted 4Q profits of $0.35 per share, three cents north of forecasts, with revenues growing 12.0% y/y to $1.4 billion, above the estimated $1.3 billion. The graphics chipmaker issued 1Q revenue guidance that exceeded expectations. NVDA finished decisively higher.

Dow component International Business Machines Corp. (IBM $132) announced plans to acquire provider of cloud-based healthcare data, analytics and insights, Truven Health Analytics, for $2.6 billion. Truven will be part of the IBM Watson Health portfolio. IBM closed solidly higher, bolstered by an analyst upgrade of the company by Morgan Stanley.

Jobless claims surprisingly decline, while LEI decreased for second-straight month

Weekly initial jobless claims (chart) decreased by 7,000 to 262,000 last week, versus the Bloomberg estimate calling for 275,000 as the prior week's figure was unrevised at 269,000. The four-week moving average fell by 8,000 to 273,250, while continuing claims rose by 30,000 to 2,273,000, north of the forecasted 2,250,000 level.

The Conference Board's Index of Leading Economic Indicators (LEI) (chart) was down 0.2% month-over-month (m/m) in January, matching projections, and compared to December's downwardly revised 0.3% decrease. This was the second-straight monthly decline for the index, with components pertaining to stock prices, ISM new orders, and jobless claims, weighing on the index. Support came from the yield curve and orders for nondefense capital goods excluding aircraft.

The Philly Fed Manufacturing Index (chart) in February rose to -2.8 from -3.5 in January, compared to estimates calling for a slight improvement to -3.0, though a reading below zero denotes contraction.

Treasuries were higher, with the yield on the 2-year note decreasing 4 basis points (bps) to 0.70%, while the yields on the 10-year note and the 30-year bond declined 7 bps to 1.75% and 2.62%, respectively. For more on the bond markets see Schwab's Director of Income Planning, Rob Williams', latest article, Low Rates, Volatile Markets: Income Investing Outlook 2016, at www.schwab.com/marketinsight and follow us on Twitter: @schwabresearch.

Tomorrow, the lone major release from the U.S. economic calendar will be the Consumer Price Index (CPI), with economists expecting a 0.1% m/m decrease for the month of January, while excluding food and energy, the core rate is forecasted to have risen 0.2% m/m.

Europe mixed, Asia mostly higher

European equities finished mixed, on the heels of yesterday's strong advance. Oil & gas issues and financials weighed on the markets in the region, while some upbeat earnings reports lent support. U.K. stocks were bogged down by some weakness in mining issues, which have rallied as of late. For more on the recent wild swings in the markets, see the Schwab Center for Financial Research's article Market Volatility: What Investors Should Know, at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch. In economic news, Switzerland's trade surplus widened in January and French consumer price inflation fell m/m in January. The euro lost ground versus the U.S. dollar and bond yields in the region traded mostly to the downside.

Stocks in Asia finished mostly to the upside as U.S. markets rallied for a third-straight session and Europe posted strong gains yesterday. Oil & gas stocks got a boost from the recent rally in crude oil prices and basic materials stocks followed suit, despite some disappointing economic data in the region. Japanese equities rose, even as the yen recovered late in the session and the nation reported a larger-than-expected drop in exports for January. Australian stocks also moved higher amid the gains for commodity-related issues, despite an unexpected decline in the country's employment change for last month. Securities trading in South Korea, India and the Hong Kong finished nicely to the upside. However, mainland Chinese stocks dipped slightly, as traders digested some January inflation data, which showed consumer prices rose by a smaller amount than projected and as the continued fall in wholesale prices slowed more than anticipated.

The international economic docket for tomorrow will include the release of the All Industry Activity Index from Japan, the PPI from Germany and retail sales from the U.K.

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

The Rally Resumes

Charles Schwab: On the Market

Posted: 2/17/2016 4:15 PM ET

The Rally Resumes

U.S. equities finished a third–straight session with solid gains following their European counterparts, amid an increase in crude oil prices, some upbeat economic news, and after the Fed minutes potentially dampened rate hike expectations. Treasuries finished lower following stronger-than-expected reads on domestic industrial production and wholesale price inflation, as was the U.S. dollar, while gold was higher.

The Dow Jones Industrial Average (DJIA) jumped 257 points (1.6%) to 16,454, the S&P 500 Index advanced 31 points (1.7%) to 1,927, and the Nasdaq Composite rallied 98 points (2.2%) to 4,534. In heavy volume, 1.2 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.62 to $30.66 per barrel and wholesale gasoline increased $0.03 to $1.00 per gallon, while the Bloomberg gold spot price gained $9.81 to $1,210.25 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—inched 0.1% lower to 96.79.

Express Scripts Holding Co. (ESRX $69) reported 4Q earnings-per-share (EPS) ex-items of $1.56, in line with the FactSet estimate, as revenues declined 0.5% year-over-year (y/y) to $26.2 billion, below the expected $26.6 billion. The company issued softer-than-expected 1Q EPS guidance, while raising its full-year profit forecast. Shares were higher.

Priceline Group Inc. (PCLN $1,236) posted 4Q profits ex-items of $12.63 per share, above the forecasted $11.81, with revenues rising 8.7% y/y to $2.0 billion, roughly in line with estimates. The travel booking site said it finished with a strong quarter, reporting accelerating growth in hotel room nights booked. PCLN's 1Q guidance came in mostly below expectations. Shares rallied.

Dr Pepper Snapple Group Inc. (DPS $89) announced 4Q earnings ex-items of $1.00 per share, one penny above expectations, with revenues increasing 2.5% y/y to $1.6 billion, versus the forecasted $1.5 billion. DPS issued 2016 EPS guidance that missed expectations. Shares were lower. 

Industrial production and PPI top forecasts, housing data mixed, Fed shows concern

Industrial production (chart) jumped 0.9% month-over-month (m/m) in January, versus the Bloomberg estimate of a 0.4% increase, while December's 0.4% decline was revised to a 0.7% fall. Manufacturing production rose 0.5%—the highest since July 2015—and utilities output surged 5.4%, while mining production was flat. Capacity utilization rose to 77.1% from December's downwardly revised 76.4% rate, and versus projections of 76.7%. Capacity utilization is 2.9 percentage points below its long-run average.

Schwab's Chief Investment Strategist, Liz Ann Sonders notes in her article, Changes: Turn and Face the Strange (Market), historically, if the annual average of industrial production is down for an entire year, weakness spreads to the broader economy. We have yet to see that kind of weakness, but it’s on our watch list. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Housing starts (chart) for January declined 3.8% m/m to an annual pace of 1,099,000 units, compared to forecasts of a 1,173,000 unit rate. December's starts were downwardly revised to an annual pace of 1,143,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, dipped 0.2% m/m in January to an annual rate of 1,202,000, after December's downward revision to a 1,204,000 rate, but above the expected annual pace of 1,200,000 units.

The Producer Price Index (PPI) (chart) in January was up 0.1% m/m, compared to expectations of a 0.2% decline, while December's 0.2% decrease was unrevised. The core rate, which excludes food and energy, rose 0.4% m/m, well above forecasts of a 0.1% advance, and December's 0.1% increase was adjusted to a 0.2% gain. Y/Y, the headline rate declined 0.2%, versus projections of a 0.6% drop, and the core PPI was up 0.6% last month, above estimates of a 0.4% advance. In December, producer prices were down 1.0% and up 0.3% y/y for the headline and core rates, respectively.

The MBA Mortgage Application Index rose 8.2% last week, after gaining 9.3% in the previous week. The solid advance came as a 16.0% jump in the Refinance Index more than offset a 3.7% decline for the Purchase Index. The average 30-year mortgage rate fell 8 basis points (bps) to 3.83%.

Treasuries were lower, as the yield on the 2-year note rose 3 bps to 0.75%, while the yields on the 10-year note and the 30-year bond advanced 4 bps to 1.81% and 2.68%, respectively. For more on the bond markets see Schwab's Director of Income Planning, Rob Williams', latest article, Low Rates, Volatile Markets: Income Investing Outlook 2016, at www.schwab.com/marketinsight and follow us on Twitter: @schwabresearch.

Later this morning, the U.S. economic calendar will bring the Federal Reserve's January industrial production and capacity utilization report, with production projected to rise 0.4% m/m, after decreasing by the same amount in December, and capacity utilization expected to tick higher to 76.7% from 76.5%.

Finally, at 2:00 p.m. ET the Federal Open Market Committee (FOMC) released the minutes from its January monetary policy meeting, after which the Central Bank left its policy stance unchanged. The report showed that policymakers voiced concerns over the recent turmoil in the markets, indicating that the overall implications of such for the outlook for domestic economic activity was unclear, and that "many saw these developments as increasing the downside risks to the outlook." Members also expressed concern over the slowdown in China and any potential "drag" on the U.S. economy. As noted in the Schwab Market Perspective: Watching and Waiting, the Fed faces a conundrum. The latest statement issued by the FOMC noted several risks to growth and getting inflation closer to its 2% target; but kept the possibility of further rate hikes this year on the table due to the strength in the labor market. A majority of the Fed seems to still want to move toward normalization, but they also don’t want to have to undo actions that may be premature. A lot can and will happen between now and the Fed’s March meeting but it seems increasingly likely that it will remain on hold at least through the first quarter. Read more at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

Economic data will continue to pour in tomorrow, beginning with the Philly Fed Manufacturing Index, forecasted to show a slight improvement to a level of -3.0 for February from the -3.5 in January, but a level below zero denotes contraction in activity, as well as weekly initial jobless claims, with economists expecting a reading of 275,000, above the 269,000 posted the week prior. Also, the Index of Leading Economic Indicators for January will be released, forecasted to match December's 0.2% m/m decline, as well as MBA Mortgage Applications.

Europe higher as miners rebound and financials get a boost, Asia finishes mostly lower

European equities moved broadly higher, buoyed by a rebound in mining stocks and as crude oil prices showed some resiliency to support oil & gas issues in the face of yesterday's disappointing oil production agreement that caused a downside reversal for oil prices.  In economic news, the U.K. unemployment rate came in slightly higher than expected, while eurozone construction output declined. The euro dipped versus the U.S. dollar and bond yields in the region were mixed. For more on the recent wild swings in the markets, see the Schwab Center for Financial Research's article Market Volatility: What Investors Should Know, at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Stocks in Asia finished mostly to the downside, despite the solid gains in the U.S. yesterday, which caught up to the rest of the world's rally that occurred on Monday when the U.S. markets were closed for Presidents' Day. Pressure on commodity stocks weighed on the markets in the region, with crude oil prices giving up an early gain yesterday to finish lower as an agreement between major world oil producers failed to deliver a hoped-for output cut. Also, global growth concerns continued to weigh on sentiment. Stocks in Australia, South Korea, and Hong Kong fell, while another rise in the yen snapped a solid two-day winning streak in Japan, and despite a report that showed the Asian nation's December machine orders rebounded by 4.2% m/m, after falling 14.4% in the prior month. However, mainland Chinese stocks gained amid reports that the government is accelerating efforts to support its slowing economy, while Indian securities also bucked the trend and advanced, buoyed by a rebound in the rupee from near a record low.

Tomorrow's international economic calendar will hold trade data from Japan, employment statistics from Australia, CPI and PPI from China, CPI from France, and the current account balance from the eurozone.

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

Markets Surprise with Post-Holiday Gains

Charles Schwab: On the Market

Posted: 2/16/2016 4:15 PM ET

Markets Surprise with Post-Holiday Gains

Despite a decline in oil prices following an agreement among major world oil producers that didn't yield a hopeful production cut, as well as some lackluster economic news, U.S. equities began the holiday-shortened week with solid gains. Meanwhile, Treasuries were lower, as was gold, while the U.S. dollar was higher.

The Dow Jones Industrial Average (DJIA) jumped 222 points (1.4%) to 16,196, the S&P 500 Index advanced 31 points (1.7%) to 1,896, and the Nasdaq Composite rallied 98 points (2.3%) to 4,436. In heavy volume, 1.2 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.40 to $29.04 per barrel and wholesale gasoline decreased $0.07 to $0.97 per gallon, while the Bloomberg gold spot price fell $8.11 to $1,201.19 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—shot 1.0% higher to 96.89.

Residential and business security company, ADT Corp. (ADT $40), announced an agreement to be acquired by funds affiliated with private equity firm Apollo Global Management LLC (APO $14) for $42.00 per share in cash, in a transaction valued at about $6.9 billion. As part of the deal, ADT will have a 40-day "go-shop" period, during which it may actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals. ADT surged nearly 50% and APO traded higher.

Hormel Foods Corp. (HRL $44) reported fiscal 1Q earnings-per-share (EPS) of $0.43, above the $0.37 FactSet estimate, with revenues declining 4.3% year-over-year (y/y) to $2.3 billion, below the forecasted $2.4 billion. The company said its earnings were led by refrigerated foods, grocery products, and specialty foods, along with the positive momentum at Jennie-O Turkey Store. As such, HRL raised its 2016 EPS outlook. Shares were nicely higher.

Groupon Inc. (GRPN $4) rallied over 40% on the disclosure from Alibaba Group Holding Ltd. (BABA $66) that it has acquired a 5.6% in the online deal and e-commerce site, making it GRPN's fourth-largest shareholder.

Homebuilder sentiment dips, NY manufacturing activity continues to contract

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month declined to 58—the lowest level since May 2015—from January's upwardly revised 61figure from the originally-reported 60 level, where the Bloomberg estimate had called for it to remain. Builder confidence remained above 50, which separates good and poor conditions, for the twentieth-straight month. The NAHB noted, "Though builders report the dip in confidence this month is partly attributable to the high cost and lack of availability of lots and labor, they are still positive about the housing market," while adding that they expressed optimism that sales will pick up in the coming months.

As noted in the Schwab Market Perspective: Watching and Waiting, much of the rest of the economy continues to look fairly healthy, notably the all-important labor market and the more heavily-weighted services sector that remains in growth territory. Also, rising house prices indicate and help to facilitate confidence among consumers. Read more at www.schwab.com/marketinsight, and follow us on Twitter: @schwabresearch.

The Empire Manufacturing Index showed the contraction in output from the New York region (a reading below zero) for February remained. The index improved to -16.6 from the unrevised -19.4 in January, with forecasts calling for an improvement to -10.5.

Treasuries finished lower, as the yield on the 2-year note ticked 1 basis point (bp) higher to 0.72%, the yield on the 10-year note rose 3 bps to 1.79%, and the 30-year bond rate advanced 4 bps to 2.65%. For more on the bond markets see Schwab's Director of Income Planning, Rob Williams', latest article, Low Rates, Volatile Markets: Income Investing Outlook 2016, at www.schwab.com/marketinsight and follow us on Twitter: @schwabresearch.

Although shortened by Monday's holiday, today's data kicks off this week's U.S. economic calendar, which will begin to really heat up tomorrow with the release of housing starts and building permits, with economists expecting a 2.0% month-over-month (m/m) increase in starts for January to an annual rate of 1.2 million units, while permits are anticipated to show a decline of 0.3% m/m to a 1.2 million unit rate. Also on tap is the Fed's industrial production and capacity utilization report, with production forecasted to rise 0.5% m/m during January and utilization to inch higher to a level of 76.7%, as well as the Producer Price Index (PPI), with January's headline rate expected to match December's 0.2% decline, and excluding food and energy, January's core rate is anticipated to duplicated the prior month's 0.1% increase. However, tomorrow's afternoon release of the January monetary policy meeting minutes from the Federal Open Market Committee (FOMC) will likely headline the docket amid the backdrop of heightened Fed rate hike uncertainty. Schwab's Chief Fixed Income Strategist, Kathy Jones, notes in her article, Where Does the Fed Go From Here?, the Fed is in a tight spot. Having just raised interest rates in December and expressed optimism about the outlook for the economy and inflation, it can hardly reverse course just because of volatile stock markets. With the employment picture improving, the big questions for the Fed revolve around weak inflation prospects and tightening financial conditions. Read more at www.schwab.com/marketinsight, and follow Kathy on Twitter: @kathyjones.

Europe mostly lower after two-day jump, Asia adds to yesterday's rally

European equities traded mostly to the downside, with early gains being relinquished as oil & gas issues came well off of the best levels of the day. Traders appeared to be disappointed somewhat that a meeting between some of the world's largest oil producers, including Saudi Arabia and Russia, only delivered an agreement on an output freeze at January levels if other exporters joined the pact. Some were hoping for a production cut following the meeting. European stocks came off a two-day rally that has ensued amid increased expectations of continued monetary policy support from the European Central Bank (ECB), with President Draghi reiterating late-yesterday that further stimulus may be in the offing. Financials saw some pressure on continued concerns about bad loans, as well as some analyst downgrades in the sector, while basic materials led to the downside. In economic news, German investor confidence for February fell to the lowest level since October 2014, while U.K. consumer price inflation fell more than expected for January. The euro declined versus the U.S. dollar and bond yields in the region traded mostly higher.

Stocks in Asia finished mostly higher, extending yesterday's rally that came as mainland Chinese stocks returned to action following a week-long holiday, while markets in Hong Kong also took part in the advance. Commodity-related stocks moved higher today, led by oil & gas issues on speculation of an output deal among some of the world's largest oil producers, while some upbeat January Chinese lending data buoyed sentiment. China's new yuan loans easily topped forecasts and the nation's aggregate financing—a gauge of total credit issued—also came in well above expectations. The reports followed a disappointing trade balance report released over the weekend.

Japanese equities ticked higher, after yesterday's sharp rally that came as the yen gave back some of its recent jump on a rush to safe-haven assets amid heightened market volatility as discussed by Schwab's Chief Investment Strategist, Liz Ann Sonders in her Q&A with Liz Ann Sonders: What's Behind the Recent Market Volatility?. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders. Australian securities also advanced, getting a boost from oil & gas and basic materials stocks, along with South Korean listings after the Bank of Korea left its monetary policy unchanged, but India's bourse fell after posting the largest rally in a year yesterday.

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

Stocks Shave Early Losses, but Still Close Lower

On the Market

Posted: 2/11/2016 4:15 PM ET

Stocks Shave Early Losses, but Still Close Lower

Off the worst levels of the day, U.S. stocks closed lower, though the Nasdaq flirted with positive territory in the final hour of trading. The major domestic indexes began the regular session under heavy pressure following a global equity selloff amid continued pressure for crude oil prices and heightened uncertainty regarding Fed monetary policy. Gold rallied and Treasuries were also higher, while the U.S. dollar was lower. In equity news, Dow member Cisco Systems topped quarterly profit projections to headline a plethora of mixed corporate earnings reports.

The Dow Jones Industrial Average (DJIA) fell 255 points (1.6%) to 15,660, the S&P 500 Index declined 23 points (1.2%) to 1,829, and the Nasdaq Composite declined 17 points (0.4%) to 4,267. In heavy volume, 1.4 billion shares were traded on the NYSE and 2.8 billion shares changed hands on the Nasdaq. WTI crude oil declined $1.24 to $26.21 per barrel and wholesale gasoline was unchanged at $0.94 per gallon, while the Bloomberg gold spot price moved $49.23 higher to $1,246.35 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 95.56.

Dow member Cisco Systems Inc. (CSCO $25) reported fiscal 2Q earnings-per-share (EPS) ex-items of $0.57, above the $0.54 FactSet estimate, as revenues rose 2.0% year-over-year (y/y) to $11.8 billion, roughly in line with forecasts. The company also announced a 24.0% increase of its quarterly dividend to $0.26 per share, while raising its share repurchase plan by $15.0 billion. CSCO's 3Q EPS guidance matched forecasts. Shares finished nicely higher.

Dow component Boeing Co. (BA $108) dropped after Bloomberg reported that the U.S. Securities and Exchange Commission (SEC) is investigating whether the company properly accounted for the costs and expected sales of its 787 Dreamliner and 747 aircraft, citing people familiar with the matter. BA and the SEC declined to comment on the report.

PepsiCo Inc. (PEP $97) announced 4Q earnings of $1.06 per share, matching forecasts, as revenues declined 7.0% y/y to $18.6 billion, roughly in line with expectations. PEP issued 2016 EPS guidance that missed projections, while raising its annual dividend by 7.1% to $3.01 per share. Shares traded lower.

Whole Foods Market Inc. (WFM $29) reported fiscal 1Q EPS of $0.46, above the projected $0.40, as revenues increased 3.0% y/y to $4.8 billion, mostly matching expectations. 1Q same-store sales declined 1.8%, versus the estimated 2.2% drop. WFM closed modestly to the upside.

Twitter Inc. (TWTR $14) posted 4Q profits ex-items of $0.16 per share, versus the $0.15 expectation, with revenues growing 48.0% y/y to $710 million, roughly in line with estimates. Monthly active users came in below expectations, along with its 1Q revenue outlook. TWTR was under pressure.

Tesla Motors Inc. (TSLA $150) rallied after the electric automaker forecasted a sharp increase of vehicle deliveries for this year that exceeded expectations, and overshadowed the company's unexpected 4Q loss and softer-than-expected revenues.

Expedia Inc. (EXPE $103) gained solid ground after the travel booking site forecasted a sharp increase in core operating earnings for this year, more than offsetting its 4Q EPS miss and in line quarterly revenues.

Jobless claims drop, Fed Chief concludes two-day Congressional testimony

Weekly initial jobless claims (chart) fell by 16,000 to 269,000 last week, versus the Bloomberg estimate calling for 280,000 as the prior week's figure was unrevised at 285,000. The four-week moving average declined by 3,500 to 281,250, while continuing claims dropped by 21,000 to 2,239,000, south of the forecasted 2,245,000 level.

Federal Reserve Chairwoman Janet Yellen concluded her two-day Congressional Monetary Policy Report, speaking to the Senate Banking Committee. Her prepared remarks were the same as what she told the House yesterday. Yellen stressed that monetary policy is not on a preset course, and the Committee expects that economic conditions will warrant only gradual increases in the federal funds rate, but data will determine the path of monetary policy. Yellen also acknowledged that it will take into account a wide range of measures, including labor market conditions, inflation pressures and expectations, and readings on financial and international developments. She added that global economic weakness, notably in China, poses a risk to the U.S. economic outlook.

The Q&A session following her remarks was in focus, with the markets looking for clues regarding the trajectory of further Fed rate hikes, amid mixed economic data and the flare-up in global market turmoil. Yellen noted that they are watching developments very carefully, and "I would say there is always a chance of a recession in any year," but "the evidence suggests that expansions don't die of old age." She added that the Central Bank was revisiting the possibility of a negative interest rate policy (NIRP) should the U.S. economy warrant additional accommodation. However, Yellen said back in 2010, they decided that it would not work well to foster accommodation and "we would have work to do" to judge whether it would be workable here. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, notes in his article, Negative Interest Rate Policy Adds Up To Less than Zero for Investors, while the main economic risks of a NIRP have yet to be realized, increasingly negative interest rates may weigh more heavily on the stock market and pose a threat to the drivers of the global economy. Read more at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.

Treasuries were mostly higher amid the persistent global market turmoil, with the yield on the 2-year note declining 4 basis points (bps) to 0.65% and the yield on the 10-year note decreasing 3 bps to 1.64%, while the 30-year bond rate was flat at 2.49%. For more on the rally in the volatile bond markets see Schwab's Director of Income Planning, Rob Williams', latest article, Low Rates, Volatile Markets: Income Investing Outlook 2016, at www.schwab.com/marketinsight and follow us on Twitter: @schwabresearch.

Tomorrow's U.S. economic calendar will be headlined by a couple of reads on the health of the consumer, the key driver of economic output, with the releases of January retail sales and the preliminary University of Michigan Consumer Sentiment Index. Retail sales are projected to rise 0.1% month-over-month (m/m), after dipping 0.1% in the prior month, while stripping out autos, sales are anticipated to be flat following December's 0.1% decline. Excluding autos and gas, sales are forecasted to rise 0.3% on the heels of a flat reading. Consumer sentiment is estimated to improve modestly to 92.3 from 92.0 in January.

As noted in the Schwab Market Perspective: Watching and Waiting, the markets are still recession-obsessed, exacerbated by the slump in the manufacturing sector. However, much of the rest of the economy continues to look fairly healthy, notably the all-important labor market and the more heavily-weighted services sector that remains in growth territory. Also, rising house prices indicate and help to facilitate confidence among consumers. As Mike Tyson said, "Everyone has a plan until they get punched in the face." Investors have been punched in the face to start 2016, but we urge them to stick with their plans. Read more at www.schwab.com/marketinsight, and follow us on Twitter: @schwabresearch.

The Import Price Index and business inventories will also be released tomorrow.

Europe falls as banks and miners drop, Asia mixed in light volume

European equities fell broadly, with the banking sector coming under pressure following yesterday's rebound that helped the markets recover somewhat. Oil & gas issues saw pressure as crude oil prices continued to fall, while basic materials were also lower. The euro traded higher versus the U.S. dollar and bond yields in the region were mixed. Schwab's Chief Investment Strategist, Liz Ann Sonders offers a Q&A with Liz Ann Sonders: What's Behind the Recent Market Volatility?, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders. In economic news, Sweden's central bank cut its benchmark interest rate to -0.50% from -0.35%, and compared to the expected -0.45% rate.

Stocks in Asia finished mixed as the global market turmoil continued, along with persistent oil volatility. Also, the markets digested the Congressional testimony from U.S. Fed Chief Yellen where she did not close the door on further rate hikes this year, but did note that global economic weakness poses a risk to the U.S. economic outlook. Volume remained light, with mainland Chinese markets continuing their lunar new year holidays break, while Japanese markets were closed for a national holiday. However, the yen continued to rally, while equity markets in Hong Kong and South Korea closed lower after returning to action for the first time this week after being closed for the aforementioned lunar new year holidays. Indian securities tumbled, while Australian issues bucked the global trend and finished higher, aided by an upside reversal for stocks in the financial sector.

The international economic docket for tomorrow will offer car sales from India and investment lending from Australia. Releases from across the pond are expected to include the Wholesale Price Index, CPI and GDP from Germany, non-farm payrolls from France, GDP from Italy, construction output from the U.K. and industrial production from the eurozone.

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.