Stocks Trade in Red Shade as Success for Tax Proposal Weighed

Charles Schwab: On the Market

Posted: 11/17/2017 4:15 PM EST

Stocks Trade in Red Shade as Success for Tax Proposal Weighed

 

U.S. stocks finished the trading session lower and the week mixed as investors appeared to exercise caution amid the developing path of proposed tax policy, some disappointing Chinese economic data and a flattening yield curve. Treasury yields were mixed and the U.S. dollar was lower, while crude oil prices rebounded from a recent decline and gold was also higher. Shares of GAP, Abercrombie & Fitch, and Foot Locker traded solidly higher following the release of the companies Q3 earnings results. 

The Dow Jones Industrial Average (DJIA) declined 100 points (0.4%) to 23,358, the S&P 500 Index declined 7 points (0.3%) at 2,579, and the Nasdaq Composite slipped 11 points (0.2%) to 6,783. In moderate volume, 875 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil rallied $1.36 to $56.71 per barrel and wholesale gasoline was $0.03 higher at $1.74 per gallon. Elsewhere, the Bloomberg gold spot price gained $15.46 to $1,294.04 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.3% to 93.63. Markets were mixed for the week, as the DJIA decreased 0.3% and S&P 500 Index ticked 0.1% lower, while the Nasdaq Composite advanced 0.5%.

Gap Inc. (GPS $29) reported Q3 earnings-per-share (EPS) of $0.58, versus the $0.54 FactSet estimate, as revenues rose 1.1% year-over-year (y/y) to $3.8 billion, roughly in line with forecasts. Q3 same-store sales grew 3.0% y/y, above the expected 1.3% gain. GPS raised its full-year guidance. Shares finished nicely higher.

Applied Materials Inc. (AMAT $56) posted fiscal Q4 EPS of $0.91, or $0.93 ex-items, compared to the forecasted $0.91, with revenues rising 20.0% y/y to $4.0 billion, above the estimated $3.9 billion. The chip equipment maker issued Q1 guidance that exceeded projections. AMAT traded lower.

Abercrombie & Fitch Co. (ANF $16) announced Q3 earnings of $0.15 per share, or $0.30 ex-items, topping the forecasted $0.22, as revenues increased 5.0% y/y to $859 million, north of the estimated $820 million. Q3 same-store sales rose 4.0% y/y, above the expected 0.4% gain. Shares rallied as ANF also issued a Q4 outlook that bested the Street's expectations.

Williams-Sonoma Inc. (WSM $46) reported Q3 EPS of $0.84, matching forecasts, as revenues rose 4.3% y/y to $1.3 billion, rough in line with expectations. Q3 same-store sales grew 3.3% y/y, just above the estimated 3.0% increase. WSM issued Q4 profit guidance that missed expectations. Separately, the company announced the acquisition of home furnishings and décor industry 3-D imaging and augmented reality platform Outward Inc. WSM traded solidly lower.

Foot Locker Inc. (FL $41) posted Q3 profits of $0.81 per share, or $0.87 ex-items, versus the expected $0.80, as revenues decreased 0.8% y/y to $1.9 billion, topping the forecasted $1.8 billion. Q3 same-store sales declined 3.7% y/y, compared to the projected 4.6% drop. FL said despite a continued highly promotional environment, it believes it can exceed its Q4 guidance issued in August. Shares surged nearly 30%.

Housing construction activity stronger than expected

Housing starts (chart) for October jumped 13.7% month-over-month (m/m) to an annual pace of 1,290,000 units, well above the Bloomberg forecast of a 1,190,000 unit rate. September starts were upwardly revised to an annual pace of 1,135,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, grew 5.9% m/m in October to an annual rate of 1,297,000, after September's favorably revised 1,225,000 rate, and north of the expected annual pace of 1,250,000 units.

The Kansas City Fed Manufacturing Activity Index for November showed growth decelerated more than expected, with the index dipping to 16 from 23 in October, compared to the forecasted 21, though a reading above zero denotes expansion in activity.

Treasuries finished mixed, with the yield on the 2-year note ticking 1 basis point (bp) higher to 1.72%, while the yield on the 10-year note declined 3 bps to 2.35%, and the 30-year bond dropped 5 bps to 2.78%.

The markets continued to grapple with the ongoing flattening of the yield curve and the recent soft data out of China that came amid a relatively positive global economic backdrop. Also, U.S. tax reform uncertainty remained as yesterday's bill passing in the House opened the door for scrutiny and concerns about the reconciliation process with the Senate's plan that differs significantly on some key areas and is expected to be voted on the week after the Thanksgiving holiday. As such, check out our article, Does Low Market Volatility Portend a Market Tumble?, as well as Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest commentary, Tax Reform: Key Differences Between the Senate and House Plans.

Europe mostly lower and Asia mixed to close out the week 

European equity markets traded mostly lower after breaking a string of losses yesterday that came amid what seemed to be a flare-up in global market risk aversion. With U.S. tax reform uncertainty lingering despite yesterday's House bill passing, coalition talks in Germany ramped up and the Brexit stalemate remained. For analysis of the uncertainty political front in the region, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives Randy Frederick's video, Political Risk: How Should Investors Respond?. The British pound and the euro ticked slightly higher versus the U.S. dollar as the markets continued to digest comments from European Central Bank President Mario Draghi, who offered an upbeat outlook for the economy, but said the central bank needs to be patient in normalizing policy as inflation remains subdued. Schwab's Jeffrey Kleintop provides analysis of the changing global monetary policy landscape in his article, How the Shift by Central Banks May Affect the Stock Market. Bond yields in the region were mostly lower, while energy issues recovered modestly as crude oil prices rebounded after a recent drop.

Stocks in Asia finished mixed to close out a week that saw some increased downside pressure as the global markets appeared to shift to a de-risking mood on the heels of a global rally. Schwab's Jeffrey Kleintop, CFA, offers a look at the global market rally seen this year that has been fostered by the broadest economic growth in a decade in his latest article, 5 Reasons Investors Should Give Thanks. Some support came from yesterday's rebounds in the U.S. and Europe, but the markets continued to be cautious as U.S. tax reform uncertainty lingered, crude oil prices sold off, and recent Chinese economic data has disappointed. Japanese equities pared solid early gains as the yen gained ground late in the day. Mainland Chinese shares declined with sentiment being exacerbated by local media reports warning of high valuations in some stocks that have rallied as of late, per Bloomberg. Equities trading in Hong Kong and India advanced, while Australian securities were also higher and South Korean shares finished flat.

Stocks bounce back to finish week mixed

U.S. stocks finished the trading week mixed as a strong rally on Thursday, led by tech issues, was able to offset losses that developed early in the week as the uncertainty surrounding the likelihood of a successful domestic tax policy overhaul intensified. The House passed its bill to reduce taxes and focus is now tuned to the Senate and its legislative process with a floor vote expected shortly after the Thanksgiving holiday break. Economic data was mostly positive as an advance read on retail sales unexpectedly increased m/m, showing widespread sales gains, but also revealing a dip in online shopping. A separate report showed small business optimism rose and consumer inflation was mostly in line with expectations. Market participants were also treated to hotter-than-expected producer price inflation figures, slowing in some regional manufacturing output and an unexpected rise in weekly jobless claims.

In earnings news, Wal-Mart Stores (WMT $97) surged to a record high after it revealed its Q3 results, while Home Depot (HD $167), Tyson Foods (TSN $78), and Dick's Sporting Goods (DKS $29) also topped analysts' quarterly projections. Target (TGT $57) disappointed with its quarterly marks and General Electric (GE $18) cut its quarterly dividend in half. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, third quarter earnings season is largely complete and can be characterized as a positive one—with strong “beat rates” for both top- and bottom-line results; while economic data continues to indicate solid growth.

Although next week will be shortened by Thursday's Thanksgiving holiday, during which the U.S. markets will be closed, the economic calendar will still deliver a feast of key reports that could provide sustenance for market action. Housing will remain in focus, with the release of existing home sales, along with manufacturing demand in the form of the preliminary durable goods report. The Leading Index will give us a look at how many cylinders the economy is firing on, while the minutes from the Fed's Oct/Nov monetary policy meeting will provide us discussion details as the highly-expected December rate hike decision looms. We will get a look at the psyche of the consumer, courtesy of the final University of Michigan Consumer Sentiment Index for this month. The week will come to a close with Markit's November business activity reports, illustrating the pace of growth in output from the manufacturing and services sectors.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest, Schwab Sector Views: 'Tis the Season…Almost, much of the U.S. economy arguably comes down to how the consumer is faring as businesses make hiring and investing decisions based on their expectations of consumer demand. Brad adds that it would be difficult to view the status of the consumer as anything less than mostly positive with unemployment historically low, wages trending higher and still low interest rates conspiring to boost consumer confidence.

International reports due out next week that deserve a mention include: Australia—Leading Index. Japan—trade balance and the All Industry Activity Index. Eurozone—Markit Manufacturing and Service PMIs and consumer confidence, along with German Q3 GDP and PPI. U.K.—public sector net borrowing, Q3 GDP and business investment.

Stocks Gain Ground, Dow Rallies

On the Market

Posted: 10/18/2017 4:15 PM EDT

Stocks Gain Ground, Dow Rallies

 

U.S. stocks finished higher with Dow member IBM's quarterly results aiding the blue chip index to close well above the 23,000 mark for the first time. Treasury yields rose despite continued uncertainty in regard to the future leadership of the Federal Reserve. Housing construction activity disappointed and the Fed's Beige Book noted a modest and moderate increase in domestic economic activity. The U.S. dollar and crude oil prices were little changed, while gold was lower. 

The Dow Jones Industrial Average (DJIA) rallied 160 points (0.7%) to 23,158, the S&P 500 Index added 2 points (0.1%) to 2,561, and the Nasdaq Composite was nearly 1 point higher at 6,624. In moderate volume, 677 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.15 higher to $52.26 per barrel and wholesale gasoline increased $0.01 to $1.64 per gallon. Elsewhere, the Bloomberg gold spot price lost $4.04 to $1,281.08 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.41.

Dow member International Business Machines Corp. (IBM $160) reported Q3 earnings-per-share (EPS) of $2.92, or $3.30 ex-items, versus the $3.28 FactSet estimate, as revenues dipped 0.4% year-over-year (y/y) to $19.2 billion, topping the expected $18.6 billion. The company's cloud revenue rose 20% y/y, helping it achieve double-digit growth in its strategic imperatives. IBM reaffirmed its full-year earnings outlook and projected Q4 revenues that topped forecasts and would end a 22-quarter streak of declines. Shares rallied.

Abbott Laboratories(ABT $56) reported Q3 EPS of $0.32, or $0.66 ex-items, versus the projected $0.65, with revenues rising 5.6% y/y to $6.8 billion, compared to the expected $6.7 billion. ABT issued Q4 profit guidance that matched forecasts, while it narrowed its full-year earnings outlook. Shares traded higher.

Housing construction activity misses, ahead of Fed's business activity report

Housing starts (chart) for September dropped 4.7% month-over-month (m/m) to an annual pace of 1,127,000 units, below the Bloomberg forecast of a 1,175,000 unit rate. August starts were upwardly revised to an annual pace of 1,183,000. Starts on both single and multi-unit structures were down m/m but are higher compared to the last year. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, fell 4.5% m/m in September to an annual rate of 1,215,000, after August's downwardly revised 1,272,000 rate, and south of the expected annual pace of 1,245,000 units. Permits for single unit structures were up m/m and y/y, while multi-family units were down sharply m/m and y/y.

The MBA Mortgage Application Index rose 3.6% last week, following the prior week's 2.1% decline. The increase came as a 3.0% gain in the Refinance Index was met with a 4.2% rise in the Purchase Index. The average 30-year mortgage rate decreased 2 basis points (bps) to 4.14%.
Mortgage demand appears healthy and home-buying incentives may be bolstered by continued relatively low interest rates and high rental rates in some areas of the country, as discussed as one of the reasons we have an outperform rating on the financial sector in Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest, Schwab Sector Views: Sustainable Energy?.

In afternoon action, the Federal Reserve released its Beige Book, a summary of business activity across the nation used as a tool to prepare for its next two-day monetary policy meeting ending on November 1st. The report indicated that domestic economic activity increased at a pace split between modest and moderate in September through early October. Major disruptions from hurricanes Harvey and Irma were reported in some areas and sectors in the Richmond, Atlanta and Dallas Districts. Meanwhile, job growth was modest on balance, and labor markets continued to be characterized as "tight."

The report also noted that price pressures remained modest and several Districts noted increased manufacturing input costs that in most cases weren't passed through to selling prices, while retail prices increased slightly. For our analysis of inflation, Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article, The Waiting: Wage Growth and Inflation Finally Getting in Gear?, with wage growth picking up and the labor market even tighter, it’s time to put even traditional measures of inflation back on the radar screen. Also, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes his commentary, Inflation May Be The Biggest Question For Investors In 2018, that central banks are behaving as if wages and inflation will revive in the year ahead. If they don’t, and central banks don’t alter their policy path, the global stock markets could be in for a rough 2018.

Global monetary policy remains in focus as many central banks appear to be shifting onto the path to normalization, while the upcoming end of Fed Chief Janet Yellen's term is fostering some uncertainty. Schwab's Jeffrey Kleintop discusses, How the Shift by Central Banks May Affect the Stock Market, and Schwab's Chief Fixed Income Strategist, Kathy Jones talks in the video with Vice President of Trading and Derivatives, Randy Frederick, Should a Change in Fed Leadership Matter to Investors?. Tax reform continues to garner attention, with the Senate expected to vote this week on its budget resolution that could help nudge it further down the long road to fruition, as discussed by Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend in the article, Tax Reform Framework Released, But The Road Ahead Is Long.

Check out these articles and video on the Market Commentary page at www.schwab.com. Follow our Schwab experts on Twitter: @lizannsonders, @jeffreykleintop, @kathyjones and @randyafrederick.
Treasuries finished lower, with the yield on the 2-year note ticking 2 bps higher to 1.56%, while the yields on the 10-year note and 30-year bond rose 4 bps to 2.34% and 2.85%, respectively. The U.S. dollar was little changed as global economic optimism was countered by the aforementioned uncertainties.

Tomorrow, the U.S. economic calendar will begin with weekly initial jobless claims, forecasted to have ticked lower to a level of 240,000 from the prior week's 243,000, as well as the Philly Fed Manufacturing Index, anticipated to have ticked lower to a reading of 22.0 in October from 23.8 in September. Rounding out the day, we'll receive the Leading Index for September, expected to increase 0.1% m/m after rising 0.4% in August.

Europe higher despite lingering political uneasiness, Asia mixed as Japan continues streak

European equity markets finished higher, despite festering political uncertainty as the independence standoff between Spain and Catalonia continues, with that latter given a deadline of Thursday morning to renounce independence claims. Also, Brexit talks remain in a deadlock ahead of this week's summit of European Union leaders. For analysis, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Market Commentary page at www.schwab.com. IBM's earnings results across the pond appeared to foster some optimism regarding global earnings as the season kicks into gear. The euro ticked higher and British pound dipped versus the U.S. dollar, while bond yields in the region gained solid ground to boost financials. In economic news, U.K. employment change came in below forecasts, while eurozone construction output declined in August.

Stocks in Asia finished mixed as the markets await a flood of Chinese economic data tonight, headlined by the nation's Q3 GDP report, which is expected to show growth slowed slightly to a 6.8% y/y pace from 6.9% in Q2. Also, the commencement of China's Communist Party National Congress was in focus but comments from President Xi offered no huge changes to the country's outlook. Shares trading in Hong Kong and mainland China gained ground. Japanese equities nudged higher to continue a winning streak to 12 sessions, which has led the Nikkei 225 Index to its highest level since 1996. Japan's stock market has contributed to the global rally and Schwab's Jeffrey Kleintop, CFA, and Randy Frederick discuss in the video, Are Investors Underestimating the Stock Market Rally?, on the Market Commentary page at www.schwab.com. Stocks trading in South Korea and India dipped, while Australian securities finished mostly flat.

The international economic docket for tomorrow will include trade data, the All Industry Activity Index and machine tool orders from Japan, employment data and business confidence from Australia and retail sales from the U.K., while China will release retail sales in addition to its aforementioned GDP report.

Stocks Hold All-Time Highs

Charles Schwab: On the Market

Posted: 10/17/2017 4:15 PM EDT

Stocks Hold All-Time Highs

 

U.S. stocks finished the regular trading session fairly flat, though the Dow broke through the 23,000 mark intraday as market participants waded through a flood of corporate earnings and economic reports. Treasury yields were little changed and the U.S. dollar rose as uncertainty and speculation in regard to who will soon lead the Federal Reserve remains. In economic news, homebuilder sentiment and industrial production rebounded, while import prices rose. Gold was lower and crude oil prices inched higher.

The Dow Jones Industrial Average (DJIA) increased 40 points (0.2%) to 22,997, the S&P 500 Index added 2 points (0.1%) to 2,559, and the Nasdaq Composite was nearly unchanged at 6,624. In moderate-to-light volume, 692 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.01 higher to $51.88 per barrel and wholesale gasoline also increased $0.01 to $1.63 per gallon. Elsewhere, the Bloomberg gold spot price lost $9.69 to $1,286.10 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 93.51.

Morgan Stanley(MS $49) reported Q3 earnings-per-share (EPS) of $0.93, compared to the $0.81 FactSet estimate, as revenues rose 3.4% year-over-year (y/y) to $9.2 billion, above the projected $9.0 billion. The company said its results reflected the stability its wealth management, investment banking and investment management businesses bring when its sales and trading business faces a subdued environment. Shares traded higher.

Netflix Inc. (NFLX $199) posted Q3 EPS of $0.29, versus the expected $0.32, as revenues grew 30.3% y/y to $3.0 billion, roughly in line with forecasts. The company reported net subscriber additions for its domestic and international streaming units that both topped estimates, with the latter easily besting forecasts. NFLX issued Q4 guidance that exceeded expectations and said it will spend $7-8 billion on content for 2018. Shares lost ground.

Dow member Goldman Sachs Group Inc. (GS $236) announced Q3 profits of $5.02 per share, above the estimated $4.17, as revenues increased 1.9% y/y to $8.3 billion, topping the $7.5 billion expectation. The company's trading revenues fell, while its investment banking and investing and lending revenues rose solidly. Shares traded lower.

Dow component UnitedHealth Group Inc. (UNH $204) achieved Q3 EPS of $2.51, or $2.66 ex-items, versus the projected $2.56, with revenues rising 9.0% y/y to $50.3 billion, compared to the estimated $50.4 billion. UNH raised its full-year earnings outlook and shares finished nicely higher.

Dow member Johnson & Johnson(JNJ $141) reported Q3 earnings of $1.37 per share, or $1.90 ex-items, versus the expected $1.80, as revenues rose 10.3% y/y to $19.7 billion, above the forecasted $19.3 billion. The company noted the strong performance of its pharmaceutical business. JNJ raised its full-year guidance and shares traded solidly to the upside.

Homebuilder sentiment rebounds, industrial production rises

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month rose to a five-month high of 68, versus the Bloomberg forecast calling for it to match September's unrevised 64 level. The index sits well above the 50 mark, the point of separation for good versus poor conditions. The NAHB said the report showed homebuilders are rebounding from the initial shock of the hurricanes, but need to be mindful of long-term repercussions from the storms, such as intensified material price increases and labor shortages.

Housing construction will come into focus tomorrow, with the economic calendar delivering the September housing starts and building permits report. Starts are projected to dip 0.4% month-over-month (m/m) to an annual rate of 1,175,000 units and permits are forecasted to decline 2.1% to a rate of 1,245,000 units. MBA's mortgage applications report tomorrow will also give us a look at home lending activity. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest, Schwab Sector Views: Sustainable Energy?, mortgage demand appears to be healthy, while interest rates continue to be relatively low and the high rental rates in some areas of the country provide incentive for home buying.

Industrial production (chart) rose 0.3% month-over-month (m/m) in September, matching estimates, after August's upwardly revised 0.7% decrease, which snapped a six-month string of gains. Manufacturing and mining production both ticked higher, while utilities output rose solidly. Capacity utilization rose to 76.0% from the prior month's downwardly revised 75.8% rate, and compared to forecasts of 76.2%. Capacity utilization is 3.9 percentage points below its long-run average. The Federal Reserve noted the continued effects of the hurricanes held down growth in total production. Tomorrow, the Fed will give us a look at national business activity in the form of its Beige Book, a tool it will use to prepare for its next two-day monetary policy meeting scheduled to end November 1st.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses the global impact of the natural disasters in his latest article, Fires, Hurricanes, and Earthquakes: What Disasters Mean For Markets, noting that stock market losses associated with past major disasters were typically short-lived.

The Import Price Index (chart) gained 0.7% m/m for September, above projections to match August's unrevised 0.6% gain. Compared to last year, prices were up 2.7%, topping forecasts of a 2.6% gain and compared to August's unrevised 2.1% increase.

Treasuries finished mixed but little changed, with the yield on the 2-year note increasing 1 basis point (bp) to 1.55%, the yield on the 10-year note flat at 2.30% and the 30-year bond rate dipping 1 bp to 2.81%. The U.S. dollar gained ground on uncertainty regarding who will be the next Fed Chief amid the backdrop of signs that inflation may be nudging higher and global economic growth remains steady. Also, the markets continued to grapple with global political uncertainty and the potential for U.S. tax reform.

As such, Schwab's Chief Investment Strategist Liz Ann Sonders offers her article, The Waiting: Wage Growth and Inflation Finally Getting in Gear?, and Schwab's Jeffrey Kleintop, CFA, delivers his commentary, Inflation May Be The Biggest Question For Investors In 2018.
Moreover, Jeff discusses, How the Shift by Central Banks May Affect the Stock Market, and Schwab's Chief Fixed Income Strategist, Kathy Jones talks in the video with Vice President of Trading and Derivatives, Randy Frederick, Should a Change in Fed Leadership Matter to Investors?. For analysis of the journey to tax reform, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's article, Tax Reform Framework Released, But The Road Ahead Is Long.

Check out these articles and video on the Market Commentary page at www.schwab.com. Follow our Schwab experts on Twitter: @lizannsonders, @jeffreykleintop, @kathyjones and @randyafrederick.

Europe slips as political uncertainties linger

European equity markets gave up early gains and finished modestly lower even as the euro and British pound lost ground as the U.S. dollar showed some strength on speculation regarding who will be the leader of the Central Bank. Materials issues led to the downside and political concerns continued to stymie conviction. Financials pared gains after rising in the wake of key results from the sector in the U.S. The pound shrugged off signs that U.K. inflation continues to rise, with Brexit negotiations remaining in a deadlock even after Prime Minister Theresa May's meeting in Brussels yesterday with European Union officials. However, Spanish stocks rebounded from recent weakness that has come as Spain continues to push Catalonia for clarification on whether it declared independence or not, showing some resiliency in the face of the nation lowering its GDP growth outlook. For analysis of the uncertain political front in the region, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Market Commentary page at www.schwab.com. In other economic news, German investor confidence for October came in below forecasts. Bond yields in the region were mostly lower.

Stocks in Asia finished mixed with continued global economic optimism helping support sentiment, while caution appeared elevated ahead of a flood of Chinese economic data, headlined by its Q3 GDP report, as well as the highly anticipated Communist Party gathering in China later this week. Japanese equities rose as the yen weakened to help it extend its string of gains to eleven sessions that has taken it to levels not seen in over two decades. Mainland Chinese stocks declined and shares trading in Hong Kong finished flat. Australian securities advanced with basic materials gaining ground and the minutes from the Reserve Bank of Australia's policy meeting earlier this month suggested that there was no sense of urgency to raise rates. South Korean equities advanced and Indian shares dipped. Schwab's Jeffrey Kleintop, CFA, and Randy Frederick offer a look at global investing in the video, Is An Optimistic Outlook for Global Equities Warranted?, on the Market Commentary page at www.schwab.com.

Tomorrow, the international economic docket will be limited to leading indicators from Australia, jobless claims from the U.K. and construction output from the Eurozone.

Record Run Continues Despite Looming Fed Meeting

Charles Schwab: On the Market

Posted: 9/19/2017 4:15 PM ET

Record Run Continues Despite Looming Fed Meeting

U.S. equities added to record highs, continuing to show resiliency in the face of geopolitical and U.S political concerns, and ahead of tomorrow's Fed decision. U.S. housing construction activity in August topped expectations, adding to the upbeat mood, and Treasury yields modestly added to their recent rebound. Meanwhile, the U.S. dollar and crude oil prices declined, while gold was modestly higher.

The Dow Jones Industrial Average (DJIA) increased 40 points (0.2%) to 22,371, the S&P 500 Index gained 3 points (0.1%) to 2,507, and the Nasdaq Composite increased 7 points (0.1%) to 6,461. In moderate volume, 809 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.45 to $49.90 per barrel and wholesale gasoline lost $0.01 to $1.66 per gallon. Elsewhere, the Bloomberg gold spot price increased $3.87 to $1,311.31 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 91.78.

Shares of Kohl's Corp. (KSS $45) rose as the Street cheered its announcement that it will offer free returns for Amazon.com Inc's (AMZN $970) customers at select stores starting in October. The offer comes on the heels of its announcement earlier this month that it will launch a new Amazon smart home experience in 10 select Kohl's stores.

Shares of Best Buy Co. Inc. (BBY $53) fell as the Street expressed disappointment toward the company's new long-term financial targets that it released ahead of its investor day this afternoon.

AutoZone Inc. (AZO $535) reported fiscal Q4 earnings-per-share (EPS) of $15.27, or $15.18 ex-items, above the $15.11 FactSet estimate, as revenues grew 3.3% year-over-year (y/y) to $3.5 billion, roughly in line with expectations. Q4 same-store sales rose 1.0% y/y, versus the projected 0.8% gain, while its gross margin was flat y/y, slightly missing estimates, and its operating expenses rose due partly to higher wage pressure. Shares finished lower.

Shares of T-Mobile US Inc. (TMUS $65) and Sprint Corp. (S $8) moved higher following a report from CNBC's David Faber that the two companies are in active merger talks but that they are still weeks away from finalizing a deal. According to the report, Deutsche Telekom AG (DTEGY $19)—which owns about 64% of T-Mobile—would be the majority owner, while Softbank Group Corp. (SFTBY $41)—which owns nearly 84% of Sprint—will emerge as a large minority holder. None of the entities mentioned have commented on the report.

Housing construction activity tops forecasts in August

Housing starts (chart) for August dipped 0.8% month-over-month (m/m) to an annual pace of 1,180,000 units, but above the Bloomberg forecast of a 1,174,000 unit rate, while July starts were favorably revised to an annual pace of 1,190,000. Single-unit construction rebounded after the prior month's decline, while multi-family starts continued to drop. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, jumped 5.7% m/m in August to an annual rate of 1,300,000, after July's upwardly revised 1,230,000 rate, and north of the expected annual pace of 1,220,000 units. Permits for multi-unit rebounded from July's drop, while single-unit authorizations declined.

The housing market will likely be hampered by the storms in the short-term, joining the headwinds of higher building materials costs and shortages of lots and labor. Also, low supply and elevated prices have hampered existing home sales, which hit an eleven month low in July and will be in focus tomorrow as the August figures are released, projected to tick 0.2% higher m/m to an annual rate of 5.45 million units (economic calendar). However, as noted in yesterday's homebuilder confidence report and Schwab's Chief Investment Strategist Liz Ann Sonders' article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", a boost associated with the recovery/rebuilding efforts is likely, while Liz Ann adds that real estate has been one of most consistent beneficiaries in the subsequent months following the 10 costliest U.S. hurricanes. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders. MBA Mortgage Applications will also be reported.

The Import Price Index (chart) increased 0.6% m/m for August, topping projections of a 0.4% rise, and compared to July's downwardly revised 0.1% dip. Compared to last year, prices were up by 2.1%, below forecasts of a 2.2% gain and compared to July's downwardly revised 1.2% increase.

Treasuries dipped, as the yield on the 2-year note was flat at 1.40%, while the yields on the 10-year note and the 30-year bond ticked 1 basis point higher to 2.24% and 2.81%, respectively. For analysis of the bond markets, see Schwab's Chief Fixed Income Strategist, Kathy Jones', and Vice President of Trading and Derivatives, Randy Frederick's, video, The Economy is Picking Up, But Bond Yields Are Falling—What's That About?, on the Insights & Ideas page at www.schwab.com. Follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Bond yields modestly extended a sharp recent rebound that has come as the markets shrugged off festering geopolitical tensions, while an acceleration in consumer price inflation added to the positive economic backdrop to bring the Fed back into focus, with the Federal Open Market Committee (FOMC) beginning its two-day monetary policy meeting today.

A rate hike is not expected after tomorrow's conclusion but the announcement that the Central Bank will begin to shrink its massive $4.5 trillion balance sheet is highly anticipated. For further analysis of the meeting, check out our latest article, Fed Watch: What to Expect from the September Meeting, on the Insights & Ideas page at www.schwab.com and follow us on Twitter: @schwabresearch.

Europe battles back from early weakness, Asia lower 

European equity markets mostly ticked higher, overcoming early losses with the euro and British pound paring losses versus the U.S. dollar and despite caution ahead of tomorrow's monetary policy decision by the U.S. Federal Reserve. Global monetary policy remained in focus as the Fed decision will be followed by the Bank of Japan's policy statement, while the Bank of England signaled last week that a rate hike may be delivered in the coming months and the European Central Bank suggested at its last monetary policy decision that it will begin to discuss in detail dialing back its stimulus measures this autumn. 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. In economic news, German investor confidence easily topped expectations for September. Bond yields in the region finished mixed to little changed.

Stocks in Asia finished mostly lower following the recent global market rally, with caution appearing to set in ahead of tomorrow's monetary policy decision out of the U.S., which will be followed by the Bank of Japan's decision later this week. Markets in mainland China, Hong Kong, Australia, India and South Korea were all lower. However, Japanese equities bucked the trend, finishing solidly higher in their return to action from yesterday's holiday, playing catch up with the markets and bolstered by the recent weakness in the yen. 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.

Reports on tomorrow's international economic calendar will include trade data from Japan, PPI from Germany and retail sales from the U.K.

Stocks Add to Record Highs

Charles Schwab: On the Market

Posted: 9/18/2017 4:15 PM ET

Stocks Add to Record Highs

U.S. equities extended recent record highs, continuing to show resiliency against lingering geopolitical and political concern, as well as monetary policy uncertainty ahead of decisions from the Fed and Bank of Japan this week. Treasury yields extended last week's run and the U.S. dollar was higher amid softer-than-expected home-builder sentiment, while gold was lower and crude oil prices gained slight ground.

The Dow Jones Industrial Average (DJIA) increased 63 points (0.3%) to 22,331, the S&P 500 Index gained 4 points (0.2%) to 2,504, and the Nasdaq Composite increased 6 points (0.1%) to 6,455. In moderate volume, 821 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.02 higher to $49.91 per barrel and wholesale gasoline gained $0.01 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price declined $11.73 to $1,308.46 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 92.08.

Northrop Grumman Corp. (NOC $262) announced an agreement to acquire aerospace and defense technology company, Orbital ATK Inc. (OA $132), for $134.50 per share or about $7.8 billion in cash plus the assumption of $1.4 billion in net debt. NOC said the deal is expected to be accretive to earnings-per-share (EPS) in the first full year after the deal closes, which is expected in the first half of 2018. NOC was nicely higher and OA rallied sharply.

Home-builder sentiment drops to kick off economic week headlined by Fed

The National Association of Home Builders (NAHB) Housing Market Index showed home-builder sentiment this month fell to 64, versus the Bloomberg forecast calling for it to match August's downwardly-revised 67 level. However, the index sits well above the 50 mark, the point of separation for good versus poor conditions. The NAHB said the recent hurricanes have intensified its members' concerns about the availability of labor and the cost of building materials, but once the rebuilding process is underway builder confidence is expected to return to the high levels seen this spring.

Tomorrow, we will get a look at August housing construction activity in the form of housing starts and building permits, with starts projected to rebound 1.7% month-over-month (m/m) to an annual rate of 1,174,000 units after July's 4.8% drop (economic calendar). Permits are expected to dip 0.8% to an annual rate of 1,220,000 units following the prior month's 4.1% fall. Also on tap is the Import Price Index, forecasted to have increased 0.4% m/m during August following the 0.1% rise seen in July.

Schwab's Chief Investment Strategist Liz Ann Sonders points out in her article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", that we expect to see a dip in economic activity in the short-term, followed by a boost associated with the recovery/rebuilding efforts. She adds that real estate has been one of most consistent beneficiaries in the subsequent three-to-twelve months following the 10 costliest U.S. hurricanes. We believe the impact will unlikely dent the Fed's plans to continue monetary policy normalization. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter:@lizannsonders.

Treasuries were lower, as the yield on the 2-year note ticked 1 basis point (bp) higher to 1.39%, while the yields on the 10-year note and the 30-year bond gained 3 bps to 2.23% and 2.80%, respectively.

Bond yields rebounded sharply last week after hitting levels not seen since November and the U.S. dollar recovered modestly from multi-year lows, as an ongoing positive economic backdrop was met with consumer price inflation accelerating in August to keep the possibility of a December Fed rate hike in play. Also, The Bank of England (BoE) and European Central Bank (ECB) has signaled they may start to tighten highly accommodative monetary policy, the markets shrugged off another missile test by North Korea, and economic cost estimates of Hurricane Irma appeared to be less than feared.

Schwab's Chief Fixed Income Strategist, Kathy Jones, and Vice President of Trading and Derivatives, Randy Frederick, provide analysis of the bond markets in the video, The Economy is Picking Up, But Bond Yields Are Falling—What's That About?, on the Insights & Ideas page and follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Schwab's Chief Global Investment Strategist 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.

This sets the stage for Wednesday's monetary policy decision from the Federal Open Market Committee (FOMC) (economic calendar). As noted in the latest Schwab Market Perspective: A Cat and Mouse Fall, the Fed is playing their own internal cat and mouse game with some officials citing low inflation as a reason to delay further tightening; while others want to stay on the steady path toward normalization, due to the tighter labor market. We continue to believe that the start to the slow winding down of the Fed's massive balance sheet will be announced this week; but that an additional rate hike before year end remains in question. We continue to believe the Fed's "quantitative tightening" (QT) could be the cause of some heightened volatility. Read more on the Markets & Economy page at www.schwab.com.

Europe and Asia move higher to begin the week

European equity markets traded higher, continuing to shrug off lingering geopolitical concerns, while monetary policy decisions from the Fed and Bank of Japan this week were in focus but appeared to not stymie conviction. The British pound gave back some of last week's surge against the U.S. dollar as the Bank of England (BoE) signaled that it may raise rates in the coming months. The pound lost ground despite BoE Governor Carney reiterating that a rate hike could be in the offing. The euro gave up modest gains and dipped late in the session even as the European Central Bank is expected to announce the start of dialing back its stimulus measures this fall. Bond yields in the region were mostly higher, except for in Portugal, which fell sharply after the nation received an upgrade of its credit rating to investment grade by Standard & Poor's. In economic news, eurozone consumer price inflation rose in line with expectations for August.

For a look at global investing, see Schwab's Jeffrey Kleintop's, CFA, 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 Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page.

Stocks in Asia finished higher amid the recent global market resiliency in the face of festering North Korean tensions and monetary policy uncertainty, though attention on this week's Fed and Bank of Japan decisions ramped up. The yen continued to lose ground on the U.S. dollar, but markets in Japan were closed for a holiday. Mainland Chinese stocks rose modestly and those traded in Hong Kong rallied, as late-Friday's stronger-than-expected lending statistics were met with today's report showing August home prices cooled to ease concerns about further government efforts to curb housing activity. Markets in Australia advanced, led by financials, South Korean listings jumped and Indian equities gained ground in the wake of the nation's upbeat August trade report after Friday' close. Both South Korean and Indian markets moved back to near record highs and Schwab's Jeffrey Kleintop, CFA, offers his article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over, on the Markets & Economy page at www.schwab.com. 

Stocks Shave Gains Following Fed Minutes

Charles Schwab: On the Market

Posted: 8/16/2017 4:15 PM ET

Stocks Shave Gains Following Fed Minutes

U.S. stocks pared solid early gains that developed on the heels of some upbeat retail sector news in the form of better-than-expected earnings reports from Target and Urban Outfitters. Stocks shaved their gains in the wake of the Fed's afternoon release of its July monetary policy meeting minutes and reports that President Trump disbanded both of his business advisory groups, the Strategic and Policy Forum and the manufacturing council. In other developments, housing starts and building permits both dropped, though weekly mortgage applications rose. Treasuries and gold were higher, while the U.S. dollar and crude oil prices were lower.

The Dow Jones Industrial Average (DJIA) gained 26 points to 22,025, the S&P 500 Index added 4 points (0.1%) to 2,468, and the Nasdaq Composite ticked 12 points (0.2%) higher to 6,345. In moderate volume, 717 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.77 lower to $46.78 per barrel and wholesale gasoline was $0.02 lower at $1.56 per gallon. Elsewhere, the Bloomberg gold spot price gained $10.70 to $1,282.23 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 93.50.

Target Corp. (TGT $56) reported Q2 earnings-per-share (EPS) of $1.22, or $1.23 ex-items, above the $1.19 FactSet estimate, as revenues grew 1.6% year-over-year (y/y) to $16.4 billion, topping the forecasted $16.3 billion. Q2 same-store sales rose 1.3% y/y, north of the expected 0.3% increase. The company said traffic growth was healthy, reflecting increases in both its store and digital channels. TGT issued Q3 guidance that exceeded expectations, while raising its full-year profit outlook and issuing a forecast for same-store sales that bested estimates. Shares finished nicely higher.

Urban Outfitters Inc. (URBN $20) posted Q2 EPS of $0.44, versus the projected $0.37, as revenues declined 2.0% y/y to $873 million, above the expected $862 million. Q2 same-store sales declined 4.9% y/y, compared to the estimated 6.5% drop. Shares rallied.

Bristol-Myers Squibb Co. (BMY $58) traded lower after reporting disappointing results from a study of its kidney cancer treatment.

Housing construction activity misses ahead of look at Fed meeting

Housing starts (chart) for July dropped 4.8% month-over-month (m/m) to an annual pace of 1,155,000 units, below the Bloomberg forecast of a 1,220,000 unit rate. June starts were downwardly revised to an annual pace of 1,213,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, fell 4.1% m/m in July to an annual rate of 1,223,000, after June's upwardly revised 1,275,000 rate, and south of the expected annual pace of 1,250,000 units.

Construction activity for multi-unit structures fell sharply m/m and is down noticeably compared to last year, while single-family activity was little changed m/m and is up solidly y/y. The data echoes yesterday's homebuilder sentiment report that noted rising demand in the new-home market due to ongoing job and economic growth, but builders continue to face supply-side challenges such as lot and labor shortages and rising building material costs.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, discuss our underperform rating on the real estate sector in his latest Schwab Sector Views: Time to "Energize" Your Portfolio?, noting that low interest rates can make dividend-paying equity real estate investment trusts (REITs) more attractive, a factor that has supported them in recent years but now appears to be lessening as rates tick higher. Apartment and office markets have been generally strong, supporting rents; however, supply is rising, which could pressure profitability. Also, an ongoing shift away from brick-and-mortar retailers could pressure mall REITs. Read more on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

At 2:00 p.m. ET, the Federal Reserve released the minutes from its July monetary policy meeting. The information contained in the report showed that labor market conditions continued to strengthen as total nonfarm payroll employment increased solidly in June, though the unemployment rate edged up to 4.4%. The minutes also indicated that total industrial production rose moderately and real PCE appeared to have rebounded in the second quarter. However, some participants addressed the uncertainty surrounding the course of federal government policy and how it may weigh down the spending and hiring plans of firms. Finally, in regard to discussions of the Fed's balance sheet, participants "generally agreed that, in light of their current assessment of economic conditions and the outlook, it was appropriate to signal that implementation of the program likely would begin relatively soon, absent significant adverse developments in the economy or in financial markets."

As noted in the latest Schwab Market Perspective: Things are Looking Good … But are They Too Good?, the Federal Reserve continues its slow and steady approach to monetary policy normalization; leaving interest rates steady at its latest meeting, but hinting strongly that the winding down of the Fed’s balance sheet will likely begin in September. Investors shouldn't be complacent about the Fed, however. With the labor market tight, and commodity prices rising, inflation could start to flare up. At the same time, the Fed is sailing uncharted waters as it begins quantitative tightening (QT) by shrinking its balance sheet. Read more on the Markets & Economy page at www.schwab.com.

The MBA Mortgage Application Index ticked 0.1% higher last week, following the previous week's 3.0% gain. The slight increase came as a 1.6% rise in the Refinance Index was met with a 1.5% drop for the Purchase Index. The average 30-year mortgage rate declined 2 basis points (bps) to 4.12%.

Treasuries ticked higher, with the yield on the 2-year note losing 2 bps to 1.33%, the yield on the 10-year note decreasing 4 bps to 2.23% and the 30-year bond rate declining 3 bps to 2.82%.

Tomorrow, the U.S. economic calendar will include the Fed's June industrial production and capacity utilization report, forecasted to show production increased 0.3% m/m and utilization ticked higher to 76.7%. Additionally, we will also receive weekly initial jobless claims, with economists expecting a slight downtick to a level of 240,000 from the prior week's 244,000, as well as the Philly Fed Manufacturing Index, forecasted to decline to 18.0 for August from the 19.5 posted in July, while the Index of Leading Economic indicators (LEI) will round out the day, anticipated to have increased 0.3% for July following the 0.6% rise in June. .

Europe higher following data, Asia mixed following two-day rebound

European equities finished higher, as yesterday's upbeat U.S. economic data was followed by a favorable read on eurozone GDP, while geopolitical concerns continued to ease. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA points out in his article, What are fund flows telling us about trends and risks in the global stock market?, that the money coming into ETFs is flowing into a broad range of stock markets featuring a preference for international stocks and revealing a surprising disconnect with the performance and geopolitical risk of the underlying markets. Read more on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop. Q2 eurozone GDP growth accelerated to a 2.2% y/y pace of growth, from the 1.9% expansion posted in Q1, and compared to the forecasted 2.1% increase. In the U.K., June employment growth topped expectations. The British pound dipped versus the U.S. dollar. The euro saw some pressure after reports suggested European Central Bank President Mario Draghi will not deliver a new policy message at next week's key Fed symposium in Jackson Hole, Wyoming. Bond yields in the region were mixed, with the markets awaiting today's release of the July U.S. monetary policy meeting minutes.

Stocks in Asia finished mixed on the heels of the two-day rally that came as geopolitical concerns eased along with tensions between North Korea and the U.S., with the former opting to not go through with a plan to fire missiles at the U.S. territory of Guam. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors are best served when grim headlines are in the news by remembering that geopolitical risks are a regular part of investing and that a long history of geopolitical developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are most often the result. 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.

The markets also grappled with a slight increase in Fed monetary policy uncertainty in the wake of yesterday's much stronger-than-expected retail sales report in the U.S. Japanese equities dipped, even as the yen continued to lose ground on the U.S. dollar following the data, while stocks in both South Korea and India advanced, with each country's market playing catch up after being closed yesterday for holidays. Australian securities advanced, with earnings season in the nation getting under way. Mainland Chinese shares declined, while equities in Hong Kong moved higher, with the markets digesting yesterday's mostly stronger-than-expected July lending statistics.

Tomorrow, the international economic docket will include trade data from Japan, employment figures for Australia, retail sales from the U.K. and the trade balance and CPI from the Eurozone.

Stocks Notch Gains Amid Earnings, Upbeat Housing Data

Charles Schwab: On the Market

Posted: 7/19/2017 4:15 PM ET

Stocks Notch Gains Amid Earnings, Upbeat Housing Data

U.S. equities finished higher, despite uncertainty surrounding looming policy decisions in Europe and Japan. Morgan Stanley delivering upbeat results, but gains on the Dow were kept in check after IBM posted its 21st consecutive quarterly decline in revenues, and merger chatter within the media space gave those stocks a boost. Treasuries and the U.S. dollar were nearly flat following a rebound in housing construction activity, while crude oil prices were higher on another bullish government inventory report, and gold was modestly lower.

The Dow Jones Industrial Average (DJIA) rose 66 points (0.3%) to 21,641, the S&P 500 Index gained 13 points (0.5%) to 2,474, and the Nasdaq Composite increased 41 points (0.6%) to 6,385. In moderate volume, 708 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.73 to $47.32 per barrel and wholesale gasoline was $0.04 higher at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price lost $0.83 to $1,241.64 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 94.80.

Morgan Stanley (MS $47) reported Q2 earnings-per-share (EPS) of $0.87, above the $0.76 FactSet estimate, as revenues rose 6.7% year-over-year (y/y) to $9.5 billion, topping the expected $9.2 billion. The company said its Q2 results demonstrated the resilience of its franchise in a subdued trading environment, aided by solid results from its wealth management and investment banking segments. Separately, MS raised its quarterly dividend by 25.0% to $0.25 per share, and announced a new share repurchase program of up to $5.0 billion. Shares were nicely higher.

Dow member International Business Machines Corp. (IBM $147) posted Q2 EPS of $2.48, or $2.97 ex-items, versus the expected $2.74, as revenues declined 5.0% y/y to $19.3 billion, below the forecasted $19.5 billion. IBM reaffirmed its full-year profit outlook. This was the 21st consecutive quarterly revenue decline as its cognitive solutions unit missed expectations and growth in its strategic imperatives decelerated. Shares finished lower.

United Continental Holdings Inc. (UAL $74) announced Q2 earnings of $2.66 per share, or $2.75 ex-items, compared to the expected $2.68, as revenues increased 6.4% y/y to $10.0 billion, roughly in line with estimates. The airline's passenger revenue per available seat mile (PRASM)—a key industry metric—rose slightly more than it had projected during the quarter. However, UAL's outlook for PRASM for the current quarter came in below estimates, pointing out weakness in airfares in Asia. Shares were solidly lower.

Vertex Pharmaceuticals Inc. (VRTX $160) jumped over 20% after the company announced favorable results from a study of a new triple-drug combination to treat cystic fibrosis.

Shares of Scripps Networks Interactive Inc. (SNI $77), owner of HGTV and the Food Network, rallied and cable network Discovery Communications Inc. (DISCA $27) gained ground amid reports that the two companies have held merger talks. Viacom Inc. (VIAB $36) also moved higher as it has been reported to have held discussions to combine with SNI. None of the companies mentioned commented on the reports.

Housing construction activity rebounds

Housing starts (chart) for June rose 8.3% month-over-month (m/m) to an annual pace of 1,215,000 units, above the Bloomberg forecast of a 1,160,000 unit rate. May starts were upwardly revised to an annual pace of 1,122,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, gained 7.4% m/m in June to an annual rate of 1,254,000, after May's unrevised 1,168,000 rate, and north of the expected annual pace of 1,201,000 units. Starts snapped a string a three-straight monthly declines and permits rebounded from drops in the prior two months, as activity in single-family and multi-family structures both grew m/m.

As noted in the latest Schwab Market Perspective: Smooth Sailing for Stocks?, economic data has been mostly positive and indicative of an ongoing expansion—albeit a mature one. Investors may be hoping for more of a speed boat look to economic growth, but we believe that pontoon speed, while not exciting, is likely to be more beneficial to keeping the bull market going. Read more on the Markets & Economy page at www.schwab.com.

The MBA Mortgage Application Index rose 6.3% last week, following the previous week's 7.4% drop. The increase came as a 13.0% jump in the Refinance Index was met with a 1.1% rise for the Purchase Index. The average 30-year mortgage rate remained at 4.22%.

Treasuries were little changed, as the yields on the 2-year and 10-year notes ticked 1 basis point higher to 1.36% and 2.27%, respectively, while the 30-year bond rate was flat at 2.85%.

Bond yields and the U.S. dollar have shown some weakness as of late as inflation has remained soft and Fed Chair Janet Yellen offered a dovish semi-annual monetary policy testimony last week. Schwab's Chief Fixed Income Strategist Kathy Jones notes in her Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' in the second half of 2017, we expect 10-year Treasury yields to remain in a 2% to 2.5% range, consistent with the eight-year "lower for longer" theme in the bond market. Read more on the Fixed Income page at www.schwab.com, where Kathy also discusses, Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page. Follow Kathy on Twitter: @kathyjones.

The political front remains in focus in the wake of yesterday's Senate healthcare bill failure, adding credence to Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's Washington Midyear Update: 4 Key Issues for Investors to Watch, where he points out dysfunction, drama and ethical issues in the White House have combined with Republican infighting on Capitol Hill to bog down the policy agenda. There's growing concern among congressional Republicans that the much-anticipated policy changes will need to be significantly scaled back—or that they may not happen at all. Read more on the Insights & Ideas page at www.schwab.com.

Tomorrow's economic calendar will yield weekly initial jobless claims, with economists expecting a slight downtick to a level of 245,000 from the prior week's 247,000, as well as the Philly Fed Manufacturing Index, forecasted to decline to 23.7 for July from the 27.6 posted the month prior, while the Index of Leading Economic indicators (LEI) will round out the day, anticipated to have increased 0.4% for June following the 0.3% rise in May.

Europe higher ahead of monetary policy decision, Asia sees gains

European equities moved to the upside in late-day action, with the euro and British pound losing ground to the U.S. dollar, while bond yields in the region finished mixed. The markets eyed tomorrow's monetary policy decision by the European Central Bank along with earnings season on both sides of the pond, which continues to ramp up. Also, U.K. Brexit negotiations continued to move forward, and the markets digested heightened U.S. political uncertainty after yesterday's healthcare failure. For analysis of the political front see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished higher despite increased U.S. political uncertainty, with the markets digesting recent upbeat Chinese economic data and as earnings season ramped up, though monetary policy decisions from the Bank of Japan and European Central Bank are due out tomorrow. Japanese equities ticked higher, with the yen holding onto yesterday's advance, a rally in financials gave stocks in Australia a boost, while mainland Chinese securities and those listed in Hong Kong gained solid ground. For a look at the global markets, see Schwab's Jeffrey Kleintop's CFA, 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page at www.schwab.com. South Korean securities rose modestly to extend a record high run, while India's markets advanced, rebounding from yesterday's retreat from all-time highs. Amid this backdrop, check out 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.

In addition to the aforementioned monetary policy decision from the Bank of Japan and the European Central Bank, tomorrow's international economic calendar will be fairly busy and include trade data from Japan, employment figures from Australia, PPI from Germany, and retail sales from the U.K.

Markets Mixed to Finish the Week

Charles Schwab: On the Market

Posted: 6/16/2017 4:15 PM ET

Markets Mixed to Finish the Week

U.S. equities finished a choppy session and week mixed amid some disappointing economic data and continued pressure from technology stocks. Treasuries were higher following an economic calendar that showed housing starts and building permits surprisingly fell and a preliminary read on consumer sentiment cooled. Meanwhile, crude oil prices were modestly higher, as was gold and the U.S. dollar lost ground. In equity news, Amazon.com inked a deal to acquire Whole Foods Market for roughly $13.7 billion.

The Dow Jones Industrial Average (DJIA) rose 24 points (0.1%) to 21,384, the S&P 500 Index inched nearly a point higher to 2,433, while the Nasdaq Composite lost 14 points (0.2%) to 6,152. In very heavy volume due to quadruple-witching, the simultaneous expiration of the futures and options contracts for stocks and indexes, 2.2 billion shares were traded on the NYSE and 3.0 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.28 to $44.74 per barrel and wholesale gasoline was $0.01 higher at $1.45 per gallon. Elsewhere, the Bloomberg gold spot price increased $0.77 to $1,254.75 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 97.12. Markets were mixed for the week, as the DJIA advanced 0.5%, the S&P 500 Index ticked 0.1% higher, and the Nasdaq Composite fell 0.9%.

In M&A activity, Amazon.com Inc. (AMZN $989) inked a deal to acquire Whole Foods Market Inc. (WFM $43) for $42 per share in an all-cash transaction valued at approximately $13.7 billion. It was announced that WFM will continue to operate stores under the Whole Foods Market brand, John Mackey will remain as CEO and the headquarters will remain in Austin, TX. Shares of AMZN were higher, while WFM rallied nearly 30%.

After the closing bell on Thursday, Finisar Corp. (FNSR $28) announced Q4 GAAP earnings of $1.13 per share and non-GAAP earnings of $0.50, matching the FactSet consensus estimate of $0.50, while revenues for the quarter rose 12.1% year-over-year (y/y) to $357.5 million. The company announced that revenues for fiscal-year 2017 rose 14.7% from 2016 levels to a record of approximately $1.5 billion. FNSR traded nicely higher.

The Nasdaq continued its move downward with the tech sector again trading in the red, exacerbating the losses accumulated this week as the index lagged the Dow and S&P 500 due to the persistent pressure that left the benchmark lower for four of the last five days. As a spotlight remains on tech, Schwab's Director of Market and Sector Analysis Brad Sorensen, CFA, addresses the situation in his recent Schwab Sector Views: Technology—Too Far or Room to Run?. Brad informs us that the technology sector has been on a remarkable run. It was the best-performing sector over the past three- and 12-month periods. After a run like that, it makes sense that investors are asking if tech may have gone too far. Could a retrenchment be in store? Read the whole article on the Markets & Economy page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

Housing starts and building permits surprisingly miss expectations

Housing starts (chart) for May dropped 5.5% month-over-month (m/m) to an annual pace of 1,092,000 units, below the Bloomberg forecast of a 1,220,000 unit rate. April starts were downwardly revised to an annual pace of 1,156,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, decreased 4.9% m/m in May to an annual rate of 1,168,000, after April's downwardly revised 1,228,000 rate, and south of the expected annual pace of 1,249,000 units.

The preliminary University of Michigan Consumer Sentiment Index (chart) declined more than forecasted, dropping to 94.5 from the prior month's 97.1 level, and compared to expectations for it to dip to 97.0. The current economic conditions component unexpectedly declined m/m, while the expectations measure decreased to its lowest level since October. The 1-year inflation forecast remained at 2.6%, while the 5-10 year inflation outlook increased to 2.6% from 2.4%.

Treasuries were higher following the data, as the yield on the 2-year note decreased 4 basis points (bps) to 1.31%, while the yields on the 10-year note and the 30-year bond declined 1 bp at 2.15% and 2.78%, respectively. On Wednesday, the Fed raised its target range for the federal funds rate and Schwab's Chief Fixed Income Strategist, Kathy Jones addresses this latest decision in her recent article Fed Raises Rates, Sticks With Plans for One More Hike This Year. Read the whole piece to find out what Kathy found surprising as well as detailed analysis on the Fixed Income page at www.schwab.com and follow Kathy on Twitter: @kathyjones.

European equities traded nicely higher, Asia mixed following BoJ decision

European equities traded higher as the markets took the latest of a string of central bank decisions in stride, as the Bank of Japan announced no changes to its current monetary policy. New loan agreements were extended to Greece by its creditors, ending speculation over whether the country would be able to meet large bond payments coming due in July. The International Monetary Fund has also joined the bailout program with a standby agreement that will likely not allow for the dispersion of funds until next year when the eurozone details debt relief measures. The latest developments in the Brexit situation seem to detail a change in the U.K.'s strategy as it is reportedly meeting European demands that the initial stage of talks be focused on settling elements of the split prior to arranging any future trade relationships, with the negotiations expected to begin in Brussels on Monday, per Bloomberg. In economic news in the region, European car sales bounced back in the month of May, jumping 7.7% after falling 6.8% the month prior, eurozone consumer price inflation matched forecasts of a 1.4% rise and Italy's trade balance narrowed in April.

The euro and British pound moved higher versus the U.S. dollar. Bond yields in the region were mostly higher, though sovereign yields in Greece plummeted. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses the recent action in the global bond markets and what it may be signaling in his latest article, Are bonds signaling a major stock market peak? on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed following the declines in the U.S. yesterday and as the Bank of Japan (BoJ) concluded its two-day monetary policy meeting. Japanese equities traded higher with banks and electronic makers leading the advance as the yen lost ground versus its main counterparts following the BoJ's decision to keep its current monetary stance unchanged. Mainland Chinese stocks were lower, and markets in Hong Kong ticked slightly higher, the Hang Seng was lower on the week after registering gains for the previous five straight. Additionally, the People's Bank of China has injected approximately 160 billion yuan through open market operations and a net 410 billion yuan through reverse-repurchase agreements this week, per Bloomberg. Meanwhile, Australian securities gained modest ground, South Korean stocks finished flat and those traded in India ticked lower.

Schwab's Jeffrey Kelintop, CFA, informs us in his article The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over, a diversified asset allocation that includes emerging market stocks has felt the impact as they underperformed developed markets in recent years. Despite the risks, emerging market stocks may benefit portfolios in the years ahead if the trends in these underlying drivers continue to unfold. And for a more detailed picture of our current global economic landscape, see Jeff's latest video, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com.

Equities mixed for the week after tech troubles

U.S. equity markets closed out the week in mixed fashion with the Nasdaq underperforming its peers courtesy of extended pressure on the technology sector. A string of central bank decisions throughout the week created a leery landscape loaded with mostly lackluster economic reports. Of course, a few bright spots appeared in the form of some upbeat regional manufacturing activity and a decline in weekly jobless claims.

As noted in the latest Schwab Market Perspective: Goldilocks…or the Three Bears?, modest growth, low inflation and a cautious Fed are combining to make things "just right" for investors. But, as always, there are clouds on the horizon and pullbacks are possible at any time so it's important for investors to remain vigilant in keeping a diversified portfolio with appropriate risk exposure. Our experts point out three potential pitfalls, or bears, worth watching. To find out what they are, read the whole article on the Markets & Economy page at www.schwab.com.

Next week, the U.S. economic calendar will lighten up considerably, but will bring us more housing data with the releases of new and existing home sales. Manufacturing and business activity will also likely see discussion with the release of Markit's preliminary Manufacturing and Services PMIs.

International reports due out next week include: Australia—new vehicle sales, housing prices and the minutes from the Reserve Bank of Australia's June meeting. China—property prices and leading indicators. Japan—All Industry Activity Index, machine tool orders, house prices, trade balance and department store sales. Eurozone—construction output, current account, consumer confidence, preliminary Markit Manufacturing and Services PMIs, German import prices and PPI, French GDP and business confidence and Italian industrial orders. U.K.—house prices and public finances.