Markets Notch Solid Weekly Gains

Charles Schwab: On the Market

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

Markets Notch Solid Weekly Gains

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Stocks Rally as Bulls Come Charging Back

Charles Schwab: On the Market

Posted: 11/16/2017 4:15 PM EST

Stocks Rally as Bulls Come Charging Back

 

U.S. stocks rallied during Thursday's trading session, bouncing back from a two-day slide as European shares also snapped a string of losses. Favorable earnings reports from Dow members Wal-Mart and Cisco Systems, along with upbeat industrial production and homebuilder sentiment reads aided in boosting equity gains. Treasury yields rebounded and the U.S. dollar ticked slightly higher, along with gold, while crude oil prices were lower. 

The Dow Jones Industrial Average (DJIA) advanced 187 points (0.8%) to 23,458, the S&P 500 Index jumped 21 points (0.8%) at 2,586, and the Nasdaq Composite rallied 87 points (1.3%) to 6,793. In moderate volume, 776 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.19 to $55.14 per barrel and wholesale gasoline was $0.03 lower at $1.71 per gallon. Elsewhere, the Bloomberg gold spot price ticked $0.59 higher to $1,278.66 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—advanced 0.1% to 93.93.

Dow member Wal-Mart Stores Inc. (WMT $100) reported Q3 earnings-per-share (EPS) of $0.58, or $1.00 ex-items, versus the $0.97 FactSet estimate, as revenues rose 4.2% year-over-year (y/y) to $123.2 billion, above the projected $121.1 billion. Q3 same-store sales at Walmart grew 2.7% y/y, topping the expected 1.9% gain. The company raised its Q4 EPS outlook and issued same-store sales guidance that was slightly above expectations. Shares traded sharply higher.

Dow component Cisco Systems Inc. (CSCO $36) posted fiscal Q1 earnings of $0.48 per share, or $0.61 ex-items, with revenues decreasing 2.0% y/y to $12.1 billion, roughly in line with expectations. CSCO issued Q2 guidance that exceeded forecasts. Shares rallied.

Best Buy Co. Inc. (BBY $55) announced Q3 EPS of $0.78, matching projections, as revenues rose 4.2% y/y to $9.3 billion, below the expected $9.4 billion. Q3 same-store sales increased 4.4% y/y, below the forecasted 4.9%. BBY issued Q4 earnings guidance that was below estimates, while its sales outlook was mostly in line with expectations. The company raised its full-year guidance. Shares fell.

Homebuilder sentiment and industrial production top forecasts

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month unexpectedly improved to an eight-month high of 70, versus the Bloomberg forecast calling for a dip to 67 from October's unrevised 68 level. The index sits decisively above the 50 mark, the point of separation for good versus poor conditions. The NAHB said builder confidence is close to a post-recession high—a strong indicator that the housing market continues to grow steadily—but its members still face supply-side constraints, such as lot and labor shortages and ongoing building material price increases.

Tomorrow, the economic calendar will bring a look at housing construction activity in the form of housing starts and building permits, with starts projected to rise 5.6% month-over-month (m/m) to an annual rate of 1,190,000 units and permits expected to increase 2.0% to a 1,250,000 unit rate. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest, Schwab Sector Views: 'Tis the Season…Almost, 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 0.9% month-over-month (m/m) in October, above estimates of a 0.5% gain, after September's upwardly revised 0.4% increase. Manufacturing and utilities production both grew solidly, while mining output dropped. Capacity utilization rose to 77.0% from the prior month's upwardly revised 76.4% rate, and compared to forecasts of 76.3%. Capacity utilization is 2.9 percentage points below its long-run average. Industrial production has gained 2.9% over the past 12 months, and Schwab's Chief Investment Strategist Liz Ann Sonders notes that capex may be in for an even sharper recovery in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle. 

Weekly initial jobless claims (chart) surprisingly rose by 10,000 to 249,000 last week, versus the Bloomberg forecast of a decrease to 235,000, with the prior week’s figure being unrevised at 239,000. The four-week moving average grew by 6,500 to 237,750, while continuing claims fell 44,000 to 1,860,000, south of estimates of 1,900,000.

The Philly Fed Manufacturing Index (chart) in November declined more than expected to 22.7 from 27.9 in October, but a reading above zero indicates expansion. This compared to estimates of a decline to 24.6.

The Import Price Index (chart) rose 0.2% m/m for October, below projections of a 0.4% gain, following September's upwardly revised 0.8% rise. Compared to last year, prices were up by 2.5%, in line with forecasts and compared to September's unrevised 2.7% increase.

Treasuries finished lower, with the yield on the 2-year note gaining 3 basis points (bps) to 1.71%, the yield on the 10-year note increasing 5 bps to 2.37%, and the 30-year bond rate advancing 6 bps to 2.82%.

Treasury yields and the U.S. dollar rebounded somewhat from recent pressure that came from a flare-up in global risk aversion on the heels of the world stock market rally as of late. Festering U.S. tax reform uncertainty—today the House passed its bill to overhaul the tax code, which has some significant differences from the Senate's version—has fostered the change in conviction. This has countered a relatively positive economic landscape, while recent soft Chinese economic data and market skittishness as the yield curve has flattened have exacerbated sentiment. 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.

Tomorrow's domestic docket will also yield the November Kansas City Fed Manufacturing Index, forecasted to dip to 21 from 23 in October, though a reading above 0 indicates growth in activity.

Europe recovers on data, Asia rebounds from recent slide

European equity markets traded higher, rebounding from the recent string of losses that has come from an apparent change in global sentiment to de-risking, while disappointing Chinese economic data as of late has weighed on commodity-related stocks. Some upbeat earnings data in the region teamed up with a rebound in eurozone new car registrations to support the recovery in the markets, while the energy sector remained under pressure as crude oil prices extended a recent selloff. Eurozone consumer price inflation rose in line with forecasts. The euro declined versus the U.S. dollar and the British pound rose following a better-than-expected U.K. retail sales report, while bond yields in the region finished mixed. Gains for Italian stocks and Europe's financial sector were limited by a drop in shares of Italy's banks. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, momentum favors the bulls for the foreseeable future, but elevated valuations and growing investor complacency pose risks that could lead to a long-awaited pullback and/or a pickup in volatility from today’s extremely low base.

Asian stocks mostly rebounded from the recent pullback, with the yen giving back some of its gains seen as of late as the global markets have stumbled amid a flare-up in risk aversion, while overnight stabilization in crude oil prices helped the energy sector recover somewhat. Japanese equities rallied, while Australian securities were also higher, with a softer-than-expected read on the nation's employment growth limiting gains. Mainland Chinese shares dipped and stocks trading in Hong Kong advanced with the recent soft economic data being met with some upbeat earnings results. Indian equities gained ground and South Korean shares advanced. Schwab's Chief Global Investment Strategist 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.

International economic releases for tomorrow will be light, with new vehicle sales from Australia and the current account and construction output from the Eurozone.

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.

Stocks Stretch Record Runs Despite Data

Charles Schwab: On the Market

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

Stocks Stretch Record Runs Despite Data

U.S. stocks added to strong weekly gains after shrugging off softer-than-expected retail sales and industrial production reports and showing some resiliency in the face of a terror attack in London and another North Korean missile test. Quadruple witching likely added to the day's volatility and volume. Treasury yields modestly extended their weekly advance and the U.S. dollar pared its weekly gain as the euro and British pound extended recent gains. Crude oil was little changed and gold was lower.

The Dow Jones Industrial Average (DJIA) increased 65 points (0.3%) to 22,268, the S&P 500 Index gained 5 points (0.2%) to 2,500, and the Nasdaq Composite increased 19 points (0.3%) to 6,448. In heavy volume, 2.1 billion shares were traded on the NYSE and 2.7 billion shares changed hands on the Nasdaq. WTI crude oil was flat at $49.89 per barrel and wholesale gasoline moved $0.03 higher to $1.66 per gallon. Elsewhere, the Bloomberg gold spot price declined $8.67 to $1,321.07 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 91.87. Markets were nicely higher for the week, as the DJIA rallied 2.2%, the S&P 500 Index jumped 1.6% and the Nasdaq Composite gained 1.4%.

Oracle Corp. (ORCL $49) reported fiscal Q1 earnings-per-share (EPS) of $0.52, or $0.62 ex-items, versus the $0.60 FactSet estimate, as revenues grew 7.0% year-over-year (y/y) to $9.2 billion, above the projected $9.0 billion. The company noted that the sustained "hyper-growth" of its cloud business continued to drive increased revenue and earnings. However, the company's Q2 guidance missed expectations. Shares fell solidly.

Retail sales miss to kick off heavy day of data

Advance retail sales (chart) for August declined 0.2% month-over-month (m/m), compared to the Bloomberg forecast of a 0.1% gain and compared to July's downwardly revised 0.3% gain. Last month's sales ex-autos grew by 0.2% m/m, versus expectations of a 0.5% gain, and following the negatively revised 0.4% increase seen in the previous month. Sales ex-autos and gas were down 0.1% m/m, compared to estimates of a 0.3% rise, and versus July's unrevised 0.5% rise. The retail sales control group, a figure used to help calculate GDP, decreased 0.2%, compared to the projected 0.2% rise, and the prior month's figure was unrevised at a 0.6% rise.

Auto activity fell solidly, along with clothing and online sales, while electronics and appliances, and building materials were also lower. Sales of furniture, and at restaurants, food and beverage stores and gas stations all moved higher. Commenting on the potential impact of Hurricanes Harvey and Irma on the data, the U.S. Census Bureau said overall response was within the range of the past 12 months even though collection in the impacted areas lagged behind recent months.

The preliminary University of Michigan Consumer Sentiment Index (chart) dipped to 95.3 in September from the prior month's 96.8 level, and compared to expectations for it to decline to 95.0. The current economic conditions component improved m/m, while the expectations measure dropped. The 1-year inflation forecast ticked higher to 2.7% from August's 2.6% rate, while the 5-10 year inflation outlook rose to 2.6% from 2.5%.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his article, Consumer Discretionary Sector Rating: Marketperform, the status of the all-important U.S. consumer looks to us to be solid and hasn't shown signs of diminishing to any great degree at this point, but the retail sector faces challenges that warrant our rating. We view the retail sector is "right sizing," which could ultimately help the group down the road. Read more on the Markets & Economy page and follow us on Twitter: @schwabresearch.

Industrial production (chart) fell 0.9% m/m in August—after six-straight monthly gains—versus estimates calling for a 0.1% gain, and compared to July's upwardly revised 0.4% increase. Manufacturing and mining production both declined, while utilities output fell sharply. Capacity utilization declined to 76.1% from July's upwardly revised 76.9% rate, and compared to forecasts of a 76.7% rate. Capacity utilization is 3.8 percentage points below its long-run average. The Federal Reserve noted that Hurricane Harvey is estimated to have reduced the rate of change in total output by roughly ¾ percentage point.

The Empire Manufacturing Index showed output from the New York region remained solidly at a level depicting expansion (a reading above zero) for September. The index dipped to 24.4 from August's unrevised 25.2 level, with forecasts calling for a reading of 18.0.

Business inventories (chart) rose 0.2% m/m in July, matching forecasts, and versus June's unrevised 0.5% increase.

The impact of the hurricanes on incoming data will likely cloud the economic picture in coming months, but as Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", we expect to see a dip in economic activity in the short-term, followed by a boost associated with the recovery/rebuilding efforts, and 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 finished lower, with the yields on the 2-year and 10-year notes rising 2 basis points (bps) to 1.38% and 2.20%, respectively, while the 30-year bond rate was flat at 2.77%.

Bond yields are modestly extending this week's sharp rebound from a recent drop back to November lows that came despite upbeat economic data. Yesterday's acceleration in consumer price inflation appeared to bring the Fed back into focus, with expectations of a December rate hike nudging higher, per data compiled by Bloomberg. 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?, with Kathy noting that the disconnect between the fixed income markets and the economy is about inflation. Read more on the Insights & Ideas page and follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

The U.S. dollar pared its weekly gain, amid flared-up North Korean tensions and another terrorist attack in London. Also, the British pound extended a jump that came from boosted U.K. rate hike expectations. 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.

Europe lower as pound and euro rally

European equity markets finished lower, with the euro trading higher versus the U.S. dollar, while the British pound extended its surge to levels not seen in over a year. The pound has jumped on increased rate hike expectations in the wake of yesterday's Bank of England (BoE) monetary policy decision and bolstered hawkish commentary today from a BoE member that had been labeled as dovish. Another missile test over Japan by North Korea and another reported terrorist attack in London likely hampered sentiment, but the reaction appeared limited. Bond yields moved higher, led by the U.K., amid the heightened BoE expectations. In economic news, the eurozone trade surplus narrowed more than expected in July and the region's wage growth posted the fastest pace in two years.

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 mixed after overcoming a brief bout of risk aversion as North Korea conducted another missile test over Japan. The yen reversed to the downside after an early boost on the North Korean missile launch news, helping Japanese equities gain ground, while South Korean stocks also advanced to display some resiliency. Shares trading in India and Hong Kong ticked higher. Mainland Chinese stocks declined on the heels of yesterday's disappointing retail sales and industrial production reports, which continued to weigh on materials issues, leading to a move to the downside for Australian securities. However, after the closing bell, China reported stronger-than-expected lending statistics for August. Amid the backdrop of the resiliency in the global markets, check out Schwab's Jeffrey Kleintop's, CFA, article, What are fund flows telling us about trends and risks in the global stock market?, as well as his commentary, An important benefit to global investors is back after 20 years, on the Markets & Economy page at www.schwab.com.

Stocks back on the weekly winning track

U.S. stocks got back to their weekly winning ways, rallying to fresh record highs amid reversals in the currency and bond markets, which contributed to last week's snapped winning streak. Early estimates suggesting Hurricane Irma's economic cost impact could be less than feared underpinned sentiment. Texas refining activity recovered from Hurricane Harvey's blow to boost crude oil prices to the best weekly performance since late July, per Bloomberg. The energy sector led the equity market's weekly jump. Tech stocks posted a respectable gain, bolstered by a rally leading up to Dow member Apple Inc's(AAPL $160) new iPhone unveiling. Consumer price inflation showed signs of accelerating against the favorable economic backdrop—small business optimism unexpectedly improved and the JOLTS' job openings surprisingly posted a record high—to appear to bring the Fed back in focus. The U.S. dollar rebounded from levels not seen in well over two years—though it pared gains on the pound's surge—and Treasury yields jumped off of multi-month lows to boost the financial sector.

This sets the stage for next week's economic calendar that will bring the Federal Open Market Committee's (FOMC) monetary policy decision, which is not expected to deliver a rate hike but could bring the commencement of the slow winding down of the Fed's behemoth $4.5 trillion balance sheet. Housing data will also be in focus, with the releases of the NAHB Housing Market Index, housing starts and building permits and existing home sales. Markit's September preliminary business activity reports and the Leading Index will round out the docket.

As noted in the latest Schwab Market Perspective: A Cat and Mouse Fall, U.S. stocks remain near all-time highs, but we expect some continued churn as fall is shaping up to bring a series of political, geopolitical and monetary policy conflicts which could contribute to greater volatility. Ample global liquidity, healthy economic growth combined with a solid earnings outlook should ultimately allow the bull market to continue. Global economic growth is looking good and is helping to fuel investor optimism over further gains in international stock markets. Read more on the Markets & Economy page at www.schwab.com.

International reports due out next week that deserve a mention include: China—property prices. Japan—trade balance and the Bank of Japan monetary policy decision. Eurozone—Consumer Price Index and Markit's September business activity reports, as well as German investor confidence. U.K.—retail sales.

Stocks Close Near Lows Amid Flow of DC Woes

Charles Schwab: On the Market

Posted: 8/17/2017 4:15 PM ET

Stocks Close Near Lows Amid Flow of DC Woes

U.S. stocks closed sharply lower with tech listings under scrutiny and leading the decline after results from Dow member Cisco Systems disappointed on its profit margin outlook. The pressure on equities developed early and accelerated toward the end of the trading session as the dysfunction in DC continues and monetary policy uncertainty remains. Treasuries, gold and crude oil prices were higher and the U.S. dollar ticked to the upside after paring its initial advance. In other economic developments, reads on weekly jobless claims, manufacturing and Leading Indicators were upbeat, but had seemingly little impact.

The Dow Jones Industrial Average (DJIA) fell 274 points (1.2%) to 21,750, the S&P 500 Index dropped 38 points (1.5%) to 2,430, and the Nasdaq Composite tumbled 123 points (1.9%) to 6,222. In moderate volume, 739 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.31 to $47.09 per barrel and wholesale gasoline was $0.03 higher at $1.59 per gallon. Elsewhere, the Bloomberg gold spot price gained $5.66 to $1,288.77 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.67.

Dow member Wal-Mart Stores Inc. (WMT $80) reported Q2 earnings-per-share (EPS) of $0.96, or $1.08 ex-items, compared to the $1.07 FactSet estimate, as revenues grew 2.1% year-over-year (y/y) to $123.4 billion, above the forecasted $122.8 billion. Q2 U.S. same-store sales rose 1.8% y/y, in line with expectations. The company highlighted increased traffic at store levels and on-line. WMT issued Q3 EPS and same-store sales guidance with midpoints slightly below estimates, while raising the low end of its full-year profit outlook. Shares were under pressure.

Dow component Cisco Systems Inc. (CSCO $31) announced fiscal Q4 EPS of $0.48, or $0.61 ex-items, compared to the projected $0.61, as revenues declined 4.0% y/y to $12.1 billion, roughly in line with forecasts. The company noted that it made progress transitioning its business to more software and recurring revenue. CSCO issued Q1 earnings and revenue guidance that matched estimates, while its profit margin outlook missed expectations. Shares traded lower.

L brands Inc. (LB $38) posted Q2 earnings of $0.48 per share, versus the $0.45 estimate, on previously reported revenues of $2.8 billion. The retailer said its Q2 same-store sales decline of 8.0% y/y was below its expectations. The company said the exit of swim and apparel categories had a negative impact on total company and Victoria's Secret same-store sales. LB issued Q3 EPS guidance that missed forecasts and it lowered its sales outlook, while lowering its full-year profit projection. Shares closed lower.

Jobless claims decline, Leading Indicators continue to climb

Weekly initial jobless claims (chart) declined by 12,000 to 232,000 last week, below the Bloomberg forecast of 240,000, with the prior week’s figure being unrevised at 244,000. The four-week moving average dipped by 500 to 240,500, while continuing claims decreased 3,000 to 1,953,000, south of estimates of 1,955,000.

The Conference Board's Index of Leading Economic Indicators (LEI) (chart) for July rose 0.3% month-over-month (m/m), matching projections, and compared to last month's unadjusted 0.6% increase. This was the eleventh-straight monthly gain for the index, bolstered by ISM new orders, the yield curve, and consumer expectations, which more than offset the negative impact of building permits.

Industrial production (chart) was up 0.2% m/m in July, below estimates calling for a 0.3% gain, and compared to June's unrevised 0.4% increase. Manufacturing production dipped as output in the auto sector fell substantially and excluding the sector, manufacturing activity expanded. Mining and utilities production rose solidly. Capacity utilization remained at June's upwardly revised 76.7% rate, in line with forecasts. Capacity utilization is 3.2 percentage points below its long-run average.

The Philly Fed Manufacturing Index (chart) in August dipped to 18.9 from 19.5 in July, though a reading above zero indicates expansionary activity, compared to estimates of a decline to 18.0.

Treasuries ticked higher, with the yields on the 2-year note and the 30-year bond dipping 3 basis point (bps) to 1.30% and 2.78%, respectively, while the yield on the 10-year note declined 4 bps to 2.19%. Treasury yields and the U.S. dollar have been choppy as of late as some upbeat economic data has countered persistent subdued inflation reports, and yesterday's Fed meeting minutes showed the Central Bank is grappling with the divergence between the tightening labor market and low inflation. Also, the markets appeared to showing a dovish takeaway from the European Central Bank's July meeting minutes, while global sentiment continues to recover as concerns about the heightened tensions between North Korea and the U.S. recede.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Twist and Shout: United States Takes on North Korea … Implications for Stocks the S&P 500 was hit with a sharp near-1.5% reversal last Thursday, followed by a relief rally. We don't believe significant military escalation is the likely outcome of the battle of wills between President Trump and North Korea’s Kim Jong Un. But it is a year ending in "7" and there are other forces at work which could keep stocks in a choppy pattern for the next couple of months. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Tomorrow, the lone release from the U.S. economic calendar will be the preliminary University of Michigan Consumer Sentiment Index for August, expected to have ticked higher to a reading of 94.0 from July's final read of 93.4.

Europe lower on monetary policy uncertainty, Asia mixed

European equities traded to the downside, as the markets grappled with monetary policy uncertainty, with yesterday's Fed meeting minutes revealing division regarding the divergence between the strong labor market and low inflation. Also, today's look at the July European Central Bank (ECB) meeting showed policymakers were concerned about the overheating of the euro, fostering uncertainty regarding the central bank's timing of the removal of stimulus measures. This comes on the heels of yesterday's reports that ECB President Mario Draghi will not introduce a new policy message at next week's key Fed symposium in Jackson Hole, Wyoming. The economic calendar delivered a larger-than-expected eurozone trade surplus and stronger-than-forecasted U.K. retail sales. The euro declined and the British pound dipped versus the U.S. dollar, while bond yields in the region were lower.

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.

Stocks in Asia finished mixed following some relatively upbeat data in the region, while the markets grappled with monetary policy uncertainty as yesterday's Fed minutes showed the Central Bank remains divided on the strong labor market and low inflation. Also, the exacerbated political dysfunction in the U.S. garnered attention, though concerns about the tensions between North Korea and the U.S. continued to fade.

Japanese equities dipped as the yen gained ground following a larger-than-expected trade surplus in the nation and as the U.S. dollar lost ground. Australian securities also slipped, even as the nation's employment growth topped expectations. Shares in mainland China finished higher, while those traded in Hong Kong declined. Indian stocks ticked higher and South Korean equities advanced. Markets in South Korea continued to trade near all-time highs despite the recently flared-up geopolitical tensions in the region, and Schwab's Jeffrey Kleintop, CFA, offers his articles, Missiles and Markets: An investor guide to geopolitical risks and The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page at www.schwab.com.

The international economic docket for tomorrow will be light, with reports to include PPI from Germany, the current account from both Italy and the Eurozone, as well as construction output from the latter.

Stocks Extend Weekly Advance Despite Disappointing Data

Charles Schwab: On the Market

Posted: 7/14/2017 4:15 PM ET

Stocks Extend Weekly Advance Despite Disappointing Data

U.S. stocks added to a solid weekly advance, with technology issues leading the ascent amid some eased Fed rate hike expectations following softer-than-expected reads on retail sales and consumer sentiment and as inflation remains subdued following this week's dovish testimony by Fed Chair Yellen. An increase in Treasuries coupled with some negative reactions to mostly upbeat banking earnings reports weighed on financials. The U.S. dollar was lower, while gold and crude oil prices were higher.

The Dow Jones Industrial Average (DJIA) gained 85 points (0.4%) to 21,638, the S&P 500 Index advanced 11 points (0.5%) to 2,459, and the Nasdaq Composite increased 38 points (0.6%) to 6,312. In light to moderate volume, 674 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.46 to $46.54 per barrel and wholesale gasoline was $0.03 higher at $1.56 per gallon. Elsewhere, the Bloomberg gold spot price gained $11.02 to $1,228.60 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 95.14. Markets gained solid ground for the week, as the DJIA increased 1.0%, S&P 500 Index advanced 1.4% and the Nasdaq Composite surged 2.6%.

Dow member JPMorgan Chase & Co. (JPM $92) reported Q2 earnings-per-share (EPS) of $1.82, above the FactSet estimate of $1.59, as revenues rose 4.5% year-over-year (y/y) to $25.5 billion, compared to the expected $25.0 billion. JPM noted a stable-to-improving global economic backdrop and a U.S. consumer that remains healthy, while saying loans and deposits continue to grow strongly but market trading revenue was down amid lower volatility and client activity. The company's net interest margin came in a bit shy of forecasts due to higher funding costs, and the company lowered its guidance for net interest income. Shares finished lower.

Citigroup Inc. (C $67) posted Q2 EPS of $1.28, topping the projected $1.21, as revenues increased 2.0% y/y to $17.9 billion, above the forecasted $17.4 billion. The company said it saw continued momentum in its businesses, with loan and revenue growth across both sides of the house. Trading revenues topped forecasts and net interest income was roughly in line with forecasts. However, shares were lower amid analyst caution regarding the outlook for net interest income for the industry.

Wells Fargo & Co. (WFC $55) achieved Q2 profits of $1.07 per share, exceeding the projected $1.01, as revenues were roughly flat y/y to $22.2 billion, versus the estimated $22.5 billion. The company noted continued modest economic growth, increased net interest income and continued improvement in credit results. However, loans were down quarter-over-quarter and its core fees missed expectations. WFC traded lower.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers a look at the financial sector as they unofficially kick off Q2 earnings season in his latest Schwab Sector Views: Christmas in July! (Status of the Consumer), on the Markets & Economy page at www.schwab.com and be sure to follow us on Twitter: @schwabresearch.

Retail sales and consumer price inflation miss, along with consumer sentiment

Advance retail sales (chart) for June declined 0.2% month-over-month (m/m), compared to the Bloomberg forecast of a 0.1% gain and compared to May's favorably revised 0.1% decline. Last month's sales ex-autos declined by 0.2% m/m, versus expectations of a 0.2% gain, and following the unrevised 0.3% decrease seen in the previous month. Sales ex-autos and gas were down 0.1% m/m, compared to estimates of a 0.4% rise, and versus May's unrevised flat reading. The retail sales control group, a figure used to help calculate GDP, dipped 0.1%, compared to the projected 0.3% rise, and the prior month's figure was unrevised at a flat reading. Sales declined at restaurants, gasoline stations, as well as at grocery and department stores, while online and building materials sales were bright spots.

The Consumer Price Index (CPI) (chart) was flat m/m in June, versus estimates calling for a 0.1% gain, while May's 0.1% dip was unrevised. The core rate, which strips out food and energy, ticked 0.1% higher m/m, compared to expectations of a 0.2% increase and versus May's unrevised 0.1% rise. Y/Y, prices were 1.6% higher for the headline rate, below forecasts of a 1.7% rise, while the core rate was up 1.7%, matching projections. May y/y figures showed an unrevised 1.9% rise and an unadjusted 1.7% increase for the headline and core rates respectively.

Industrial production (chart) was up 0.4% m/m in June, above estimates calling for a 0.3% gain, and compared to May's upwardly revised 0.1% increase. This was the fifth-straight monthly advance as manufacturing production ticked higher and mining output rose solidly, while growth in utilities was flat. Capacity utilization increased to 76.6%, compared to May's downwardly revised 76.4%, and below forecasts of 76.8%. Capacity utilization is 3.3 percentage points below its long-run average.

The preliminary University of Michigan Consumer Sentiment Index (chart) fell to the lowest level since October 2016, dropping to 93.1 in July from the prior month's 95.1 level, and compared to expectations for it to dip to 95.0. The current economic conditions component improved modestly m/m, while the expectations measure fell. The 1-year inflation forecast rose to 2.7% from 2.6%, while the 5-10 year inflation outlook also ticked higher to 2.6% from 2.5%.

Business inventories (chart) increased 0.3% m/m in May, in line with forecasts, and versus April's unrevised 0.2% decrease.

Treasuries gained ground on the data, notably the softer-than-expected inflation and retail sales data, which added to this week's dovish monetary policy testimony from Fed Chairwoman Janet Yellen to temper expectations of the pace of rate hikes this year and beyond. As noted in the latest Schwab Market Perspective: Smooth Sailing for Stocks?, a mixed economic picture, combined with the recent retreat in some inflation measures, has raised the level of uncertainty regarding future Federal Reserve actions. The environment for U.S. and global stocks continues to be in decent shape, but some risks are elevated and the possibility of a pullback exists. A notable potential driver of bouts of volatility could be U.S. and global central bank policy as they sail toward monetary policy normalization. Read more on the Markets & Economy page at www.schwab.com.

The yield on the 2-year note dipped 1 basis point (bp) to 1.35%, the yield on the 10-year note dropped 2 bps to 2.32% and the 30-year bond rate was nearly unchanged at 2.91%.

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 continues to garner attention, with the revised Senate healthcare bill being dissected to see if it has the potential to pass a vote and Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend discusses in his latest article, Washington Midyear Update: 4 Key Issues for Investors to Watch, 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.

Europe turns mixed on data and global central bank volatility, Asia mostly higher

European equities finished mixed, with strength in oil & gas issues and basic materials being offset by gains in the euro and British pound versus the U.S. dollar, which found pressure following some disappointing U.S. retail sales and inflation data. The currencies gained ground on eased Fed rate hike expectations that followed the U.S. data and this week's dovish testimony from Fed Chair Yellen. Also, reports fostered speculation that the European Central Bank may be moving closer to scaling back its stimulus measures later this year. Financials saw some pressure as global bond yields moved lower and banking sector earnings reports in the U.S. were scrutinized. In economic news in the region, growth in EU new car registrations slowed, while the eurozone trade surplus came in below forecasts. For more on the markets, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, Where's the Next Bubble?, on the Markets & Economy page at www.schwab.com, as well as his 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mostly higher, extending global market gains that have been fostered by the recent increase in crude oil prices and dovish monetary policy testimony from U.S. Fed Chair Janet Yellen, while appearing cautious ahead of key earnings reports out of the U.S. banking sector. Japanese equities ticked higher, with the yen giving back recent gains, while mainland Chinese shares also nudged to the upside. Stocks trading in Hong Kong and South Korea advanced, while Indian equities dipped and all three of these constituents have indexes that are at or near record highs and for a look at emerging markets, see Schwab's Jeffrey Kleintop's, CFA, article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the Markets & Economy page at www.schwab.com. Australian securities rose.

Stocks climb as Fed Chief strikes dovish tone

U.S. stocks participated in a global rally that was fueled by eased concerns about the pace of Fed rate hikes as the Central Bank moves toward the start of reducing its bloated balance sheet. Economic data continued to paint a mixed picture with U.S. industrial production extending a winning streak, while retail sales and consumer sentiment missed. However, the bulk of the shift in Fed sentiment came as wholesale and consumer price inflation remained subdued and as Fed Chair Janet Yellen struck a dovish tone in her semi-annual Congressional monetary policy testimony. Yellen said the fed funds rate remains somewhat below its neutral level and "because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance." Technology stocks returned to rally mode after their brief hiccup. Energy and materials issues also helped lead the way as commodity prices added to a recent rebound on another dose of upbeat Chinese economic data and as the U.S. dollar drifted lower. Crude oil prices also rallied, bolstered by some bullish oil inventory data. However, financials were noticeably lower as Treasury yields, especially on the short-to-mid end of the curve, fell, and some key banking sector quarterly results to unofficially kick off earnings season garnered a mixed reaction.

Next week, as earnings take center stage, the U.S. economic calendar will bring updates on areas of the economy that have been bright spots. Housing will dominate the docket, courtesy of the releases of the NAHB Housing Market Index, as well as housing starts and building permits. Moreover, we will get the first look at manufacturing activity—which has suggested growth has accelerated recently—for July, in the form of regional reports the Empire Manufacturing Index and Philly Fed Manufacturing Index. The week will culminate with the Index of Leading Economic Indicators, which is projected to continue to indicate further economic expansion.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her commentary, 2017 Mid-year US Equity Outlook: Rattle and Hum, stocks have had a remarkable—and recently drama-free—run over the past eight-plus years. We are likely in a more mature phase, which could be marked by bouts of volatility and/or pullbacks—possible driven by Fed policy. But liquidity remains ample, financial conditions loose and earnings growth healthy; which have underpinned this bull for much of its history. Those are the key things on which to keep an eye as we head into the year's second half. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Next week's international economic front will likely garner heightened attention with key release including: Australia—employment change. China—retail sales, industrial production, property prices and Q2 GDP. India—trade balance. Japan—trade balance and the Bank of Japan's monetary policy decision. Eurozone—consumer price inflation and the European Central Bank monetary policy decision. U.K.—inflation statistics and retail sales.

Stocks Lower Amid Mixed Economic News

Charles Schwab: On the Market

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

Stocks Lower Amid Mixed Economic News

While off the worst levels of the day, U.S. equities finished lower after the domestic economic calendar offered a host of mixed reports. Homebuilder sentiment cooled, industrial production and capacity utilization came in just shy of estimates, while weekly jobless claims fell and regional manufacturing activity continued to be upbeat. Treasuries were lower, as was gold, while the U.S. dollar was nearly flat.

The Dow Jones Industrial Average (DJIA) fell 15 points (0.1%) to 21,356, the S&P 500 Index declined 5 points (0.2%) to 2,433, and the Nasdaq Composite lost 29 points (0.5%) to 6,166. In moderate volume, 881 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.27 to $44.46 per barrel and wholesale gasoline was $0.01 higher at $1.44 per gallon. Elsewhere, the Bloomberg gold spot price decreased $6.53 to $1,254.33 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 97.47.

Kroger Co. (KR $25) announced Q1 net earnings of $0.32 per diluted share or $0.58 ex-items compared to the FactSet expectation of $0.58 per share, while revenues increased 4.9% year-over-year (y/y) to $36.3 billion, topping forecasts. The company also lowered its 2017 GAAP net earnings guidance. Shares of KR were down over 15%.

Product solutions company Jabil Inc. (JBL $29) reported Q3 earnings results that showed a loss of $0.14 per share or a positive $0.31 ex-items, compared to the $0.29 FactSet consensus estimate, while revenues rose 4.1% to approximately $4.5 billion, roughly matching expectations. JBL traded lower.

The Nasdaq was again decisively to the downside with the recent pressure on technology issues persisting. 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.

Heavy dose of economic data points

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month declined to 67 from May's downwardly revised level of 69 and while it may be at a four-month low in June, remains near the highest levels in approximately 12 years. The 50 mark is the point of separation for good versus poor conditions. The NAHB said that although still quite strong, the figures might be hinting at an easing of optimism in an industry where more workers are desperately needed to break ground on new projects. And businesses might also be less confident since post-election buoyancy has given way to legislative gridlock.

Industrial production (chart) was unchanged month-over-month (m/m) in May, falling shy of estimates calling for a 0.2% increase, and following April's upwardly revised 1.1% rise, which was the strongest surge in nearly seven years. Manufacturing production declined, while mining and utilities output ticked higher. Capacity utilization ticked lower to 76.6%, compared to April's unrevised 76.7%, and shy of forecasts expecting a tick higher to 76.8%.

Weekly initial jobless claims (chart) declined by 8,000 to 237,000 last week, below the Bloomberg forecast of 241,000, with the prior week’s figure unrevised at 245,000. The four-week moving average decreased by 1,000 to 243,000, while continuing claims increased by 18,000 to 1,935,000, north of estimates of 1,920,000.

The Empire Manufacturing Index showed output from the New York region jumped further-than-expected into expansion territory (a reading above zero) for June. The index leaped to 19.8 from May's unrevised -1.0 level, with forecasts calling for a reading of 5.0.

The Philly Fed Manufacturing Index (chart) in June declined to 27.6 after rising to 38.8 in May, though a reading above zero indicates expansionary activity, and compared to estimates of a decline to 24.9.

The Import Price Index (chart) declined 0.3% month-over-month (m/m) for May, below the Bloomberg projection of a 0.1% decline, and compared to April's downwardly revised 0.2% increase. Compared to last year, prices were up by 2.1%, short of forecasts calling for 2.9% and following April's downwardly revised 3.6% increase.

Treasuries were lower, as the yields on the 2-year note and the 30-year bond increased 2 bps to 1.35% and 2.79%, respectively, while the yield on the 10-year note gained 3 bps to 2.16%. Yesterday, the U.S. Federal Reserve raised the target range for the federal funds rate by 25 bps. Schwab's Chief Fixed Income Strategist, Kathy Jones addresses the latest Fed decision in her recent article Fed Raises Rates, Sticks With Plans for One More Hike This Year. Read the whole article 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.

More housing data is in store on tomorrow’s economic calendar, with housing starts and building permits scheduled for release, with starts forecasted to have increased 0.4% m/m during May to an annual rate of 1,223,000 units and permits to have risen 0.2% m/m to an annual rate of 1,249,000 units, followed by the preliminary University of Michigan Consumer Sentiment Index, expected to remain at the prior month’s 97.1 level.

European and Asian shares saw pressure

European equities traded broadly lower with retailers and commodity producers leading the decent. The decline developed on the heels of yesterday's Fed decision and in the wake of the Bank of England (BoE) keeping its monetary policy unchanged as expected, though the number of officials at the BoE calling for a rate hike has now increased to three versus the five officials who voted to stay the current policy path. In other central bank action, the Swiss National Bank kept both its target range and the rate charged on sight deposits unchanged, as expected. In economic developments in the region, consumer price inflation reports out of France and Italy were mostly in line with projections, retail sales figures in the U.K. were well short of expectations and the trade balance for the Eurozone was narrower than anticipated.

The euro moved lower versus the U.S. dollar, while the British pound erased an early decline that ensued following the BoE decision and traded higher against the greenback. Bond yields in the region were mostly higher. 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 traded mostly lower with energy issues leading the decline on the heels of yesterday's Fed decision to increase the target range for the federal funds rate by 25 basis points and as crude oil prices continued to slide. Mainland Chinese stocks ticked to the upside, as the People's Bank of China (PBoC) appears to be holding off on any immediate increases to borrowing costs. The PBoC raised money-market costs shortly following its U.S. counterpart tightening in March. However, securities in Hong Kong fell sharply, with property firms under heavy pressure after the city's monetary authority raised borrowing costs shortly following the U.S. Fed's monetary policy decision yesterday. Japanese equities slipped, with exporters underperforming as the yen advanced versus the U.S. dollar and held gains, while traders in the island nation await Friday's decision from the Bank of Japan when it concludes its latest monetary policy meeting. Markets in Australia also fell, despite a report showing the country's jobless rate declined to its lowest level in over four years with the strong jobs report also sending the Australian dollar higher versus all of its major peers. Finally, stocks in India declined.

For a more detailed picture of our current global economic landscape, see the latest video from Schwab's Jeffrey Kleintop, CFA, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com.

In addition to the conclusion of the aforementioned Bank of Japan monetary policy meeting, tomorrow’s international economic calendar will hold Italy’s trade balance and CPI from the Eurozone.