Markets Break Out of Midday Anxiety

Charles Schwab: On the Market

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

Markets Break Out of Midday Anxiety

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Markets Mixed

Charles Schwab: On the Market

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

Markets Mixed

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

European equities lack decisive direction, Asia finishes mostly lower

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

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

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

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

Financial Review

Get Out Now

Sinclair Noe — August 29, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: Android | RSS

DOW + 56 = 21,865
SPX + 2 = 2446
NAS + 18 = 6301
RUT + 2 = 1384
10 Y – .02 = 2.14%
OIL – .11 = 46.33
GOLD – .90 = 1309.60

Top Cryptocurrencies

	Name	Symbol	Market Cap	Vol.	Total Vol. %	Price USD	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	$75.55B	$2.47B	39.17%	$4,570.05	1	4.16%	11.44%
	Ethereum	ETH	$34.80B	$1.23B	19.50%	$368.92	0.0804136	6.04%	16.67%
	Bitcoin Cash	BCH	$9.19B	$378.75M	6.00%	$555.00	0.120972	-6.85%	-18.03%
	Ripple	XRP	$8.36B	$263.40M	4.18%	$0.22	0.00004749	-0.95%	-14.85%
	Litecoin	LTC	$3.31B	$289.75M	4.59%	$62.90	0.013705	0.71%	34.86%
	Dash	DASH	$2.71B	$47.44M	0.75%	$359.73	0.0783784	-0.03%	23.92%
	NEM	XEM	$2.55B	$7.86M	0.12%	$0.28	0.00006186	1.07%	14.68%
	IOTA	MIOTA	$2.27B	$28.66M	0.45%	$0.82	0.00017765	-5.96%	-4.43%
	Monero	XMR	$2.00B	$173.82M	2.76%	$133.00	0.0289786	-6.70%	48.45%
	NEO	NEO	$1.70B	$169.91M	2.69%	$34.06	0.00742472	-10.70%	-4.74%

A pair of 70-year-old reservoir dams that protect downtown Houston and a levee in a suburban subdivision began overflowing Tuesday, adding to the rising floodwaters from Harvey. The dams did not break, but they are overflowing, meaning the flooding is just getting worse.

Brazoria County authorities posted a message on Twitter – “GET OUT NOW!!!” (all caps – 3 exclamation points).

A weather station southeast of Houston reported 49.32 inches of rain as of Tuesday morning. Already 14 sites in Houston have recorded more than 40 inches of rain and 36 different locations have recorded more than 3 feet. Harvey now officially holds the US record for most total rainfall from a tropical system, and it hasn’t left the area yet.

Rivers around Houston crested last night and today, several areas are reporting water 25 feet above flood level. At least 14 people are reportedly dead in the Houston area, including a family of six who are thought to have drowned in a van and a police officer who drowned in his patrol car. Many folks have lost touch. Undoubtedly, the death count will rise.

The phase of immediate recovery, still unfolding in Houston, includes search-and-rescue and providing temporary shelters. The latest estimates are that more than 30,000 will need temporary shelter.

Immediately after a large-scale disaster, infrastructure known to engineers as “lifeline systems” – power, transit and communications – must be restored. In Houston, as many as 100,000 are without power, and all service was suspended on the local public transit system. Major roadways are underwater and will remain impassable for several weeks to several months.

Also among the near-term challenges are securing critical facilities and bringing them back online, including fire and police stations, hospitals, nursing homes and schools. Water and sewer systems and debris clearance are next on the list. Something as simple as trash collection has stopped for the past 5 days.

Early estimates suggest the financial damage has already run into tens of billions of dollars, and one forecaster has predicted the final bill could be as high as $100 billion. Trump is visiting Texas today and he said the cost of recovery from Harvey – the first natural disaster during his presidency – would be “very expensive” but pledged that “the federal government stands ready, willing and able to support that effort”.

Trump also made some impromptu remarks, saying “We love you, you are special, we are here to take care of you. It’s going well…What a crowd, what a turn out.”

So, the ripples from Harvey will hit the economy in several ways, including higher gas prices at the pump, higher commodity prices for building supplies – also look for construction labor to focus on the Houston area, meaning localized shortages, and higher insurance rates, and then consider the mortgage backed securities for residential and commercial, and the overall economic slowdown means the Federal Reserve will likely take a more dovish position on removing accommodation.

The markets started today’s trading in negative territory on news that North Korea had fired a missile that crossed over Japan. South Korea responds by having four F-15K jet fighters conduct bomb-dropping drills. Japan asks the United Nations Security Council to hold an emergency meeting. Kim Jong Un doesn’t seem to be backing down. This morning, Trump repeated the Washington cliché that “all options are on the table”, a warning that’s been issued time and again for more than a decade.

Kim, “smart cookie” that he is, has probably acquired enough evidence at this point to realize that the U.S. is unlikely to take military action to stop him as long as he has literal guns to the heads of 25 million people in Seoul. But if nothing explodes, Wall Street rolls merrily along.

Today the Dow Industrials opened down 134 points, then slowly and surely turned positive, marking a 200 point intraday swing from low to high. Many investors sought safe haven plays, pushing gold higher and pushing yields on ten-year Treasury notes to the lowest levels of the year. The bond market is certainly sending a clear signal that it expects the pace of Fed rate increases to slow dramatically.

Just two months ago, derivatives were showing that traders expected the target federal funds rate to rise to 2 percent over the next three years. Now, they see a rate of 1.6 percent, implying a little more than one boost from the current range of 1 percent to 1.25 percent.

It’s also notable that even though yields on benchmark 10-year Treasuries dropped to their lowest level of the year, touching 2.08 percent. About 75 percent of the respondents to JPMorgan’s widely followed weekly client survey say they are neutral on the bond market. That implies they anticipate no big changes in current conditions for the foreseeable future, which is a remarkable referendum on an economy that many expect to gather strength.

As the dollar declined to two-and-a-half-year lows, companies that do a lot of business outside the U.S. climbed. A weaker dollar boosts their sales and helps their profits when they are converted back into dollars. The dollar has weakened in part because a lot of economies in other regions are getting stronger, which boosts their currencies. The dollar is down almost 10 percent in 2017, at its lowest point in more than a year and the euro is at two-year highs.

Apple hit another record high today. The new iPhone launch is about 2 weeks away, maybe. While Apple has not confirmed a new iPhone will launch this year nor invited media to an event, it is expected to do something on September 12. Whatever happens, the tech rally isn’t dead yet.

Meanwhile, Apple and professional services company Accenture said they will team up to help businesses build better applications for iOS, the operating system that powers Apple’s iPhone and iPad.

The S&P/Case-Shiller 20-city index rose a seasonally adjusted 5.7% in the three-month period ending in June, compared with a year ago, the same rate of change as in May. The national index rose 5.8%, compared with a year ago, up from a 5.7% annual increase in May. Demand remains strong and inventories are tight. The Phoenix market for existing home sales is right in line with the national numbers. Phoenix prices were up 0.8% in the June period, and up 5.8% over the past 12 months.

The Conference Board’s consumer confidence index rose to 122.9 in August, up from a revised 120 in the prior month. The index hit a 16-year high of 124.9 in March. Consumers are feeling better given rising home prices, a healthy job market and stocks close to record highs. This bodes well for consumer spending in the third quarter. The present situation index, a measure of current conditions, jumped to a cycle high of 151.2 in August from 145.4.

The future expectations index rose marginally to 104 from 103. We feel good about things right now but we are not optimistic about the future. The gap between current conditions and future expectations is the widest since 2008. The growing divergence likely reflects the perception that the best days of the recovery are behind us, and that there is not much of a chance of further substantial improvement on the horizon. Still, both measures are elevated enough that consumers don’t appear concerned about an economic downturn.

Freeport–McMoRan announced that it was signing over 51% ownership interest in the Grasberg mine to the Indonesian government. Grasberg is one of the most valuable chunks of land in the world, the world’s largest gold mine and second-largest copper mine. The deal essentially rewrites an arrangement that began in 1972, when a Freeport predecessor began mining operations there under an agreement with a military dictatorship.

In exchange, the Indonesian government agreed to extend Freeport’s permit to export copper from the mine. That gives Freeport a measure of certainty as it makes plans to invest $20 billion to expand the mine and shift much of the work underground.

The Department of Justice is considering whether Uber violated laws involving the bribery of foreign officials. The DOJ is examining allegations that Uber may have violated the Foreign Corrupt Practices Act. The law makes it illegal for individuals and organizations to pay foreign government officials to obtain or retain business. It’s not clear exactly what incidents or countries the DOJ is looking at, or when the alleged violations may have occurred.

Airplane-equipment giant United Technologies is closing in on a more than $20 billion buyout of competitor Rockwell Collins.  Discussions are reportedly ongoing, but negotiations have focused on a deal price of less than $140 per share for Rockwell. The company was trading up about 2% to $130 per share late today morning, giving it a market cap of $21.7 billion.

Warren Buffett’s Berkshire Hathaway has become Bank of America’s largest shareholder by exercising its right to acquire 700 million shares at a steep discount, more than tripling an investment it made six years ago. Berkshire is now the largest shareholder in the second- and third-largest U.S. banks, with stakes of roughly 6.6 percent in Bank of America and 10 percent in Wells Fargo.

Berkshire exercised warrants to acquire its shares for roughly $7.14 each, well below their closing price of $23.58. To pay for the shares, Berkshire swapped $5 billion of Bank of America preferred stock it had bought in August 2011. Its new common shares are worth roughly $16.5 billion, giving Berkshire a roughly $11.5 billion profit.

Stocks Rebound from Morning Lows

Charles Schwab: On the Market

Posted: 8/29/2017 4:15 PM ET

Stocks Rebound from Morning Lows

After showing early discontent for North Korea's latest missile test over Japan, which rattled the global markets overnight, the U.S. equity markets were able to bounce back to finish out the day in the green. Treasury yields were lower and the U.S. dollar was nearly flat even after an upbeat Consumer Confidence report, as global monetary policy and U.S. political uncertainty and the impact of Hurricane Harvey continued to be an overhang. Crude oil prices were mixed and gold pared its recent rally.

The Dow Jones Industrial Average (DJIA) rose 57 points (0.3%) to 21,865, the S&P 500 Index added 2 points (0.1%) to 2,446, and the Nasdaq Composite gained 19 points (0.3%) to 6,302. In moderate volume, 680 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.13 lower to $46.44 per barrel and wholesale gasoline rose $0.03 at $1.60 per gallon. Elsewhere, the Bloomberg gold spot price lost $2.24 to $1,307.89 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 92.28.

Best Buy Co. Inc. (BBY $55) reported Q2 earnings-per-share (EPS) of $0.67, or $0.69 ex-items, versus the $0.63 FactSet estimate, as revenues rose 4.8% year-over-year (y/y) to $8.9 billion, above the projected $8.7 billion. Q2 same-store sales grew 5.4% y/y, topping the expected 2.1% increase. The company noted continued healthy consumer confidence and stronger demand for technology products. BBY issued Q3 guidance that easily exceeded estimates, while raising its full-year revenue outlook. However, shares—which have rallied sharply over the past year—fell, as the Street scrutinized the company's commentary on its conference call with analysts as it appeared to try to temper expectations of future performance after the blowout quarter.

Finish Line Inc. (FINL $9) tumbled after the athletic shoe and apparel retailer preannounced that its Q2 EPS, revenue and same-store sales are expected to be well below the Street's expectations. The company also slashed its full-year profit and same-store sales guidance. FINL said the marketplace for athletic footwear became much more promotional resulting in challenging sales and gross margin trends. Separately, the company announced that it has adopted a shareholder rights plan, intended to reduce the likelihood that any person or group would gain control of Finish Line through open market accumulation or coercive takeover tactics.

Acorda Therapeutics Inc. (ACOR $19) dropped decisively after the company received a Refusal to File (RTF) letter from the U.S. Food and Drug Administration (FDA) regarding its New Drug Application (NDA) for its Parkinson's disease treatment. The FDA said the NDA was not sufficiently complete to permit a substantive review. ACOR said it will seek immediate guidance to respond to the issues.

With volatility having the potential to pick up due to the plethora of global uncertainties, Schwab's Chief Investment Strategist Liz Ann Sonders offers her latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?, noting that both active and passive management styles have a home in investors' portfolios. Passive continues to outperform active, but we may have seen the inflection point and plunging correlations and wider sector dispersion both bode well for active styles. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Consumer Confidence improves to a five-month high

The Consumer Confidence Index (chart) improved to 122.9 in August from the downwardly revised 120.0 in July, and compared to the Bloomberg estimate of a 120.7 reading. This is the highest level since March as both sentiment toward the present situation and expectations of business conditions for the next six months rose. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—jumped to 18.1 from the 14.5 level posted in July.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.7% gain in home prices y/y in June, versus expectations of a 5.6% increase. Month-over-month (m/m), home prices were up 0.1% on a seasonally adjusted basis for June, matching forecasts.

Treasuries were higher, as the yields on the 2-year and the 10-year notes fell 3 basis points (bps) to 1.31% and 2.12%, respectively, while the 30-year bond rate declined 2 bps to 2.74%. Treasuries are finding demand and the U.S. Dollar Index continues to fall to a level not seen in over two years amid the flare-up in tensions toward North Korea after its latest missile test, which joins festering global monetary policy and U.S. political uncertainties, along with the continued damage being done in the aftermath of Hurricane Harvey.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, bond yields are low by historical standards and likely to rise, but we don’t see a bubble in the bond market. Slow growth, low inflation and strong investor demand for income are likely to limit any increase in yields. We are cautious. Valuations are high in some fixed income asset classes and we would caution against too much exposure to the riskier parts of the market. Read more on the Fixed Income page at www.schwab.com, and follow Kathy on Twitter: @kathyjones.

Tomorrow, the economic calendar will offer the second look (of three) at Q2 Gross Domestic Product, the broadest measure of economic output, with economists anticipating a slight upward revision to an annualized q/q rate of expansion of 2.7% from the 2.6% posted in the first release, while personal consumption is expected to be upwardly adjusted to an increase of 3.0% from the 2.8% reported previously, while the inflation gauges of the GDP Price Index and core PCE are forecasted to remain at their respective reading of 1.0% and 0.9%. As well, employment data is on tap ahead of Friday's key labor report in the form of the ADP Employment Change report, with the measure of private sector payrolls expected to show an increase of 185,000 jobs for August following the 178,000 registered in July. MBA Mortgage Applications will also be released.

Europe and Asia geopolitical concerns ramp up

The European equity markets finished broadly lower, with the euro extending its recent rally to a level versus the U.S. dollar that has not been seen since early 2015, while North Korea's latest missile test over Japan fostered a pullback in risk appetites. Amid this backdrop, Schwab's Liz Ann Sonders offers her latest article, Twist and Shout: United States Takes on North Korea … Implications for Stocks on the Markets & Economy page. The euro has rallied in the wake of Friday's speeches from Fed Chair Janet Yellen and European Central Bank President Mario Draghi, which failed to deliver any new clues to changes in monetary policy. The British pound was little changed versus the greenback and bond yields in the region traded lower. The U.K. markets returned to action following yesterday's holiday break and focus was also on the resumption of Brexit negotiations with the European Union. In economic news, German consumer confidence ticked higher unexpectedly for September and France posted a 1.7% y/y rise in Q2 GDP, a bit shy of the 1.8% gain that was expected, but an acceleration from the 1.1% growth posted in Q1.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA offers a look at a potential milestone for global profits in his latest article, Earnings may be about to do something they've never done before, on the Markets & Economy page at www.schwab.com and for a look at Brexit talks, see our article, Brexit Begins: What's Next for the U.K.? on the Insights & Ideas page. Follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch.

Stocks in Asia finished lower but recouped some losses late in the session. Lingering global monetary policy and U.S. political uncertainties, and the fallout from Hurricane Harvey in Texas, were met with a flare-up in risk aversion as tensions with North Korea ramped up again after the country conducted its latest missile test over Japan. For analysis of this backdrop, see Schwab's Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks on the International Investing page at www.schwab.com, as well as his video with Vice President of Trading and Derivatives, Randy Frederick, titledPolitical Risk: How Should Investors Respond? on the Insights & Ideas page. Follow Randy on Twitter: @randyafrederick. The yen rallied to weigh on Japanese equities, along with an unexpected decrease in the nation's household spending for July. Markets in Hong Kong, Australia, South Korea and India all traded lower as well. However, stocks in mainland China bucked the trend, finishing modestly higher.

Tomorrow's international economic calendar will present retail sales, trade data from Japan, CPI from Spain and Germany, confidence figures from the Eurozone, and PPI from Italy.

Financial Review

Close But No Cookies

Sinclair Noe — July 25, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

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DOW + 100 = 21,613
SPX + 7 = 2477 (record)
NAS + 1 = 6412 (record)
RUT + 12 = 1450 (record)
10 Y + .07 = 2.33%
OIL + .61 = 48.50
GOLD – 5.40 = 1250.60
BITCOIN – 1.70% = 2547.12 USD
ETHEREUM – 2.57% = 201.76

The S&P 500 index, the Nasdaq Composite and the Russell 2000 all closed at record highs. The Dow is close but no cookies.

It is earnings season and there were plenty of good earnings and a few bad. 3M marked its sharpest-ever drop on a dollar-basis, off $11.43, or down 5.4%, cutting about 80 points from the price-weighted Dow. 3M’s share slide came after disappointing earnings.

The Post-it Notes-and-Scotch tape maker’s share decline, however, was more than offset by a tandem of firm rallies in McDonald’s and Caterpillar which reported second-quarter results that outstripped Street estimates. A drop in Google parent, Alphabet, weighed on the Nasdaq Composite, but the Nasdaq still managed to eke out a record high.

Before we dig into earnings news, there was a lot going on today. The Senate voted on healthcare legislation, in a way. Senate Republicans narrowly agreed to open debate on a bill to end Obamacare, but efforts to repeal or repeal and replace the law still face significant hurdles. Senator John McCain, who was diagnosed this month with brain cancer and has been recovering from surgery at home in Arizona, made a dramatic return to the Capitol to cast a crucial vote in favor of proceeding.

McCain received a standing ovation as he entered the chamber. The Senate vote was deadlocked at 50-50 and Vice President Mike Pence cast the deciding vote. Despite the successful procedural vote, there is no obvious path for any of the GOP’s various proposals to pass out of the Senate in the coming days.

Republicans who voted yes to begin debate warned that they still planned to oppose final passage if the amended legislation was not to their liking. The Senate will now move to an amendment process, but if none of the ensuing proposals can get 50 Republican votes, the party will be stuck again. The Better Care Reconciliation Act has already drawn public opposition from at least four Republicans.

In a speech on the Senate floor, McCain criticized both the underlying proposal and the secretive, partisan process Majority leader Mitch McConnell used to write it. McCain said he would not vote for the bill as it is today. He said the proposal must include changes demanded by Arizona’s governor, Doug Ducey, to win his vote.

The Senate’s next step is to vote on a full repeal of Obamacare – which will probably fail without a proposed bill to replace it. Then it will try an amended version of the Better Care Reconciliation Act, the latest Senate proposal; this will also likely fail since it hasn’t yet been scored by the Congressional Budget Office and thus needs 60 votes to pass rather than just 51.

Then we might be looking at a skinny repeal – a more limited repeal that only gets rid of Obamacare’s insurance mandates and some of its taxes, without eliminating Obamacare’s expansion of Medicaid. However, eliminating the mandates would result in much, much higher premiums for everybody who doesn’t opt out.

Today’s vote means there will be various amendments offered and there will be votes on the amendments, until the Senate can agree on something that seems to be a complete piece of legislation and then there will be a vote on that, maybe by the end of the week, if there is enough support. That means the next few days are going to be a whirlwind.

President Trump says they’ll come up with something really, really wonderful. At this point I’m just hoping I can get coverage for confusion.

The Conference Board said its consumer confidence index rose to 121.1 this month from 117.3 in June. The confidence index is now at its second highest level in 16 years. A big reason is the creation of millions of jobs since 2010 that’s driven the unemployment rate down to as low as 4.3%. That’s the lowest level since the turn of the century.

The difference between those who say jobs are “plentiful” (34.1%) and those who say jobs are “hard to get” (18%) was 16.1 points. Based on that measure, the last time the labor market was just as good was in August 2001.

A “present” situation index that tracks how consumers view the economy now rose to 147.8. That’s the highest level since mid-2001. A future expectations index that tracks how consumers think the economy will perform six months from now increased to 103.3.

Sales of existing homes continued to show solid growth. The S&P/Case-Shiller 20-city index rose 5.7% in the three-month period ending in May compared to a year ago, down from 5.8% in the prior period. The broader national index rose 5.6% for the year in May, the same as in April. Phoenix was right in line – posting 0.6% growth in resale home prices in May, and 5.7% in the 12 months through May.

Meanwhile, oil prices continue to rally. Saudi Arabia said at a meeting in Russia that it would cut August exports to 6.6 million barrels a day—a million barrels less than a year earlier. Separately, Nigeria, which isn’t part of the production-cut agreement led by the Organization of the Petroleum Exporting Countries, also promised to limit its daily production to 1.8 million barrels.

Oil traders have taken these developments as bullish for prices, though many do point out that the Saudis normally lower exports at this time of year because of stronger domestic demand for oil, and Nigeria’s output would still have to rise from its current level of just over 1.6 million barrels a day before the West African nation would cap its output.

Meanwhile, Halliburton forecast a flat rig count in the US; that implies a potential slowdown in oil production. Anadarko Petroleum, cut its investment guidance by $300 million for the full year after posting a larger than expected second quarter loss.

Copper is back to its highest levels in 2 years, as base metals extended a rally in the past month brought on, in part, by economists having become more upbeat about China’s economy;  coupled with the fact that a very strong housing market is creating strong demand for the physical copper. Freeport-McMoRan shares jumped 14.7 percent.

It wasn’t a very good day in the bond market, where the benchmark 10-year Treasury note fell the most in a month. A couple of possible reasons: bond investors expect only modest economic growth and inflation that is stuck well below the Fed’s 2 percent target, and bond traders don’t expect the Fed to increase rates anytime soon – as in maybe December, maybe next year – certainly not tomorrow.

The Federal Open Market Committee, the FOMC, started its 2-day meeting today; tomorrow they will issue a statement that they are standing pat on rates for now. Anything else from the Fed would be a major shock. The Fed’s policy is one of “normalizing” interest rates with a real emphasis that it continues to err on the side of market ease – that is, it does not want to make a mistake of disrupting markets and causing a correction.

That is, it wants to see the stock market continue to rise, the policy it has been following for most of the current economic recovery. The Fed will likely indicate that it is getting closer to trimming its $4.5 trillion balance sheet and selling off Treasuries and mortgage backed securities, but the big unwinding won’t really start to kick in until sometime in 2018, so for now the rally continues.

In earnings news: the markets looked past a 3% drop in Alphabet, which reported after the close yesterday. Alphabet was hit with a $2.7 billion dollar fine from the Euro Union, but looking past that, the parent of Google is still reporting impressive revenue and profit growth.

3M disappointed on earnings and it was punished. That seems to be the theme. Misses are punished. Slightly better than expected earnings get no love, but there is still plenty of good to great earnings news to lift the market to new highs.

With more than one-fourth of the S&P 500 having reported results, earnings are now expected to have climbed 9.1 percent in the second quarter, up from a projection of an 8-percent rise at the start of the month.

McDonald’s posted its biggest jump in global sales at established restaurants in five years, helped by stronger traffic worldwide. McDonald’s has also focused on value for U.S. customers with discounts on soft drinks and offering custom burgers.

And it seems to be working. Global same-restaurant sales climbed 6.6 percent in the second quarter, and sales at U.S. restaurants open at least 13 months rose 3.9 percent. Net income rose to $1.40 billion, beating estimates. Revenue was down slightly but still beat estimates. McDonald’s shares were up 4% and hit an all-time high and were the top gainer on the Dow Jones Industrial Average today.

Caterpillar shares jumped almost 6%, hitting a 5-year high. Earnings and revenue beat estimates and Cat raised its guidance.

AT&T’s quarterly profit topped estimates. Shares rose 2.5 percent. AT&T is locked in battle Verizon and Sprint and T-Mobile for customers in a market where most people already have cell phones. AT&T, which is in the process of buying Time Warner for $85 billion, has sought to compete by bundling mobile service with entertainment.

AT&T lost 89,000 U.S. phone subscribers who pay a monthly bill – that was better than expected.

Stocks Advance Ahead of Fed Policy Stance

Charles Schwab: On the Market

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

Stocks Advance Ahead of Fed Policy Stance

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

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

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

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

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

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

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

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

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

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

Consumer Confidence unexpectedly jumps

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

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

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

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

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

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

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

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

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

Europe rebounds on data, Asia dips ahead of Fed meeting

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

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

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

Bears Dominate on Tuesday

Bears Dominate on Tuesday

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Markets Lower in Return to Action

Charles Schwab: On the Market

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

Markets Lower in Return to Action

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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