Dow Continues Rally, Techs Sock Nasdaq

Charles Schwab: On the Market

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

Dow Continues Rally, Techs Sock Nasdaq

 

The Dow added to its recent surge, with economic optimism getting a boost from another strong read on domestic business spending, while the Senate's passage of its tax reform bill over the weekend added to the enthusiasm. However, sustained weakness in the tech sector continued to weigh on the Nasdaq. Treasury yields and the U.S. dollar were higher ahead of a busy week of economic reports that will culminate with Friday's nonfarm payroll report, while crude oil and gold were lower.

The Dow Jones Industrial Average (DJIA) rose 58 points (0.2%) to 24,290, the S&P 500 Index lost 3 points (0.1%) to 2,639, and the Nasdaq Composite tumbled 72 points (1.1%) to 6,775. In heavy volume, 987 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.89 to $57.47 per barrel and wholesale gasoline declined $0.05 to $1.69 per gallon. Elsewhere, the Bloomberg gold spot price decreased $4.42 to $1,276.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 93.23.

CVS Health Corp. (CVS $72) announced an agreement to acquire Aetna Inc. (AET $179) for $207 per share in cash and stock, valued at about $69 billion, excluding debt. Under the terms of the deal, Aetna stockholders will receive $145 in cash and 0.8378 CVS Health shares for each share owned. Shares of both companies were lower.

Italy's Prysmian SpA (PRYMY $16) announced an agreement to acquire Kentucky-based General Cable Corp. (BGC $30) for $30 per share in cash, for a total value of about $3 billion, including the assumption of debt. Shares of BGC rallied over 35%.

Dollar, rates and stocks gain ground on tax reform and continued robust business spending

Treasuries finished lower, as the yield on the 2-year note rose 3 basis points (bps) to 1.80%, while the yields on the 10-year note and the 30-year bond advanced 1 bp to 2.37% and 2.76%, respectively.
Treasury yields and the U.S. dollar moved to the upside and the stock markets added to last week's strong gains, bolstered by the Senate's passing of its tax reform bill over the weekend. Now the reconciliation process looms as the House and Senate have to find some key areas of compromise before a tax reform bill can go to President Donald Trump's desk for a signature.

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, negotiations between the House and Senate will likely be extremely challenging, given the differences between the two approaches. For investors, we still think it is too early to take any drastic action. If and when a tax bill passes, there will be time to review the details and amend your tax and financial plans accordingly. Regardless of the outcome of the tax bill, it’s always a good idea to meet with your tax and financial advisors before the end of the year to review your current financial situation and discuss your plans for the coming year.

Factory orders (chart) dipped 0.1% month-over-month (m/m) in October, better than the Bloomberg expectation of a 0.4% decline, and versus September's upwardly revised 1.7% gain. Stripping out the volatile transportation component, orders rose 0.8% and September's 0.7% gain was revised to a 1.1% increase. October durable goods orders—preliminarily reported last week to have dropped 1.2%—were favorably adjusted to a 0.8% decrease, and compared to forecasts of a revised 1.0% decline. Also, nondefense capital goods orders excluding aircraft, a gauge of business spending, were revised higher to a 0.3% decrease from the initially-reported 0.5% decline.

The highlight of the report was the upward revision to the gauge of business spending, which has risen for four-straight months, with an average month gain of 1.3% for the period. This adds credence to Schwab's Chief Investment Strategist Liz Ann Sonders' view that an even sharper recovery could be in the cards for U.S. business capital spending in 2018, while tax reform—if we get it—would be an additional kicker in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle.

Today's release kicked off a busy economic calendar that will continue tomorrow with a look at the all-important services sector in the form of the ISM non-Manufacturing Index, with economists forecasting a slight decline in the reading for November to a level of 59.0 from October's 60.1, as well as Markit's final Services PMI Index for November, expected to post a reading of 54.7, in line with its preliminary report, but below the 55.3 registered the month prior, while the trade balance will round out the day's docket, with the deficit expected to widen to $47.1 billion during October from September's $43.5 billion.

Europe higher on U.S. tax reform, Brexit negotiations in focus, Asia mixed

The European equity markets rallied, with financials a noticeable gainer along with industrials. Bond yields in the region were mostly higher, while the euro declined versus the U.S. dollar on the weekend's tax reform bill passage by the Senate and upbeat U.S. business spending data, which bolstered global economic optimism. The British pound reversed to the downside on the greenback after the meeting between Prime Minister Theresa May and European Commission President Juncker ended without reaching a deal on an Irish border issue. The meeting was highly expected to produce a deal and likely help Brexit talks end a deadlock. With volatility showing some signs of life last week, in his article, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, tackles 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.

Stocks in Asia finished mixed as the markets grapple with the weekend's tax reform bill passing in the U.S. Senate, along with flared-up uncertainty regarding what possible ramifications former U.S. NSA advisor Mike Flynn's guilty plea for lying to the FBI may have for the Trump administration. This news on Friday caused the U.S. stock markets to dip but they held onto solid weekly gains. Stocks in Japan, mainland China and Australia all lost ground, but securities traded in South Korea, Hong Kong and India saw modest gains. Although showing some signs of choppiness, the global stock markets remain nicely higher for the year that has been bolstered by the broadest economic growth in a decade. This is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, in his article, 5 Reasons Investors Should Give Thanks.

Services PMI readings from across the globe will dominate tomorrow's international economic calendar, with other reports of note to include retail sales from the U.K. and the Eurozone, new home sales from Australia, and industrial production from Spain. In central bank action, the Reserve Bank of Australia will meet, with no change to its benchmark interest rate expected.

Stocks Mixed in Subdued Action Ahead of Thanksgiving

Charles Schwab: On the Market

Posted: 11/22/2017 4:15 PM EST

Stocks Mixed in Subdued Action Ahead of Thanksgiving 

 

U.S. stocks were mostly lower, though the Nasdaq was able to tick higher with volume subdued ahead of the Thanksgiving break. In equity action, a flood of mixed earnings reports were highlighted by Deere & Co, while in economic news, a drop in durable goods orders was met with upward revisions to the prior month's solid advance. Treasury yields and the U.S. dollar were lower. Gold and crude oil prices gained ground.

The Dow Jones Industrial Average (DJIA) declined 65 points (0.3%) to 23,526, the S&P 500 Index shed nearly 2 points (0.1%) to 2,597, and the Nasdaq Composite increased 5 points (0.1%) to 6,867. In light volume, 661 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.19 to $58.02 per barrel and wholesale gasoline was unchanged at $1.77 per gallon. Elsewhere, the Bloomberg gold spot price increased $11.02 to $1,291.63 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.7% to 93.28.

Deere & Co. (DE $145) reported Q4 earnings-per-share (EPS) of $1.57, versus the $1.47 FactSet estimate, as equipment sales rose 25.6% year-over-year (y/y) to $7.1 billion, topping the expected $6.9 billion. The company noted improving markets for farm and construction equipment. DE issued earnings guidance for next year that exceeded the Street's forecasts. Shares traded nicely higher.

Hewlett Packard Enterprise Co. (HPE $13) posted Q4 profits of $0.23 per share, or $0.29 ex-items, compared to the projected $0.28, as revenues grew 5.0% y/y to $7.7 billion, north of the estimated $7.3 billion. HPE issued Q1 EPS guidance that missed forecasts. The company announced that Antonio Neri will succeed Meg Whitman, who will step down as Chief Executive Officer, effective February 1, 2018. Shares were solidly lower.

HP Inc. (HPQ $21) announced Q4 EPS of $0.39, or $0.44 ex-items, versus the expected $0.44, with revenues rising 11.0% y/y to $13.9 billion, above the estimated $13.4 billion. The company issued Q1 profit guidance that had a midpoint just shy of projections, while its full-year earnings outlook had a midpoint that was north of expectations. Shares lost ground.

Salesforce.com Inc. (CRM $107) reported fiscal Q3 profits of $0.07 per share, or $0.39 ex-items, compared to the expected $0.37, as revenues increased 25.0% y/y to $2.7 billion, roughly in line with forecasts. The company issued Q4 EPS and billings guidance that was below expectations, overshadowing its revenue outlook that was slightly above estimates and its raised full-year guidance. Shares finished lower.

Durable goods orders mixed, Fed releases its recent meeting minutes

October preliminary durable goods orders (chart) were down 1.2% month-over-month (m/m), compared to the Bloomberg estimate of a 0.3% gain, and September's 2.0% rise was revised to a 2.2% increase. Ex-transportation, orders were 0.4% higher m/m, versus forecasts of a 0.5% gain and compared to September's favorably-revised 1.1% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, fell 0.5%, versus projections of a 0.5% increase, and following the upwardly-revised 2.1% rise posted in the month prior.

Weekly initial jobless claims (chart) dropped by 13,000 to 239,000 last week, versus forecasts of a decrease to 240,000, with the prior week’s figure being upwardly revised to 252,000. The four-week moving average rose by 1,250 to 239,750, while continuing claims increased 36,000 to 1,904,000, north of estimates of 1,880,000.

The final November University of Michigan Consumer Sentiment Index (chart) was revised higher to 98.5, above forecasts of 98.0, from the preliminary level of 97.8. The index is below October's level of 100.7. Compared to last month, the expectations and current conditions components of the survey both dipped. The 1-year inflation outlook ticked higher to 2.5% from October's 2.4% rate, and the 5-10 year forecast dipped to 2.4% from 2.5%.

The MBA Mortgage Application Index ticked 0.1% higher last week, following the prior week's 3.1% gain. The slight increase came as a 4.8% drop in the Refinance Index was met by a 5.3% jump in the Purchase Index. The average 30-year mortgage rate rose 2 basis points (bps) to 4.20%.

At 2:00 p.m. ET, the Federal Reserve released the minutes from its monetary policy meeting that ended on November 1st. The information contained in the report showed that labor market conditions generally continued to strengthen and that real GDP expanded at a solid pace in Q3 despite disruptions from Hurricanes Harvey and Irma. Also, several participants indicated that an increase in the target range for the federal funds rate in the near term "would depend importantly on whether the upcoming economic data boosted their confidence that inflation was headed toward the Committee's objective." And participants "agreed that they would continue to monitor closely and assess incoming data before making any further adjustment to the target range for the federal funds rate."

As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, the selection of the new head of the Fed is seen as representing continuity as the Central Bank continues its policy normalization and given the strong economic backdrop, along with signs of wage growth picking up, we believe the Fed will hike rates for the third time this year next month.

Treasuries were higher with the yield on the 2-year note falling 5 bps to 1.73% and the yield on the 10-year note dropping 4 bps to 2.32%, while the 30-year bond rate was 2 bps lower at 2.74%.
Treasury yields and the U.S. dollar found some pressure as the markets grappled with Fed Chief Yellen's comments, as well as U.S. tax reform uncertainty ahead of next week's expected Senate vote on its plan that differs significantly from the House's that passed last week. This is being countered by Q3 earnings season that is winding down and mostly above expectations against a positive global economic backdrop.

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 a number of tricky steps must still be overcome. Schwab's Chief Investment Strategist Liz Ann Sonders points out in her newest article, Green Grass and High Tides: Earnings Stellar But Not Without Risk, both earnings and revenues were strong; and importantly, the "beat rates" were well above average. The outlook for 2018 is bright, but we are on watch for an expectations bar that gets set too high.

Please note: All U.S. markets will be closed tomorrow in observance of the Thanksgiving Day holiday, and will close early on Friday.

The U.S. economic calendar will round out the week on Friday with the release of the preliminary Markit Manufacturing and Services PMI Indexes for November, with economists forecasting readings of 55.0 and 55.3, respectively, with manufacturing ticking higher and services unchanged from the final October prints.

Europe gives up early advance as euro gains ground, Asia advances 

European equity markets relinquished early gains and finished mostly lower, with the euro moving higher versus the U.S. dollar, ahead of the release of the Fed minutes and following comments about inflation from Chairwoman Yellen. The British pound also rose compared to the greenback after overcoming a brief drop as the markets digested the nation's budget release, which included a lowered economic growth forecast. Bond yields in the region finished mixed. Energy issues managed to eke out gains as crude oil prices recovered somewhat from a recent bout of weakness as the markets awaited next week's OPEC meeting. Stocks in Germany led to the downside with focus still on the flared-up political uncertainty as nation may face a snap election following the recently failed coalition talks, which joined continued scrutiny of the possibility for U.S. tax reform. Schwab's Chief Global Investment Strategist 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.

Stocks in Asia finished higher on the heels of the back-to-back gains registered in the U.S. yesterday, with global economic optimism appearing to overshadow flared-up political concerns in Germany and lingering tax reform uncertainty in the U.S. Japanese equities rose ahead of tomorrow's holiday, even as the yen regained some of yesterday's drop. Stocks trading in mainland China and Hong Kong finished higher. South Korean and Australian securities traded to the upside, while Indian equities also advanced. Schwab's Jeffrey Kleintop, CFA, offers a look at the global market rally seen this year that has been fostered by the broadest economic growth in a decade and is expected to continue in 2018 in his latest article, 5 Reasons Investors Should Give Thanks.

Tomorrow, the international economic docket will yield Markit Manufacturing and Services PMI reads for Germany, France and the Eurozone, while Germany will also release Q3 GDP and the U.K. will report Q3 GDP and total business investment. On Friday, reports will include leading indicators from Japan, the Ifo Business Climate Survey from Germany and industrial orders from Italy.

Stocks Scale Back from Recent Highs

Charles Schwab: On the Market

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

Stocks Scale Back from Recent Highs

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

North Korea Tensions Rattle Markets

Charles Schwab: On the Market

Posted: 9/5/2017 4:15 PM ET

North Korea Tensions Rattle Markets

U.S. equities began the holiday-shortened week solidly lower, as risk appetites were severely limited following this weekend's claim that North Korea detonated a hydrogen bomb and reports that it may be preparing another ICBM launch. Treasury yields fell sharply on the uneasiness and the U.S. dollar lost ground, while gold rose and crude oil prices were mixed.

The Dow Jones Industrial Average (DJIA) tumbled 234 points (1.1%) to 21,753, the S&P 500 Index lost 19 points (0.8%) to 2,457, and the Nasdaq Composite declined 60 points (0.9%) to 6,376 In moderately heavy volume, 909 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.37 to $48.66 per barrel and wholesale gasoline lost $0.05 to $1.70 per gallon. Elsewhere, the Bloomberg gold spot price was $8.10 higher at $1,341.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.5% to 92.21.

Dow member United Technologies Corp. (UTX $111) announced an agreement to acquire Rockwell Collins Inc. (COL $131) for $140.00 per share in cash and UTX stock, for a total equity value of about $23.0 billion. Under the terms of the deal, each COL shareowner will receive $93.33 per share in cash and $46.67 in shares of UTX. United Technologies said the deal is expected to be accretive to its earnings after the first full year following closing. UTX finished lower and COL ticked higher as the stock had jumped recently on speculation of the deal.

Insmed Inc. (INSM $27) surged nearly 120% after the company announced positive results from a late-stage trial of its treatment for certain lung diseases and that it intends to seek accelerated approval and request a priority review.

Factory orders mixed to kick off the week

Factory orders (chart) fell 3.3% month-over-month (m/m) in July, matching the Bloomberg expectation, while June's figure was positively revised to a 3.2% increase. However, stripping out the volatile transportation component, orders rose 0.5% and June's 0.2% decline was upwardly revised to a 0.1% gain. July durable goods orders—preliminarily reported two weeks ago—were unrevised at a 6.8% drop versus forecasts of an adjustment to a 2.9% decrease. Nondefense aircraft and parts fell sharply after June's surge, while electrical equipment, along with computers and electronic products, rose solidly.

Today's report kicked off the holiday shortened week that will bring a flood of key reports for the markets to digest, including the July trade balance, August ISM non-Manufacturing and Markit Services PMI Indexes, the Fed's Beige Book, and final Q2 productivity and labor costs. Also, the international calendar will bring a plethora of trade reports, and monetary policy decision from the European Central Bank (ECB).

Today's report kicked off the shortened week's economic calendar that will culminate with tomorrow's releases of MBA mortgage applications, the trade balance and the Fed's Beige Book, a summary of business activity across the nation used as a tool to prepare for this month's two-day monetary policy meeting ending on the 20th. However, the headlining data could be the August ISM non-Manufacturing and final Markit's Services PMI Indexes, on the heels of today's upbeat services sector reports in China and eurozone. ISM's report is projected to improve to 55.5 from 53.9 in July and Markit's release is forecasted to be unrevised at the preliminary level of 56.9, and up from July's 54.7 figure. Readings above 50 for both reports denote expansion.

As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, limited risk of an economic recession keeps us in the bull market camp, notwithstanding near-term risks of fiscal and monetary uncertainties. Read more on the Markets & Economy page at www.schwab.com.

Treasuries rallied, as the yield on the 2-year note decreased 6 basis points to 1.29%, the yield on the 10-year note fell 10 bps to 2.07%, and the 30-year bond rate was 9 bps lower at 2.69%. Risk aversion flared back up in the wake of claims that North Korea detonated a hydrogen bomb over the weekend, weighing on Treasury yields and the U.S. dollar. This continues to accompany lingering global monetary policy, trade and U.S. political uncertainties.

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, we think bond yields are likely to rise from current levels as the economy continues to improve and the Federal Reserve tightens policy, but we don’t see a bubble in the market. We suggest managing the duration in your bond portfolio to mitigate the risk of rising rates. We also suggest managing your exposure to the higher risk parts of the fixed income markets where yields are low and the risk premium offered versus Treasuries is low. Read more on the Fixed Income page at www.schwab.com, and for analysis of investing styles, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?, on the Markets & Economy page. Follow Kathy and Liz Ann on Twitter: @kathyjones and @lizannsonders.

For our latest analysis of the political front, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's newest article, Congress Returns to Face Debt Ceiling, Government Shutdown Deadlines, on the Insights & Ideas page at www.schwab.com.

Europe declines, Asia mixed amid festering geopolitical concerns 

European equity markets finished mostly lower, with the euro and British pound gaining ground on the U.S. dollar, while the global markets remained skittish as tensions with North Korea continued to fester. Amid this backdrop, Schwab's Chief Investment Strategist Liz Ann Sonders offers her article, Twist and Shout: United States Takes on North Korea … Implications for Stocks on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders. Bond yields in the region lost ground, even as China posted favorable services sector data and a report from Markit showed eurozone manufacturing and services sectors continued to expand for August. This comes ahead of this week's monetary policy decision by the ECB. However, a separate report showed eurozone retail sales declined in July. Bucking the trend, Swiss markets ticked higher as today's subdued consumer price inflation data followed yesterday's disappointing Q2 GDP report to appear to ease concerns about the Swiss National Bank normalizing monetary policy. Also, German markets moved higher with automakers getting a boost from positive comments about diesel technology from Chancellor Merkel and yesterday's solid gain in August car registrations, while the aforementioned Markit report showed the nation's business activity grew more than expected.

For a look at global stock investing, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mixed as sentiment remained cautious after this weekend's claim that North Korea detonated a hydrogen bomb, while the markets digested a report that showed growth in China's key services sector activity accelerated. Japanese equities fell, with the yen extending gains, while those traded in South Korea gave up early gains and dipped, with media reports suggesting North Korea is preparing another intercontinental ballistic missile (ICBM) test. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com, as well as his 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks. Markets in Australia ticked higher, with the Reserve Bank of Australia holding its monetary policy stance steady as expected. Stocks in mainland China and Hong Kong were little changed after the Caixin PMI Services Index increased to 52.7 for August, from 51.5 in July, with a reading above 50 denoting expansion. Finally, Indian equities advanced modestly.

For tomorrow, the international economic calendar will offer GDP from Australia, manufacturing orders from Germany, and retail sales from Italy.

Stocks Mixed Amid Persistent Uncertainty

Charles Schwab: On the Market

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

Stocks Mixed Amid Persistent Uncertainty

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

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

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

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

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

Early look at July manufacturing demand show core orders grew

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

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

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

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

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

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

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

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

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

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

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

Stocks avoid third straight weekly decline

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

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

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

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

Stocks Mixed Amid Rise in Tech, Fall in Oil

Charles Schwab: On the Market

Posted: 7/5/2017 4:15 PM ET

Stocks Mixed Amid Rise in Tech, Fall in Oil

U.S. equities finished mixed in their return to action from yesterday's Independence Day holiday, as strength in the tech sector was tempered by a decline in energy stocks amid a tumble in crude oil prices on flared-up OPEC production cut uncertainty. Treasuries were modestly higher following a factory orders report and the release of the Fed's June meeting minutes, while appearing to shrug off yesterday's first test of an intercontinental ballistic missile (ICBM) by North Korea. Gold was higher, while the U.S. dollar was nearly unchanged.

The Dow Jones Industrial Average (DJIA) lost 1 point to 21,478, the S&P 500 Index gained 5 points (0.2%) to 2,434, while the Nasdaq Composite increased 41 points (0.7%) to 6,151. In moderate volume, 885 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil dropped by $1.94 to $45.13 per barrel and wholesale gasoline lost $0.03 to $1.50 per gallon. Elsewhere, the Bloomberg gold spot price gained $3.14 to $1,226.56 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 96.24.

Vantiv Inc. (VNTV $60) announced a tentative agreement to acquire U.K.-based Worldpay Group PLC. ((WPYGY $15) for about $10.0 billion in cash and stock. The companies said they are still negotiating the final terms of the deal. VNTV traded lower, while WPYGY rallied in U.S. trading.

O'Reilly Automotive Inc. (ORLY $179) tumbled over 18% after warning that its Q2 same-store sales rose at a pace that was below its previous forecast, noting that after exiting Q1 and entering April on an improved sales trend, it faced a more challenging sales environment than it expected for the remainder of the quarter. The auto parts chain said it saw continued headwinds from a second consecutive mild winter and overall weak consumer demand.

Tesla Inc. (TSLA $327) saw marked pressure after announcing Q2 deliveries that came in below the Street's forecasts, citing a severe production shortfall of battery packs that impacted deliveries, which it said was addressed in early June.

Amid the recent volatility in the tech sector that has led the stock markets to record highs recently, Schwab's Chief Investment Strategist Liz Ann Sonders offers her commentary, The Space Between … Tech Today Doesn't Resemble Tech Circa 2000, as well as her latest article, 2017 Mid-year US Equity Outlook: Rattle and Hum. Liz Ann notes that we think the latest pullback in tech is more likely to represent a pause that refreshes some excess optimistic sentiment than it is the start of something nastier. We are maintaining our outperform rating on the tech sector, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: From the Top Down for more, but as with any fast-growing segment of a portfolio’s holdings, we also remind investors of the power of diversification and periodic rebalancing.

Also, Liz Ann adds that 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 these articles on the Markets & Economy page at www.schwab.com and follow us and Liz Ann on Twitter: @schwabresearch and @lizannsonders.

Factory orders drop more than expected, Fed offers minutes

Factory orders (chart) fell 0.8% month-over-month (m/m) in May, versus the Bloomberg expectation of a 0.5% decline, while April's figure was negatively revised to a 0.3% decrease. May durable goods orders—preliminarily reported last week—were unadjusted at the preliminarily-reported 1.1% fall.

At 2:00 p.m. ET, the Federal Reserve released the minutes from its June monetary policy decision, in which it raised its target for the fed funds rate by 25 bps and provided some insight into its plans to reduce the size of its balance sheet. The report showed that the Committee was divided on the timing of the balance sheet program, noting, " Several preferred to announce a start to the process within a couple of months,' but others' emphasized that deferring the decision until later in the year would permit additional time to assess the outlook for economic activity and inflation." At the June meeting the Fed said it would trim holdings on Treasuries initially at $6 billion per month, increasing by $6 billion every three months over 12 months, until it reaches $30 billion. For agency- and mortgage-backed securities, the cap would begin at $4 billion, and rise by $4 billion every three months until it hits $20 billion a month. The Committee also reiterated its stance for continued gradual rate increases. Schwab's Chief Fixed Income Strategist, Kathy Jones provides additional insight in her article Fed Raises Rates, Sticks With Plans for One More Hike This Year.

As noted in the latest Schwab Market Perspective: Shifting Sentiment?, a more hawkish Fed than the market in terms of the expected trajectory of rate hikes, despite the mixed economic picture along with softer inflation readings, has raised concerns over a possible monetary mistake. We believe there is a strong desire among most Fed members to get rates to a more normal level and to start the process of reducing the balance sheet; but they also remain focused on not making decisions that may harm economic activity. Ongoing Fed policy uncertainty is likely to result in increased bouts of volatility. Read more on the Markets & Economy page at www.schwab.com

This sets the stage for tomorrow's robust economic calendar, which will offer reads on the labor market ahead of Friday's key June nonfarm payroll data in the form of weekly initial jobless claims and ADP's Employment Change report. Also, the critical U.S. services sector will be in focus following the releases of the ISM non-Manufacturing Index and Markit's final Services PMI Index, with both expected to show continued expansion. MBA mortgage applications and the trade balance will round out the day.

Treasuries finished higher with the yield on the 2-year note flat at 1.41%, while the yield on the 10-year note declined 2 basis points (bps) to 2.33% and the 30-year bond rate dipped 1 bp to 2.86%.

Bond yields have rebounded from depressed levels and Schwab's 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. We expect the Federal Reserve to continue to tighten monetary policy and reduce its balance sheet gradually, assuming inflation doesn't slip further. Read Kathy's articles, including how we feel investors should position themselves in this environment on the Fixed Income page at www.schwab.com and follow Kathy on Twitter: @kathyjones.

Finally, for a look at the political front, which remains a source of market uncertainty, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's latest article, Washington Midyear Update: 4 Key Issues for Investors to Watch, on the Insights & Ideas page at www.schwab.com.

Europe mixed on data and geopolitics, Asia mostly higher

European equities finished mixed, with the euro dipping versus the U.S. dollar, while the global markets digested a rise in geopolitical concerns following actions by North Korea. Economic data in the region likely aided sentiment, with Markit's eurozone Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—being revised to a faster pace of growth than preliminarily estimated for June. Eurozone retail sales rose in line with forecasts and Markit's U.K. Composite PMI Index slowed but remained in expansion territory for last month. The British pound was little changed versus the greenback and bond yields in the region were mixed. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his article, Are bonds signaling a major stock market peak? on the Markets & Economy page at www.schwab.com, while Jeff and Vice President of Trading and Derivatives, Randy Frederick offer the video, How Do U.S. Equity Market Valuations Compare to Other Developed Markets?, on the Insights & Ideas page at www.schwab.com. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. Technology issues rebounded, while oil & gas stocks saw pressure as crude oil prices fell after a recent string of gains, exacerbated by reports that Russia is opposing any changes to the current OPEC-led production cuts.

Stocks in Asia finished mostly to the upside with the U.S. markets set to return to action following yesterday's Independence Day holiday, while shrugging off flared-up geopolitical concerns as North Korea conducted a test of an intercontinental ballistic missile (ICBM) yesterday. For more, see Schwab's Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com. Japanese equities gained ground, with the yen paring gains late in the session, and South Korea's Kospi Index also moved to the upside. Mainland Chinese stocks and those traded in Hong Kong advanced on the heels of a report from Caixin that showed the nation's key services sector output slowed but continued to showed growth. Indian securities ticked higher following data showing growth in the country's business activity accelerated, but markets in Australia declined, with oil & gas and healthcare weakness overshadowing strength in basic materials. The move comes in the wake of this week's decision by the Reserve Bank of Australia to leave its monetary policy unchanged. For a look at the global landscape, see Jeffrey Kleintop's, CFA, 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page at www.schwab.com.

Stocks Diverge Amid Economic Data, Uncertainty

Charles Schwab: On the Market

Posted: 6/26/2017 4:15 PM ET

Stocks Diverge Amid Economic Data, Uncertainty

U.S. equities finished mixed and near the unchanged mark, as a rise in financials, despite a decline in Treasury yields, were offset by continued volatility in technology issues that hamstrung the Nasdaq. Crude oil prices moved higher and gold was lower, while the U.S. dollar was unchanged. On the economic front, durable goods orders missed forecasts, while some regional manufacturing activity remained in expansion territory.

The Dow Jones Industrial Average (DJIA) rose 15 points (0.1%) to 21,410, the S&P 500 Index was nearly a point higher to 2,439, while the Nasdaq Composite lost 18 points (0.3%) to 6,247. In moderate volume, 795 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.37 to $43.38 per barrel and wholesale gasoline was $0.01 higher at $1.43 per gallon. Elsewhere, the Bloomberg gold spot price decreased $12.77 to $1,243.94 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 97.43.

Nestle SA (NSRGY $88) got a boost to help the European markets move higher amid the disclosure that hedge fund Third Point, ran by activist investor Dan Loeb, has accumulated a $3.5 billion stake in the company. Third Point is encouraging Nestle to sell its stake in cosmetics maker L'Oreal SA (LRLCY $44), increase leverage for share buybacks and adopt a formal profitability target, among other suggestions, per Bloomberg.

Avis Budget Group Inc. (CAR $28) jumped on the announcement that it has entered into an agreement regarding self-driving car fleet management with Google parent Alphabet Inc. (GOOGL $972).

Durable goods orders miss

May preliminary durable goods orders (chart) dropped 1.1% month-over-month (m/m), compared to the Bloomberg estimate of a 0.6% decline, and April's 0.8% decrease was revised to a 0.9% fall. Ex-transportation, orders were 0.1% higher m/m, compared to forecasts of a 0.4% gain and versus April's unrevised 0.5% decline. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, decreased 0.2%, versus projections of a 0.4% increase, and the upwardly revised 0.2% rise posted in the month prior.

As noted in the latest Schwab Market Perspective: Shifting Sentiment?, investors may be questioning the durability of the U.S. bull market, but we believe strong earnings growth and a solid economy will continue to support further gains, but more volatility should be expected. Economic confusion may be contributing to investor skepticism, with the labor market continuing to tighten and housing in good shape, but inflation has been in retreat along with commodity prices. Meanwhile, for the first time in a while, the Fed sounded slightly more hawkish at its June meeting. Read more on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

The Dallas Fed Manufacturing Activity Index declined more than expected but remained at a level depicting expansion (a reading above zero). The index decreased to 15.0 in June, from 17.2 in May, and compared to the expected decline to 16.0.

The political front remains in focus amid this week's Senate healthcare bill battle, while Capitol Hill continues to debate the debt ceiling and the markets are looking for any developments on tax and regulatory reforms. As such, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Washington Midyear Update: 4 Key Issues for Investors to Watch, on the Insights & Ideas page at www.schwab.com.

Treasuries finished higher, as the yield on the 2-year note fell 2 basis points (bps) to 1.33%, the yield on the 10-year note dipped 1 bp to 2.13% and the 30-year bond rate is decreased 2 bps to 2.70%. Bond yields remain depressed amid the economic confusion and political uncertainty and Schwab's Chief Fixed Income Strategist, Kathy Jones delivers her Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' on the Fixed Income page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

Tomorrow's economic calendar will begin with the S&P/Case-Schiller Home Price Index, forecasted to show the 20-city composite rose 5.9% year-over-year and 0.45% on a seasonally-adjusted basis month-over-month in April, as well as the Consumer Confidence Index, with economists expecting a slight downtick to a level of 116.0 for June from the 117.9 posted in May, and the Richmond Fed Manufacturing Index will round out the day.

Europe higher on eased Italian bank concerns, Asia mostly higher as oil stabilizes

European equities finished broadly higher, with financials getting a boost from news that Italy has moved to bailout two ailing regional banks, while a read on German business confidence unexpectedly improved for June. Oil & gas issues gave up a modest advance as crude oil prices were choppy in the wake of a recent tumble. The euro and British pound ticked higher versus the U.S. dollar, while bond yields in the region finished mixed. The markets shrugged off festering political turmoil overseas, including upcoming elections in Italy and Germany later this year and as the U.K. preps for intensified Brexit negotiations. For more on the political front, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond?, on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mostly higher to begin the week, with crude oil prices stabilizing after last week's drop, while Chinese markets led the way amid optimism about MSCI inclusion of mainland shares and speculation that state-backed funds were helping support the markets, per Bloomberg. Both mainland Chinese stocks and those traded in Hong Kong advanced. Japanese equities ticked higher, with the yen nudging lower, while securities in Australia and South Korea finished higher. Markets in India were closed for a holiday. For a look at the global landscape, see the 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.

Tomorrow's international economic calendar will include consumer sentiment from South Korea as well as business and consumer confidence from Italy.

Stocks Finish Flat Ahead of Holiday Weekend

Charles Schwab: On the Market

Posted: 5/26/2017 4:15 PM ET

Stocks Finish Flat Ahead of Holiday Weekend

U.S. stocks finished trading mostly flat on light volume, ending the recent six-session winning streak ahead of the extended Memorial Day holiday weekend. Traders digested mixed Q1 GDP and durable goods orders reports, while Costco and Ulta Beauty announced some upbeat earnings data. Crude oil prices rebounded somewhat from yesterday's tumble, Treasury yields dipped and the U.S. dollar and gold gained ground. Overseas, equities in Asia and Europe finished mixed.

The Dow Jones Industrial Average (DJIA) decreased 3 points to 21,080, the S&P 500 Index added 1 point to 2,416, and the Nasdaq Composite ticked 5 points (0.1%) higher to 6,210. In light volume, 683 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.90 to $49.80 per barrel and wholesale gasoline was $0.03 higher at $1.63 per gallon. Elsewhere, the Bloomberg gold spot price increased $11.76 to $1,267.44 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 97.45. Markets were solidly higher for the week, as the DJIA jumped 1.3%, the S&P 500 Index rallied 1.4%, and the Nasdaq Composite surged 2.1%.

Costco Wholesale Corp. (COST $178) reported fiscal Q3 earnings-per-share (EPS) of $1.59, or $1.40 ex-items, compared to the $1.31 FactSet estimate, as revenues increased 8.0% year-over-year (y/y) to $28.9 billion, above the projected $28.6 billion. Q3 same-store sales rose 5.0% y/y, north of the expected 4.7% increase. Shares were nicely higher.

Ulta Beauty Inc. (ULTA $302) posted Q1 EPS of $2.05, or $1.91 ex-items, versus the forecasted $1.80, with revenues growing 22.5% y/y to $1.3 billion, roughly in line with expectations. Q1 same-store sales jumped 14.3% y/y, exceeding the estimated 11.0% gain. ULTA issued Q2 guidance that was a bit shy of expectations, while raising its full-year EPS and same-store sales outlooks. Shares gained solid ground.

GameStop Corp. (GME $22) announced Q1 earnings of $0.58 per share, or $0.63 ex-items, versus the forecasted $0.53, as revenues increased 3.8% y/y to $2.1 billion, above the projected $2.0 billion. Q1 same-store rose 2.3% y/y, compared to the expected 4.2% decline. The company reaffirmed its full-year EPS outlook, while issuing same-store sales guidance that was just below estimates. Shares traded lower as the Street showed some concern regarding GME's y/y decline in new video game software sales, a lower gross margin and lackluster mobile revenues.

Big Lots Inc. (BIG $50) reported Q1 EPS of $1.15, topping the expected $0.99, as revenues declined 1.2% y/y to $1.3 billion, roughly in line with estimates. Q1 same-store sales declined 0.9% y/y, versus projections of a 0.9% gain. BIG issued Q2 EPS guidance that exceeded estimates and raised its full-year profit outlook. Shares traded higher.

Amid the plethora of earnings reports from the consumer discretionary sector, check out Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Don't Cut the Cord Just Yet, on the Markets & Economy page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

Durable goods orders miss, Q1 GDP growth revised higher

April preliminary durable goods orders (chart) declined 0.7% month-over-month (m/m), compared to the Bloomberg estimate of a 1.5% decline, though March's 1.7% gain was revised to a 2.3% rise. Ex-transportation, orders were 0.4% lower m/m, compared to forecasts of a 0.4% gain and versus March's upwardly revised 0.8% increase. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, came in flat, versus projections of a 0.5% increase, and matching the downwardly revised reading in the month prior.

Orders for the volatile component of transportation weighed on the headline figure as a slight gain in autos and a solid rise in defense aircraft and parts were more than offset by a drop in nondefense aircraft and parts. Weakness was also seen in demand for machinery, electrical equipment and appliances, and fabricated metals. However, a bright spot was a solid gain in orders for computers and electronic products.

The data, notably the back-to-back flat readings for the proxy for business spending in the durable goods report, may have fostered concerns about whether Q1's soft patch was transitory as recent history and the Fed have suggested. Schwab’s Chief Investment Strategist Liz Ann Sonders discusses this in her article, ½ Full: Seeing Through a Weak Q1, pointing out that the average GDP growth for the subsequent quarters over the past 10 years has been 1.8%, but hard data has been stubbornly weak relative to soft data. So for now, Liz Ann is seeing the glass half full, concluding that we are likely just experiencing yet another "soft patch" in an ongoing expansion. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

The second look (of three) at Q1 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 1.2%, up from the first release's 0.7% gain. Forecasts called for an adjusted 0.9% pace of expansion. Q4 GDP grew by an unrevised 2.1% rate. Personal consumption came in at a 0.6% gain for Q1, up from the preliminary estimate of a 0.3% increase, and compared to the expectations of a 0.4% increase. Personal consumption grew by an unrevised 3.5% in Q4.

On inflation, the GDP Price Index was revised to a 2.2% gain, versus forecasts of an unrevised 2.3% increase, while the core PCE Index, which excludes food and energy, was adjusted to a 2.1% rise, compared to expectations of an unrevised 2.0% gain.

The final May University of Michigan Consumer Sentiment Index (chart) was revised to 97.1 from the preliminary level of 97.7, versus forecasts of 97.5. However, the index was up slightly compared to April's level of 97.0. Compared to last month, the expectations component improved, while the current conditions component declined. The 1-year inflation outlook remained at April's 2.6% rate, while the 5-10 year forecast ticked higher to 2.4% from 2.3%.

Treasuries were mostly higher in an abbreviated session, with the yield on the 2-year note flat at 1.29%, while the yields on the 10-year note and the 30-year bond dipped 1 basis point to 2.25% and 2.91%, 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, 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.

Please note: All U.S. markets will be closed on Monday in observance of the Memorial Day holiday.

Europe and Asia mixed amid political uncertainty and continued energy weakness

European equities finished mixed, with oil & gas issues remaining a drag on the markets as crude oil prices tumbled yesterday amid apparent disappointment from the highly-anticipated extension of production cuts by OPEC. Political and geopolitical uncertainty lingered to hamper conviction, with polls showing U.K. Prime Minister Theresa May losing ground ahead of next month's election as Brexit negotiations continue. However, the British pound fell to help buoy the U.K. markets. Also, the markets eyed U.S. President Trump's first international trip as he wraps up in Europe with G-7 leaders gathering in Italy. 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, as well as Jeff's article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop. The euro declined versus the U.S. dollar and bond yields in the region lost ground. In light economic news, Italian economic, manufacturing and consumer sentiment reports all declined for May.

Stocks in Asia finished mixed with the energy sector getting pressured as oil prices tumbled yesterday in reaction to the highly-expected extension of production cuts by OPEC. Japanese equities declined, with the yen gaining ground late in the session, while a read on the nation's core consumer price inflation came a bit cooler than expected. Chinese shares took a breather after a strong weekly advance and stocks in Hong Kong finished flat. Australian securities fell amid a drop in oil & gas issues and weakness out of the basic materials sector. However, South Korean and Indian equities hit record highs for a second session. Schwab's Director of International Research, Michelle Gibley CFA, offers some timely commentary of the global markets in her latest article, Different Drivers: Why Emerging Market Stocks Aren't All the Same on the Insights & Ideas page at www.schwab.com.

Stocks string together gains to post weekly rally

U.S. stocks posted a six-session winning streak before Friday's pause, extending a rebound from last week's selloff and spike in volatility on Wednesday that stemmed from a flare-up in domestic political concerns that called pro-growth policy pledges into question. President Trump embarked on his first trip overseas, which appeared to take some of the focus off domestic political issues, likely helping foster the rebound. Also, he struck some defense and aerospace deals in Saudi Arabia to boost the stocks in the sector. Technology stocks continued to rally, while some relative upside surprises by retailers, headlined by Best Buy Co. Inc. (BBY $60), boosted the consumer discretionary sector. The Fed's May meeting minutes seemed to foster a dovish takeaway to help ease concerns about the pace of future rate hikes after June's highly-anticipated move. However, the energy sector took a hit as crude oil prices gave back a rally that led up to this week's widely-expected OPEC extension of production cuts that looked to disappoint the markets. The divergence between hard and soft economic data also festered, with new and existing home sales both falling more than expected in April to exacerbate concerns about the impact of demand easily outstripping supply. Treasury yields nudged higher, along with the U.S. dollar.

Although next week's economic calendar will be truncated by Monday's holiday, the docket will bring plenty of data to digest ahead of the Fed's monetary policy meeting later in June. Personal income and spending, and Consumer Confidence will get the ball rolling, followed by the Fed's Beige Book, the ISM Manufacturing Index and monthly auto sales. The week will culminate with Friday's key May nonfarm payroll report.

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.

Next week's international economic reports worth noting include: Australia—building approvals and retail sales. China—industrial profits and Manufacturing and non-Manufacturing PMIs. India—Q1 GDP. Japan—household spending, retail sales, and industrial production. Eurozone—consumer price inflation and consumer confidence, along with German retail sales and unemployment change. U.K.—Markit's PMI Manufacturing Index.