Fed to Begin Unwinding, Signals Another Hike

Charles Schwab: On the Market

Posted: 9/20/2017 4:15 PM ET

Fed to Begin Unwinding, Signals Another Hike

U.S. equities finished mixed, rebounding from a brief tumble that came after the Fed left rates unchanged, as expected, but signaled a December hike is likely to be in the cards. Treasury yields rose following the Fed decision, which included insight into the winding down of its behemoth balance sheet, while the U.S. dollar jumped and gold reversed to the downside. Meanwhile, crude oil prices rose following a mixed government oil inventory report and U.S. existing home sales unexpectedly dropped.

The Dow Jones Industrial Average (DJIA) increased 42 points (0.2%) to 22,413, the S&P 500 Index gained 2 points (0.1%) to 2,508, while the Nasdaq Composite declined 5 points (0.1%) to 6,456. In moderate volume, 837 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.79 to $50.69 per barrel and wholesale gasoline was unchanged at $1.66 per gallon. Elsewhere, the Bloomberg gold spot price decreased $10.39 to $1,300.76 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% higher at 92.49.

FedEx Corp. (FDX $221) reported fiscal Q1 earnings-per-share (EPS) of $2.19, or $2.51 ex-items, versus the $3.09 FactSet estimate, as revenues rose 4.1% year-over-year (y/y) to $15.3 billion, below the projected $15.4 billion. The company cited the negative impacts of the cyberattack at its TNT Express unit and Hurricane Harvey. FDX lowered its full-year profit outlook. Shares overcame early pressure and finished higher as analysts appeared to be looking past the TNT cyberattack-induced miss, noting an unchanged long-term outlook and strong fundamentals.

Bed Bath & Beyond Inc. (BBBY $23) posted fiscal Q2 EPS of $0.67, or $0.78 ex-items, compared to the forecasted $0.95, with revenues declining 1.7% y/y to $2.9 billion, missing the expected $3.0 billion. Q2 same-store sales fell 2.6% y/y, versus the estimated 0.7% decline. BBBY lowered its full-year guidance, and shares tumbled.

General Mills Inc. (GIS $52) announced fiscal Q1 profits of $0.69 per share, or $0.71 ex-items, versus the estimated $0.76, as revenues decreased 3.5% y/y to $3.8 billion, roughly in line with forecasts. GIS noted that its U.S. yogurt segment sales were down double-digits and its cereal and snacks unit sales also declined. The company's gross margin fell solidly due to higher input costs, deleverage, and unfavorable trade expense phasing. GIS reiterated its full-year guidance. Shares fell.

Adobe Systems Inc. (ADBE $150) reported Q3 EPS of $0.84, or $1.10 ex-items, versus the estimated $1.01, as revenues grew 26.0% y/y to $1.8 billion, mostly matching expectations. However, shares were lower as the company's experience cloud bookings missed expectations for the quarter, leading to a warning that its Adobe Marketing Cloud segment will not achieve its bookings goal for the year.

Fed to begin balance sheet unwinding, existing home sales surprisingly drop

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, agreeing to keep the target for its fed funds rate steady at a range of 1.00%-1.25%, a move that was widely expected. The FOMC also kept its near-term rate outlook intact, with 12 of 16 Committee members projecting at least one additional rate increase for 2017, but it lowered its longer-term outlook, indicating 11 of 16 Members forecasted three hikes in 2018. In its statement, the FOMC said that near-term risks to the economy are “roughly balanced,” that the labor market continues to be strong, and that the Committee "is monitoring inflation developments closely." In regards to the recent hurricanes, the Fed indicated that "disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term." In a separate statement, the Fed also provided details of its plan to begin to wind down its $4.5 trillion balance sheet. In a unanimous decision, the Fed will begin to taper its balance sheet by $10 billion per month—$6 billion from Treasuries and $4 billion from mortgage-backed securities—increasing by $10 billion per month every quarter for the first year.

As well, the Fed provided updated economic projections, showing a slight upward change to gross domestic product for this year, while lowering its forecasts for inflation and keeping its the unemployment rate expectations the same. In her press conference following the decision, Fed Chairwoman Janet Yellen said that she is heartened by the labor market improvement and expects the economy to expand at a moderate pace, but that the Committee is prepared to act if the economy begins to deteriorate. For more insightful analysis of the Fed’s decision, see Schwab's Chief Investment Strategist Liz Ann Sonders' article, The Fed's on the QT, on the Markets & Economy page at www.schwab.com, while you can also follow Liz Ann on Twitter: @lizannsonders.

Existing-home sales in August fell 1.7% month-over-month (m/m) to a 5.35 million annual rate—the lowest in a year—compared to the Bloomberg forecast of a 5.45 million pace, and versus July's unrevised 5.44 million rate. Sales of single-family homes dropped 2.1% m/m, but remained slightly above year ago levels, while purchases of multi-family structures rose 1.7%, but were lower y/y. The median existing-home price was up 5.6% y/y at $253,500. Unsold inventory came in at a 4.2-months pace at the current sales rate, down from the 4.5 months rate a year ago. Inventory of homes for sale declined 2.1% m/m, and are down 6.5% y/y, falling for 27 consecutive months. Sales jumped in the Northeast and rose in the Midwest, while sales fell in the South and West. Existing home sales are based on contract closings instead of signings and account for the majority of the housing sales market.

The National Association of Realtors (NAR) noted that sales in the South were hampered by Hurricane Harvey but Chief Economist Lawrence Yun said, "What's ailing the housing market and continues to weigh on overall sales is the inadequate levels of available inventory and the upward pressure it's putting on prices." Despite the supply headwinds facing existing home sales, housing demand remains solid, buoyed by the positive employment front, a key area supporting our view in the latest Schwab Market Perspective: A Cat and Mouse Fall, that the bull market will likely continue. Read more on the Markets & Economy page at www.schwab.com, as well as Schwab's Liz Ann Sonders' article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", where she notes that a boost associated with the recovery/rebuilding efforts is likely. Follow Schwab  on Twitter: @schwabresearch.

The MBA Mortgage Application Index dropped 9.7% last week, giving back most of the previous week's 9.9% jump. The fall came as an 8.5% drop in the Refinance Index was met with a 10.8% tumble for the Purchase Index. The average 30-year mortgage rate ticked 1 basis point (bp) higher to 4.04%.

Treasuries finished mostly lower, as the yield on the 2-year note rose 3 bps to 1.44%, the yield on the 10-year note gained 2 bps to 2.27%, and the 30-year bond rate was flat at 2.82%.

Tomorrow's economic calendar will begin with weekly initial jobless claims, which are forecasted to have moved higher to a level of 302,000 from the prior week's 284,000, as well as the Philly Fed Manufacturing Index, with economists anticipating a reading of 17.1 for September following August's 18.9, and culminating with the Index of Leading Economic Indicators (LEI) for August, anticipated to match July's 0.3% m/m increase.

Europe and Asia mixed as markets eye Fed decision

European equity markets finished mixed, with financials seeing some pressure though energy issues gained ground. The markets traded cautiously ahead of today's monetary policy meeting by the Fed in the U.S., which comes on the heels of the European Central Bank signaling that it will begin to discuss dialing back its stimulus measures this fall and the Bank of England noting that a rate hike could be announced in the coming months. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses the potential changes in global monetary policy in his latest article, How the Shift by Central Banks May Affect the Stock Market, noting that despite the coming shift by central banks towards trimming/tapering their balance sheets, we don't believe the bull market is at risk. Read more on the Markets & Economy page at www.schwab.com including Jeff's point that earnings, not easing, remain the key support for stock markets around the world. The euro was flat and the British pound advanced on the U.S. dollar, while bond yields in the region finished mixed. In economic news, U.K. retail sales grew much more than expected in August.

Stocks in Asia finished mixed as the markets treaded cautiously ahead of today's monetary policy meeting by the U.S. Federal Reserve, while looking to tomorrow's decision by the Bank of Japan. Mainland Chinese equities and those traded in Hong Kong gained modest ground, while markets in Australia and South Korea declined. Stocks in Japan slightly extended yesterday's jump, with the yen holding onto recent weakness and following the nation's trade report, which showed exports grew more than expected in August. Markets in India finished flat. Schwab's Jeffrey Kleintop, CFA, offers analysis of the global investing landscape in his articles, What are fund flows telling us about trends and risks in the global stock market?, and, An important benefit to global investors is back after 20 years, on the Markets & Economy page at www.schwab.com.

In addition to the Bank of Japan's monetary policy decision, the international economic calendar will offer the All-Industry Index from the island nation, industrial orders from Spain, and public sector net borrowing from the U.K.

Stocks Add to Record Highs

Charles Schwab: On the Market

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

Stocks Add to Record Highs

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

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

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

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

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

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

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

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

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

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

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks, investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com.

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

Europe and Asia move higher to begin the week

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

For a look at global investing, see Schwab's Jeffrey Kleintop's, CFA, article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page.

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

Eased Anxieties Help Stocks Rally

Charles Schwab: On the Market

Posted: 9/11/2017 4:15 PM ET

Eased Anxieties Help Stocks Rally

The U.S. equity markets rallied, courtesy of eased geopolitical concerns amid a pause in North Korean missile tests, and as early economic assessments of losses in the aftermath of Hurricane Irma are less than feared. Treasury yields continued to recover from multi-month lows, giving financials a boost, while the U.S. dollar also rebounded from multi-year lows. Crude oil prices were higher, while gold was solidly lower.

The Dow Jones Industrial Average (DJIA) jumped 260 points (1.2%) to 22,057, the S&P 500 Index was 27 points (1.1%) higher at 2,488, and the Nasdaq Composite rallied 72 points (1.1%) to 6,432. In moderate volume, 795 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.59 to $48.07 per barrel and wholesale gasoline lost $0.02 to $1.63 per gallon. Elsewhere, the Bloomberg gold spot price dropped $18.97 to $1,327.62 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 91.87.

Insurance stocks got a boost as the markets assessed the impact of Hurricane Harvey in Texas two weeks ago and Hurricane Irma that hammered the Caribbean and made landfall in Florida over the weekend. Early reports are suggesting Irma's costs will likely be less than feared as the storm has been downgraded to a tropical storm. Airlines and travel companies also found support.

Pilgrim's Pride Corp. (PPC $28) announced an agreement to acquire poultry and prepared foods supplier Moy Park from Brazil's JBS SA (JBSAY $5) for about $1.0 billion. PPC said the acquisition is expected to be immediately accretive to earnings per share. PPC finished lower.

Teva Pharmaceutical Industries Ltd. (TEVA $19) rallied nearly 20% after the generic drug company named Kare Schultz as its new Chief Executive Officer (CEO), the former CEO of Danish drugmaker H. Lundbeck (HLUYY $57). HLUYY was sharply lower.

Treasury yields and the U.S. dollar regaining footing

Treasuries were lower amid a dormant economic calendar, as the yield on the 2-year note increased 6 basis points (bps) to 1.32%, while the yields on the 10-year note and the 30-year bond gained 8 bps to 2.13% and 2.75%, respectively. For analysis of the bond markets, see Schwab's Chief Fixed Income Strategist Kathy Jones' article, What's the Bigger Risk: Bond Market Bubble or Complacency?, on the Fixed Income page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

Treasury yields and the U.S. dollar rebounded from recent weakness that took the former to levels not seen since November and the latter to well over a two-year low, as risk aversion eases with North Korea holding off on another missile test and the impact of Hurricane Irma appears to less than feared. Downside pressure on bond yields and the greenback has come amid fading expectations of another Fed rate hike this year and as the euro surged in the wake of the European Central Bank's signal that it will likely begin discussions of tapering stimulus measures at its meeting next month

This sets the stage for this week's economic calendar to likely regain some focus, beginning with tomorrow's NFIB Small Business Optimism Index, forecasted to show a slight downtick to a level of 104.8 for August from the 105.2 posted in July, as well as the Job Openings and Labor Turnover Survey (JOLTS) report, with economists expecting the measure of unmet demand for labor to have fallen to 5.8 million jobs available to be filled in July from the 6.2 million registered in June. Stubbornly low inflation, which has kept Fed rate expectations hamstrung, will also be on display this week, courtesy of the releases of the Consumer Price Index (CPI) and Producer Price Index (PPI) for August. The all-important U.S. consumer will also garner attention as the markets digest the August retail sales report and the preliminary September University of Michigan Consumer Sentiment Index. The docket will also bring industrial production and capacity utilization.

As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, action is about to heat up as summer comes to an end but investors should remain cool. Geopolitical threats, domestic politics, and Federal Reserve actions all have the potential to add to volatility and heightens the risk of a pullback or correction. But healthy economic growth and strong corporate earnings lead us to believe that the bull market has legs. Read more on the Markets & Economy page at www.schwab.com.

Europe and Asia higher as geopolitical concerns fade and Irma downgraded

European equity markets gained solid ground, with the lack of another missile test by North Korea easing geopolitical concerns, while assessments of the U.S. economic impact of Hurricane Irma were preliminarily reported to be less than estimated as it was downgraded to a tropical storm. Insurance and travel companies got a boost, while sentiment also found some support from upbeat data out of China and Japan. The euro gave back some of a recent surge to near a three-year high versus the U.S. dollar, while bond yields recovered to also bolster the financial sector. The British pound dipped versus the greenback ahead of this week's Bank of England monetary policy decision. In economic news, Italian industrial production rose more than expected. For a look at global investing, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Vice President of Trading and Derivatives, Randy Frederick, 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 higher as North Korea held off on conducting another missile test, which is easing geopolitical concerns, while early reports of the impact of Hurricane Irma in the U.S. are suggesting the costs will be less than feared. 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. Moreover, Japan posted much stronger-than-expected machine orders—a gauge of capital spending—for July, while China's CPI and PPI figures topped forecasts. Japanese equities rallied, with the yen giving back some recent gains, while stocks in China and Hong Kong rose, as sentiment also gets a boost from reports that the People's Bank of China intends to ease requirements for financial institutions. Meanwhile, markets in South Korea, Australia and India also advanced.

Tomorrow's international economic calendar will mostly focus on reports out of the U.K., with the island nation set to release CPI, PPI, housing prices and the Retail Price Index.

Markets Mostly Flat, Discretionary Stocks Find Pressure

Charles Schwab: On the Market

Posted: 9/7/2017 4:15 PM ET

Markets Mostly Flat, Discretionary Stocks Find Pressure

U.S. stocks closed mostly flat as Dow member Walt Disney and Comcast announced warnings in regard to financial numbers this quarter and after the European Central Bank kept its monetary policy stance unchanged. The U.S. dollar touched on two-year lows and Treasury yields dropped. The potential destruction arising from Hurricane Irma added to the skittishness of the markets. Jobless claims jumped in the aftermath of Hurricane Harvey and Q2 productivity was revised higher. Crude oil and gold both rose.

The Dow Jones Industrial Average (DJIA) declined 23 points (0.1%) to 21,785, the S&P 500 Index was nearly unchanged at 2,465, and the Nasdaq Composite increased 5 points (0.1%) to 6,398. In moderate volume, 787 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.07 lower to $49.09 per barrel and wholesale gasoline lost $0.01 to $1.66 per gallon. Elsewhere, the Bloomberg gold spot price was $14.62 higher at $1,348.84 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% lower at 91.55.

Shares of GoPro Inc. (GPRO $10) jumped after the wearable action camera maker announced that it expects revenue and gross margin for Q3 to be at the high end of its previously reported guidance, citing strong demand for its GoPro products.

RH (RH $72), the furniture company formerly known as Restoration Hardware, reported a Q2 loss of $0.28 per share, or earnings-per-share (EPS) of $0.65 ex-items, versus the FactSet estimate calling for EPS of $0.47, as revenues grew 14.0% year-over-year (y/y) to $619 million, compared to the forecasted $606 million. Q2 same-store sales rose 7.0% y/y, above the projected 5.8% increase. RH boosted its full-year EPS outlook after issuing Q3 profit guidance that easily beat expectations. Shares surged over 45%.

Dow member Walt Disney Co. (DIS $97) was under solid pressure after the company noted at the Bank of America Merrill Lynch 2017 Media, Communications and Entertainment Conference that its full-year EPS will be roughly in line with the last year's $5.72, versus the Street's expectation of $5.89.

At the same conference, Comcast Corp. (CMCSA $38) said Hurricane Harvey and competition has resulted in a loss of some video subscribers that will hit its financial numbers this quarter.

Eli Lilly and Co. (LLY $82) announced steps to streamline its operations to focus better on developing new medicines and improve its cost structure, including the reduction of its workforce by 3,500 positions. Shares finished higher.

Cabela's Inc. (CAB $61) rallied after a subsidiary of Synovus Financial Corp. (SNV $41) received regulatory approval to acquire certain assets and assume certain liabilities of World's Foremost Bank, a subsidiary of the camping, hunting and fishing gear chain.

Jobless claims boosted by Hurricane Harvey, Q2 productivity revised higher

Weekly initial jobless claims (chart) surged by 62,000 to 298,000 last week, well above the Bloomberg forecast of 245,000, with the prior week’s figure being unrevised at 236,000. The jump is being mostly attributed to the impact of Hurricane Harvey. The four-week moving average rose by 13,500 to 250,250, while continuing claims declined 5,000 to 1,940,000, south of estimates of 1,945,000.

Final Q2 nonfarm productivity (chart) was revised to a 1.5% rate of growth on an annualized basis, from the preliminary estimate of a 0.9% increase, and versus expectations of a 1.3% rise. Q1 productivity was unrevised at a 0.1% gain. Unit labor costs were adjusted to a 0.2% gain, from the initial report of a 0.6% increase, and versus the forecast calling for a 0.3% rise. Q1 labor costs were revised lower to a 4.8% increase.

Treasuries rose, as the yield on the 2-year note fell 4 basis points (bps) to 1.27%, while the yields on the 10-year note and the 30-year bond dropped 6 bps to 2.05% and 2.66%, respectively. Bond yields and the U.S. dollar were back under pressure after yesterday's modest rebound, with the former falling back to lows not seen since November and the latter trading at more than a two-year low. Geopolitical and domestic political uncertainties are lingering, while the markets are grappling with global monetary policy uncertainty as Fed rate hike expectations slip and the European Central Bank (ECB) left its monetary policy stance unchanged but noted that currency volatility needs to be monitored. Also, the markets are eyeing Hurricane Irma, which is tracking toward Florida on the heels of last week's Hurricane Harvey that damaged the Texas Gulf and disrupted the oil & gas markets.

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. 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.

Tomorrow, the U.S. economic calendar will deliver a read on wholesale inventories for July, expected to have increased 0.4% m/m, matching the rise seen in June, while in the final hour of trading, consumer credit will be reported and is expected to have expanded by $15.0 billion during July.

Europe mostly higher as ECB holds policy steady, Asia mixed amid China data

European equity markets traded mostly higher, despite the reaction in the currency markets after the ECB expectedly left its monetary policy stance unchanged. The euro jumped to highs not seen in over two years versus the U.S. dollar and bond yields in the region were lower to pressure financials and hamstring Italian and Spanish stocks. The markets scrutinized the customary press conference from ECB President Mario Draghi that followed the decision. He noted that the recent volatility in the currency markets is a source of uncertainty which requires monitoring for its impact on price stability, while reiterating that substantial policy accommodation is still needed. The ECB lowered its inflation outlooks for 2018 and 2019, while raising this year's GDP growth forecast and leaving its guidance for economic output in to following two years unchanged. As expected, he did not offer much on the timing of removing stimulus measures, noting that autumn may be when the groundwork for the process is detailed. The markets are anticipating next month's meeting to be the one when we get the ECB's plans for paring its stimulus measures. The euro's recent rally has been reported to be causing concern at the central bank and the markets appear to be surprised that Draghi did not offer more in terms stemming the euro's jump.

The British pound also gained ground on the greenback. In other economic news, German industrial production came in flat month-over-month in July, after falling 1.1% in June, and versus projections of a 0.5% gain. Eurozone Q2 GDP was revised higher to a 2.3% y/y pace, from the preliminary estimate of a 2.2% increase. For a look at global stock investing, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Vice President of Trading and Derivatives, Randy Frederick, 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 following yesterday's modest rebound in the U.S., aided by news that President Trump supported a package that included a short-term debt ceiling extension that appeared to ease political concerns somewhat. Market participants traded with some caution ahead of today's monetary policy decision from the ECB and with China expected to report trade and inflation data later this week. Japanese equities rose, with the yen paring a recent run, while South Korean stocks snapped a recent losing streak. Tensions toward North Korea had pressured the Korean markets but no new developments in the past couple days seems to be cooling concerns. 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. Shares trading in mainland China and Hong Kong traded lower. Australian securities finished flat after softer-than-expected reads on retail sales and the trade surplus, while Indian equities were little changed.

The international economic docket for tomorrow will include trade data, Q2 GDP and bank lending figures from Japan, home loans from Australia, trade data and labor costs from Germany and industrial and manufacturing production from the U.K. and France.

Markets Notch Fourth-Straight Gain

Charles Schwab: On the Market

Posted: 9/1/2017 4:15 PM ET

Markets Notch Fourth-Straight Gain

U.S. equities finished the week out on a high note amid lighter volume ahead of the three-day Labor Day holiday weekend. The ISM Manufacturing Index jumped to a six-year high to aid the advance, while automakers posted relatively upbeat monthly sales reports, helping to overshadow a softer-than-expected August nonfarm payroll report. Treasury yields rose and the U.S. dollar continued to rebound, while crude oil prices were mixed and gold was higher.

The Dow Jones Industrial Average (DJIA) rose 39 points (0.2%) to 21,988, the S&P 500 Index added 4 points (0.2%) to 2,476, and the Nasdaq Composite gained 7 points (0.1%) to 6,435. In light-to-moderate volume, 651 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.06 higher to $47.29 per barrel and wholesale gasoline lost $0.03 to $1.75 per gallon. Elsewhere, the Bloomberg gold spot price gained $3.58 to $1,325.01 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 92.83. Markets were higher for the week, as the DJIA increased 0.8%, the S&P 500 Index jumped 1.3% and the Nasdaq Composite soared 2.7%.

Lululemon Athletica Inc. (LULU $62) reported Q2 earnings-per-share (EPS) of $0.36, or $0.39 ex-items, versus the $0.35 FactSet estimate, as revenues grew 13.0% year-over-year (y/y) to $581 million, north of the projected $567 million. Q2 same-store sales rose 7.0% y/y, topping the expected 4.2% gain. The yoga and athletic apparel company raised its full-year guidance. Shares rallied.

Palo Alto Networks Inc. (PANW $147) posted a fiscal Q4 loss of $0.42 per share, or EPS of $0.92 ex-items, compared to the projected $0.79, with revenues rising 27.0% y/y to $509 million, above the estimated $488 million. The cybersecurity company issued full-year guidance that was mostly above expectations. Shares jumped over 10%.

The major automakers reported August sales today, with General Motors Co's (GM $37) sales rising 7.5% y/y, compared to FactSet's projected 3.7% increase. Fiat Chrysler Automobiles NV's (FCAU $16) Chrysler sales dropped 11.0%, compared to the expected 5.3% decrease. Ford Motor Co. (F $11) reported a 2.1% decline in sales, versus the expected drop of 3.1%. Shares of all three automakers were nicely higher.

August job growth misses forecasts, but manufacturing growth jumps to six-year high

Nonfarm payrolls (chart) rose by 156,000 jobs month-over-month (m/m) in August, compared to the Bloomberg forecast of a 180,000 increase. The rise of 209,000 seen in July was revised to a gain of 189,000 jobs. The total downward revision to the job gains in July and June was 41,000. Excluding government hiring and firing, private sector payrolls increased by 165,000, versus the forecasted gain of 172,000, after increasing by 202,000 in July, revised from the 205,000 rise that was initially reported. Job gains occurred in manufacturing, construction, professional and technical services, healthcare and mining.

The unemployment rate ticked higher to 4.4% from 4.3%, where it was forecasted to remain, while average hourly earnings rose 0.1% m/m, below projections of a 0.2% increase and July's unrevised 0.3% increase. Y/Y, wage gains were 2.5%, versus estimates of a 2.6% rise, and matching July's pace. Finally, average weekly hours dipped to 34.4 from July's unrevised 34.5 rate, where it was expected to remain.

The Institute for Supply Management (ISM) Manufacturing Index (chart) for August jumped to the highest level since April 2011, after rising to 58.8 from 56.3 in July, compared to forecasts calling for an increase to 56.5. A reading above 50 denotes expansion. New orders and production were little changed, holding onto levels above 60, while employment jumped to the highest level since June 2011. New export orders declined 2.0 points to 55.5 and inventories rose 5.5 points to 55.5, while prices paid was flat at 62.0. ISM said comments from the survey reflect expanding business conditions.

The final Markit U.S. Manufacturing PMI Index was revised to 52.8 for August from the preliminary reading of 52.5, where it was expected to remain, but below the 53.3 level posted in July. A reading above 50 denotes expansion. The release is independent and differs from ISM's manufacturing report, as it has less historic value and Markit weights its index components differently.

The final August University of Michigan Consumer Sentiment Index (chart) was revised lower to 96.8 from the preliminary level of 97.6, versus forecasts of 97.5. But the index is up solidly versus July's level of 93.4. Compared to last month, the expectations component of the report was higher, though the current conditions portion declined. The 1-year and 5-10 year inflation outlooks held at July's 2.6% and 2.5% rates, respectively.

Construction spending (chart) fell 0.6% m/m in July, versus projections of a 0.5% advance, and following June's downwardly revised 1.4% drop. Residential spending rose 0.8%, while non-residential spending fell 1.7%.

Despite being below expectations on most levels, today's jobs report—which is being discounted by economists due to seasonal factors—still suggests that the labor market is poised to continue to support economic prosperity. Also, the standout ISM Manufacturing Index, led by the jump in employment, likely bodes well for the broader economy as discussed by Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, in our article, Why the Industrial Sector Matters, on the Insights & Ideas page at www.schwab.com. Brad also discusses our outlook on all the major market sectors in his latest, Schwab Sector Views: Real Estate Roundup, on the Markets & Economy page. Follow us on Twitter: @schwabresearch.

Treasuries were lower following the plethora of data, as the yield on the 2-year note ticked 1 basis point (bp) higher to 1.33%, while the yields on the 10-year note and the 30-year bond rose 5 bps to 2.16% and 2.77%, respectively. Bond yields showed some relative signs of life after being quiet as of late, while the U.S. Dollar Index reversed to the upside, continuing to show signs of stabilization after recently hitting multi-year lows.

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.

Schwab's Chief Fixed Income Strategist Kathy Jones offers a look at the bond markets in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, 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.

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

Europe and Asia higher amid upbeat global manufacturing reports

European equities traded higher, as early strength in the euro relinquished following the upbeat U.S. manufacturing and auto sales reports, which accompanied favorable manufacturing reads in China, eurozone and U.K. The British pound remained higher versus the U.S. dollar but came off the best levels of the day. Bond yields in the region traded higher. The markets shrugged off the conclusion of the latest round of Brexit negotiations, with the European Union lead noting that talks failed to progress enough to move into a new phase set in October.

For a look at Brexit, see our article, Brexit Begins: What's Next for the U.K.? on the Insights & Ideas page. 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 his video with Vice President of Trading and Derivatives, Randy Frederick, 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 out the week mostly to the upside, aided by an upbeat read on Chinese manufacturing output for August, while the markets treaded cautiously ahead of a plethora of U.S. data today, headlined by the key August nonfarm payroll report. Also, conviction may have been held in check as tensions with North Korea lingered and global monetary policy and U.S. political uncertainties remained. 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 Randy Frederick, Political Risk: How Should Investors Respond?, on the Insights & Ideas page.

Stocks in Japan rose modestly, despite the yen regaining some recent losses yesterday and reports showing the nation's Q2 capital spending rose at a smaller pace than anticipated and growth in manufacturing output for August was revised lower. Mainland Chinese equities gained slight ground, but shares traded in Hong Kong gave up early gains and dipped, with the markets digesting recent earnings reports in the region and the aforementioned manufacturing report, which followed yesterday's data that showed growth in activity out of the key services sector decelerated last month. Securities in Australia and India advanced, with the latter showing some resiliency in the face of late-yesterday's softer-than-expected Q2 GDP report. Markets in South Korea finished lower.

Stocks show resiliency in the face of plethora of uncertainty

The U.S. stock markets followed a two-week losing streak with a back-to-back weekly gain to close out August, showing resiliency in the face of a plethora of volatility sources, led by healthcare and technology issues. U.S. political uncertainty remained though recently resurfaced optimism of tax reform helped ease some of the anxiety. Geopolitical concerns were exacerbated by North Korea's latest missile test—this time above Japan—and lingering global trade tensions. Global monetary policy uncertainty festered as last week's Jackson Hole speeches offered little in terms of policy signals, while stubbornly low inflation was countered by stronger-than-expected U.S. Q2 GDP growth and manufacturing activity in China, the U.S., the U.K. and eurozone showing accelerated output in August to lift industrial and materials stocks.

Consumer Confidence hit a five-month high and automakers rallied on Friday to help boost the consumer discretionary sector, and overshadow negative reactions to earnings reports from Best Buy Co. Inc. (BBY $54), Finish Line Inc. (FINL $9) and Dollar General Corp. (DG $72). Adding to the puzzle, the euro hit a more than two-year high against the U.S. dollar, making the European Central Bank a bit uncomfortable, but paused as the greenback rebounded modestly amid the market resiliency and data. Treasury yields were relatively quiet on the week. Even a spike in gas prices and volatile crude oil markets in the wake of Hurricane Harvey did not detour the markets.

Although a short week, next week's economic calendar will bring a flood of key reports for the markets to digest, courtesy of July factory orders, 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.

The international economic front will also be robust with reports including: Australia—Reserve Bank of Australia monetary policy decision, Q2 GDP, retail sales and trade balance. China—Caixin PMI Services Index, trade balance, CPI, and PPI. India—trade balance. Japan—trade balance, and Q2 GDP. Eurozone—European Central Bank monetary policy decision, retail sales, and Q2 GDP, along with German factory orders, industrial production, and trade balance. U.K.—industrial/manufacturing production, trade balance, and Bank of England inflation outlook.

As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, Volatility has ramped up a bit in the traditionally-slow final weeks of summer, which could be a preview of a bumpy fall for investors. Solid economic data and strong corporate earnings should allow the bull market to continue, but fiscal and monetary uncertainties present risks. August narrowly avoided the first loss for global stocks this year; but underlying fundamentals still look generally positive. Read more on the Markets & Economy page at www.schwab.com.

Stocks Shave Gains Following Fed Minutes

Charles Schwab: On the Market

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

Stocks Shave Gains Following Fed Minutes

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

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

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

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

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

Housing construction activity misses ahead of look at Fed meeting

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

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

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

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

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

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

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

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

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

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

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

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

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

Stocks Continue Rebound

Charles Schwab: On the Market

Posted: 8/14/2017 4:15 PM ET

Stocks Continue Rebound

U.S. equities continued to regain some of the losses suffered last week in the midst of the sell-off that came courtesy of heightened tensions between North Korea and the U.S. Treasury yields moved higher amid a dormant economic calendar, while news on the equity front was also limited. Crude oil prices lost ground, as did gold, while the U.S. dollar was nearly flat.

The Dow Jones Industrial Average (DJIA) advanced 135 points (0.6%) to 21,993, the S&P 500 Index was 25 points (1.0%) higher at 2,466, and the Nasdaq Composite jumped 84 points (1.3%) to 6,340. In moderate volume, 744 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.23 to $47.59 per barrel and wholesale gasoline was down $0.03 at $1.58 per gallon. Elsewhere, the Bloomberg gold spot price lost $7.80 to $1,281.51 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.43.

VF Corp. (VFC $64) announced an agreement to acquire privately-held workwear company, Williamson-Dickie Mfg. Co. for about $820 million. As a result of the expected impact of the deal, VFC raised its full-year guidance. VFC traded higher.

Sysco Corp. (SYY $51) posted fiscal Q4 earnings-per-share (EPS) of $0.57, or $0.72 ex-items, versus the $0.71 FactSet estimate, as revenues rose 5.7% year-over-year (y/y) to $14.4 billion, roughly in line with forecasts. The food distribution company's gross margin came in below expectations and its total case volume growth came under scrutiny and shares were lower.

VMware Inc. (VMW $98) preannounced that its Q2 EPS and revenues were higher than previously expected, while raising its full-year guidance. The cloud infrastructure and business mobility company said it expects continued broad-based strength across its product portfolio. Shares rallied.

Data light today but set to ramp up

Treasuries declined with the economic calendar void of any major releases today. The yields on the 2-year and 10-year notes, along with the 30-year bond, rose 2 basis points to 1.32%, 2.22% and 2.81%, respectively.

Treasury yields and the U.S. Dollar Index are looking to bounce back from a choppy week, as subdued inflation data fostered Fed uncertainty and met continued global market skittishness amid the flare-up geopolitical tensions. For analysis of the bond markets and the greenback see Schwab's Chief Fixed Income Strategist Kathy Jones' articles, Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' on the Fixed Income page at www.schwab.com and Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page. Follow Kathy on Twitter: @kathyjones.

This week, the retail sector will remain in focus as Dow members Wal-Mart Stores Inc. (WMT $81) and Home Depot Inc. (HD $154), along with Target Corp. (TGT $56), will put the finishing touches on earnings season. Moreover, the economic calendar will start with tomorrow's release of July retail sales, with the headline and ex-autos figures both forecasted to rise 0.3% month-over-month (m/m) after June's 0.2% declines. Stripping out autos and gas, sales are projected to grow 0.4% after the prior month's 0.1% dip. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, discusses our marketperform rating on the consumer discretionary sector in his Schwab Sector Views: Time to "Energize" Your Portfolio?, noting that the outlook for American consumer spending appears to be relatively stable, with consumer confidence strong and wages generally showing signs of trending higher. However, spending on traditional retail items has been cautious and competition among retailers may limit profitability.

As noted in the latest Schwab Market Perspective: Things are Looking Good … But are They Too Good?, the bull market should continue but the risk of a "melt-up" appears to be rising. The U.S. economy is growing modestly and the Federal Reserve is maintaining its slow pace of policy normalization—both supports for further equity market gains, but geopolitical risk remains elevated. While the weaker U.S. dollar is a benefit for U.S. companies, there is a downside internationally … but it may not be where you think. Read these articles on the Markets & Economy page at www.schwab.com and follow us on Twitter: @schwabresearch.

The housing market will also garner attention beginning with tomorrow's release of the NAHB Housing Market Index, with economists anticipating August's reading to match the 64 posted in July, as well as housing starts and building permits later in the week. Rounding out the busy week, the Fed will deliver its industrial production and capacity utilization report and the minutes from its July meeting, while we will get our first look at the consumer for August in the form of the preliminary University of Michigan Consumer Sentiment Index.

Other items on tomorrow's docket include the Import Price Index, forecasted to have increased 0.1% m/m during July, as well as business inventories, expected to indicate a 0.4% increase m/m for June.

Europe and Asia rebound as global markets recover

European equities moved broadly higher, snapping a four-session losing streak, with the euro and British pound losing ground on the U.S. dollar, while the global markets recovered from last week's drop that stemmed from heightened tensions between the U.S. and North Korea. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA points out in his article, What are fund flows telling us about trends and risks in the global stock market?, that the money coming into ETFs is flowing into a broad range of stock markets featuring a preference for international stocks and revealing a surprising disconnect with the performance and geopolitical risk of the underlying markets. Read more on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop. Stocks shrugged off a larger-than-expected decline in eurozone industrial production for June. Bond yields in the region finished mixed.

Stocks in Asia finished mostly higher as recently exacerbated global sentiment appears to be easing after last week's ramp-up in geopolitical concerns as tensions rose between North Korea and the U.S. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors are best served when grim headlines are in the news by remembering that geopolitical risks are a regular part of investing and that a long history of geopolitical developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are most often the result. Investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. Read more on the International Investing page at www.schwab.com. However, Japan's Nikkei 225 Index fell sharply, with the market playing catch up after Friday's holiday that came when stocks ended the week broadly lower on the heightened uneasiness, which fostered a rally in the yen. The Japanese currency did give back some of the gains today as the nation reported a much stronger-than-expected preliminary estimate of Q2 GDP growth, which came as private consumption and business spending more than offset a negative contribution from the country's trade activity.

Mainland Chinese stocks and those traded in Hong Kong gained ground, as the global rebound overshadowed disappointing reads on the nation's retail sales, fixed asset investment and industrial production for July. Meanwhile, markets in Australia, South Korea and India all saw gains as well.

A slew of reports form the U.K. will dominate tomorrow's international economic calendar, with the island nation slated to report CPI, PPI, the Retail Price Index, and mortgage payments, while other releases from abroad will include retail sales and industrial production from Japan, and GDP from Germany.

Stocks Sink in a Wave of Global Equity Declines

Charles Schwab: On the Market

Posted: 8/10/2017 4:15 PM ET

Stocks Sink in a Wave of Global Equity Declines

U.S. stocks fell, joining a broad-based global equity decline as the global markets dialed back risk appetites on the increased tension between the U.S. and North Korea. Technology and financial issues led the drop, followed closely by consumer discretionary stocks as uneasiness toward the retail sector remains despite better-than-expected earnings results from Kohl's and Macy's. In economic news, wholesale price inflation came in cooler than estimated, gold was higher and Treasury yields, crude oil prices and the U.S. dollar were lower.

The Dow Jones Industrial Average (DJIA) declined 205 points (0.9%) to 21,844, the S&P 500 Index lost 36 points (1.4%) to 2,438, and the Nasdaq Composite tumbled 135 points (2.1%) to 6,217. In moderate to heavy volume, 859 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil decreased by $0.97 to $48.59 per barrel and wholesale gasoline was unchanged at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price was $8.25 higher at $1,285.55 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—traded 0.2% lower at 93.40.

Kohl's Corp. (KSS $40) reported Q2 earnings-per-share (EPS) of $1.24, compared to the $1.19 FactSet estimate, as revenues decreased 0.9% year-over-year (y/y) to $4.1 billion, roughly in line with expectations. Q2 same-store sales declined 0.4% y/y, compared to the projected 1.5% drop. The company said traffic momentum that it saw in the combined March/April period accelerated in Q2, and though transactions for the quarter were lower than last year, July transactions increased. Shares finished sharply lower amid concerns about the continued sluggishness in sales.

Macy's Inc. (M $21) posted Q2 EPS of $0.38, or $0.48 ex-items, versus the projected $0.46, with revenues decreasing 5.4% y/y to $5.6 billion, just above the expected $5.5 billion. Quarterly same-store sales decreased 2.8% y/y, versus the forecasted 3.3% decline. M reaffirmed its full-year sales outlook and shares fell due to concerns about the persistent subdued department store sales.

Dillard's Inc. (DDS $62) announced a Q2 loss of $0.58 per share, compared to the estimated EPS of $0.18, as revenues decreased 1.7% y/y to $1.4 billion, mostly in line with expectations. Q2 same-store sales decreased 1.0% y/y, versus the anticipated 3.3% decline. Shares tumbled.

With the markets having scrutinized a plethora of retail results, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: Time to "Energize" Your Portfolio? American consumers' mood has certainly improved and we'll be watching to see if that translates into more spending and more pricing power for retailers. For now, we believe that companies in the extremely competitive sector will still be fighting for every dollar, resulting in our marketperform rating for the consumer discretionary sector. Read more on the Markets & Economy page at www.schwab.com. Follow us on Twitter: @schwabresearch.

Wholesale price inflation cooler than expected, jobless claims rise

The Producer Price Index (PPI) (chart) showed prices at the wholesale level in July were down 0.1% month-over-month (m/m), versus the Bloomberg expectation to match June's 0.1% increase. The core rate, which excludes food and energy, also dipped 0.1%, compared to forecasts of a 0.2% advance and June's unrevised 0.1% increase. Y/Y, the headline rate was 1.9% higher, below projections of a 2.2% increase, and the core PPI rose 1.8% last month, missing estimates of a 2.1% gain. In June, producer prices were 2.0% higher and up 1.9% for the headline and core rates, respectively.

Tomorrow, the economic calendar will culminate with the highly-anticipated release of the Consumer Price Index, projected to show a 0.2% m/m increase in prices at the headline level for July, after being flat in June, while the core rate is also expected to increase 0.2% after the prior month's 0.1% gain. Compared to last year, prices are forecasted to be 1.8% higher, up from June's 1.6% rise, and core inflation is estimated to remain at the prior month's 1.7% pace. Core prices are anticipated to post the third-straight month below the Fed's 2.0% target, but the markets continue to expect the Central Bank to raise rates one more time this year and begin the process of shrinking its behemoth $4.5 billion balance sheet.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Fed Keeps it on the QT, to date, the Fed has raised rates four times; yet over that same period, financial conditions have actually loosened. This is why the Fed feels it can continue to tighten policy in the face of lower inflation. Easier financial conditions, despite higher rates, have supported economic growth as well as the stock market. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Weekly initial jobless claims (chart) rose by 3,000 to 244,000 last week, above forecasts of 240,000, with the prior week’s figure being revised higher by 1,000 to 241,000. The four-week moving average declined by 1,000 to 241,000, while continuing claims decreased 16,000 to 1,951,000, south of estimates of 1,960,000.

Treasuries traded higher, with the yield on the 2-year note slipping 1 basis point (bp) to 1.33% and the yields on the 10-year note and the 30-year bond dipping 4 bps to 2.20% and 2.78%, respectively.

Treasury yields extended yesterday's dip but the U.S. Dollar Index paused from a slight rebound as the inflation data met skittish global markets amid the flared-up geopolitical tensions. For analysis of the bond markets and the greenback see Schwab's Chief Fixed Income Strategist Kathy Jones' articles, Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' on the Fixed Income page at www.schwab.com and Dollar Decline: Time to Shift to International Bonds? Maybe Not, on the Markets & Economy page. Follow Kathy on Twitter: @kathyjones.

Europe extends yesterday's drop, Asia declines as N Korean uneasiness lingers

European equities added to yesterday's drop, leading a global market slide with festering concerns about escalated tensions between North Korea and the U.S. continuing to dampen sentiment. All major sectors traded lower, with some economic data in the region also disappointing. French industrial production fell more than expected in June and manufacturing output in the U.K. came in flat for June. Moreover, the U.K. trade deficit widened unexpectedly in June. The euro was flat and the British pound dipped versus the U.S. dollar, while bond yields in the region finished mixed. For our latest analysis of the global markets, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, article, What are fund flows telling us about trends and risks in the global stock market?, as well as his commentary, An important benefit to global investors is back after 20 years on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished lower for a second day as the global markets remain uneasy regarding recently flared-up geopolitical tensions. The escalation came amid reports that North Korea said it was examining a plan to strike the U.S. territory of Guam with missiles on the heels of a warning from U.S. President Donald Trump and the recent increased U.N. sanctions against North Korea. 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. Japanese equities dipped ahead of tomorrow's holiday, with the yen stabilizing from yesterday's jump to help the markets but a read on the nation's key machine orders—a gauge of capital investment—unexpectedly fell in June. Stocks trading in both South Korea and India declined. Australian securities nudged lower. Mainland China and Hong Kong saw shares fall, with the North Korean tensions joining this week's disappointing trade data and softer-than-expected inflation figures.

The international economic docket for tomorrow will be light, offering local car sales and industrial production from India and CPI from Germany and France.