Stocks Dipping After Data and BoE

Charles Schwab: On the Market

Posted: 9/14/2017 9:00 AM ET

Stocks Dipping After Data and BoE

U.S. stocks are lower in early action, coming off another record high run, following a hotter-than-expected read on consumer price inflation that may be bringing the Fed back in focus, while the Bank of England's expected unchanged monetary policy decision hinted at a potential rate hike in the coming months. Treasury yields are mixed and the U.S. dollar is paring losses. Crude oil prices and gold are higher. Asia finished mixed and Europe is mostly lower on the BoE's decision and following some disappointing Chinese economic data.

As of 8:55 a.m. ET, the December S&P 500 Index future is 8 points below fair value, the DJIA future is 32 points below fair value, and Nasdaq 100 Index future is 29 points south of fair value. WTI crude oil is increasing $0.53 to $49.83 per barrel and Brent crude oil is gaining $0.42 to $55.58 per barrel. The Bloomberg gold spot price is trading $2.84 higher at $1,326.05 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is dipping 0.1% to 92.45.

Tenet Healthcare Corp. (THC $16) is getting a boost from a report by the Wall Street Journal suggesting the hospital operator was exploring strategic options, including the possible sale of the company, citing sources familiar with the matter. THC has not commented on the report.

Lattice Semiconductor Corp. (LSCC $6) is in focus after President Donald Trump blocked Chinese-backed investor, Canyon Bridge Capital Partners LLC's $1.3 billion bid to acquire the company. The White House and Treasury Department said President Trump acted on the recommendation of a multi-agency panel, per Bloomberg.

Consumer price inflation tops forecasts, jobless claims decline

The Consumer Price Index (CPI) (chart) rose 0.4% month-over-month (m/m) in August, versus the Bloomberg estimate calling for a 0.3% gain, while July's 0.1% rise was unrevised. The core rate, which strips out food and energy, was up 0.2% m/m, matching expectations and compared to July's unrevised 0.1% rise. Y/Y, prices were 1.9% higher for the headline rate, above forecasts of a 1.8% rise, while the core rate was up 1.7%, topping projections of a 1.6% increase. July y/y figures showed an unrevised 1.7% rises for both the headline and core rates.

Treasuries are mixed, with the yield on the 2-year note ticking 1 basis point (bp) higher to 1.36%, while the yields on the 10-year note and the 30-year bond are dipping 1 bp to 2.18% and 2.77%, respectively.

Bond yields are modestly extending this week's sharp rebound from a recent drop back to November lows that came despite upbeat economic data and record highs for the stock markets. Schwab's Chief Fixed Income Strategist, Kathy Jones, and Vice President of Trading and Derivatives, Randy Frederick, provide analysis of the conundrum in the video, The Economy is Picking Up, But Bond Yields Are Falling—What's That About?, with Kathy noting that the disconnect between the fixed income markets and the economy is about inflation. Read more on the Insights & Ideas page and follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Weekly initial jobless claims (chart) declined by 14,000 to 284,000 last week, below forecasts of 300,000, with the prior week’s figure being unrevised at 298,000. The four-week moving average rose by 13,000 to 263,250, while continuing claims decreased 7,000 to 1,944,000, south of estimates of 1,965,000.

The jobless claims figures likely continued to be distorted by the impacts of Hurricanes Harvey and Irma, discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her latest article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", on the Markets & Economy page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

The U.S. dollar is giving back some of its solid recovery seen this week in the wake of the Bank of England's (BoE) expected unchanged monetary policy stance, where it suggested that it may tighten policy in coming months. The greenback's rally this week has come amid relatively eased geopolitical and U.S. political concerns, as well as reduced economic cost estimates of Hurricane Irma. However, the greenback is paring losses in the wake of the inflation data.

For commentary on the geopolitical and domestic political fronts, see Schwab's Chief Global Investment Strategist 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 Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's article, Debt Ceiling Deal Pushes Showdown in Congress to December, on the Insights & Ideas page. Follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch.

Europe mostly lower on mixed BoE decision

Most European equity markets are trading lower in afternoon action, with the British pound rallying versus the U.S. dollar after the Bank of England (BoE) held its monetary policy stance steady as expected, but noted that it may need to raise rates in the coming months. The markets are also eyeing more threatening rhetoric from North Korea, while digesting some disappointing Chinese economic data. However, Next Plc. (NXGPY $29) is a bright spot, rallying after the British retailer lifted its full-year profit outlook. In other central bank news, the Swiss National Bank kept its monetary policy unchanged, in line with forecasts. Growth in EU new car registrations for August accelerated in August. The euro is higher versus the U.S. dollar and bond yields in the region are mixed.

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.

The U.K. FTSE 100 Index is down 0.9%, France's CAC-40 Index is ticking 0.1% higher, Germany's DAX Index is declining 0.3%, Italy's FTSE MIB Index is rising 0.2%, Spain's IBEX 35 Index is declining 0.4%, and Switzerland's Swiss Market Index is dipping 0.1%.

Asia mixed following data and ahead of monetary policy decisions

Stocks in Asia finished mixed on the heels of the continued gains in the U.S. to record highs, while the markets digested some disappointing Chinese economic data and awaited monetary policy decisions out of the U.K. and Switzerland. China's Shanghai Composite Index and the Hong Kong Hang Seng Index declined 0.4% after August reports on retail sales, industrial production and fixed asset investment all rose at smaller-than-expected amounts. Japan's Nikkei 225 Index decreased 0.3%, despite the yen weakening. South Korea's Kospi Index overcame early losses and finished 0.7% higher and India's S&P BSE Sensex 30 Index nudged 0.2% higher. Australia's S&P/ASX 200 Index dipped 0.1%, even as the nation reported upbeat August employment figures. For more on the global markets, see Schwab's Jeffrey Kleintop's, CFA, 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 International Investing page at www.schwab.com.

Financial Review

Complacency Abounds

Sinclair Noe — July 14, 2017

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

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DOW + 84 = 21,637 (record)
SPX + 11 = 2459 (record)
NAS + 38 = 6312
RUT + 3 = 1428 (record)
10 Y – .03 = 2.32%
OIL + .52 = 46.60
GOLD + 11.10 = 1229.40
BITCOIN – 3.39% = 2156.96 USD
ETHEREUM – 5.51% = 187.69

Washington is in gridlock and the White House faces scrutiny. Valuations are at the highest levels since the financial crisis. There’s been straight months of outflows from the biggest exchange-traded fund tracking the S&P 500.

So, what happened today? Record highs for the Dow, S&P 500, and Russell 2000. The Nasdaq is within 10 points of a record. The CBOE Volatility Index ended at 9.51, a 24-year low, falling 15 percent.

We start with economic data. The Commerce Department said retail sales fell 0.2 percent in June as Americans curtailed spending at restaurants, department stores and gasoline stations. That followed a 0.1 percent drop in May. Most retail segments posted weaker results in June.

Sales at gas stations posted the biggest drop, down 1.3%, reflecting lower prices at the pump. Sales also fell at grocers, restaurants, book stores, sporting-goods stores and department stores. Auto dealers reported a small increase in sales, but they are not moving new cars off the lots as quickly as they were a year ago.

Meanwhile, the Labor Department said consumer prices were flat in June, the latest evidence that inflation remains muted. All told, inflation has climbed just 1.6 percent from a year ago. In June, energy prices sank 1.6%. Americans paid less for gasoline, natural gas and electricity. The cost of food leveled off in June after five straight increases.

The core rate of inflation that excludes the volatile food and energy categories rose 0.1% in June. Grocery prices have declined in the past year, but the cost of takeout and eating out has risen sharply. Over the past 12 months the core CPI is up 1.7%, unchanged from the prior month.

The University of Michigan’s sentiment index slipped to 93.1 in July from 95.1 in June. The index has fallen from a 13-year high of 98.5 in January. Americans feel plenty confident in the economy right now, but seem convinced we’re all headed for hell in a handbasket.

An index that measures current conditions rose to 113.2 to set a 10-year high, but a gauge that looks out six months fell to 80.2 from 83.9. The outlook of consumers is now back to where it was before the November election.

Industrial production rose 0.4% in June, a touch ahead of expectations and the fifth straight month of increases, as mining output surged 1.6%; mining includes the oil and gas sector. The Federal Reserve reported utilities output as flat and manufacturing output edged up 0.2%.

Economic forecasts are revising estimates for second quarter GDP lower, to the range of 1.9% to 2.5%. At the start of the second quarter estimates topped 3% growth. The economic data confirms a lack of inflation and a sluggish economy that fits with dovish statements from the Federal Reserve policymakers this week.

At this rate, we may have seen the last rate hike from the Fed for this year. The Fed still wants to trim its balance sheet, but 1.6% inflation and weak retail sales is hardly justification to hike rates.

The dollar dropped lower and treasuries rallied. Oil gained 1% today and 5% for the week.

Earnings season kicked off in earnest, with JPMorgan Chase, Citigroup and Wells Fargo all posting better-than-expected profits. Even though the bottom line was solid, they still faced challenges.

JPMorgan Chase reported a better-than-expected quarterly profit on Friday due to strong loan growth and higher interest rates, but said net interest income for the year would be lower than expected, sending its shares down about 2 percent.

JPMorgan earned $26.5 billion in profit over the past 12 months, the most ever by any major U.S. bank.

While trading results were worse than analysts’ estimated, second-quarter earnings set a record. The bank said that net interest income will probably climb $4 billion this year, less than the $4.5 billion it previously projected.

One area of weakness is mortgages, where the market may shrink and competition is stiff. JPMorgan said its markets revenue fell 14 percent in the second quarter. At Citigroup, trading revenue was down 7.2 percent.

On a conference call, JPMorgan CEO Jamie Dimon had a few choice words about Washington politics, choice as in four letter words we can’t repeat in print. Dimon also had trepidation about the Fed’s plans to unwind its balance sheet, saying: “We’ve never had QE like this before, and we’ve never had unwinding like this before.Obviously, that should say something to you about the risk that might mean, because we’ve never lived with it before.”

The Fed will likely announce the kick-off this year, possibly at its September meeting. The Fed’s plan calls for a phase-in period. It will unload $10  billion the first month and raise that to $50 billion over the next 12 months. Then it will continue at that pace to achieve its “balance sheet normalization.”

Just like the Fed “created” this money during QE to buy these assets, it will “destroy” this money at a rate of $50 billion a month, or $600 billion a year. It’s the reverse of QE, with reverse effects. QE had the intended effect: inflating asset prices. Unwinding QE, once it starts in earnest, is likely to pull asset prices in the opposite direction.

But given of how leveraged assets are, and to the enormous extent they have been used as collateral, Dimon – the banker who is concerned about collateral values – hit the nail on the head. It’ll be “a very different world.”

Citigroup posted earnings per share of $1.28 on revenue of $17.9 billion, topping analyst expectations on the top and bottom lines. That’s compared to earnings of $1.24 per share on $17.5 billion in revenue in the year-ago period.

Wells Fargo beat earnings expectations, as it benefited from higher interest rates, though revenue was lower than expected at $22.1 billion. At Wells Fargo, new car loans dropped by almost half in the second quarter, while its automotive portfolio fell to the lowest level in two years after the bank tightened underwriting standards.

Another cause for celebration earlier this week: court approval of a $142 million settlement of a class-action lawsuit between the bank and victims of its fake account scandal of 2016. The fiasco, you might remember, included claims that Wells Fargo employees opened up to 2 million bank and credit-card accounts without customers’ permission to boost sales numbers. Multiple class action suits followed, and the bank expects them to all fold into this settlement.

However, the bank’s first response was to veto the class action and send it to mandatory arbitration, which is an alternate form of resolving a dispute using an appointed independent party instead of the court system. It’s an option banks and financial institutions have written into contracts with consumers, and they use it to prevent consumers from joining together to pursue relief. Only after public pressure did the San Francisco bank agree to face the suit.

The big 3 banks all beat on the bottom line. There was a bit of disappointment on the guidance but overall, it’s been a good start to the earnings season.

Look for S&P 500 earnings in the range of 7%. Analysts have high hopes for earnings. Companies in the S&P 500 will earn $130 per share at year-end, compared with current trailing 12-month comparable earnings of about $120, according to data compiled by Bloomberg. That $10 spread is the widest between past and future earnings since 2001.

Expectations for tech profits have steadily climbed throughout the year, with analysts now calling for a 15 percent jump in the group’s bottom line.

Senate majority Leader Mitch McConnell has planned for a vote next week on revised healthcare legislation, unveiled yesterday, and he has his work cut out for him in the coming days to get the 50 “yes” votes needed for passage.

Republicans control the Senate by a 52-48 margin and cannot afford to lose more than two from within their ranks because of united Democratic opposition, but two Republican senators already have declared opposition. A dozen more Republican senators have expressed concern or remain noncommittal.

A major test for McConnell’s legislation expected early next week is an analysis by the nonpartisan Congressional Budget Office, which last month forecast that the prior version of the bill would have resulted in 22 million Americans losing insurance over the next decade.

Financial Review

Fed Day

Sinclair Noe — June 14, 2017

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

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DOW + 46 = 21,374
SPX – 2 = 2437
NAS – 25 = 6194
RUT – 8 = 1417
10 Y – .07 = 2.14%
OIL – 1.78 = 44.68
GOLD – 6.00 = 1261.10
BITCOIN + 1.88% = 2541.31 USD
ETHEREUM – 13.12% = 345.44

Another record high close for the Dow Industrials. Stocks moved lower today after the Federal Reserve announced it was raising interest rates. The move was completely expected, so maybe the markets were reacting to weak retail sales data instead. Stocks recovered from session lows, with the Dow turning positive in the final hour of trade.

The Federal Reserve raised its benchmark lending rate by a quarter percentage point to a target range of 1.00 percent to 1.25 percent. This was the second rate hike in the past 3 months. The hike was widely expected.

In its statement following a two-day meeting, the Fed’s policy-setting committee indicated the economy had been expanding moderately, the labor market continued to strengthen and a recent softening in inflation was transitory. This was in-line with expectations for one more rate hike from the Fed for 2017, possibly in September or December.

The Fed has now raised rates four times as part of a normalization of monetary policy that began in December 2015. The Fed’s decision to raise rates was approved 8-1, with Neel Kashkari, head of the Fed’s Minneapolis regional bank, dissenting in favor of holding rates unchanged. Kashkari sees a very different economy from his colleagues, in terms of both inflation and the labor market.

While Yellen and the members who voted for hikes did so, in part, because they were worried about rising inflation, Kashkari doesn’t share their concern. If Kashkari is right, it means the Fed may be leaving lots of jobs and growth on the table.

The Fed also gave a first clear outline on its plan to reduce its $4.5 trillion portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the 2008 financial crisis and recession. The Fed will allow its bond holdings to mature and fall off the balance sheet without being replaced or rolled over.

The Fed said the initial cap for Treasuries would be set at $6 billion per month initially and increase by $6 billion increments every three months over a 12-month period until it reached $30 billion per month in reductions to its holdings. For agency debt and mortgage-backed securities, the cap will be $4 billion per month initially, increasing by $4 billion at quarterly intervals over a year until it reached $20 billion per month.

Back of napkin math means the Fed will try to shrink the balance sheet in half over about 4 years, once the process starts. No date given. Fed Chair Janet Yellen said the process could begin “relatively soon.”

It won’t take long until you start to feel the rate hike. Look for interest rates on credit cards to jump relatively soon, probably 60 days, or two billing cycles. The average household now pays a total of $1,292 in credit card interest per year, according to NerdWallet’s research. Now that the Federal Reserve increased its rates as analysts expected, the total will rise to $1,309.

On the flip side, savers can look forward to earning higher rates on deposits, but don’t expect much, bank deposits are paying just over 1% which is not enough to keep pace with inflation.

The Fed also issued updated economic forecasts. The Fed’s revised forecasts reduced its estimate for unemployment by year’s end to 4.3 percent from a March projection of 4.5 percent. Unemployment has already reached a 16-year low of 4.3 percent.

The Fed kept forecast for economic growth this year of 2.2 percent, up slightly from its March forecast, with growth of 2.1 percent in 2018 and 1.9 percent in 2019. In a news conference, Fed Chair Janet Yellen said she still expects inflation to hit a 2% target next year, mentioning that recent declines are coming from such areas as telecom.

Earlier in the session we had some disappointing readings on inflation and retail sales.

Higher interest rates are normally good for a currency, but the dollar’s performance suggest traders see little chance for any more increases this year – at least if the turmoil in Washington distracts the Trump administration from implementing its pro-growth fiscal agenda.

Meanwhile, Treasuries rallied, pushing the yield on the 10-year note down 7 basis points and further flattening the yield curve, an indication that debt traders are cutting their expectations for growth. Bond traders are clearly worried the Fed is on a path to harm the nation’s prospects for growth without meaningfully adding to its arsenal of tools to deal with any downturn.

Meanwhile in the oil market, the price of crude is doing its best to keep inflation under wraps. Oil fell below $45 a barrel to its lowest since November as government data showed that weaker demand at the start of the summer driving season led to another increase in gasoline stockpiles.

Gasoline inventories rose 2.1 million barrels last week, according to the Energy Information Administration. Adding to the market pessimism, the International Energy Agency said new production from OPEC’s rivals will be more than enough to meet growth in demand next year, overwhelming the oil group’s efforts to reduce supplies by cutting its own output.

The EIA forecasts output at major American shale fields will reach a record in July.

Consumer prices declined in May, reflecting a big drop in energy prices. The Consumer Price Index, or CPI, edged down 0.1 percent last month following a small 0.2 percent increase in April. Prices had fallen 0.3 percent in March.

In addition to a drop in energy costs last month, the price of clothing, airline fares and medical care also declined. Core inflation, which excludes energy and food, rose a slight 0.1 percent in May. Over the past 12 months, consumer prices are up 1.9 percent while core inflation has risen 1.7 percent.

In May, food costs edged up a tiny 0.2 percent while energy costs fell 2.7 percent, led by a 6.2 percent drop in the price of gasoline. Over the past 12 months, food costs are up just 0.9 percent while energy prices have risen 5.4 percent.

Clothing costs dropped 0.8 percent in May while the cost of new cars and used cars both fell 0.2 percent. Medical services such as the cost of doctor’s visits dipped 0.1 percent in May but have risen 2.5 percent over the past 12 months.

Those low food costs might not last. Wheat has quietly staged a huge rally, as a prolonged dry spell has left the U.S. spring crop in its worst shape in almost three decades. Forty-five percent of the crop, the high-protein variety grown in northern states, was in good or excellent condition as of June 11.That’s down 10 percentage points from the prior week and marks the worst rating for the time of year since 1988.

Futures have surged more than 15 percent in the past month. Spring wheat futures for July delivery reached $6.45 3/4 a bushel, the highest for a most-active contract since December 2014.

The Commerce Department said retail sales dropped 0.3 percent, the first decline since February and the sharpest since a 1 percent decrease in January 2016. Last month, sales fell 2.8 percent at electronics stores, the biggest such drop since March 2016. They fell 2.4 percent at gasoline stations and 1 percent at department stores, which have struggled with competition from online retailers.

Business inventories fell by a seasonally adjusted 0.2 percent in April, following a gain of 0.2 percent in March. It was the first decline since a 0.2 percent drop in October. Sales were flat after contracting 0.1 percent in March. When businesses increase stockpiles, it is generally seen as a sign of their confidence that sales will increase in the coming months. A decrease in inventories can be a sign of pessimism about future sales.

Financial Review

Make Way for May

Sinclair Noe — April 28, 2017

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

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DOW – 40 = 20,940
SPX – 4 = 2384
NAS – 1 = 6047
RUT – 16 = 1400
10 Y – .02 = 2.28%
OIL + .21 = 49.18
GOLD + 4.20 = 1268.70

Looking back on the week, we had a couple of strong moves Monday and Tuesday, following the French election over the weekend – the rally was based on an absence of bad news. After that, markets looked for good news and floundered.

The tax reform plan failed to impress. We had some good earnings reports, which helped to lift a few stocks – notably a few of the big tech stocks, and that helped the Nasdaq Composite climb above 6,000 to new record highs. For the week, the Dow rose 1.9 percent, the S&P gained 1.5 percent and the Nasdaq rose 2.3 percent.

During April, the Dow gained 1.3 percent, the S&P rose 0.9 percent and the Nasdaq jumped 2.3 percent.

Yesterday, Alphabet, Amazon, and Microsoft reported earnings. Alphabet and Amazon crushed it. Microsoft was a slight disappointment. From the close of the market on Thursday to session highs on Friday, all three stocks hit an all-time high. That added more than $30.6 billion to Alphabet’s Class A market capitalization, $14.2 billion to Amazon’s market capitalization, and $6.7 billion to Microsoft’s market cap, reaching about $52 billion between the 3.

The stocks later pared gains, falling below their peaks. By the end of the day on Friday, the trio were just $27.4 billion richer, with Alphabet seeing $22.75 billion of those gains. The gains left both Amazon and Alphabet closing in on share prices of $1,000.

Amazon went public in 1997; if you had been brilliant enough to invest $10,000 at the IPO price of $18, and patiently held, you would be sitting on just over $4.8 million. Amazon’s market capitalization reached about $442 billion, pushing founder Jeff Bezos’ wealth closer to the richest in the world.

Alphabet and Microsoft had market caps of about $636 billion and $529 billion, respectively.

The US economy expanded at the slowest pace in three years as weak auto sales and lower home-heating bills dragged down consumer spending, offsetting a pickup in investment led by housing and oil drilling. Gross domestic product, the value of all goods and services produced, rose at a 0.7 percent annualized rate after advancing 2.1 percent in the prior quarter.

Consumer spending, the biggest part of the economy, rose 0.3 percent, the worst performance since 2009. There is a tendency for weak economic growth in the first quarter; the past few years winter storms were blamed for the declines; this year, warm winter weather is being blamed.

Since 2000, expansion in the first quarter of each year has averaged 1 percent, compared with 2.2 percent for the rest of each year. The pattern I recognize is that consumers get tapped out over the holidays and must tighten their belts in the first quarter.

The good news is that the unemployment rate is low, people have jobs, there is no immediate economic dilemma, and the economy should rebound as we move through the rest of the year. The bad news is that the growth trajectory looks a lot like the past few years, solid but sluggish. And in the background, inflation is eating into consumers’ wallets.

Real disposable personal income rose at a 1 percent pace in the period, the weakest since the fourth quarter of 2013. The report also showed price pressures were picking up. The GDP price index rose 2.3 percent in the first quarter. A measure of inflation tied to consumer spending and excluding volatile food and energy costs was up 2 percent, the fastest in four quarters.

And there is a good chance consumers will loosen the strings on the pocketbook in the second quarter. The University of Michigan consumer confidence survey shows consumers feeling good. The current conditions index in April was at its second-highest since 2005, and consumer expectations for inflation in the year ahead, and in five to 10 years, were unchanged from the prior month.

The employment cost index, released by the Labor Department, showed a 2.4 percent annual rise — the fastest pace in two years – and climbed 0.8 percent from the prior quarter for the strongest rate since the end of 2007. The wages and salaries component also increased 0.8 percent in the first three months of the year, the most since the second quarter of 2008.

The Federal Reserve FOMC policy meeting is next week and it is widely expected the Fed will leave interest rates at current levels while maintaining guidance for 2 more rate hikes this year.

The federal government will continue for at least one more week. Faced with a budget deadline of midnight tonight, legislators could not agree on the details of a budget plan to keep the doors open and the lights on, but they did agree to kick the can down the road. Congress approved a one-week extension to agree on a spending bill to fund the government through September.

Leaders of both parties say they’re close to agreement on a broader spending plan after Republicans signaled they would accept Democratic demands that the Trump administration promise to continue paying Obamacare subsidies and drop its bid for immediate funds for a wall on the Mexican border.

House GOP leaders abandoned efforts to vote this week on their plan to repeal and replace Obamacare for lack of support in their party. A vote is still possible next week.

Brazil is on strike, a nationwide general strike to protest President Michel Temer’s austerity measures, hitting public transport and closing schools, factories, banks and other businesses in every state. Police clashed with demonstrators in several cities, firing tear gas in efforts to clear roadways blocked by burning barricades.

Protesters also obstructed the entrances of airports and metro stations. Temer’s efforts to pass pension and labor reforms have deeply angered many Brazilians. Temer has proposed a minimum age for retirement. The lower house of Congress approved a bill this week to weaken labor laws by relaxing restrictions on outsourcing and temporary contracts.

GM, Ford, Toyota, and Mercedes all halted production at factories in Sao Paulo. the strike was strategically concentrated in public transportation so that even people who might want to get to work could not.

Young Europeans are sick of the status quo in Europe. And they’re ready to take to the streets to bring about change, according to a recent survey. Around 580,000 respondents in 35 countries were asked the question: Would you actively participate in large-scale uprising against the generation in power if it happened in the next days or months? More than half of 18- to 34-year-olds said yes.

A U.S. appeals court has blocked health insurer Anthem’s bid to merge with Cigna, upholding a lower court’s decision that the $54 billion deal should not be allowed because it would lead to higher prices for healthcare. The ruling effectively kills the proposed merger that was opposed by the U.S. Justice Department, 11 states and a district court judge after consumers, medical professionals and others objected to it.

In the end, Cigna itself tried to back out. Anthem and Cigna are suing each other. Cigna has sought to abandon the merger and force Anthem to pay a $1.85 billion breakup fee while Anthem filed a lawsuit to force its smaller rival to go through with the combination.

A consortium led by private equity firms Hillhouse Capital Group and CDH Investments offered on Friday to buy Belle International Holdings in a deal valuing the entire Hong Kong-listed shoe retailer at about $6.8 billion.

After months of speculation about whether Time, Inc. would be acquired, its board of directors has decided not to sell the company. Following the news, Time Inc. shares were down more than 19%.

Two initial public offerings went opposite directions Friday, as software company Cloudera shares shot up above its issue price and car-vending machine company Carvana saw its shares slump. Cloudera gained 20%, while Carvana dropped 26%.

Gasoline demand in the US dropped 2.4% in February compared with a year earlier, the second straight monthly decline. Still, coming in at 8.9 million barrels per day. The price of oil has nearly doubled from 12 months ago – a powerful motivation to conserve, but the lower demand also points to less economic activity.

Oil prices settled a bit higher today but still registered a second straight monthly decline. The problem for oil companies is that oil has spent a very long time consolidating around $50 to $55 and has now dropped under that range. Meaning any move higher will face strong resistance.

Meanwhile, any move below $47 would break through support. For oil companies, they have largely based their guidance for 2017 on prices in the $60 a barrel range.

Rising crude prices helped Chevron and Exxon Mobil easily beat analysts’ quarterly profit expectations. Chevron and Exxon expanded production in their American shale portfolios during the quarter, with both deciding the low-cost fields offered an easy opportunity to boost profit. They have laid out plans to increase drilling in those fields this year.

Exxon reported quarterly profit more than doubling to $4 billion, even as production fell 4 percent. Chevron swung to a $2.6 billion quarterly profit and turned cash flow positive. Chevron’s results were helped by $2.1 billion in asset sales. The company has sold more than $5 billion in assets since last year and is seeking buyers for its Canadian oil sands business.

General Motors recorded its highest ever profit for a first quarter. US sales of Chevrolet trucks and crossovers rose 3.5 percent and 12 percent, respectively, during the quarter, while GMC truck and crossover sales jumped almost 10 percent. GM’s net profit rose 33 percent in the first quarter to $2.6 billion, or $1.70 per share, beating estimates of $1.48 per share.

Stocks Advance for Fifth-Straight Session

Charles Schwab: On the Market

Posted: 2/15/2017 4:15 PM ET

Stocks Advance for Fifth-Straight Session

U.S. stocks extended their recent rally, with global markets remaining optimistic regarding President Donald Trump's reflationary policy promises. Treasury yields rose, bolstered by favorable retail sales and regional manufacturing reports and a hotter-than-expected read on inflation. Crude oil prices and the U.S. dollar ticked lower, while gold was higher. In equity news, PepsiCo offered mixed earnings results and AIG missed expectations.

The Dow Jones Industrial Average (DJIA) advanced 107 points (0.5%) to 20,612, the S&P 500 Index gained 12 points (0.5%) to 2,349, and the Nasdaq Composite added 37 points (0.6%) to 5,819. In moderately-heavy volume, 844 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.09 lower to $53.11 per barrel and wholesale gasoline was flat at $1.55 per gallon. Elsewhere, the Bloomberg gold spot price rose $4.66 to $1,232.80 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 101.04.

PepsiCo Inc. (PEP $107) reported 4Q earnings-per-share (EPS) ex-items of $1.20, above the $1.16 FactSet estimate, as revenues rose 5.0% year-over-year (y/y) to $19.5 billion, roughly in line with expectations. PEP issued 2017 EPS guidance that missed forecasts and shares traded modestly lower. Schwab’s Chief Investment Strategist Liz Ann Sonders offers a look at the earnings front in her latest article, Better Days: Earnings Growth Picks Up Sharply in 2017, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

American International Group Inc. (AIG $61) fell after the insurer posted a larger-than-expected 4Q operating loss of $2.72 per share. FactSet had anticipated a $0.61 per share shortfall but the company had one-time items in its results that may be impacting comparability. AIG also announced a $3.5 billion addition to its share repurchase program.

Express Scripts Holding Co. (ESRX $69) posted 4Q EPS ex-items of $1.88, one penny above estimates, with revenues declining 5.0% y/y to $24.9 billion, compared to the projected $26.3 billion. ESRX issued 1Q earnings guidance that slightly missed expectations, while reaffirming its full-year profit projection. ESRX ticked lower in choppy trading. 

Dow member Merck & Co. Inc. (MRK $65) announced that it ended a study of its Alzheimer's drug. Shares finished lower.

Retail sales and consumer price inflation top forecasts, Yellen concludes Capitol Hill visit

Advance retail sales (chart) for January rose 0.4% month-over-month (m/m), above the Bloomberg forecast of a 0.1% increase, and compared to December's upwardly revised 1.0% rise. Also, last month's sales ex-autos were up by 0.8% m/m, north of expectations of a 0.4% gain, and following the positive revision to a 0.4% rise seen in the previous month. Sales ex-autos and gas were higher by 0.7% m/m, compared to estimates of a 0.3% increase, and versus December's upward revision to a 0.1% gain. The retail sales control group, a figure used to help calculate GDP, increased 0.4%, compared to the projected 0.3% rise, and versus to the prior month's positively revised 0.4% gain. 9 of the 13 categories showed growth, led by electronics and appliances, sporting goods, department stores, food services and drinking places, and gasoline, while autos pulled back.

The report, given the importance of consumer spending on U.S. economic output, along with the following jump in regional manufacturing activity, adds credence to Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, view in his latest article, Simple Indicators In A Complex World, that while markets may exhibit increasing volatility, we believe the bull market is being supported by tangible and effective indicators of global growth. The stock markets remain at record highs, tracking economic data that continues to exceed expectations as discussed by Jeff in his commentary, Five Reasons to Stay Invested Despite Heightened Uncertainty. Read these articles at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.

The Consumer Price Index (CPI) (chart) was up 0.6% m/m in January, north of estimates and the prior month's 0.3% rise. The core rate, which strips out food and energy, gained 0.3% m/m, above expectations and December's 0.2% rise. Y/Y, prices were 2.5% higher for the headline rate, above forecasts of a 2.4% increase, while the core rate was up 2.3%, topping projections of a 2.1% gain. December y/y figures showed an unrevised 2.1% rise and an unadjusted 2.2% increase for the headline and core rates respectively.

The Empire Manufacturing Index showed output from the New York region jumped further into expansion territory (a reading above zero) for February. The index surged to 18.7—the highest since September 2014—from January's unrevised 6.5 level, with forecasts calling for a 7.0 reading.

Industrial production (chart) declined 0.3% m/m in January, compared to estimates of a flat reading, and following December's downwardly revised 0.6% gain. Manufacturing production ticked 0.2% higher m/m and mining production jumped, while utilities output tumbled. Capacity utilization dipped to 75.3% from December's upwardly revised 75.6%, and compared to projections for a 75.4% rate. Capacity utilization is 4.6 percentage points below its long-run average.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month dipped for a second month to 65, compared to expectations for it to remain at January's unrevised 67 level, with a 50 mark separating good and poor conditions.

Business inventories (chart) rose 0.4% m/m in December, matching forecasts, and versus November's upwardly revised 0.8% gain.

The MBA Mortgage Application Index declined 3.7% last week, following the previous week's 2.3% gain. The drop came as a 2.9% decrease for the Refinance Index was met with a 4.5% fall for the Purchase Index. The average 30-year mortgage rate declined 3 basis points (bps) to 4.32%.

Federal Reserve Chairwoman Janet Yellen is concluding her two-day semi-annual Congressional economic and monetary policy testimony in front of the House Financial Services Committee. Her prepared testimony did not deviate from yesterday's statement in front of the Senate, where she kept the possibility of a March rate hike on the table by noting that waiting too long to remove accommodation would be unwise. Also, she added that, "At our upcoming meetings, the Committee will evaluate whether employment and inflation are continuing to evolve in line with these expectations, in which case a further adjustment of the federal funds rate would likely be appropriate." The Q&A session is garnering some attention on the Street.

As noted in the latest Schwab Market Perspective: Not So Fast!, if economic data continues to surprise on the upside, a March rate hike is likely to be on the table; while there is an additional risk that the Fed may be forced to speed up the tightening process should inflation accelerate from here. Read more at www.schwab.com/marketinsight and check out Schwab's Liz Ann Sonders' video with Schwab's Vice President of Trading and Derivatives, Randy Frederick titled, What Can Investors Make of Latest Fed Meeting and January Labor Report?, at www.schwab.com/insights. Treasury yields and the U.S. dollar continued to regain upward momentum and the stock markets added to record highs in the wake of Yellen's comments yesterday.

Treasuries were lower, with yields adding to a recent rally on the retail sales and inflation data. The yield on the 2-year note rose 2 bps to 1.25%, while the yields on the 10-year note and the 30-year bond increased 3 bps to 2.50% and 3.08%, respectively. For a look at the bond markets, see Schwab's Director of Income Planning, Rob Williams', CFP, and Senior Research Analyst, Cooper Howard's, CFA, latest article, Short-Term Bonds: Why They Could Outperform As Interest Rates Rise, at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

Tomorrow, the economic calendar will bring a look at January housing construction activity, in the form of housing starts and building permits, with starts forecasted to remain at December's annual rate of 1,226,000 units, and permits projected to rise 0.2% m/m to an annual rate of 1,230,000 units. Additional reports will include weekly initial jobless claims, expected to have increased by 11,000 to 245,000, and the Philly Fed Manufacturing Index for February, anticipated to decline to 18.0 from January's 23.6 level, though a reading above zero indicates expansion in activity.

Europe gets back on the upward trend, Asia finished mostly higher 

European equities moved back in positive territory after the Stoxx Europe 600 Index finished flat yesterday, halting a five-session winning streak. The markets continued to get a boost from optimism regarding U.S. reflationary policies that are expected to be announced in the coming weeks. Most markets shrugged off lingering European political uncertainty, with some key elections in the region looming on the horizon, though it bogged down Italian markets. For analysis of the U.S. and European political fronts, see Schwab's Jeffrey Kleintop's, CFA, article, President Trump and Global Trade: How Will Campaign Promises Play Out? and Director of International Research, Michelle Gibley's, CFA, article, Europe Votes: Could More Countries Reject the EU? at www.schwab.com/oninternational. Solid gains for French bank Credit Agricole SA (CRARY $6) and brewer Heineken NV (HEINY $40) on the heels of their earnings reports helped the markets in the region, along with upbeat reads on U.K. employment and the eurozone trade surplus. The euro ticked higher and British pound dipped versus the U.S. dollar, which cooled a bit after a recent run that was bolstered by U.S. Fed Chief Yellen's comments yesterday that kept the possibility of a March rate hike on the table. Bond yields in the region finished mixed. For global market investing analysis, see Schwab's Jeffrey Kleintop's, CFA, articles, The CURE for a calm Market: Four risks for 2017, and 5 Reasons International Stocks May Underperform In 2017. Read these articles at www.schwab.com/oninternational.

Stocks in Asia finished mostly higher amid the continued global market rally that has taken the U.S. markets to record highs. The markets have received a boost from a shift in focus to reflationary policies in the U.S. and away from global trade and immigration concerns. Stocks moved higher despite U.S. Fed Chief Yellen's comments yesterday that kept the possibility of a March rate hike on the table. Japanese equities rose, with the yen extending yesterday's drop as the U.S. dollar gained ground on Yellen's comments. Mainland Chinese stocks declined, but those traded in Hong Kong rallied in the wake of late-yesterday's mixed lending statistics for last month, highlighted by a record high in aggregate financing, the biggest measure of new credit. Australian securities gained ground, led by banks as global bond yields moved higher on Yellen's comments, and South Korean stocks rose. Indian equities declined amid weakness in banks as reports suggested the government cut the amount it planned to inject into state-run lenders, per Bloomberg. For our analysis of the global markets, see Schwab's Director of International Research, Michelle Gibley's, CFA, articles, Currency Hedging: 5 Things You Need to Know and Emerging Markets: Why They Deserve a Place in Your Portfolio at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

The international economic docket for tomorrow will include machine tool orders from Japan, employment data from Australia, unemployment reads from France and the trade balance from Italy.

Stocks Finish Friday with Gains

Charles Schwab: On the Market

Posted: 2/10/2017 4:15 PM ET

Stocks Finish Friday with Gains

U.S. stocks continued to trade in record-high territory, staging another solid advance as yesterday's comments from President Trump regarding his soon-to-be-announced tax plan continued to fuel gains. Crude oil extended its recent rally, the U.S. dollar increased, Treasuries were lower and gold ticked slightly higher. In economic news, consumer sentiment dropped from a 13-year high and short-term inflation expectations rose.

The Dow Jones Industrial Average (DJIA) advanced 97 points (0.5%) to 20,269, the S&P 500 Index gained 8 points (0.4%) to 2,316, and the Nasdaq Composite added 19 points (0.3%) to 5,734. In moderate volume, 789 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.86 to $53.86 per barrel and wholesale gasoline rose $0.02 to $1.59 per gallon. Elsewhere, the Bloomberg gold spot price ticked $3.14 higher to $1,233.51 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 100.76. Markets were higher for the week, as the DJIA increased 1.0%, the S&P 500 Index advanced 0.8% and the Nasdaq Composite gained 1.2%.

Activision Blizzard Inc. (ATVI $47) announced 4Q earnings-per-share (EPS) ex-items of $0.92 per share, well above the expected $0.73, with revenues growing 15.8% year-over-year (y/y) to $2.5 billion, compared to the anticipated $2.4 billion. Separately, the gaming company announced a new share repurchase program of up to $1.0 billion and a 15% increase of its dividend to $0.30 per share. Shares surged.

NVIDIA Corp. (NVDA $114) posted 4Q EPS of $0.99, above the $0.83 FactSet estimate, as revenues jumped 55.0% y/y to $2.2 billion, versus the projected $2.1 billion. The chipmaker issued 1Q revenue guidance with a midpoint that was slightly above forecasts. Shares gave up an early gain and traded lower as the Street scrutinized its quarterly performance and guidance after 3Q's blowout results that took the stock on a more than 70% rally.

Expedia Inc. (EXPE $123) reported adjusted 4Q EPS of $1.17, below the forecasted $1.36, with revenues rising 23.0% y/y to $2.1 billion, roughly in line with expectations. Gross bookings increased 8.0% y/y. Shares finished lower.

Sears Holdings Corp. (SHLD $7) jumped over 25% after unveiling its next phase of its restructuring plan, projected to deliver at least $1.0 billion in annualized cost savings in 2017 from the previously announced closure of 108 Kmart and 42 Sears stores, and reduce debt. The company also announced preliminary 4Q guidance that was above forecasts.

Consumer sentiment falls from 13-year high, import prices top forecasts

The preliminary University of Michigan Consumer Sentiment Index (chart) declined this month to 95.7, from the prior month's 98.5 level—which was the highest since January 2004—and compared to expectations of a dip to 98.0. The current economic conditions component held steady m/m, while the outlook portion deteriorated. The 1-year inflation estimate rose from 2.6% to 2.8%, and 5-10 year inflation outlook dipped to 2.5% from 2.6%.

The Import Price Index (chart) increased 0.4% month-over-month (m/m) for January, compared to the Bloomberg projection of a 0.3% increase and December's upwardly revised 0.5% gain. Compared to last year, prices were higher by 3.7%, north of forecasts calling for a 3.4% jump, and following December's upwardly revised 2.0% increase.

Treasuries were lower, with the yields on the 2-year and 10-year notes along with the 30-year bond, ticking 1 basis point higher to 1.19%, 2.41% and 3.01%, respectively. For a look at the bond markets, see Schwab's Director of Income Planning, Rob Williams', CFP, and Senior Research Analyst, Cooper Howard's, CFA, latest article, Short-Term Bonds: Why They Could Outperform As Interest Rates Rise, at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

The stock markets are back in record territory, while the U.S. dollar and Treasury yields ticked higher, bolstered by U.S. President Donald Trump saying yesterday that "something phenomenal" will likely be announced regarding his tax plan in 2-3 weeks. This is overshadowing the recent flare-up in concerns about global trade relations and immigration on the heels of Trump's actions and comments. Also, last week's relatively dovish takeaway of the Fed's unchanged monetary policy decision and continued upbeat economic data have aided the markets. Crude oil prices are extending a rally to lend further support, in the wake of a report that suggested OPEC had achieved initial compliance of 90% with their recent production cut agreement. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, discusses President Trump and oil in his latest Schwab Sector Views: Trump Plus OPEC Equals ...What for Energy? at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

For further analysis of the markets recent rallies, see Schwab’s Chief Investment Strategist Liz Ann Sonders' and Schwab's Vice President of Trading and Derivatives, Randy Frederick's latest video, What Can Investors Make of Latest Fed Meeting and January Labor Report?, at  www.schwab.com/insights.

Finally, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Simple Indicators In A Complex World, noting that while markets may exhibit increasing volatility, we believe the bull market is being supported by tangible and effective indicators of global growth. For more useful indicators see Jeff's article, Five Reasons to Stay Invested Despite Heightened Uncertainty. Read these articles at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.

Europe mixed, Asia mostly higher 

European equities finished mixed, with lingering political uncertainty ahead of some key elections in the region being met with renewed optimism regarding U.S. President Donald Trump's promise of a "phenomenal" tax plan in the coming weeks. For analysis of these issues, see Schwab's Jeffrey Kleintop's, CFA, article, President Trump and Global Trade: How Will Campaign Promises Play Out? and Director of International Research, Michelle Gibley's CFA, release, Europe Votes: Could More Countries Reject the EU? at www.schwab.com/oninternational. Also, the markets digested a stronger-than-expected read on China's trade activity and crude oil's continued rally on reports of OPEC's compliance with its production cuts that boosted the energy sector. In economic news, French industrial and manufacturing production reports both missed estimates, while the U.K. trade deficit narrowed more than expected and the nation's manufacturing and industrial production both easily bested forecasts. The euro dipped and the British pound was little changed versus the U.S. dollar, while bond yields in the region finished mostly higher.

For global market investing analysis, see Schwab's Jeffrey Kleintop's, CFA, articles, The CURE for a calm Market: Four risks for 2017, and 5 Reasons International Stocks May Underperform In 2017. Read these articles at www.schwab.com/oninternational.

Stocks in Asia finished higher following the gains seen in the U.S. and European markets yesterday, bolstered by the continued rebound in crude oil prices and as U.S. President Donald Trump made a promise to expect his tax plan soon. The renewed U.S. tax optimism overshadowed heightened global trade and immigration concerns. Also, China reported a favorable read on its trade activity, headlined by stronger-than-expected January export growth. Japanese equities rallied with the yen giving back a jump as of late amid a strong advance in the U.S. dollar, while traders awaited today's meeting between Prime Minister Abe and U.S. President Donald Trump. Mainland Chinese shares advanced and those traded in Hong Kong also rose, while Australian securities gained ground and South Korean stocks traded higher. Indian equities finished flat. For our analysis of the global markets, see Schwab's Director of International Research, Michelle Gibley's, CFA, articles, Currency Hedging: 5 Things You Need to Know and Emerging Markets: Why They Deserve a Place in Your Portfolio at www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

Stocks ride late-week rally back to record highs

Conviction remained contained to begin the week amid exacerbated global market uneasiness toward the political risks in the U.S. and Europe, with the former exacerbating trade and immigration concerns and the latter facing key elections. However, the major U.S. equity markets staged a late-week rally into positive territory and back to record highs as reflation optimism resurfaced as President Trump pledged that a "phenomenal" tax plan was in the offing. The U.S. Dollar Index posted the first weekly gain of 2017 and Treasury yields pared early losses. Crude oil prices battled back to near the flatline as reports of OPEC production cut compliance countered oversupply concerns in the wake of a couple bearish oil inventory reports. Gold extended its recent jump in choppy trading.

The economic calendar was relatively light, though earnings season continued to roll on and continued to paint a relatively positive picture against elevated expectations. Hasbro Inc. (HAS $98) and Activision Blizzard were standout winners, while Michael Kors Holdings Ltd. (KORS $38) and Twitter Inc. (TWTR $16) were hammered by their guidance. Per Bloomberg, with earnings season past the apex, of the 357 companies in the S&P 500 Index that have reported, about 51% have topped sales estimates and approximately 75% have exceeded earnings forecasts, with technology issues leading the way adding credence to Schwab's Brad Sorensen's, CFA, outperform rating on the sector in his latest Schwab Sector Views at www.schwab.com/marketinsight.

Next week, the domestic economic front will heat back up, with the Producer Price Index (PPI), Consumer Price Index (CPI), retail sales, industrial production, the Leading Index and housing starts and building permits, providing a good read on many key contributors to economic output. Also, the NFIB Small Business Optimism Index and regional manufacturing reports out of New York and Philadelphia are poised to also garner attention, along with festering political uncertainty on both sides of the Atlantic and the continued dissemination of earnings reports. Finally, Federal Reserve Chairwoman Janet Yellen will deliver her semi-annual testimony before Congress.

As noted in the latest Schwab Market Perspective: Not So Fast!, investor caution is rising, which contrarily should help the bull market continue. Economic data has continued to beat expectations, but the number of upside surprises may start to level off, and investor enthusiasm toward potential new policies from Washington could wane as political realities set in. International growth appears stable, but acceleration doesn't seem to be on the horizon, while trade tensions pose a risk to global economies and markets. Read more at www.schwab.com/marketinsight.

International reports to look out for include: Australia—consumer confidence and employment change. China—lending statistics, CPI and PPI. India—trade balance, CPI and PPI. Japan—4Q GDP and industrial production. Eurozone—4Q GDP, trade balance and ECB policy meeting minutes. U.K.—CPI, employment change and retail sales.

Markets Ring in New Year on Positive Note

Charles Schwab: On the Market

Posted: 1/3/2017 4:15 PM ET

Markets Ring in New Year on Positive Note

Though off the best levels of the day, U.S. equities started 2017 in the green amid a plethora of upbeat global manufacturing reports, headlined by a two-year high in U.S. output, and despite a tumble in crude oil prices. Treasuries finished mixed, while gold and the U.S. dollar were sharply higher. News on the equity front was light, though General Motors responded to a tweet about the automaker's Mexican production from President-elect Trump, and Ford canceled plans for a new $1.6 billion Mexican factory.

The Dow Jones Industrial Average (DJIA) increased 119 points (0.6%) to 19,882, the S&P 500 Index gained 19 points (0.8%) to 2,258 and the Nasdaq Composite added 46 points (0.9%) to 5,429. In heavy volume, 968 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.39 to $52.33 per barrel and wholesale gasoline shed $0.05 to $1.62 per gallon. Elsewhere, the Bloomberg gold spot price rose $10.47 to $1,157.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—jumped 0.9% higher to 103.18.

General Motors Co. (GM $35) was in focus after President-elect Donald Trump said today on Twitter that the automaker could face a "big border tax" if it does not make its Chevy Cruze automobiles in the U.S. GM responded by saying that it manufactures all Chevy Cruze sedans sold in the U.S. in Lordstown, Ohio, and it builds the Chevy Cruze hatchback for global markets in Mexico, with a small number sold in the U.S. Shares were higher.

Separately, Ford Motor Co. (F $13) announced that it is cancelling plans for a $1.6 billion new plant in San Luis Potosi, Mexico, and will invest $700 million to expand its Flat Rock plant in Michigan into a factory that will build autonomous and electric vehicles along with the Mustang and Lincoln Continental. Shares gained ground.

Revlon Inc. (REV $30) was nicely higher after the company announced restructuring actions in the wake of its merger with Elizabeth Arden that include the elimination of 350 jobs worldwide.

U.S. data joins positive global manufacturing sentiment

The Institute for Supply Management (ISM) Manufacturing Index (chart) for December moved further into expansion territory (above 50) than expected after rising to 54.7 from November's 53.2 level, and compared to the Bloomberg forecast of a modest rise to 53.8. Production and new orders both rose solidly to levels above 60, and growth in employment accelerated slightly, with all these posting new highs for 2016. Prices jumped to 65.5 and inventories declined further below 50. The ISM said forward-looking comments from the survey were largely positive.

The final Markit U.S. Manufacturing PMI Index was revised higher to 54.3 for December from the 54.2 preliminary level, where it was expected to remain. The index is up from the 54.1 level posted in November. 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.

Both reports, notably the ISM's index hitting the highest level in two years, add to favorable December manufacturing data out of China, Eurozone and the U.K., bolstering global economic sentiment. The data adds credence to our view in the Schwab Market Perspective: Will the Momentum Continue Into 2017?, that the populist trend seen globally last year may not continue and investors should focus on market reactions in the face of political "shocks" and on the improving global manufacturing picture. Some of the enthusiasm since the election may have pulled some gains from 2017 into 2016, but we believe the economic momentum seen in the latter half of 2016 will continue into 2017. Read more at www.schwab.com/marketinsight, where you can also find Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, look at investing in the major sectors in the New Year in his latest Schwab Sector Views: Entering 2017 the Same Way as 2016.

Construction spending (chart) rose 0.9% month-over-month (m/m) in November, versus projections of a 0.5% advance, and following October's favorably revised 0.6% gain. Residential spending was 1.0% higher, and non-residential spending rose 0.8%.

Treasuries were mixed, as the yield on the 2-year note rose 1 basis point (bp) to 1.22%, while the yield on the 10-year note was flat at 2.44%, and the 30-year bond rate declined 2 bps to 3.05%.

Bond yields are getting back into rally mode as the global manufacturing reports add to a recent string of upbeat economic data. Rates have also been bolstered by high expectations for fiscal stimulus, tax reform and regulatory rollbacks as President-elect Donald Trump is set to take office and the Republicans gain control of Congress later this month. Also, the Fed's highly expected 25 bp increase to its target for the fed funds rate in December included a forecast for more rate hikes in 2017 than it had previously projected. Tomorrow, we will get details of the Fed's decision and 2017 estimates in the form of the minutes from the December meeting (economic calendar). Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the bond markets in a video with Schwab's Vice President of Trading and Derivatives, Randy Frederick titled, How Should Bond Investors Prepare in Light of Fed Outlook for 2017? at www.schwab.com/insights, where you can also find her latest, Changing Conditions: A Bond Market FAQ. Follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Signs of rising inflation have also pressured bond prices and Schwab's Fixed Income Director, Collin Martin, CFA, discusses in his article, Inflation Is Rising: Time to Consider Treasury-Inflation Protected Securities? at www.schwab.com/onbonds.

In addition to the Fed minutes, tomorrow’s economic calendar will offer only MBA Mortgage Applications.

Europe and Asia move higher on global data

European equities mostly traded to the upside, with financials leading the way, bolstered by a recovery in the troubled Italian banking sector, while upbeat global economic data boosted sentiment and commodity-related issues. U.K. manufacturing output grew at the fastest pace since June 2014 and complemented today's upbeat U.S. reports out of the sector. Global economic optimism was bolstered by signs of continued expansion in the eurozone and China that were posted in the past few days. Also, inflation statistics in Germany heated up for December, joining a separate release showing German unemployment fell more than expected last month. The euro and the British pound lost ground versus the U.S. dollar, while bond yields in the region mostly moved to the upside. For timely analysis of the global landscape, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, 5 Reasons International Stocks May Underperform In 2017, at www.schwab.com/oninternational, as well as his video with Senior Derivatives Analyst Nathan Peterson titled, Brexit, Germany, China: How the Global Economy Could Fare in the New Year at www.schwab.com/insights. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished higher following some upbeat Chinese manufacturing data, while volume was lighter than usual as markets in Japan were closed for a holiday. The Caixin China PMI Manufacturing Index improved to 51.9 in December from 50.9 in November, where it was expected to remain. The report followed China's official manufacturing and services sector reports over the weekend that showed growth continued to expand last month. Mainland Chinese stocks and those traded in Hong Kong gained ground following the data, which added to a recent string of data suggesting stabilization in the world's second-largest economy. For more on China, see Schwab's Director of International Research, Michelle Gibley's, CFA, article, 5 Big Risks Posed by China (And Why They Shouldn't Crash Global Markets in 2017). The data also bolstered commodity-related issues, helping equities in Australia finish higher, while listings in South Korea and India also notched gains. Schwab's Michelle Gibley, CFA, offers timely analysis of emerging markets in her latest article, Emerging Markets: Why They Deserve a Place in Your Portfolio. Read both articles at www.schwab.com/oninternational, and be sure to check out our latest release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

Markit’s Manufacturing PMI readings from across the globe will dominate tomorrow’s international economic calendar, while other reports slated for release include employment data from Spain, lending statistics from the U.K., and CPI from Italy.

Stocks Close Lower for Final Session of 2016

Charles Schwab: On the Market

Posted: 12/30/2016 4:15 PM ET

Stocks Close Lower for Final Session of 2016

U.S. stocks closed the final trading session of 2016 lower as complacency lingered and volume and data were light ahead of the New Year holiday weekend. Treasuries were higher and the U.S. dollar, gold and crude oil prices ticked lower. In light economic news, a read on some regional manufacturing activity missed expectations.

The Dow Jones Industrial Average (DJIA) decreased 57 points (0.3%) to 19,763, the S&P 500 Index lost 10 points (0.5%) to 2,239 and the Nasdaq Composite declined 49 points (0.9%) to 5,383. In moderately-light volume, 783 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.05 lower to $53.72 per barrel and wholesale gasoline was $0.01 lower at $1.67 per gallon. Elsewhere, the Bloomberg gold spot price shed $5.73 to $1,152.40 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 102.30. Markets were lower for the week, as the DJIA declined 0.9%, the S&P 500 Index lost 1.1% and the Nasdaq Composite decreased 1.5%.

Mylan NV (MYL $38) announced the launch of a generic version of Dow member Johnson & Johnson's (JNJ $115) drug, Concerta, aimed at treating Attention Deficit Hyperactivity Disorder (ADHD). MYL traded higher and JNJ was little changed.

Cabela's Inc. (CAB $59) dropped after the company received a "second request" from the Federal Trade Commission (FTC) for additional information in regard to its proposed merger with Bass Pro Shops.

Regional manufacturing activity slips

The Chicago Purchasing Managers Index (chart) declined more than expected but remained in expansion territory (above 50), decreasing to 54.6 in December from 57.6 in November, and versus the Bloomberg expectation of a dip to 56.8. Growth in new orders and production both decelerated, while inventories and employment both signaled contraction.

Treasuries were higher, with the yield on the 2-year note dipping 2 basis points (bps) to 1.20%, the yield on the 10-year note declining 3 bps to 2.44% and the 30-year bond rate slipping 1 bp to 3.07%.

Bond yields have rallied this year in the wake of upbeat economic data, which has accompanied high expectations for fiscal stimulus, tax reform and regulatory rollbacks following the surprise November Presidential election. Also, the rally in rates was bolstered in early December as the Fed's highly expected 25 bp increase to its target for the fed funds rate included a forecast for more rate hikes in 2017 than it had previously projected. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the bond markets in a video with Schwab's Vice President of Trading and Derivatives, Randy Frederick titled, How Should Bond Investors Prepare in Light of Fed Outlook for 2017? at www.schwab.com/insights, where you can also find her latest, Changing Conditions: A Bond Market FAQ. Follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Signs of rising inflation have also pressured bond prices and Schwab's Fixed Income Director, Collin Martin, CFA, discusses in his article, Inflation Is Rising: Time to Consider Treasury-Inflation Protected Securities? at www.schwab.com/onbonds.

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

Europe modestly higher and Asia mixed to close out 2016

European equities finished slightly higher, amid lingering complacency to close out 2016, which saw mixed performance in the region as U.K. markets stood out with a sharp rally, though Italian stocks fell noticeably on exacerbated banking sector concerns. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, 5 Reasons International Stocks May Underperform In 2017, at www.schwab.com/oninternational, as well as his video with Senior Derivatives Analyst Nathan Peterson titled, Brexit, Germany, China: How the Global Economy Could Fare in the New Year at www.schwab.com/insights. Follow Jeff on Twitter: @jeffreykleintop. Financials led to the upside, as the banking sector got a reprieve, with Italian lender Banca Monte dei Paschi di Siena SpA (BMDPD $7) announcing plans to issue about $15.8 billion of debt to bolster is capital position. The report comes as the company is expected to receive government support after it approved a bank bailout decree that will allow it to increase its public borrowing by 20 billion euros to help fund bank bailouts. Stocks shrugged off flared-up geopolitical concerns as the U.S. announced new sanctions against Russia, as well as the expulsion of 35 diplomats, due to allegations that the country interfered with the November elections. Russia announced today that it will not retaliate by expelling American diplomats. The euro and British pound traded higher versus the U.S. dollar, while bond yields in the region gained ground.

Stocks in Asia finished mixed in the final trading session of 2016, which has seen divergent performance, while volume continued to be subdued ahead of the New Year holiday, with markets in South Korea closed today. Japanese equities declined despite the yen giving back some of yesterday's advance. Stocks trading in mainland China and Hong Kong advanced on the heels of yesterday's upbeat November trade data. Chinese stocks rebounded from recent weakness that has come courtesy of festering currency/liquidity concerns in the wake of the U.S. dollar's recent jump, uncertainty following government crackdowns—notably on the real estate and insurance sectors—and lingering uneasiness regarding trade relations with the U.S. For analysis of the impact on the global markets of the U.S. election, see Schwab's Jeffrey Kleintop's, CFA, latest article, President Trump and Global Trade: How Will Campaign Promises Play Out?.

Australian securities fell, with financials seeing pressure. Indian equities rallied, along with other emerging markets, continuing to pare recent weakness that has been fostered by earnings and economic concerns, along with government reform uncertainty and monetary policy divergence. Schwab's Director of International Research, Michelle Gibley, CFA, offers timely analysis of emerging markets in her latest article, Emerging Markets: Why They Deserve a Place in Your Portfolio, Read both articles at www.schwab.com/oninternational, and be sure to check out our latest article, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

Stocks limp to 2016 finish line

U.S. stocks finished lower on the holiday-shortened final week of 2016, with the markets complacent amid a lack of catalysts and data light ahead of the New Year. The U.S. dollar and Treasury yields pulled back from 2016 rallies, while crude oil prices added to a year-to-date surge. The global markets assessed the wild swings in 2016, with the Fed raising rates in the wake of some signs the economy is gaining steam, while showing some resiliency in the face of heightened political uncertainty in Europe, notably a short-lived negative reaction to the U.K.'s vote to leave the European Union, known as Brexit. All major U.S. indexes rallied sharply on the year, bolstered by the surprise November election, which saw Donald Trump win the Presidency and the Republicans gain control of Congress. On the year, most major sectors jumped, led by energy issues on crude oil's surge and financials in the wake of the upward charge in interest rates, but real estate stocks dipped and healthcare issues saw red.

The New Year will begin with another shortened-week, but the economic calendar will be robust, with the ISM Manufacturing and non-Manufacturing Indexes being joined by the Fed's minutes from its December meeting where it raised rates and offered a forecast for a faster pace of hikes in 2017 than it had previously estimated. Other reports include the trade balance, factory orders and Markit's reads on manufacturing and services sector activity. However, the headlining release will likely be Friday's December nonfarm payroll report.

As noted in the Schwab Market Perspective: Will the Momentum Continue Into 2017?, some of the enthusiasm since the election may have pulled some gains from 2017 into 2016, but we believe the economic momentum seen in the latter half of 2016 will continue into 2017. A compelling support for 2017 is investor flows into U.S.-based funds, helping to keep the bull market alive. The populist trend seen globally last year may not continue and investors should focus on market reactions in the face of political "shocks" and on the improving global manufacturing picture. Read more at www.schwab.com/marketinsight, where you can also find Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, look at investing in the major sectors heading into the New Year in his latest Schwab Sector Views: Entering 2017 the Same Way as 2016.

International reports due out next week include: Australia—trade balance. China—manufacturing and services data. India—preliminary 1Q GDP estimate. Eurozone—Markit's business activity reports, CPI estimate, economic confidence and retail sales. Germany—factory orders. U.K.—Markit's business activity reports.