Financial Review

When Others Are Greedy

Sinclair Noe — February 16, 2017

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DOW + 7 = 20,619
SPX – 2 = 2347
NAS – 4 = 5814
RUT – 5 = 1399
10 Y – .05 = 2.45%
OIL + .19 = 53.79
GOLD + 5.40 = 1239.60

Asian markets moved higher this morning but European exchanges were slightly lower. World stocks hit an all-time high this morning, as the MSCI’s All Country World index, which spans 46 countries, notched a record. The Dow Jones industrial average, S&P 500 and Nasdaq have all closed at record highs for five consecutive days, something investors haven’t seen since 1992. And today the Dow, pulled out another record high close but couldn’t drag the other indices higher.

Yesterday, Fed Chair Janet Yellen was delivering her Humphrey-Hawkins testimony before the House Finance Committee and she answered a question about the market’s melt-up. She said: “I think market participants likely are anticipating shifts in fiscal policy that will stimulate growth and perhaps raise earnings.”

Federal Reserve Vice Chairman Stanley Fischer confirmed Fed chief Janet Yellen’s message to the markets this week that the central bank sees signs of strengthening in the economy and “is a little more confident about where we’re going and how soon we’ll get to full employment with stable prices.”

Yellen delivered 2 days of testimony before Congress this week and made the case for continued interest rate hikes this year. Stronger than expected inflation data combined with comments from Fed Chair Janet Yellen to Congress helped push the Fed funds futures market-implied chance of a rate hike in March to 44%, up from 34% the day before.

The odds, per overnight index swaps pricing, have jumped to 52% for March. The dollar hasn’t had a very good week despite the prospect of tighter US policy.

Promises of massive and phenomenal tax reforms have certainly been a driving force in the recent rally; the reality is that we don’t yet know the details, and so the cart seems a bit ahead of the horse. According to a new Bank of America Merrill Lynch Global Fund Manager Survey just 23 percent of respondents, for instance, expect tax cuts to happen before Congress takes its August recess, and 30 percent believe they won’t get enacted until 2018.

Another gauge of emotion, the Investors Intelligence Advisors Sentiment survey, shows bullishness on the stock market at 62.7 percent, the highest reading in more than 12 years. Bearish sentiment, or a belief that the market is heading lower, dropped to 16.2 percent, the lowest since August 2015. Of course, this is a contrarian indicator. You don’t want to buy when everyone is bullish. Or as Warren Buffett famously said, “be greedy when others are fearful and be fearful when others are greedy.”

Normally, the Fed taking a hawkish stance would wipe out giddy optimism but it hasn’t slowed this market hopped up on Trumponomics. What is especially peculiar, is that Trump is calling the economy a disaster.

At a press conference today, to announce his new nominee for Labor Secretary (Alexander Acosta, a former Justice Department official and current dean of Florida International University) Trump claimed: “It’s a mess. At home and abroad. A mess. Jobs are pouring out of the country. You see what’s going on with all the companies leaving our country. Going to Mexico and other places. Low pay, low wages… I inherited a mess.”

When it comes to the U.S economy, though, that “mess” isn’t borne out by most measures. The stock market is at all-time highs. Though growth in the gross domestic product is slow by historical standards, the economy is in the tenth year of one of the longest sustained expansions in history.

And the U.S. job market, which is creating jobs faster than employers can fill them, appears to be stronger than it’s been in nearly a decade; 227,000 new jobs last month and the unemployment rate at 4.8%, which is close to full employment.

The Philadelphia Fed said its manufacturing index soared in February to a reading of 43.3 from 23.6 in January. That’s the highest level since early 1984. Manufacturing activity in the Philadelphia region has been improving since the middle of last year. The new orders index rose 12 points to 39, and the shipments index rose 8.1 points to 28.6.

Initial claims for state unemployment benefits rose 5,000 to a seasonally adjusted 239,000 for the week ended Feb. 11. Claims have been below 300,000, a threshold associated with a strong labor market, for 102 consecutive weeks.

Construction on new houses fell 2.6% in January, but another increase in permits points to builders breaking ground on more units in the months ahead. Housing starts took place at an annual rate of 1.25 million last month. The decline in new construction last month was centered entirely on the category of multi-dwelling units that are usually rented.

Construction on apartment, condos and buildings with five or more units shrank nearly 8%. Yet work on new single-family homes rose almost 2%. Permits to build new homes, climbed 4.6% in January to a 1.29 million pace, and are up 8.2% in the past year.

On Monday, February 20, all US banks and financial markets will be closed in observance of the Presidents Day, perhaps giving investors a chance to catch their collective breath and contemplate the madness of the markets this year.

Cisco sees softness in its core business. The company beat on the top and bottom lines but said revenue from its key “NGN Routing, Switching and Data Center product revenue decreased by 10%, 5% and 4%, respectively.” Shares fell by more than 1% in after-hours trade.

Waste Management said revenue for the latest quarter climbed, driven by increased volumes and yield in the company’s collection and disposal business, though earnings on a per-share basis missed Wall Street expectations. Waste Management confirmed guidance for the current fiscal year.

Snapchat has reportedly set the value of its IPO. The company has set a valuation of $16.2 billion to $18.5 billion for its initial public offering, below the lower end of its range.

America’s largest banks are to propose a complete overhaul of how financial institutions investigate and report potential criminal activity, arguing that rules imposed in the years after the Sept. 11, 2001 attacks are onerous and ineffective. To keep drug traffickers and terrorists from laundering money through the US financial system, federal law mandates that bank employees file a Suspicious Activity Report (SAR) with authorities if they suspect transactions could be part of a crime.

Oil prices are moving higher after OPEC sources said the group could extend its oil supply-reduction pact with non-members and might even apply deeper cuts if global crude inventories failed to drop to a targeted level. OPEC and other exporters agreed last year to cut output by 1.8 million barrels per day to reduce a price-sapping glut. The deal took effect on Jan. 1 and lasts six months. Most producers appear to be sticking to the deal so far but it is unclear how much impact the supply reductions are having on world oil inventories that are close to record highs.

US oil producers sent a record 7 million barrels of crude out into the world market last week. The 1 million barrels a day is nearly double the week-earlier level. The Energy Information Administration’s weekly inventory data also showed that US oil stockpiles swelled to a record 518.2 million barrels last week, and gasoline inventories also hit a record 259.1 million barrels, gaining 2.8 million barrels.

At 2.25 gigawatts, Arizona’s Navajo Generating Station is the biggest coal-burning power plant in the Western US. The plant, and the nearby Kayenta coal mine that feeds it, are located on the Navajo Indian Reservation, and the Navajo and Hopi peoples have had a conflicted relationship with coal since the plant opened in the 1970s. Almost all the 900-plus jobs at the mine and plant are held by Native Americans, and the tribes receive royalties to account for large portions of their budget.

Negotiations were underway to improve the tribes’ lease terms, which expire in 2019. But on Monday, the four utilities that own most of the plant voted to close it at the end of 2019. They decided that the plant’s coal-powered electricity just can’t compete with plants burning natural gas.

Lease negotiations included consideration of a plan to close one of the plant’s three turbines and replace the generation with renewable energy. But the economically vulnerable tribes will be hard-pressed to immediately replace the critical jobs and revenue associated with coal should the plant close three years from now. The flip-side, of course, is that closing the plant (as well as the mine) would eliminate a significant amount of pollution and water use.

Staff at the Environmental Protection Agency have been told that President Trump is preparing a handful of executive orders to reshape the agency, to be signed once a new administrator is confirmed.

Financial Review

T Minus One

Sinclair Noe — January 19, 2017

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW – 72 = 19,732
SPX – 8 = 2263
NAS – 15 = 5540
RUT – 12 = 1345
10 Y + .07 = 2.46%
OIL + .33 = 51.41
GOLD + .50 = 1204.50

The Dow Industrials erased its gains for 2017 as it fell for the fifth day in a row. The Russell 2000 also turned negative year to date.

The European Central Bank left its quantitative-easing program unchanged at €60-billion-euro per month. Policy makers also kept the main refinancing rate at zero and the deposit rate at minus 0.4 percent.

There is little sign that the Governing Council is ready to endorse more hawkish language just yet, even after a jump in inflation to 1.7 percent in Germany. The U.S. dollar rose against its major rivals, recovering off earlier weakness after ECB President Mario Draghi said he didn’t see any “convincing” pickup in Eurozone inflation.

The ECB’s renewed commitment to stimulus comes a day after Federal Reserve chair Janet Yellen said the American economy is strong enough to warrant higher interest rates.

Trump’s pick for Treasury Secretary Steve Mnuchin began his confirmation process today. Meanwhile, Energy Secretary-designate Rick Perry also went before lawmakers. Trump has chosen former Georgia Gov. Sonny Perdue to lead the Department of Agriculture, rounding out the president-elect’s Cabinet selections.

The Senate has not scheduled a single confirmation vote for Trump’s Cabinet.

On Wednesday, retired Defense Secretary designate General James Mattis became the first nominee to win approval at the committee level.  Senate Republicans still hope to confirm members of Trump’s national-security team on Friday, and the likeliest to receive votes are Mattis, retired General John Kelly as homeland security secretary, and Representative Mike Pompeo as CIA director.

Elaine Chao, the nominee for transportation secretary, could also win Senate approval on Friday. So could Ben Carson, Trump’s pick for housing secretary, though he is considered less likely to get a Friday vote. None of the five have generated significant opposition from Democrats, and all of them sailed through their confirmation hearings last week.

Trump may have more luck with the Senate than his immediate predecessors, and he has Democrats to thank. When they held the majority in 2013, they changed the rules so that executive-branch nominations are no longer subject to the 60-vote threshold for filibusters. That means Trump could conceivably win Senate approval of his entire Cabinet without a single Democratic vote.

In rally after rally, and speech upon speech, Donald Trump built a verbal skyscraper of campaign promises about what he would do on his first day in the White House. Begin building a wall at the nation’s southern border. End the “war on coal.” Label China a currency manipulator. The list went on and on. Tomorrow is Day One.

During a break in inauguration festivities, Trump is poised to wield one of the most powerful tools of his office, the presidential pen, for executive actions that can be implemented without the input of Congress. Trump’s advisers vetted more than 200 potential executive orders for him to consider signing on healthcare, climate policy, immigration, energy and numerous other issues, but it was not clear how many orders he will initially approve.

The number of workers being laid off each week has plunged again back to a more-than-40-year low. Initial jobless claims sank by 15,000 to 234,000 in the week ended Jan 14, just a hair above the post-recession low. Initial claims have been under 300,000 for 98 straight weeks, a streak last replicated in 1970 and one that shows no sign of ending.

Arizona’s seasonally adjusted unemployment rate decreased two-tenths of a percentage point from 5.0% in November to 4.8% in December. The U.S.  unemployment rate stands at 4.7% in December. A year ago, the Arizona unemployment rate was 5.9% and the U.S. rate was 5.0%.

Arizona gained 6,300 jobs in December; breaking that down, 10,900 new jobs in the private sector, minus 4,600 jobs cut from government. Arizona employment grew by 1.2% (32,000 jobs) for the year. The Private Sector accounted for 33,100 jobs (1.4%). Government employment declined by 1,100 jobs. The sectors with the largest gains included Education and Health Services (14,300 jobs); Leisure and Hospitality (10,300 jobs); and Construction (6,300 jobs).

Builders broke ground on more homes in December, as confidence in the economy and demand for properties stays strong. Housing starts ran at a seasonally adjusted annual pace of 1.23 million in December, 11.3% higher than in November but about flat compared to the year-ago rate.

The federal control board overseeing Puerto Rico’s finances might accept a revised fiscal plan by Feb. 28 and extend a debt moratorium until May 1, which would give the U.S. territory more time to negotiate restructuring deals. Both requests will be taken up later this month, but would be conditioned on the government agreeing to turn over more financial information and not taking on extra liquidity loans.

A court in South Korea turned down prosecutors’ request to arrest Samsung’s Jay Y. Lee on alleged bribery, perjury and embezzlement, letting him stay in place atop the country’s most powerful company while they continue their investigation.

The de facto head of the Samsung Group and vice chairman of Samsung Electronics is being investigated for allegedly providing tens of millions of dollars to benefit a close friend of South Korean President Park Geun-hye in exchange for approval of a merger between two Samsung affiliates. The deal helped Lee consolidate control over the sprawling conglomerate founded by his grandfather.

Brazilian Supreme Court Justice Teori Zavascki was killed in a plane crash today. Zavascki was overseeing a massive corruption investigation related to the state oil company, Petrobras. Dozens of politicians and some of Brazil’s wealthiest businessmen have been arrested as part of the inquiry, known as Operation Car Wash, over the past two years. The political crisis triggered by the Petrobras investigation eventually led to the impeachment of President Dilma Rousseff in September, on unrelated charges.

The US Justice Department announced a deal with a $5.28 billion settlement with the Swiss banking giant Credit Suisse, for misleading investors in residential mortgage-backed securities it sold in the run-up to the 2008 financial crisis. Credit Suisse will pay a $2.48 billion cash penalty and provide $2.8 billion in consumer relief, including loan forgiveness and financing for affordable housing.

Credit Suisse has admitted that between 2005 and 2007 it knowingly deceived investors in the sale of complex securities derived from residential mortgages. Credit Suisse employees knowingly packaged poor quality loans for sale, referring to them in some instances as “utter, complete garbage” and “complete crap.”

Goldman Sachs is considering moving 1,000 workers in its London offices to Frankfurt because of concerns over Britain’s vote to leave the EU. Yesterday, UBS said that about 1,000 of the bank’s 5,000 employees based in London may be affected by Brexit, while HSBC announced it could relocate 1,000 staff to Paris.

American Express reports quarterly profit fell 8.2 percent to $825 million, or 88 cents per share, from 89 cents per share, a year earlier. Total revenue fell to $8.02 billion from $8.39 billion last year.

IBM forecast full-year earnings above Wall Street estimates and reported better-than-expected quarterly revenue, helped by growth in newer areas such as cloud-based services and analytics. Still, IBM’s revenues declined for the 19^th straight quarter.

We’ve often heard we should be smart consumers when it comes to health care; we should shop for the best prices on things like medicine. So, here is a test. Suppose your family needs the EpiPen for emergency allergy treatment.

Mylan makes EpiPen but they raised the price more than 500% to $609 list price for a two-pack of the lifesaving treatments; that prompted a hearing in Congress last September.  In response, Mylan began selling an authorized generic for about $300 for a two-pack.

Last week, CVS Health Corp. said it would sell a twin-pack of the Adrenaclick auto-injector, from Impax Laboratories Inc., for $110, and offer a $100 discount for low-income families.

Today, privately held Kaleo, the maker of the Auvi-Q injectors, said it would list a twin pack for $4,500. But there is a twist. Kaleo, Auvi-Q’s manufacturer, will charge patients who have commercial insurance $0 for the product, if the insurance company pays for it.

That means that for insured patients, Auvi-Q would be the cheapest option. It will also give the product away to families with an income of less than $100,000. For those paying cash who do not qualify to get Auvi-Q for free, the product will cost $360.

If all this sounds like a big pricing scam concocted in the laboratories of Drs. Jekyll and Moreau, well, that is a possibility.

Paul McCartney sued Sony’s music-publishing division seeking a judgment validating his efforts to take back his copyrights in Beatles songs he mostly co-wrote with John Lennon.

McCartney began serving termination notices to Sony/ATV Music Publishing in 2008, intending to reclaim his copyright interests in the music catalog, composed between 1962 and 1971. The termination notices, which McCartney wants the court to validate, are supposed to take effect starting in October 2018.

Financial Review

Nasty

Sinclair Noe — October 20, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW – 40 = 18,162
SPX – 2 = 2141
NAS – 4 = 5241
10 Y un 1.75%
OIL – 1.21 = 50.61
GOLD – 3.70 = 1266.20

The number of Americans filing for unemployment benefits increased by 13,000 to 260,000 for the week ended October 15. That marked 85 straight weeks of claims below the 300,000 threshold normally associated with a strong jobs market, the longest such period since 1970. Part of the increase in claims last week could be related to the effects of Hurricane Matthew, which could have left some people temporarily out of work.

The National Association of Realtors reports existing home sales rose 3.2 percent to an annual rate of 5.47 million units, the quickest pace since June. The increase in existing home sales was broad-based across four major regions tracked by the NAR, with gains reported in the Northeast, Midwest, South and West.

Inventories remained tight, with 2.04 million homes on the market. That was up 1.5 percent from the prior month, but 6.8 percent lower than in September 2015; enough to push the median price up 5.6 percent from a year ago to $234,200 last month. The institutional investors who bought up homes in recent years have continued to rent them out rather than putting them on the market. The association said first-time home buyers accounted for 34 percent of the purchases, the most since July 2012.

Ryan Marshall, CEO of the homebuilder Pulte Group, laid out the state of the US housing market in one succinct quote. “With US new home sales for 2016 on track to grow in excess of 10% over last year, we believe housing demand remains on a sustained path of recovery fueled by ongoing job creation, low unemployment, a supportive interest rate environment, and a limited inventory of homes.”

Arizona’s unemployment rate dropped to 5.5% in September from 5.8% in August. Arizona gained 32,700 jobs in September, which is better than average. The private sector gained 3,800 jobs, with education and health services and construction showing solid advances, and manufacturing and financial activities lost jobs. Government added 28,900 jobs. Arizona Nonfarm employment grew by 2.3% (61,800 jobs) year over the year in September. The Private Sector accounted for all of the September gains, adding 61,900 jobs (2.8%). Government employment declined by 100 jobs in the 12 months through September.

The European Central Bank kept interest rates on hold at historic lows this morning and ECB President Mario Draghi said the Bank was committed to pursuing substantial asset purchases aimed at spurring growth and inflation. With the Eurozone economy enjoying what Draghi called “a moderate but steady” recovery, he defended the stimulus effort, saying: “low rates work.” To keep the asset buying program running smoothly, Draghi said the ECB was investigating using options. He added that they did not discuss tapering but that QE would not last forever.

Wells Fargo is being investigated on suspicion of identity theft. California prosecutors are looking into whether Wells Fargo’s creation of millions of fraudulent accounts constitutes identity theft. The California Attorney General’s Office has authorized a seizure warrant against the bank that seeks customer records and other documents, saying there is probable cause to believe the bank committed felonies. Federal prosecutors are also looking into the matter.

After the Senate Banking Committee held a hearing last month with the Wells Fargo CEO John Stumpf, who has since retired, it followed up with a letter containing 58 additional questions for the bank. Among them: What proportion of the harmed customers are old, members of ethnic minorities or military veterans?

Wells Fargo has not officially answered the question but former Wells employees are stepping up to provide answers; and they are describing predatory practices: Mexican immigrants who speak little English. Older adults with memory problems. College students opening their first bank accounts. Small-business owners with several lines of credit. In Arizona, the Salt River Pima-Maricopa Indian Community was targeted. And as new accounts were opened, there were fees, lots and lots of fees. One former employee described it as “lions hunting zebras.”

But wait, there’s more.  The bank is now out of good standing with a leading consumer watchdog group. Wells Fargo is no longer accredited by the Better Business Bureau, making it possibly the biggest business ever to fall into that category. The BBB website lists Wells Fargo as “not BBB accredited” and gives it a grade of “C-” on a scale of “A+” to “F.”

An adviser to the Court of Justice of the European Union has backed Intel’s appeal against a record $1.1 billion fine for antitrust violations and believes a lower court should review it. EU regulators imposed the penalty in 2009 for Intel’s attempts to stifle Advanced Micro Devices.

New Tesla vehicles will have full self-driving hardware built in. Eight surround cameras provide 360-degree visibility around the car at up to 250 meters of range, and the vehicles will also incorporate twelve updated ultrasonic sensors and forward-facing radar “capable of seeing through heavy rain, fog, dust and even the car ahead.”

Dow Jones is planning a substantial revamp at The Wall Street Journal as part of a review to better address costs in an effort to deal with an ongoing decline in print advertising. The “WSJ2020” plan will look to rebalance the news organization’s revenue streams as its customers' flock to digital formats and a revised version of the print newspaper will launch in the next few weeks with some sections consolidated. Dow Jones is owned by News Corp.

In a first of its kind, Sprint is set to issue $3.5 billion in five-year bonds that are backed by its wireless spectrum, which the telecom operator values at $16.4 billion. Investors seem to like the idea, with orders hitting $30 billion. The “air-wave bonds” are expected to yield 3.5%.

We have a couple of stories on big mergers – rumors really, but they are big, so here goes. Bloomberg reports Qualcomm is in the final stages of negotiations to buy NXP Semiconductors in what could be an all-cash deal for $110 to $120 per share. Qualcomm now has a market cap of around $99 billion, while NXP has a market cap of around $36 billion. The deal would be the largest in the history of the semiconductor industry.

Meanwhile, AT&T and Time Warner executives have held informal talks to discuss business strategies that could include a merger; neither side has hired an adviser. It’s also another indication that service providers are getting more and more interested in owning and investing in content. Verizon recently bought AOL and is in the process of acquiring Yahoo. AT&T merged with DirecTV last year.

Verizon Communications added far fewer wireless subscribers than expected in the third quarter. Operating revenue fell 6.5%. Smaller rivals such as T-Mobile and Sprint have rolled out aggressive promotions to win over Verizon’s subscriber base. As the company fends off competition in a maturing wireless market, it has acquired AOL and plans to buy Yahoo in a bid for a set of digital web properties and ad technology tools that will help it compete with internet giants Facebook and Google.

After the closing bell, Microsoft reported earnings of $0.76 on an adjusted basis. Analysts were expecting $0.68 per share. Revenue of $22.3 billion on an adjusted basis, 2.3% higher than the same period in 2015. Analysts were expecting $21.71 billion. Microsoft closed above $60, an all-time high, and the first all-time high since 1999.

Chipmaker Advanced Micro Devices reported a better-than-expected 23 percent increase in quarterly revenue, helped by higher demand for graphics chips used in gaming consoles.

American Airlines reported a slightly better-than-expected quarterly profit, helped by lower fuel costs. Still, net income fell to $737 million, or $1.40 per share, from $1.69 billion, or $2.49 per share, a year earlier.

Walgreens Boots Alliance shares slipped in early trading after the pharmacy chain missed fourth-quarter sales estimates. Walgreens now expects its acquisition of Rite Aid to close on Jan. 27, three months later than planned. Walgreens said in September it would likely have to divest between 500 and 1,000 stores to get regulatory clearance for the $9.4 billion deal.

Travelers was the top drag on the Dow, after the insurer posted a 22.8 percent drop in quarterly profit.

Union Pacific stock was down 6.7 percent after the company said weak demand for consumer goods had reduced the volume of its freight and coal shipments.

Canadian Pacific Railway reported another steep decline in revenue and lower-than-expected earnings on Wednesday as a delayed grain harvest and a slump in commodity prices hampered shipping volumes.

Earnings season always offers some entertaining justifications, and today it came from Dunkin Donuts. US same-store sales were higher than analysts had expected. However, revenue missed expectations. In response, Dunkin’ Brands CEO Nigel Travis cited several reasons for the weak performance, including “changes in gas prices, changes in food stamp regulations, and, of course, the overwhelming dampening effect of the presidential election.” Yeah, that’s it.

Of course the third and final presidential debate was last night and if you don’t think politics can affect business consider this. Within hours, dozens of sellers on Etsy had whipped up merchandise — T-shirts and buttons — bearing the slogans “nasty woman” and “bad hombres”; there is also a new perfume called “nasty woman” and Spotify reported that streams of Janet Jackson’s 1986 hit “Nasty” have increased 250%. Merriam Webster said “hombre” and “nasty” both topped its list of the most-searched words during the debate.

Stocks Shave Morning Losses

Charles Schwab: On the Market

Posted: 10/20/2016 4:15 PM ET

Stocks Shave Morning Losses

U.S. stocks closed just below the flatline, paring early losses that stemmed from a pullback in crude oil prices, which gave back nearly all of yesterday's gains. Also, traders weighed a jump in jobless claims, stronger-than-expected domestic new home sales data, some lackluster earnings reports and last night's final Presidential debate. Treasuries were mixed, the U.S. dollar gained ground and gold was lower.

The Dow Jones Industrial Average (DJIA) lost 40 points (0.2%) to 18,162, the S&P 500 Index shed 3 points (0.1%) to 2,141 and the Nasdaq Composite ticked 5 points (0.1%) lower to 5,242. In moderate volume, 776 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil decreased $1.19 to $50.63 per barrel, wholesale gasoline declined $0.02 to $1.49 per gallon and the Bloomberg gold spot price dipped $2.95 to $1,266.28 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 98.32.

Dow member American Express Co. (AXP $67) reported 3Q earnings-per-share (EPS) ex-items of $1.24, above the $0.97 FactSet estimate, as revenues declined 5.0% year-over-year (y/y) to $7.8 billion, north of the projected $7.7 billion. AXP raised its full-year profit outlook and reiterated its 2017 EPS guidance that was above expectations, and shares rallied.

Dow component Verizon Communications Inc. (VZ $49) posted 3Q profits ex-items of $1.01 per share, above the estimated $0.99, with revenues decreasing 6.7% y/y to $30.9 billion, below the projected $31.1 billion. VZ said it expects 2016 adjusted earnings to be at a level comparable to 2015. Shares were solidly lower.

Dow member Travelers Companies Inc. (TRV $1101) announced 3Q EPS ex-items of $2.40, exceeding the forecasted $2.38, as net written premiums rose 3.0% y/y to $6.4 billion, roughly in line with expectations. Shares saw solid pressure as the company's core loss ratio, a closely watched industry metric measuring the amount it is paying out in claims and expenses compared to premiums received, came in above expectations to cause some concern among analysts.

Walgreens Boots Alliance Inc. (WBA $81) reported fiscal 4Q earnings ex-items of $1.07 per share, above the expected $0.99, as revenues increased 0.4% y/y to $28.6 billion, compared to the forecasted $29.1 billion. WBA issued full-year EPS guidance that was roughly in line with estimates. Shares finished nicely higher.

eBay Inc. (EBAY $29) posted 3Q EPS ex-items of $0.45, one penny above forecasts, as revenues rose 6.0% y/y to $2.2 billion, mostly in line with estimates. EBAY issued 4Q guidance that was a bit shy of forecasts, while reaffirming its full-year EPS outlook and raising its revenue projection slightly. Shares fell sharply.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers an outlook for growth in earnings and the stock markets his latest article, Three Reasons Stocks May Avoid Another Lost Decade, at www.schwab.com/marketinsight, and follow Jeff on Twitter: @jeffreykleintop.

Existing home sales top forecasts, jobless claims jump

Existing-home sales in September increased 3.2% month-over-month (m/m) to a 5.47 million annual rate—the highest since June—compared to the Bloomberg forecast of a 5.35 million pace. August's figure was downwardly revised to a 5.30 million annual rate. Compared to last year, sales were 0.6% higher. The median existing-home price was up 5.6% y/y at $234,200. Housing supply came in at a 4.5-month pace at the current sales rate. All major regions saw an increase and distressed sales fell to a new low. National Association of Realtors (NAR) Chief Economist Lawrence Yun said the two-month slump in existing sales, which was impacted by competition for the minimal amount of homes for sale, reversed course convincingly in September. Yun added that there is hope the leap in sales to first-time buyers can stick through the rest of the year and into next spring.

As noted in the recent Schwab Market Perspective: Spinning Our Wheels, although we've seen some soft housing data lately, we continue to believe that a strong job market, low interest rates, and increasing in household formations will bolster the housing market and increase the already solid level of consumer confidence. For analysis of investing in real estate, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, article Real Estate Sector: Marketperform. Read both articles at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

Weekly initial jobless claims (chart) rose 13,000 to 260,000 last week, compared to forecasts of a rise to 250,000, as the prior week figure was upwardly revised by 1,000 to 247,000. The four-week moving average rose by 2,250 to 251,750, while continuing claims increased 7,000 to 2,057,000, north of the estimated level of 2,053,000.

The Conference Board's Index of Leading Economic Indicators (LEI) (chart) increased 0.2% m/m in September, matching projections, and compared to the prior month's 0.2% decline. Support came from the components pertaining to building permits, the yield curve, and jobless claims, while the index was bogged down by average workweek and stock prices.

The Philly Fed Manufacturing Index (chart) in October dipped but remained at a level depicting expansion (a reading above zero) after declining to 9.7 from 12.8 in September, compared to estimates of a decrease to 5.0.

Treasuries were mixed, with the yield on the 2-year note rising 2 basis points (bps) to 0.82%, the yield on the 10-year note ticking 1 bp higher to 1.75%, and the 30-year bond rate dipping 1 bp to 2.49%. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses the interest rate environment in her latest article, Are Bond Yields About to Rise?, at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.

Tomorrow, the U.S. economic calendar will be void of any major releases, but will heat back up next week with more housing data with looks at the new and pending home sales reports. Other releases of note will include a preliminary read on services sector activity for October from Markit and durable goods orders for September.

The markets continue to grapple with the uncertain U.S. political landscape as the November election looms and following last night's third and final Presidential debate. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Where Do the Candidates Stand? Key Issues for Investors, as part of our election 2016 commentary at www.schwab.com/insights/category/election-2016, where you can also find timely analysis of The Stock Market and Election Cycles. Also, for a look at the election and the potential impact on sectors, see Schwab's Brad Sorensen's, CFA, latest Schwab Sector Views: Election Special at www.schwab.com/marketinsight.

Europe overcomes early weakness, Asia ticks higher

European equities overcame early weakness and finished mostly higher, with the markets reacting to the unchanged monetary policy decision from the European Central Bank (ECB). Stocks found support as the customary press conference by ECB President Mario Draghi appeared to ease recently flared-up tapering concerns. Draghi noted that he thinks an abrupt ending to bond purchases is unlikely, while adding that a sudden stop is not present in anybody's mind, per Bloomberg. He also said the Governing Council did not discuss prolonging or tapering at this meeting and suggested it could be decided on at its December meeting when fresh economic projections are delivered. The euro reversed lower and the British pound lost ground versus the U.S. dollar, while bond yields in the region finished mostly lower.

Also, last night's final U.S. Presidential debate garnered attention, while financials received a boost from Draghi's comments, continuing to rebound on the heels of recent upbeat earnings from the group in the U.S. and a reprieve from elevated concerns toward the European banking sector. For analysis of the potential impacts of flare-up in the European banking sector uneasiness, see Schwab's Fixed Income Director Collin Martin's, CFA, article titled, European Bank Stress: What Does It Mean for the Preferred Securities Market? at www.schwab.com/marketinsight. Earnings season ramped up and results were mixed, with Nestle SA(NSRGY $75) posting softer-than-expected sales, while Deutsche Lufthansa AG(DLAKY $12) rallied after the airline raised its profit outlook. In other economic news, U.K. retail sales unexpectedly came in flat in September, missing forecasts of a modest gain. Schwab's Jeffrey Kleintop, CFA, offers timely analysis of the global economic picture in his article, World Tour: An Around The World Look At the Economic Landscape, at www.schwab.com/oninternational.

Stocks in Asia finished mostly higher, with yesterday's rally in crude oil prices on some bullish U.S. government oil inventory data supporting the energy sector, while the yen gave back some of a recent advance and the global markets digested the third and final U.S. Presidential debate. The markets may have treaded with some caution ahead of today's monetary policy decision in Europe. Japanese equities advanced on the weakness in the yen, while mainland Chinese stocks finished flat and those traded in Hong Kong rose slightly. China's muted moves come on the heels of yesterday's plethora of economic data that flashed mixed signals as 3Q GDP grew 6.7% y/y to match expectations and ease concerns about a slowing of the world's second-largest economy, though a separate report showed September industrial production missed forecasts. 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)at www.schwab.com/oninternational.

South Korean stocks finished little changed and Indian securities gained ground, after yesterday's modest decline. Australian equities ticked higher, with an unexpected decline in the nation's September employment change likely keeping gains in check.

The international economic calendar for tomorrow will be light, yielding property prices from China and public sector net borrowing from the U.K.

Financial Review

Terminated for Ethical Behavior

Sinclair Noe — September 29, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

Subscribe: iTunes | Android | RSS

DOW – 195 = 18,143
SPX – 20 = 2151
NAS – 49 = 5269
10 Y – .01 = 1.56%
OIL + .57 = 47.62
GOLD – 1.50 = 1320.90

The third and final revision of second quarter gross domestic product shows the economy grew at a 1.4% annual pace instead of 1.1%. Business investment in the second quarter was better than previously reported and that bodes well for third-quarter growth. Investment excluding housing actually rose 1% instead of dropping 0.9%.

A 57% plunge in spending by energy companies coping with cheap oil was the main culprit in weak business investment. If mining and drilling are excluded, investment rose a healthy 10% in the second quarter. Consumers are still spending at a healthy clip and the housing market continues to get stronger.

Core personal-consumption expenditures – a measure of inflation that excludes volatile food and energy prices – rose by 1.8%, unchanged from the second estimate. America’s largest public companies reported a fourth-straight quarterly drop in profits in Q2, down 1.7% after tax.

The National Association of Realtors’ pending home sales index slumped 2.4% to 108.5 in August. That was 0.2% lower than a year ago, and July’s reading was revised down to 111.2. The index forecasts future sales by tracking real estate transactions in which a contract has been signed but the deal has not closed. Tight inventory is blamed for the setbacks.

The group issued a release saying: “Prospective buyers appear to be either wavering at the steeper home prices pushed up by inventory shortages or disheartened by the competition for the miniscule number of affordable listings.”

Applications for unemployment benefits rose 3,000 to 254,000 in late September, but the low level of initial claims points to a steadily improving labor market in which jobs are the easiest to find in years.

Initial jobless claims slid below 300,000 in 2015 and have stayed there for 82 straight weeks. And new claims have tallied less than 270,000 for three months, a feat last accomplished in 1973. So far this year the economy has added an average of 182,000 new jobs a month. The unemployment rate, at 4.9%, is at an eight-year low.

The Labor Department will now require federal government contractors to provide paid sick leave to their workers. The rule will impact more than 1.1 million people, and enable workers to accrue up to seven days of paid sick leave a year.

The rule requires that workers in assignments related to many federal contracts receive one hour of paid sick leave for every 30 hours they work, for up to 56 hours of leave a year. Unused leave time can carry over to the next year if the worker remains with the same employer on a contract-related assignment. The rule affects only contracts solicited by the government beginning on Jan. 1, 2017.

The nation’s deficit in goods trade narrowed slightly to $58.4 million in August. Exports rose a solid 0.7 percent in the month reflecting strength in industrial supplies, vehicles, and also consumer goods. Imports also rose in the latest month, up 0.3 percent and reflecting a bounce back for capital goods as well as a gain in food.

Next week we’ll get fresh insight into U.S. manufacturing, construction spending, vehicle sales, trade, factory orders, durable goods, and of course the overall labor market with the jobs report on Friday. That’s obviously the big one, with economists forecasting 175,000 new jobs created in September and an unemployment rate holding flat at 4.9 percent.

Wages will also be closely watched for any signs of acceleration. The report is over a week away, but given its significance, it’s time to start looking ahead. Markets are pricing in a slightly greater than 54 percent chance of a U.S. interest rate hike by the end of the year (most likely in December).

Congress avoided a partial government shutdown at week’s end after both chambers passed a short-term spending bill that would keep the government running through early December. Lawmakers agreed to provide federal assistance for residents of Flint, Mich., in separate legislation this year. The spending bill includes $1.1 billion to fight Zika and $500 million for flood victims in Louisiana and other states.

California, the nation’s largest issuer of municipal bonds, is barring Wells Fargo from underwriting state debt and handling its banking transactions after the company admitted to opening about 2 million bogus customer accounts. The bank has already been fined $185 million. The California suspension, in effect immediately, will remain in place for 12 months.

A “permanent severance” will occur if the bank doesn’t change its practices. The state also won’t add to its investments in Wells Fargo securities. Federal prosecutors in New York and San Francisco have opened criminal inquiries. Wells Fargo already faces a raft of lawsuits by fired or demoted workers, customers and investors.

Now, word that Wells Fargo is facing a Justice Department sanction over improperly repossessing cars owned by members of the military. The Servicemembers Civil Relief Act requires lenders obtain court orders before seizing vehicles from soldiers, sailors, airmen and Marines who are delinquent on their loans. The bank has previously been accused of not adhering to the military lending law, which Congress approved decades ago to protect soldiers from legal hassles while they’re on active duty.

Wells Fargo agreed to compensate borrowers as one of five mortgage servicers sanctioned for improper home foreclosures, paying $28 million for so-called non-judicial foreclosures that didn’t pass through courts and $59 million for those handled in the judicial system, according to statements issued by the Justice Department last year. The bank didn’t admit or deny the allegations. Wells Fargo might be looking at a $20 million fine, which would be one of the stiffest for such violations.

Earlier this week, Wells Fargo’s board of directors woke up long enough to claw back $41 million in stock awarded to Stumpf. Wells Fargo CEO John Stumpf testified this morning before the House Financial Services Committee. At one point, Stumpf promised to “take care of all customers” affected by the scandal.

That’s bull. It was mainly a chance for politicians to dramatically identify the obvious: Wells Fargo committed fraud and theft, and operated as a criminal enterprise, it plundered its reputation, it cheated customers, it is too big to manage, it should be broken up, it is a repeat offender, the fines thus far are pathetic, the bank was a school for scoundrels, upper management pocketed multi-million dollar bonuses and then tried to blame thousands of low level workers.

At one point, Stumpf said all 5,300 employees were terminated “because of their ethical behavior.” Of course it would have made more sense if those workers had been fired for “unethical behavior” but this is a distinction Stumpf seems incapable of making.

A number of funds that clear derivatives trades with Deutsche Bank have withdrawn some excess cash and positions held at the lender, a sign of counterparties’ mounting concerns about doing business with Europe’s largest investment bank. The International Monetary Fund in June said Deutsche Bank may be the biggest contributor to risk among so-called global systemically important banks.

Deutsche faces a possible $14 billion fine from the US Department of Justice, just south of the bank’s market capitalization. Deutsche share hit an all-time low this week. Credit Suisse CEO Tidjane Thiam says that Europe’s banks were in a “very fragile situation” and said there was doubt that European banks still had a viable business model, calling the sector “uninvestable”.

Commerzbank is making big cuts. The German bank says it will cut almost 10,000 jobs, or more than 20% of its labor force, and eliminate its dividend temporarily as part of a $1.2 billion restructuring plan.

Och-Ziff Capital Management has agreed to settle charges of bribery, paying nearly $200 million to the Securities and Exchange Commission. Och-Ziff was accused of illegally paying the Libyan Investment Authority sovereign wealth fund to invest in Och-Ziff managed funds.

Other bribes were paid to secure mining rights and corruptly influence government officials in Libya, Chad, Niger, Guinea, and the Democratic Republic of the Congo. Last I heard, bribery was an actual crime. Although in this case … Anyway, a $200 million fine will make Och-Ziff management think twice before they commit their next felonious act of bribery.

Medtronic has won U.S. approval for an “artificial pancreas” that is the first device to automatically deliver the right dose of insulin to patients with type 1 diabetes, freeing them from continually monitoring insulin levels throughout each day. The FDA approved the device six months sooner than expected, however, it still won’t be available until the spring of 2017.

The future is electric at the Paris Motor Show, as the world’s biggest car makers unveil plans to accelerate development of EVs. About two dozen new electric models are set to debut. Mercedes revealed an entirely new brand dedicated to electric vehicles, called EQ, and paired it with a concept car called Generation EQ, a sport-utility coupe with electric range of up to about 310 miles.

Volkswagen debuted the I.D. electric concept, with a range of about 249 to 373 miles, and said a compact car version would hit dealerships in 2020. GM is set to begin selling the first mass-market electric car, the Bolt, which will have range of about 238 miles, by the end of the year.

Stocks Continue Post Fed Advance

Charles Schwab: On the Market

Posted: 9/22/2016 4:15 PM ET

Stocks Continue Post Fed Advance

U.S. stocks joined in a broad-based global equity advance as the markets continued to react positively to yesterday's Fed decision to hold off on raising rates, though it hinted at a year-end rate hike the central bank also lowered its projection for the pace of future increases. Treasuries and gold were higher, while the U.S. dollar was under pressure and crude oil prices extended an advance. In economic news, weekly jobless claims surprisingly fell, existing home sales dropped and the Leading Index declined.

The Dow Jones Industrial Average (DJIA) rose 99 points (0.5%) to 18,392, the S&P 500 Index gained 14 points (0.7%) to 2,177, and the Nasdaq Composite increased 44 points (0.8%) to 5,340. In moderate volume, 839 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.98 to $46.32 per barrel, wholesale gasoline was unchanged at $1.40 per gallon and the Bloomberg gold spot gained $2.11 to $1,337.28 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 95.41.

Bed Bath & Beyond Inc. (BBBY $43) reported 2Q earnings-per-share (EPS) of $1.11, below the $1.16 FactSet estimate, as revenues declined 0.2% year-over-year (y/y) to $3.0 billion, compared to the projected $3.1 billion. 2Q same-store sales declined 1.2% y/y, versus the expected 0.5% gain. BBBY reaffirmed its full-year EPS outlook. Shares finished nicely higher.

Red Hat Inc. (RHT $80) posted 2Q earnings ex-items of $0.55 per share, one penny north of estimates, as revenues grew 19.0% y/y to $600 million, compared to the projected $590 million. RHT issued stronger-than-expected 3Q guidance and raised its full-year outlook. Shares rallied.

AutoZone Inc. (AZO $748) announced fiscal 4Q EPS $14.30, versus the expected $14.25, as revenues rose 3.3% y/y to $3.4 billion, roughly in line with estimates. 4Q same-store sales increased 1.0% y/y, below the forecasted 2.1% rise. AZO announced an additional $750 million to its share repurchase program. Shares lost modest ground.

Dow member Cisco Systems Inc. (CSCO $32) and Salesforce.com Inc. (CRM $75) announced a global strategic alliance. The two companies will jointly develop and market solutions that join Cisco's collaboration, IoT and contact center platforms with Salesforce Sales Cloud, IoT Cloud and Service Cloud. Shares of both companies closed higher.

Existing home sales decline, jobless claims surprisingly drop

Existing-home sales in August decreased 0.9% month-over-month (m/m) to a 5.33 million annual rate compared to the Bloomberg forecast of a rise to a 5.45 million pace. July's figure was downwardly revised to a 5.38 million annual rate. Compared to last year, sales were 0.8% higher. The median existing-home price was up 5.1% y/y at $240,200. Housing supply came in at a 4.6-month pace at the current sales rate. Sales were solidly higher in the Northeast, while declining in all other regions, as single-family home sales declined, while condominium and co-op sales jumped. National Association of Realtors (NAR) Chief Economist Lawrence Yun said recent job growth is not yielding higher home sales as inventory is not picking up to tame price growth and replace what is being quickly sold.

As noted in the Schwab Market Perspective: Round and Round We Go…, economic data appeared to be perking up in June and July, aided by better housing reports, but the recent round of data has thrown some cold water on the hopes for a sustainable uptick in growth. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his article, Real Estate Sector: Marketperform, positives of low interest rates, an improving economy, and favorable apartment trends are counterbalanced by the potential for rising rates, a changing consumer, and a potential inflection point for the favorable apartment trends, leading to our marketperform rating. Read these articles at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Weekly initial jobless claims (chart) decreased by 8,000 to 252,000 last week, versus estimates of an increase to 261,000, with the prior week's figure unrevised at 260,000. The four-week moving average declined by 2,250 to 258,500, while continuing claims dropped 36,000 to 2,113,000, south of the estimated level of 2,140,000.

The Conference Board's Index of Leading Economic Indicators (LEI) (chart) declined 0.2% m/m in August, versus projections calling a flat reading. Support came from the components pertaining to stock prices and the yield curve, while the index was bogged down by average workweek and ISM new orders.

The Kansas City Fed Manufacturing Activity Index for September rose to 6 from August's -4 level, compared to forecasts of a gain to -3, with a reading north of zero depicting expansion.

Treasuries were higher, with the yield on the 2-year note flat at 0.77%, while the yields on the 10-year note and the 30-year bond decreased 3 basis points to 1.62% and 2.34%, respectively. Bond yields extended yesterday's declines as the Fed held its monetary policy steady, noting that "the case for an increase in the federal funds rate has strengthened, but decided, for the time being, to wait for further evidence of continued progress toward its objectives." For more on this topic, see our latest article, Fed Stands Pat, but Hints at Future Rate Hike at www.schwab.com/insights, and follow Schwab on Twitter: @schwabresearch.

Tomorrow, the U.S. economic calendar will cool down, with the lone major release expected to be Markit's preliminary Manufacturing PMI Index for September, which is forecasted to remain at the 52.0 level posted in August, with a reading above 50 denoting expansion in activity.

Europe and Asia higher following Fed decision

European equities traded nicely higher, amid a broad-based rally across the sectors, while the global markets digested the decision by the U.S. Federal Reserve to hold off on raising rates, but hint at a possible rate hike this year. However, the Fed lowered its projections to a more gradual pace of hikes down the road, which is weighing on the U.S. dollar and the nation's bond yields. The euro and British pound moved higher versus the greenback, while bond yields in the region lost ground. Amid the likely continued volatility surrounding the timing of the next Fed rate hike, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, reminds investors, Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think. Read these articles at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop. In economic news, French business confidence unexpectedly improved for September.

Stocks in Asia finished higher on the heels of yesterday's decision in the U.S. to not hike rates, which followed the Bank of Japan's decision to change its monetary policy focus to targeting the yield curve and committing to overshooting its inflation target, boosting the global financial sector. However, volume was light as Japanese markets were closed for a holiday. Stocks in China and Australia increased, with basic materials stocks rallying and oil & gas issues showing some strength. South Korean and Indian equities also rallied in the wake of the U.S. monetary policy decision. For a look at the global economic front, Schwab's Jeffrey Kleintop, CFA, offers his article, World Tour: An Around The World Look At the Economic Landscape at www.schwab.com/oninternational.

The international economic docket for tomorrow will be limited, offering the All Industry Activity Index from Japan and Markit's preliminary Manufacturing PMIs for Germany, France and the Eurozone.

Stocks Settle Down Ahead of Yellen's Speech

Charles Schwab: On the Market

Posted: 8/25/2016 4:15 PM ET

Stocks Settle Down Ahead of Yellen's Speech

U.S. stocks closed mildly lower and European equities snapped a winning streak as caution prevailed ahead of tomorrow's speech from Federal Reserve Chairwoman Janet Yellen. Some upbeat domestic data included better-than-expected reads on weekly jobless claims and durable goods orders, while a preliminary report on services sector activity unexpectedly declined but remained in expansion territory. Treasuries and gold were lower, the U.S. dollar was little changed and crude oil prices were higher.

The Dow Jones Industrial Average (DJIA) declined 33 points (0.2%) to 18,448, the S&P 500 Index lost 3 points (0.1%) to 2,173, and the Nasdaq Composite decreased 5 points (0.1%) to 5,212. In moderately light volume, 705 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.56 to $47.33 per barrel, wholesale gasoline added $0.01 to $1.42 per gallon and the Bloomberg gold spot price declined $1.64 to $1,322.64 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 94.76.

HP Inc. (HPQ $14) reported fiscal 3Q earnings-per-share (EPS) ex-items of $0.48, above the $0.44 FactSet estimate, as revenues declined 4.0% year-over-year (y/y) to $11.9 billion, versus the projected $11.5 billion. HPQ issued softer-than-expected 4Q EPS guidance, while lowering the high end of its full-year profit outlook. Shares pared sharp early losses.

Tiffany & Co. (TIF $73) posted 2Q profits of $0.84 per share, north of the forecasted $0.72, with revenues declining 6.0% y/y to $932 million, compared to the expected $933 million. 2Q same-store sales decreased 8.0% y/y, compared to the expected 7.8% drop. TIF maintained its full-year EPS outlook and shares rallied.

PVH Corp. (PVH $107) announced 2Q EPS ex-items of $1.47, well above the projected $1.28, as revenues increased 4.0% y/y to $1.9 billion, roughly in line with forecasts. The parent of Calvin Klein and Tommy Hilfiger issued mixed 3Q guidance, while raising its full-year profit forecast and reaffirming its revenue outlook. Shares gave up early gains and finished lower.

Dollar General Corp. (DG $76) reported 2Q earnings of $1.08, one penny below forecasts, with revenues growing 5.8% y/y to $5.4 billion, just shy of the expected $5.5 billion. 2Q same-store sales increased 0.7% y/y, versus the estimated 2.7% gain. DG confirmed its full-year EPS outlook, while announcing an additional $1.0 billion in share repurchases. DG closed sharply lower.

Dollar Tree Inc. (DLTR $86) posted 2Q EPS of $0.72, one cent south of expectations, as revenues rose 66% y/y to $5.0 billion—reflecting results from its acquisition of Family Dollar—compared to the projected $5.1 billion. 2Q same-store sales rose 1.2% y/y, compared to the 2.4% gain that was anticipated. DLTR issued stronger-than-expected 3Q earnings guidance, though it raised and lowered its full-year EPS and revenue forecasts, respectively. Shares were decisively lower.

Durable goods orders easily top forecasts, jobless claims unexpectedly dip

July preliminary durable goods orders (chart) jumped 4.4% month-over-month (m/m), compared to Bloomberg's estimate of a 3.4% gain and June's downwardly revised 4.2% drop. Ex-transportation, orders gained 1.5% m/m, easily topping the 0.4% forecasted increase, and June's favorably revised 0.3% decline. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, increased 1.6%, well above projections of a 0.2% increase, and following the upwardly revised 0.5% rise in the month prior. Gains were widespread, notably surges in the volatile aircraft and parts and a sharp jump in computers and related products, though motor vehicles were flat and communications declined.

The business spending component of the report has posted back-to-back monthly gains, and a continuation of this trend could give the U.S. economy a needed boost to escape this prolonged period of stagnant growth. As noted in the Schwab Market Perspective: The Calm Before the…., consumer confidence has firmed, with the labor market continuing to improve, housing is looking good, and wages are finally starting to rise. Additionally, we've seen signs that consumers may be more comfortable taking on debt. However, it will be difficult to get the U.S. economy rolling without an improvement in productivity, which is undoubtedly being constrained by ongoing tepid capital spending. Read the whole perspective at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

Weekly initial jobless claims (chart) dipped 1,000 to 261,000 last week, versus estimates of a rise to 265,000, with the prior week's figure unrevised at 262,000. The four-week moving average declined 1,250 to 264,000, while continuing claims fell 30,000 to 2,145,000, south of the estimated level of 2,155,000.

The preliminary Markit U.S. Services PMI Index for August unexpectedly declined to 50.9 from July's final reading of 51.4, compared to forecasts of a modest rise to 51.8, though a reading above 50 indicates expansion. The release is independent and differs from the Institute for Supply Management's (ISM) report, as it has less historic value and its index components are weighted differently.

Treasuries were lower, with the yields on the 2-year note and the 30-year bond ticking 2 basis points (bps) higher to 0.79% and 2.27%, respectively, while the yield on the 10-year note increased 1 bp to 1.58%. For analysis on the fixed income markets see the video from Schwab's Managing Director of Trading and Derivatives, Randy Frederick and Fixed Income Director Collin Martin, CFA, titled Tempered Expectations for Bond Returns: Why Hold Bonds? Also, Schwab's Chief Fixed Income Strategist, Kathy Jones addresses in her article, What Does Strong Job Growth Mean for Bond Investors?, at www.schwab.com/marketinsight. Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones.

Tomorrow, the U.S. economic calendar will close out the week with the first revision (of two) of 2Q GDP, projected to be adjusted slightly lower to a 1.1% quarter-over-quarter annualized rate of growth, after 1Q's 0.8% expansion. The University of Michigan Consumer Sentiment Index will follow, expected to be revised modestly higher to 90.8 from 90.4, and an improvement from July's 90.0 figure, while wholesale inventories will close out the day, projected to tick 0.1% higher m/m in July following June's 0.3% gain. However, the highlight of the morning will be the 10:00 a.m. ET speech from Federal Reserve Chairwoman Janet Yellen at the Central Bank's annual policy symposium in Jackson Hole, Wyoming.

Schwab's Chief Investment Strategist, Liz Ann Sonders discusses in her latest commentary, With a Little Help From My Friends: On Africa, Economy and Earnings, we continue to believe a rate hike is on the table for this year. The combination of Fed policy uncertainty and the contentious election season could mean the recent lull in volatility will not persist into the fall. Read more at www.schwab.com/marketinsight. Follow Liz Ann on Twitter: @lizannsonders.

Europe and Asia lower as global markets eye Yellen's speech

European equities finished lower, declining for the first time in four days, with basic materials stocks lower on the continued pressure on the mining sector and as the markets digested some mixed economic data in the region, headlined by a disappointing read on August German business sentiment. Global caution persisted ahead of tomorrow's key speech from U.S. Federal Reserve Chairwoman Yellen at the Central Bank's annual policy symposium in Jackson Hole, Wyoming. Healthcare issues came under pressure amid concerns about a potential pricing crackdown following comments from U.S. Democratic nominee Hillary Clinton. In other economic news, Spain's 2Q GDP growth was unexpectedly revised higher and U.K. August retail sales figures rebounded. The U.K. report added to recent data to suggest the U.K. economy is seeing a limited impact from the late-June vote to leave the European Union, known as Brexit. For commentary on the Brexit vote fallout, see Schwab's Director of International Research, Michelle Gibley, CFA, discusses Keep Calm and Carry On: The Brexit Shock That Wasn't at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch. The euro was higher and the British pound lost ground on the U.S. dollar, while bond yields in the region finished mostly higher.

Stocks in Asia finished lower in subdued volume as the global markets remained cautious ahead of tomorrow's key speech from U.S. Fed Chair Janet Yellen, while the recent drop in crude oil prices and dampened sentiment in the mining sector weighed on commodity-related issues. Japanese equities declined despite some weakness in the yen, while basic materials led Australian securities lower. Stocks in India fell amid some choppy trading on the expiration of monthly derivatives contracts and South Korean listings finished flat. Equities trading in mainland China fell and those in Hong Kong were little changed as liquidity concerns resurfaced and reports that the government may act to cool speculation in the financial and real estate markets fostered some uneasiness. Amid the uncertain global backdrop, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification and Your portfolio may be less diversified than you think. Read both articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop.

Tomorrow, the international economic docket will deliver consumer price inflation for Japan, consumer confidence from Germany, preliminary 2Q GDP from France and business investment, the Index of Services and preliminary 2Q GDP from the U.K.

Major U.S. Indexes Give Record Setting Performances

Charles Schwab: On the Market

Posted: 8/11/2016 4:15 PM ET

Major U.S. Indexes Give Record Setting Performances

U.S. stocks finished trading broadly higher as the Dow, S&P 500 and the Nasdaq Composite all registered record-high closes. Gains formed amid some upbeat earnings reports from the retail industry and as energy issues rallied with crude oil prices recovering from a two-day slide. Treasuries were lower, while domestic jobless claims and import prices both topped forecasts. The U.S. dollar was higher and gold was lower.

The Dow Jones Industrial Average (DJIA) increased 118 points (0.6%) to 18,613, the S&P 500 Index gained 10 points (0.5%) to 2,186 and the Nasdaq Composite added 24 points (0.5%) to 5,228. In moderate volume, 763 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil gained $1.78 to $43.49 per barrel, wholesale gasoline was $0.06 higher at $1.36 per gallon and the Bloomberg gold spot price lost $9.45 to $1,337.16 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 95.89.

Macy's Inc. (M $40) reported 2Q earnings-per-share (EPS) ex-items of $0.54, above the $0.48 FactSet estimate, as revenues decreased 3.9% year-over-year (y/y) to $5.9 billion, north of the projected $5.8 billion. 2Q same-store sales decreased 2.0% y/y, versus the expected decline of 4.7%. M reaffirmed its full-year EPS and sales guidance, while also announcing a series of initiatives to "drive profitable growth" and enhance shareholder value. Shares finished sharply higher.

Kohl's Corp. (KSS $44) posted 2Q EPS ex-items of $1.22, above the forecasted $1.03, with revenues declining 2.0% y/y to $4.2 billion, roughly in line with expectations. 2Q same-store sales decreased 1.8% y/y, mostly in line with estimates. KSS lowered its full-year profit outlook but shares rallied.

Alibaba Group Holding Ltd. (BABA $92) traded decisively higher after China's largest e-commerce company topped the Street's quarterly earnings and revenue forecasts, bolstered by its cloud computing services.

Valeant Pharmaceuticals International Inc. (VRX $$24) fell following a report from the Wall Street Journal that stated the company is under criminal investigation for allegedly defrauding insurers over its ties to mail-order pharmacy, Philidor RX Services LLC. VRX commented by pointing out that it previously disclosed in October 2015 that the United States Attorney's Office for the Southern District of New York commenced an investigation involving the company and it has been fully cooperating with authorities throughout the investigation. The company added that, "We do not comment on rumors about investigations, and cannot comment on or speculate about the possible course of any ongoing investigation."

Jobless claims dip, import prices unexpectedly ticked higher

Weekly initial jobless claims (chart) dipped 1,000 to 266,000 last week, versus the Bloomberg estimate of a decline to 265,000, with the prior week's figure revised lower by 2,000 to 267,000. The four-week moving average rose by 3,000 to 262,750, while continuing claims increased 14,000 to 2,155,000, north of the estimated level of 2,133,000.

The Import Price Index (chart) ticked 0.1% higher month-over-month (m/m) for July, compared to projections of a 0.4% decrease and June's upwardly revised 0.6% gain. Compared to last year, prices were lower by 3.7%, versus the 4.3% forecasted drop, and following June's positively revised 4.7% fall.

Treasuries were lower with the yield on the 2-year note rising 6 basis points (bps) to 0.74%, the yield on the 10-year note gaining 7 bps to 1.56% and the 30-year bond rate increasing 5 bps to 2.28%. For analysis on the fixed income markets see the video from Schwab's Managing Director of Trading and Derivatives, Randy Frederick and Fixed Income Director Collin Martin, CFA, titled Tempered Expectations for Bond Returns: Why Hold Bonds?, at www.schwab.com/insights. Follow Randy and Schwab on Twitter: @randyafrederick and @schwabresearch.

Tomorrow's U.S. economic calendar will culminate with a couple key reads on the all-important domestic consumer in the wake of today's upbeat earnings reports from the retail sector. Total July retail sales are expected to rise 0.4% m/m, capping off the fourth-straight monthly gain, while excluding autos, sales are forecasted to tick 0.1% higher after June's 0.7% jump. Stripping out autos and gas, sales are anticipated to grow 0.3% following the prior month's 0.7% increase. Also, the August preliminary University of Michigan Consumer Sentiment Index is projected to show consumer confidence improved to 91.5 from July's 90.0 level.

As noted in the recent Schwab Market Perspective: Is the Recent Rally for Real?, the healthy job market, which has helped move wages higher after years of stagnation, appears to be feeding into consumer confidence and retail sales. Read the whole perspective at www.schwab.com/marketinsight. Other U.S. reports slated for tomorrow include: the producer price index and business inventories.

Europe higher following earnings, Asia mixed ahead of China data

European equities traded to the upside, with earnings reports on both sides of the pond buoying sentiment, while energy stocks rebounded as crude oil prices regained some of the past two-day slide. For more on the global earnings landscape, see Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, article, Earnings estimates are rebounding: what it means for stocks, at www.schwab.com/marketinsight, and be sure to follow Jeff on Twitter: @jeffreykleintop. The Stoxx Europe 600 Index erased the sharp drop that ensued following the late-June vote in the U.K. to leave the European Union (EU), known as a Brexit. Pledges by central banks, notably the Bank of England, which last week cut its benchmark interest rate and surprisingly boosted its asset purchases, along with some relatively upbeat global economic data have helped ease concerns about the impact of the Brexit vote. For more, read Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Brexit's Impact on Sectors, Part Two  at www.schwab.com/marketinsight. However, U.K. stocks lagged behind, led by property-related issues following a report from the Royal Institution of Chartered Surveyors that suggested Brexit is hurting housing market activity. The euro battled back to unchanged territory and the British pound was lower versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mixed, though volume was lighter than usual, with markets in Japan closed for a holiday and a host of Chinese economic data slated to be released overnight. Also, central bank action was in focus, with New Zealand cutting its benchmark interest rate by 25 bps to 2.00%, while South Korea left its monetary policy unchanged. The actions were expected and stocks trading in both countries ticked higher. Australian securities declined as the two-day losing streak for crude oil prices weighed on oil & gas issues and as financials also fell amid flared-up concerns about stressed assets of some of the nation's banks. Indian equities rose, possibly aided by the recent weakness in the U.S. dollar and eased Fed rate hike expectations, which have buoyed emerging markets.

Mainland Chinese stocks declined ahead of tonight's reads on industrial production, retail sales and fixed asset investment for July, while equities in Hong Kong gained ground, bolstered by optimism that the start date of the exchange link between Hong Kong and Shenzhen could soon be announced, per Bloomberg. Ahead of tonight's Chinese economic data, Schwab's Jeffrey Kleintop, CFA, offers in his article, Trust but Verify: Five Independent Indicators of China's Economy. Also, Schwab's Director of International Research, Michelle Gibley, CFA, discusses 5 Reasons China Won't Crash the Global Economy in 2016. Read both articles at www.schwab.com/oninternational.

In addition to the aforementioned Chinese data, tomorrow's international economic docket will include the Wholesale Price Index, CPI and preliminary 2Q GDP from Germany, preliminary 2Q non-farm payrolls from France, industrial production and preliminary 2Q GDP for the Eurozone and construction output from the U.K.