Stocks Mixed As Techs Take a Hit

Charles Schwab: On the Market

Posted: 11/29/2017 4:15 PM EST

Stocks Mixed As Techs Take a Hit

 

The U.S. equity markets diverged amid continued global economic optimism following an upward revision to Q3 GDP and optimistic signs of progress in the Senate's tax reform bill. Treasury yields rose on the heels of a favorable economic outlook from Fed Chair Yellen, to the benefit of financials, but technology stocks tumbled, severely pressuring the Nasdaq. Crude oil prices were lower, extending losses ahead of tomorrow's OPEC meeting and following mixed oil inventory data, while gold was lower and the U.S. dollar was little changed.

The Dow Jones Industrial Average (DJIA) rose 104 points (0.4%) to 23,940, the S&P 500 Index fell nearly a point to 2,626, and the Nasdaq Composite tumbled 88 points (1.3%) to 6,824 In heavy volume, 922 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.69 to $57.30 per barrel and wholesale gasoline lost $0.04 to $1.73 per gallon. Elsewhere, the Bloomberg gold spot price decreased $8.94 to $1,285.04 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 93.24.

Tiffany & Co. (TIF $93) reported Q3 earnings-per-share (EPS) of $0.80, compared to the $0.76 FactSet estimate, as revenues grew 3.0% year-over-year (y/y) to $976 million, exceeding the projected $958 million. Q3 same-store sales were flat y/y, versus the forecasted 0.2% dip. TIF reaffirmed its full-year guidance. Shares finished lower.

Marvell Technology Group Ltd. (MRVL $22) posted Q3 EPS of $0.30, or $0.34 ex-items, compared to the forecasted $0.33, as revenues decreased 1.2% y/y to $616 million, just above the estimated $615 million. The chip company issued Q4 guidance that topped expectations. Shares were lower despite the results with the markets appearing to rotate out of the tech sector on the heels of the group's strong run this year, with chip companies seeing noticeable pressure.

Chipotle Mexican Grill Inc. (CMG $302) announced that Chairman and Chief Executive Officer (CEO)—and the founder of the company in 1993—Steve Ells will step down as CEO but will become Executive Chairman following the completion of a search to identify a new CEO. Shares were higher.

Shares of Autodesk Inc. (ADSK $109) tumbled over 15% after the application software company's Q3 billings figure missed expectations, resulting in a lowered full-year subscriptions outlook, despite reporting slightly stronger-than-expected Q3 top-and-bottomline results. The company also announced restructuring measures including the reduction of 1,150 employees to its workforce.

Q3 GDP revised higher, Fed comes into focus

The second look (of three) at Q3 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 3.3%, up from the first release's 3.0% gain. The Bloomberg forecast called for an adjusted 3.2% pace of expansion. Q2 GDP grew by an unrevised 3.1% rate. Personal consumption came in at a 2.3% gain for Q3, lower than the preliminary estimate of a 2.4% increase, and compared to the expectations of a 2.5% increase. Personal consumption grew by an unrevised 3.3% in Q2.

On inflation, the GDP Price Index was revised to a 2.1% increase, versus expectations of an unrevised 2.2% gain, while the core PCE Index, which excludes food and energy, was adjusted to a 1.4% increase, compared to forecasts of an unrevised 1.3% rise.

Pending home sales rose 3.5% month-over-month in October, versus projections of a 1.0% rise, and following the negatively-revised 0.4% decline registered in September. Compared to last year, sales were 1.2% higher, versus estimates of a 3.0% gain. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which rose more than expected in October.

The MBA Mortgage Application Index declined 3.1% last week, following the prior week's 0.1% gain. The decrease came as a 7.7% drop in the Refinance Index more than overshadowed a 1.8% increase in the Purchase Index. The average 30-year mortgage rate remained at 4.20%.

Today the Fed is garnering attention as Chairwoman Janet Yellen delivered her U.S. economic outlook to the Joint Economic Committee of Congress, noting the economic expansion is increasingly broad-based and she continues to expect gradual adjustments in the stance of monetary policy. However, she pointed out that although recent lower readings on inflation likely reflect transitory factors, it is possible that this year's low inflation could reflect something more persistent.
In afternoon action, the Central Bank released its Beige Book, an anecdotal look at business activity across the nation used as a monetary policy preparation tool for the two-day meeting set to end December 13th. The report showed that economic activity progressed at "a modest to moderate pace," through mid-November, while also noting that "price pressures have strengthened since the last report" and that the labor market remains tight. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, President Trump's nomination of current Fed governor Jerome “Jay” Powell to replace Janet Yellen as Chairman of the Federal Reserve when her term ends early next year was largely expected and greeted relatively favorably by the market. He is, like Yellen, a relatively dovish consensus builder; and therefore will represent continuity as the Fed continues its monetary policy normalization process. Given strong economic data and the pickup in some measures of wage growth, we believe the Fed will hike rates for the third time this year next month.

Treasuries finished lower, as the yield on the 2-year note increased 2 basis points (bps) to 1.77%, the yield on the 10-year note gained 5 bps to 2.38%, and the 30-year bond rate rose 6 bps to 2.82%.
The yield curve has steepened somewhat after a recent bout of flattening that appeared to foster some market weariness, while the U.S. dollar dipped after a two-day rebound, extending a pullback as of late.

The markets shrugged off flared-up geopolitical concerns following yesterday's missile launch by North Korea, aided by the positive global backdrop and signs of progress regarding the Senate's tax reform bill, which is expected to be voted on later this week. The House passed its bill two weeks ago, with several key differences setting the stage for a complicated reconciliation process.
Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, we believe the prospects for a tax reform bill being signed into law before the end of the year are improving, but we still think it is too early for investors to take any drastic action. The bill is virtually certain to be changed many times in the weeks ahead. If and when a tax bill passes, there will be time to review the details and amend your tax and financial plans accordingly.

Personal income and spending will highlight tomorrow's economic calendar, with both measures forecasted to have gained 0.3% m/m during October following their respective 0.4% and 1.0% m/m gains the month prior, while weekly initial jobless claims will also be released, expected to tick higher to a level of 240,000 from the prior week's 239,000. The Chicago Purchasing Manager Survey will be released later in the morning, with economists anticipating a decline in the index to 63.0 for November from October's 66.2 reading.

Europe and Asia mixed ahead of data, North Korean missile launch has little impact

European equity markets traded mixed, with financials getting a boost as bond yields in the region gained solid ground. Global economic optimism remained elevated, bolstered by signs of progress in tax reform and today's upbeat revision to Q3 GDP out of the U.S., along with cooled political concerns on this side of the pond. In his latest article, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, addresses the question Are Stocks too Expensive?, noting that although world stock market valuations are above average, similar valuations have produced double-digit gains over the following 12 months during the past 50 years. Jeff concludes that valuations support a globally diversified portfolio offering the best diversification benefits in 20 years. However, the apparent rotation out of the tech sector that intensified in the U.S. made its way over to Europe late in the session to cause the markets to give up some solid early gains. Crude oil prices extended a weekly loss ahead of tomorrow's OPEC meeting and following some mixed inventory data in the U.S. The pound rallied against the U.S. dollar to hamstring the U.K. markets after Britain and the European Union reportedly agreed to reach a Brexit divorce bill, which could pave the way for negotiations of the exit to move forward. German consumer price inflation was mostly hotter than expected, French Q3 GDP rose at a pace that matched forecasts and eurozone economic confidence improved. The euro moved higher versus the greenback.

Stocks in Asia finished mixed, following the solid gains in the U.S. yesterday on further signs the economy is running healthy and progress toward tax reform. However, the markets likely treaded with some caution ahead of key economic data out of Japan and China tomorrow, which will coincide with the highly-anticipated OPEC production meeting and potential U.S. tax reform vote, and follow today's U.S. GDP revision and testimony from Fed Chief Yellen. The markets mostly shrugged off yesterday's latest missile launch by North Korea. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans, while offering analysis of the global stock market rally that has been bolstered by broad economic growth and is expected to continue in 2018 in his latest article, 5 Reasons Investors Should Give Thanks.

The yen gave back some recent gains to help lift Japanese equities and overshadow a softer-than-expected retail sales report, while markets in South Korea and India dipped. Mainland Chinese stocks ticked slightly higher, but those traded in Hong Kong fell and Australian listings saw modest gains.

A whole host of reports are slated for tomorrow's international economic calendar, including industrial production from South Korea and Japan, building approvals and consumer credit from Australia, manufacturing data out of China, retail sales and employment data from Germany, CPI and PPI from France and Italy, GDP from Spain, and CPI and employment figures from the Eurozone.

Markets Remain Resilient

Charles Schwab: On the Market

Posted: 8/31/2017 4:15 PM ET

Markets Remain Resilient

U.S. equities continued their advance despite a jump in gasoline prices amid the impact of Hurricane Harvey, as well as a mixed bag of economic news and continued anxiety surrounding political and global monetary policy uncertainty. Treasury yields were little changed and the U.S. dollar was modestly lower, while crude oil prices and gold were solidly higher.

The Dow Jones Industrial Average (DJIA) advanced 60 points (0.3%) to 21,952, the S&P 500 Index gained 14 points (0.6%) to 2,472, and the Nasdaq Composite rallied 60 points (1.0%) to 6,429. In moderately heavy volume, 905 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.27 to $47.23 per barrel and wholesale gasoline jumped $0.14 to $1.78 per gallon. Elsewhere, the Bloomberg gold spot price was $14.36 higher at $1,322.96 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.2% to 92.69.

Campbell Soup Co. (CPB $46) reported fiscal Q4 earnings-per-share (EPS) of $1.04, or $0.52 ex-items, versus the $0.55 FactSet estimate, as revenues declined 1.0% year-over-year (y/y) to $1.7 billion, roughly in line with expectations. The company noted that the packaged foods industry remains challenging. CPB issued full-year EPS guidance that came in below the Street's forecasts. Shares were solidly lower.

Dollar General Corp. (DG $73) posted Q2 EPS of $1.08, or $1.10 ex-items, compared to the estimated $1.09, with revenues growing 8.1% y/y to $5.8 billion, mostly matching expectations. Q2 same-store sales rose 2.6% y/y, versus the projected 1.6% increase. DG raised the low end of its full-year profit outlook and noted that it expects same-store sales growth will be toward the upper end of its previous guidance. However, shares were sharply lower as the company's gross margin declined more than expected, due to higher markdowns and sales of lower margin products.

Costco Wholesale Corp. (COST $157) announced August same-store sales grew 7.3% y/y, above the forecasted 6.1%. Excluding the impact of changes in gasoline prices and foreign exchange, same-store sales increased 5.9%. COST traded higher.

Shares of Ciena Corp. (CIEN $22) came under heavy pressure as the network strategy and technology company issued Q4 revenue guidance that came in noticeably below estimates, which overshadowed its stronger-than-expected Q3 results.

Personal income and spending data mixed

Personal income (chart) was 0.4% higher month-over-month (m/m) in July, above the Bloomberg forecast of a 0.3% gain, and compared to June's unrevised flat reading. Personal spending rose 0.3% last month, below expectations of a 0.4% gain, and versus June's upwardly revised 0.2% gain. The July savings rate as a percentage of disposable income was 3.5%. The PCE Deflator expectedly moved 0.1% higher, after the prior month's unrevised flat reading. Compared to last year, the deflator was 1.4% higher, matching estimates and June's unrevised figure. Excluding food and energy, the PCE Core Index was 0.1% higher m/m, in line with expectations, and the index was 1.4% higher y/y, matching estimates. June's y/y figure was unrevised at a 1.5% increase.

Weekly initial jobless claims (chart) rose by 1,000 to 236,000 last week, below forecasts of 238,000, with the prior week’s figure revised higher by 1,000 to 235,000. The four-week moving average declined by 1,250 to 236,750, while continuing claims fell 12,000 to 1,942,000, south of estimates of 1,951,000.

Pending home sales declined 0.8% m/m in July, versus projections of a 0.3% increase, and following June's downwardly revised 1.3% gain. Compared to last year, sales were 0.5% lower. Pending home sales are used as a gauge of the pipeline of existing home sales, which unexpectedly fell in July.

The Chicago Purchasing Managers Index (chart) continued to show solid expansion (above 50) for August, after remaining at July's unrevised 58.9 level, versus expectations calling for a decrease to 58.5.

Treasuries were little changed, as the yields on the 2-year and 10-year notes, along with the 30-year bond, were flat at 1.33%, 2.13% and 2.73%, respectively. Bond yields have been quiet though the U.S. Dollar Index has rebounded from recent pressure on eased concerns toward flared-up tensions toward North Korea, lingering global monetary policy and U.S. political uncertainties, and the impact of Hurricane Harvey.

Schwab's Chief Fixed Income Strategist Kathy Jones offers a look at the bond markets in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, on the Fixed Income page at www.schwab.com, and for analysis of investing styles, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive on the Markets & Economy page. Follow Kathy and Liz Ann on Twitter: @kathyjones and @lizannsonders.

Tomorrow, the domestic economic calendar will end the week with a bang, courtesy of a plethora of August reports, such as the ISM Manufacturing Index, Markit's Manufacturing PMI Index, the final University of Michigan Consumer Sentiment Index, and auto sales. Manufacturing activity is expected to continue to depict growth and consumer sentiment is projected to remain near January's thirteen-year high. However, the headlining report will likely be the release of the August nonfarm payroll report, projected to show jobs grew by 180,000 after July's 209,000 gain, and employment in the private sector is expected to increase by 170,000 jobs after the prior month's 205,000 advance. The unemployment rate is expected to remain at 4.3%, while average hourly earnings are estimated to rise 0.2% m/m after growing 0.3% in July. Compared to the last year, earnings are forecasted to be up 2.6%, after July's 2.5% gain. Construction spending for July is also on tap for tomorrow.

Yesterday's stronger-than-expected Q2 GDP report caused Fed rate hike probability for December to tick higher but remain below 50%, per Bloomberg, and another dose of strong economic data could move the needle a bit further. Employment has been solid but inflation—the other side of the Central Bank's dual mandate—has been stubbornly low, setting the stage for the wage component of the labor report to continue to garner the most scrutiny. Fed rate hike uncertainty remains but our latest Schwab Market Perspective: Volatility Returns!, notes that the Fed is expected to move into uncharted territory by embarking on unwinding its behemoth $4.5 trillion balance sheet, which we continue to believe will be an additional volatility driver. Read more on the Markets & Economy page at www.schwab.com.

Europe and Asia higher following positive day in U.S.

European equities gained ground, with the euro continuing to give back a recent rally following reports that showed European Central Bank members were getting concerned with the currency's recent surge, and despite a hotter-than-expected read on eurozone inflation for August. In other economic news, the eurozone unemployment rate remained at 9.1% for July and German retail sales fell more than forecasted for last month. The British pound lost ground on the U.S. dollar and bond yields in the region dipped. The latest round of U.K. Brexit negotiations are wrapping up, while geopolitical, monetary policy and U.S. political uncertainties continue to fester. For a look at Brexit talks, see our article, Brexit Begins: What's Next for the U.K.? on the Insights & Ideas page. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA offers a look at a potential milestone for global profits in his latest article, Earnings may be about to do something they've never done before, on the Markets & Economy page at www.schwab.com and his video with Vice President of Trading and Derivatives, Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted? on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished mostly higher after another positive session in the U.S., aided by a stronger-than-expected read on Q2 GDP growth for the world's largest economy, which helped overshadow lingering global monetary policy and U.S. political uncertainties, and lingering geopolitical concerns. For analysis of this backdrop, see Schwab's Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks, on the International Investing page at www.schwab.com, as well as his video with Randy Frederick, Political Risk: How Should Investors Respond?, on the Insights & Ideas page.

Japanese equities advanced, with the yen extending a pullback from a recent jump and despite a larger-than-expected decline in the nation's industrial production for July. Mainland Chinese stocks and those traded in Hong Kong declined, with a stronger-than-expected Manufacturing PMI Index being met with the non-Manufacturing PMI Index that showed growth slowed for August. Australian securities rose, while listings in South Korea declined. Meanwhile, markets in India advanced ahead of the nation's report on Q2 GDP growth after the closing bell, which showed expansion decelerated to a 5.7% y/y pace, versus forecasts of a 6.5% gain and compared to the 6.1% increase posted in Q1.

The Markit manufacturing PMI reports from across the globe will dominate tomorrow's international economic calendar while other reports of note that deserve a mention include CPI, trade data and GDP from South Korea, consumer confidence from Japan, and GDP from Italy.

Financial Review

End of an Era

Sinclair Noe — July 31, 2017

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

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DOW + 60 = 21, 891
SPX – 1 = 2470
NAS – 26 = 6348
RUT – 4 = 1425
10 Y + .01 = 2.29%
OIL + .46 = 50.17
GOLD – .30 = 1269.80
BITCOIN – Undefined % = 2910.34 USD
ETHEREUM + 4.76% = 214.43

The Dow industrials traded in record territory. Losses in the tech sector weighed on the broader market. Despite the dip on the day, the S&P is within 1 percentage point off its own record, while the Nasdaq is 1.5% from its own.

For the month, the Dow is up 2.5%, while the S&P is up 1.9% and the Nasdaq has risen 3.4%. July was the second-best month of the year for both the Dow and the S&P. Both posted their fourth straight monthly gain. The DOW, S&P and Nasdaq recorded their eighth monthly increase of the past nine months.

The tech sector has not fallen off a cliff. The Dow hit 21,000 on March 1, and 22,000 is now just a chip shot away. The Dow hit 19,000 back in November.

We made it through some big earnings reports and some investors took profits or shuffled the lineup. Moving forward, good earnings will continue to be rewarded and bad earnings will be punished. S &P 500 earnings are expected on average to have grown 10.8 percent in the second quarter.

Tomorrow, Apple reports after the closing bell.

For the month, oil rallied 8.9%, its biggest monthly gain of the year. On a most-active basis, gold saw a roughly 2.5% gain in July. Silver rose around 1.3% in July. The Dollar Index lost almost 3% for the month of July, and posted its fifth straight monthly decline.

In the latest economic data, the Chicago purchasing managers index fell to 58.9 in July from 65.7 in the previous month. Separately, pending-home sales rose 1.5% in June, snapping a three-month streak of declines.  The housing market remained constrained by a shortage of properties available for sale. The June increase in pending sales suggests that existing home sales will likely increase soon, but the June increase for the index undid only a portion of the decline reported over the prior few months.

Loan officers at US banks reported tightening lending standards on commercial real estate loans while terms for business loans remained largely unchanged. According to the Federal Reserve’s quarterly survey, demand was weaker for commercial real estate and business loans in the second quarter. Some banks also reported a tightening in auto and credit card loan standards, with demand also weakening in that category.

Life moves pretty fast. If you don’t stop and look around occasionally, you could miss it. Today’s case in point, The Mooch is gone. Anthony Scaramucci has resigned as White House Communications Director, just 10 days after accepting the position.

During the Mooch era, we saw the quick resignations of Sean Spicer, the former press secretary, and Reince Priebus, the president’s first chief of staff. Priebus was replaced by General John Kelly, who had been running the Department of Homeland Security.

Kelly began his first day in charge of the White House staff by telling aides that he intended to impose a new sense of order and operational discipline that had been absent under his predecessor.

Even in an administration that has set records for quick departures, Scaramucci’s flameout was fast and phenomenal. It’s been a rough season for Scaramucci, who sold his hedge fund to work for Trump, got a top job, and then saw his marriage and job both crumble. The move leaves Trump once again without a communications director. The office has proven to have something of a curse.

The first person named to the job, Jason Miller, withdrew before taking over. Spicer served on an interim basis until Mike Dubke was named to the post in February, but Dubke resigned in May after an ineffectual term. Spicer then once again stepped in until Scaramucci’s appointment. It’s unclear who will serve in the role now. Deputy Press Secretary Sarah Huckabee Sanders was promoted to press secretary the same day Scaramucci took over.

White House officials outlined what one of them called an “aggressive” timetable for getting a tax overhaul in place before the end of the year. The plan for a tax code rewrite is to start hearings and a markup of the bill after Labor Day so a version can get through the House in October and the Senate in November. The White House has said it wants to lower corporate and individual tax rates, eliminate deductions and simplify the code.

Despite assurances on timing, many obstacles and unanswered questions remain about how to offset cutting tax rates with new revenue. Few details of the planned tax code rewrite have emerged from weekly, closed-door tax meetings between Trump’s advisers and congressional leaders.

Last week, White House officials and congressional leaders released a joint statement outlining their tax principles, with the only real progress disclosed being that the border-adjusted tax wouldn’t be part of negotiations going forward.

The US government slapped sanctions on Venezuelan President Nicolas Maduro today. In a referendum over the weekend, President Nicolás Maduro’s government claimed it has won overwhelming powers to redraft Venezuela’s constitution. Washington denounced the election as a “sham” vote.

No oil-related measures were included in the announcement, but such measures remain under consideration. Under the sanctions, all of Maduro’s assets subject to U.S. jurisdiction were frozen, and Americans are barred from doing business with him.

The sanctions against Maduro could be followed by measures targeting further senior Venezuelan officials as well as oil-sector measures in an “escalatory process” depending on how far the Venezuelan government goes in implementing the new congress following Sunday’s vote.

Former Maricopa County sheriff Joe Arpaio has been found guilty of criminal contempt for violating the terms of a 2011 court order in a racial profiling case. Arpaio, who lost his bid for re-election as Maricopa County sheriff last November after 24 years in office, faces a maximum penalty of six months in jail and a fine when he is sentenced on the misdemeanor offense on Oct. 5.

U.S. District Judge Susan Bolton found Arpaio guilty of contempt for intentionally defying the 2011 court order, which barred his officers from stopping and detaining Latino motorists solely on suspicion that they were in the country illegally.

The judge in the underlying lawsuit, brought by the American Civil Liberties Union and others in 2007, held that such traffic stops were a violation of the motorists’ constitutional rights. Federal prosecutors said racial profiling of Latino drivers continued for about 18 months after the injunction was issued, with 170 more people wrongfully detained. Arpaio says he will appeal the decision.

Los Angeles will host the 2028 Olympic Games. Paris will host the 2024 games. For 2024, Budapest, Rome, Hamburg, and Boston all dropped out after facing popular resistance. Civic leaders have grown wary of the costs of hosting. Russia spent a record $51 billion to host the 2014 Winter Games in Sochi, while organizers of the 2016 Summer Games in Rio de Janeiro have struggled to pay off debts.

Shares of Scripps Networks rose 0.6% after Discovery Communications said it would buy the owner of HGTV, Food Network and Travel Channel among others. Shares of Discovery Communications fell more than 7.4%.

Charter Communications rose 5.8% t to a record high after a source said Japan’s SoftBank Group was considering an acquisition offer.

Friday night Tesla delivered the first of its Model 3 mass-market sedans to their new owners. Tesla has been a manufacturer of high-end electric cars in small numbers. But now, Tesla wants not only to become a large-scale producer in the suddenly crowded field of battery-powered vehicles but also to lure consumers away from mainstream, gasoline-powered automobiles.

The biggest hurdle is expanding manufacturing capacity in Fremont fast enough to begin satisfying the enormous interest in the new car. About 500,000 people have put down $1,000 deposits since last year to reserve delivery of Model 3s when they are available. Tesla manufactured 25,000 cars in the last quarter. Volkswagen and Toyota manufacture 25,000 cars a day.

And all of the sudden, the major manufacturers are going all in on electric. Daimler announced a $740 million investment to produce EV batteries in China. Cummins noted it would have a fully electric truck platform available by the end of 2019.

Lyft pledged to provide a billion rides a year powered by electricity by 2025. Porsche set a 2023 target for having 50 percent of its production be electric vehicles. Volvo Cars announced that “all the models it introduces starting in 2019 will be either hybrids or powered solely by batteries”

Stocks Mixed on Data and Persistent Weakness in Tech

Charles Schwab: On the Market

Posted: 7/31/2017 4:15 PM ET

Stocks Mixed on Data and Persistent Weakness in Tech

U.S. stocks finished mixed, as investors weighed relatively upbeat global economic data and continued uncertainty surrounding the tech sector. Treasury yields and the U.S. dollar were little changed, while crude oil moved above $50/barrel and gold was slightly higher. M&A activity was in focus after Discovery Communications agreed to acquire Scripps Networks Interactive for nearly $15 billion.

The Dow Jones Industrial Average (DJIA) advanced 61 points (0.3%) to 21,891, the S&P 500 Index was 2 points (0.1%) lower at 2,470, and the Nasdaq Composite declined 27 points (0.4%) to 6,348. In heavy volume, 1.0 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.46 to $50.17 per barrel and wholesale gasoline was $0.03 higher at $1.68 per gallon. Elsewhere, the Bloomberg gold spot price inched $0.57 higher to $1,270.21 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 92.85.

Discovery Communications Inc. (DISCA $27) announced an agreement to acquire Scripps Networks Interactive Inc. (SNI $87) for $90.00 per share in cash and stock, valued at about $14.6 billion. Under the terms of the deal Scripps shareholders will receive $63.00 per share in cash and $27.00 per share in Class C Common shares of Discovery stock. Shares of DISCA saw pressure on the news and as the company reported Q2 earnings that missed forecasts. SNI was modestly higher as rumors of the deal recently boosted its shares and the company lowered its guidance after posting softer-than-expected Q2 revenues.

Dynavax Technologies Corp. (DVAX $16) surged over 70% after an advisory committee for the U.S. Food & Drug Administration (FDA) supported the company's safety claim regarding its Hepatitis B vaccine candidate, prompting some analysts to upgrade the stock.

Pending home sales jump, regional manufacturing activity continues to show growth

Pending home sales rose 1.5% month-over-month (m/m) in June, versus the Bloomberg projection of a 1.0% increase, and following the upwardly revised 0.7% drop registered in May. Compared to last year, sales were 0.7% higher. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which dipped slightly more than expected in June.

The Chicago Purchasing Managers Index (chart) declined more than expected but remained at a level depicting expansion (above 50), after falling to 58.9 in July from 65.7 in June, which was the highest since May 2014. Expectations called for a decrease to 60.0.

The Dallas Fed Manufacturing Activity Index surprisingly rose further into a level depicting expansion (a reading above zero). The index improved to 16.8 in July, from 15.0 in June, and compared to the expected decline to 13.0.

Today's reports begin a week that will see earnings continue to pour in and the economic calendar likely garnering attention given the recent action in bonds and currencies, while the markets appear a little less certain that another Fed rate hike this year is in the offing. Tomorrow, we will get a look at national manufacturing activity in July with the releases of the ISM Manufacturing Index, projected to dip to 56.5 from 57.8 in June, and the final Markit Manufacturing PMI Index, expected to be unrevised at 53.2 and up from June's 52.0 level. Readings above 50 for both depict expansion. We will also get a look at the health of the consumer and inflation, with the release of June personal income and spending, forecasted to match May's m/m gains of 0.4% and 0.1%, respectively, while the core PCE Index—a Fed favored gauge of inflation—is projected to remain at a 1.4% year-over-year rate and below the Fed's 2.0% target. Tomorrow's monthly U.S. auto sales and construction spending reports are also likely to be in focus.

As noted in the latest Schwab Market Perspective: Are Danger Signs Rising…or Will the Bull Run Continue?, a solid earnings season should contribute to a continuation of the bull market in stocks, along with economic data that is showing a robust labor market, but few signs of inflation building. Dangers are lurking, however, and the possibility of a decent-sized pullback has grown over the past couple of months, in light of monetary policy and geopolitical uncertainties. While we would likely view such a move as healthy, it can be disconcerting. Stay diversified and be prepared to guard against overreacting to any such move. Read more on the Markets & Economy page at www.schwab.com.

Treasuries were little changed, as the yields on the 2-year and 10-year notes, along with the 30-year bond, were all flat at 1.35%, 2.29% and 2.90%, respectively. Bond yields have shown some relative signs of life after recent pressure though the U.S. dollar remains hampered. The markets continue to grapple with geopolitical and global monetary policy uncertainties, exacerbated by last week's unchanged Fed monetary policy decision, as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her latest article, Fed Keeps it on the QT. Liz Ann notes that the decision was unanimous, and the addition of the words "relatively soon" point to a September start point to balance sheet shrinkage, or quantitative tightening (QT). Next up is the Jackson Hole annual conference, at which Yellen will speak, which could provide an opportunity to further steer the consensus around QT's timing. There is a September timing risk however, given that we could be in the midst of a debt ceiling stand-off, so stay tuned. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

The political front remains a source of market uncertainty in the wake another failed attempt at health care reform as discussed in Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's article, Health Care Reform: What Investors Should Know, on the Insights & Ideas page at www.schwab.com.

Europe mixed, Asia mostly higher following data and amid geopolitical uncertainty

European equities finished mixed in late-day action, with basic materials and oil & gas issues finding some support from upbeat economic data in the region, which followed relatively favorable reports out of Asia. However, the rally in technology issues continued to pause as analysts grapple with valuation concerns as earnings season rolls on. Also, consumer goods stocks were pressured by tobacco companies in the wake of late Friday's FDA announcement that it plans to crackdown on nicotine levels in cigarettes. The euro and British pound both moved higher in late-day action versus the U.S. dollar to apply some pressure on the markets, ahead of this week's monetary policy decision from the Bank of England, while core eurozone consumer price inflation estimate came in slightly hotter than expected. Bond yields in the region finished mixed. German retail sales rose more than expected in June, while the eurozone unemployment rate unexpectedly dipped. Stocks appeared to shrug off flared-up geopolitical concerns in the wake of another missile test by North Korea late last week. For a look at global investing, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, latest article, An important benefit to global investors is back after 20 years on the Markets & Economy page at www.schwab.com. Follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mostly to the upside, with the markets digesting some economic data, along with the continued global earnings season. Japanese equities declined, with the yen gaining ground to overshadow an upbeat read on the nation's industrial production, which rebounded more than expected in June. However, stocks traded in mainland China and Hong Kong rallied following upbeat earnings from some key companies in the nation, and as manufacturing and non-manufacturing reports continued to suggest expansion in July, with the latter showing growth in activity out of the key services sector accelerated. Australian securities advanced those traded in India also rose ahead of this week's monetary policy decisions from the two countries. Meanwhile, South Korean stocks ticked only slightly higher, showing some late-day resiliency in the face of late last week's missile test from North Korea. Amid this backdrop and as South Korean and Indian markets remain near all-time highs, Schwab's Jeffrey Kleintop, CFA, offers his articles, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, as well as, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the International Investing page.

Markit Manufacturing PMI readings from across the globe will dominate tomorrow's international economic calendar, while other items of note include PPI and trade data from South Korea, auto sales from Japan, employment figures from Germany and GDP from the Eurozone.

Financial Review

Bounce Back

Sinclair Noe — June 28, 2017

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

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DOW + 143 = 21,454
SPX + 21 = 2440
NAS + 87 = 6234
RUT + 21 = 1425
10 Y + .02 = 2.22%
OIL + .54 = 44.78
GOLD + 2.10 = 1249.80
BITCOIN + 0.05% = 2585.84 USD
ETHEREUM + 3.73% = 314.34

Well, isn’t this familiar. The markets have a down day only to bounce back. The S&P 500 posted its largest one-day gain in two months while Nasdaq Composite recorded its best day in eight months. The S&P 500 has been somewhat fickle this month with three of this year’s biggest gains and two of its worst losses having occurred in June.

For the first time in seven years, the Federal Reserve did not object to any of the capital plans of 34 banks it reviewed in the second part of the annual stress tests implemented in the wake of the financial crisis.  Only Capital One Financial needed to submit a new capital plan by Dec. 28 to address “weaknesses in its capital planning process.”

Last Thursday, all 34 banks passed the Dodd-Frank Act Stress Tests for the third time by topping the Fed’s requirements for being able to handle a severe recession. Wednesday’s results from the Comprehensive Capital Analysis and Review, or CCAR, marked the first time since the test launched seven years ago that the Fed did not object to any of the banks’ capital plans.

The passing grade means banks can use extra capital for stock buybacks, dividends and other purposes beyond a cushion against possible catastrophe. And we are already hearing from big banks. Citigroup announced plans to repurchase up to $15.6 billion of common stock over the next 12 months and double its quarterly dividend to 32 cents per share, bringing total payouts to $18.9 billion.

Fewer buyers signed contracts to buy existing homes in May, likely because they can’t find or afford what they want. The pending home sales index from the National Association of Realtors dropped 0.8 percent month to month and is now 1.7 percent lower than May 2016.

The number of home sales that closed this spring was slightly higher than a year ago, but the lack of listings clearly held the market back. The supply of homes for sale at the end of May was down more than 8 percent from a year ago, and homes that were listed sold at the fastest rate on record. The tight supply is pushing home prices higher, considerably faster than income growth.

Low mortgage rates have not been much help in offsetting these big price gains, and in fact may be exacerbating the problem, especially if rates begin to rise as is widely expected. The inventory crisis is worst on the low end of the market, where demand is highest.

The number of starter and trade-up homes currently on the market is down 15.6 percent and 13 percent, respectively, compared with a year ago, according to Trulia. The inventory of premium homes has fallen 3.9 percent.

The supply situation has buyer confidence in the housing market dropping. Just over half of renters say they think now is a good time to buy. That is down from 62 percent one year ago. While about 80 percent of current homeowners think now is a good time to buy, they are not listing their homes for sale. This may have more to do with weakening affordability than anything else. They don’t want to sell if they can’t afford a move-up home.

Senate leadership has reportedly set a Friday deadline for a new draft of the Better Care Reconciliation Act. The Congressional Budget Office could score it next week, setting up a mid-July vote. The vote has been delayed, but the Senate’s repeal and replace efforts are far from over.

When it comes to public support, there’s room for improvement. Just 17 Percent of Americans approve of the Republican Senate Health Care Bill – that’s almost as low as the approval rating for Congress. Fifty-five percent say they disapprove, while about a quarter said they hadn’t heard enough about the proposal to have an opinion on it.

Yesterday, we told you about the new Petya cyber virus that started in Ukraine and was infecting computers around the globe. The malicious code locked machines and demanded victims post a ransom worth $300 in bitcoins or lose their data entirely, like the extortion tactic used in the global WannaCry ransomware attack in May.

Day 2 of the ransomware attack and the situation is getting worse. Danish shipping giant A.P. Moller-Maersk said it was struggling to process orders and shift cargoes, congesting some of the 76 ports around the world run by its APM Terminals subsidiary.

FedEx shares temporarily halted trading before the package delivery giant disclosed that an information system virus significantly affected the global operations of its TNT Express subsidiary. In a statement, FedEx said that while TNT’s operations and communications systems were disrupted, “no data breach is known to have occurred.” The company noted that operations of all other FedEx companies were unaffected. FedEx shares finished the day up 1.3%.

United Parcel Service will freeze a pension plan for about 70,000 nonunion U.S. employees because of escalating costs and volatility in determining future payments, replacing it with a different retirement benefit. UPS’s pension plans in the U.S. had a $9.85 billion shortfall at the end of last year, meaning they were about 76 percent funded. The shift won’t occur until Jan. 1, 2023, giving affected workers more than five years to prepare.

The US announced today it’s rolling out a set of new, largely undisclosed security measures targeting some 2,000 international flights arriving at American airports every day.  The new rules will apply to 180 airlines flying out of 280 airports in 105 countries, and could prompt additional screening time for the 325,000 airline passengers arriving in the United States daily.

The move aims to end a limited in-cabin ban on laptops and other large electronic devices and prevent its expansion to additional airports. Officials said that travelers can expect intensified screening at airports, in the form of sniffing dogs, or more screening equipment. Details are still sketchy, including when the new confidential rules will be put in place. Sometime in the short and medium term.

Blue Apron Holdings cut the expected price range for its initial public offering to $10 to $11 per share from its previous estimate of $15 to $17 per share after potential investors expressed concerns about Amazon’s Whole Foods deal as well as Blue Apron’s marketing costs and lack of profitability.

Blue Apron’s new pricing guidance gives the company a valuation of up to $2.08 billion, below both the $3.2 billion implied by its previous estimate and the $2.2 billion by its latest private fundraising round two years ago. Blue Apron is the biggest U.S. meal-kit company and the first set to go public.

Amazon already has a small meal-kit business, delivering ingredients and recipes to customers in a handful of cities, and the Whole Foods deal announced could provide a ready-made distribution system for food delivery in the form of brick-and-mortar grocery stores.

Dutch healthcare company Philips has agreed to buy U.S.-based Spectranetics for $2.1 billion including debt. Spectranetics uses techniques including lasers and tiny drug-covered balloons to clean the insides of veins and arteries that have become clogged due to heart disease.

Beef Products Inc has settled its defamation lawsuit against the ABC television network over news reports on its processed beef product known as “pink slime.” The settlement came 3-1/2 weeks after the trial in the case got under way. Terms of the settlement were not disclosed. ABC used the term “pink slime” more than 350 times across six different media platforms including TV and online. ABC said it is not retracting or apologizing for anything. Bon Appetit.

Facebook tops 2 billion users. CEO Mark Zuckerberg made the announcement on his personal Facebook page. Facebook now becomes the unofficial least exclusive club in the world.

Brazil’s federal police have halted issuing new passports on the eve of school vacations, citing insufficient funds. The federal police exhausted its budget for immigration control and travel documents and won’t be able to restore the service until additional funds are approved.

For the third year in a row, the state of Illinois is poised to begin its fiscal year on July 1 with no state budget and billions of dollars in the red. If that happens, S&P Global Ratings says Illinois will probably lose its ­investment-grade status and become the first U.S. state on record to have its general obligation debt rated as junk.

Illinois is already the worst-rated state at BBB-, S&P’s lowest investment-grade rating. The state owes at least $800 million in interest and late fees on its unpaid bills. Any further downgrade will make it more expensive the next time the state needs to sell bonds.

Two years ago, Illinois’s budget impasse meant that the state’s lottery winners had to wait for months to get their winnings. Now, with $15 billion in unpaid bills, Illinois is on the brink of being unable to even sell Powerball tickets. And winning the Powerball was probably their best chance of breaking the budget impasse.

KB Homes  announced earnings of $0.33 a share on revenue of $1 billion, both better than expected. KB Home climbed 5 percent.

General Mills rose 1.9 percent after the maker of Cheerios cereal, Yoplait yogurt and other packaged foods served up fourth-quarter earnings and revenue that beat expectations.

Staples will be acquired by Sycamore Partners for about $6.9 billion in one of the largest retail deals of the year. Sycamore is paying $10.25 a share for the retailer; that represents a 12 percent premium to its share price on Tuesday, before reports surfaced that the transaction was close to be being completed.

Stocks Bounce with Financials in the Lead

Charles Schwab: On the Market

Posted: 6/28/2017 4:15 PM ET

Stocks Bounce with Financials in the Lead

U.S. equities posted solid gains with financials leading the way, adding to their recent rebound, and as Treasury yields at the mid-to-long end of the curve saw gains. Technology issues stabilized from their recent tumble and energy stocks gained ground on an uptick in crude oil prices, despite an unexpected bearish inventory report. The U.S. dollar finished nearly unchanged after a choppy session, on some euro volatility and as comments from Bank of England Governor Carney boosted the pound. Gold was higher.

The Dow Jones Industrial Average (DJIA) rose 144 points (0.7%) to 21,455, the S&P 500 Index increased 21 points (0.9%) to 2,441, and the Nasdaq Composite jumped 88 points (1.4%) to 6,234. In moderate volume, 854 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.50 to $44.74 per barrel and wholesale gasoline was $0.02 higher at $1.47 per gallon. Elsewhere, the Bloomberg gold spot price increased $3.03 to $1,250.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 95.99.

General Mills Inc. (GIS $57) reported Q4 earnings-per-share (EPS) of $0.69, or $0.73 ex-items, versus the $0.71 FactSet estimate, as revenues declined 3.0% year-over-year (y/y) to $3.8 billion, roughly in line with forecasts. GIS issued current year EPS guidance that came in slightly below forecasts. Separately, the company increased its quarterly dividend by 2.1% to $0.49 per share. Shares were higher.

KB Home (KBH $24) posted fiscal Q2 EPS of $0.33, above the projected $0.26, as revenues grew 24.0% y/y to $1.0 billion, north of the expected $930 million. Home deliveries rose 11% y/y, while net order and backlog values both posted mid-to-high double-digit growth. KBH said the housing market recovery continues on a steady path, supported by favorable industry fundamentals, while raising its full-year guidance. KBH gained ground.

Spectranetics Corp. (SPNC $38) surged over 25% after Royal Philips NV (PHG $36) agreed to acquire the maker of devices to treat cardiac disease for $38.50 per share in cash or about $1.7 billion.

The recent tech sector volatility remains in focus, and we discuss this in the latest article, Tech's Rough Ride: Is There More Turmoil Ahead? on the Insights & Ideas page at www.schwab.com, and be sure to follow us on Twitter: @schwabresearch. Moreover, Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, The Space Between … Tech Today Doesn't Resemble Tech Circa 2000, that in typical fashion, the financial media may have gone a little overboard with its breathless reporting on the recent "tech wreck." She adds that tech companies' fundamentals and valuations look vastly dissimilar to the 2000 era. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

This volatility surrounding the tech sector has fostered some rotation among the major sectors and Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, provides us with a fresh method to view the 11 major sectors in his latest Schwab Sector Views: From the Top Down on the Markets & Economy page at www.schwab.com.

Pending home sales unexpectedly decline, mortgage applications fall

Pending home sales declined 0.8% month-over-month (m/m) in May, versus the Bloomberg projection of a 1.0% increase, and following the downwardly revised 1.7% drop registered in April. Compared to last year, sales were 0.5% higher, matching forecasts. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which surprised to the upside in May.

The MBA Mortgage Application Index fell 6.2% last week, following the previous week's 0.6% rise. The drop came as an 8.6% fall in the Refinance Index was met with a 4.1% decline for the Purchase Index. The average 30-year mortgage rate remained at 4.13%.

The advance goods trade deficit narrowed more than expected to $65.9 billion in May, from the downwardly revised $67.1 billion in April, and compared to the Bloomberg expectation of $66.0 billion.

Preliminary wholesale inventories rose 0.3% m/m in May, versus forecasts for a 0.2% increase, and following April's favorably revised 0.4% decrease.

Treasuries were mixed, as the yield on the 2-year note declined 2 basis points (bps) to 1.35%, while the yield on the 10-year note ticked 1 bp higher to 2.22% and the 30-year bond rate rose 2 bps to 2.77%. Bond yields have rebounded somewhat as of late from depressed levels and Schwab's Kathy Jones notes in her Bond Market Mid-Year Outlook: Redefining the Borders of 'Lower for Longer' in the second half of 2017, we expect 10-year Treasury yields to remain in a 2% to 2.5% range, consistent with the eight-year "lower for longer" theme in the bond market. We expect the Federal Reserve to continue to tighten monetary policy and reduce its balance sheet gradually, assuming inflation doesn't slip further. Read more, including how we feel investors should position themselves in this environment on the Fixed Income page at www.schwab.com and follow Kathy on Twitter: @kathyjones.

Finally, the political front remains in focus with yesterday's delay in the Senate healthcare bill vote until after the July 4th holiday exacerbating uncertainty, while the debt ceiling debate continues and the markets are looking for any developments on tax and regulatory reforms, as well as other reflationary policy implementation. As such, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Washington Midyear Update: 4 Key Issues for Investors to Watch, on the Insights & Ideas page at www.schwab.com.

Tomorrow's economic docket will consist of the third and final read for Q1 GDP, with economists anticipating no revision to the quarterly 1.2% annualized growth rate in the second release, nor the 2.2% increase in personal consumption, as well as weekly initial jobless claims, forecasted to tick lower to 240,000 from the prior week's 241,000.

European mixed amid euro and pound volatility, Asia mostly lower on uncertainties

European equities finished mixed following a brief afternoon recovery on a short-lived reverse to the downside for the euro on reports that European Central Bank (ECB) members are saying the markets misjudged President Mario Draghi's comments yesterday. The euro moved back into the green, extending yesterday's rally that came as the markets appeared to have a hawkish takeaway from Draghi's speech. He pointed out a strengthening and broadening recovery, while saying that pressures on inflation are temporary and that "the threat of deflation is gone and reflationary forces are at play." Bond yields in the region finished mixed. Amid this backdrop, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his article, Are bonds signaling a major stock market peak? on the Markets & Economy page at www.schwab.com. The British pound rallied versus the U.S. dollar as Bank of England Governor Mark Carney said policy makers may need to begin the removal of stimulus if the trade-off between growth and inflation continues to lessen and the central bank will discuss this in the coming months. Oil & gas issues pared early pressure as crude oil prices reversed losses. Political uncertainty continued to linger ahead of key elections in the eurozone and as U.K. Brexit negotiations are set to ramp up. Jeff and Vice President of Trading and Derivatives, Randy Frederick offer the video, Political Risk: How Should Investors Respond?, on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. In economic news, French consumer confidence jumped and Spanish retail sales rebounded.

Stocks in Asia finished mostly lower following the declines in the U.S. and Europe yesterday that came courtesy of the continued rollover in technology stocks, the delayed U.S. healthcare bill vote and hawkish commentary from ECB President Draghi that boosted the euro. Japanese equities declined, with the yen choppy following a recent decline. Mainland Chinese stocks and those in Hong Kong declined amid the aforementioned headwinds, and ahead of Friday's release of manufacturing and services sector reports. Meanwhile, Australian securities advanced nicely, led by strength in basic materials, oil & gas and financial issues amid a rise in global bond yields and continued rebound in crude oil prices, while markets in South Korea and India declined. For a look at the global landscape, see Schwab's Jeffrey Kleintop's, CFA, 2017 Mid-year Global Market Outlook: Broader Growth, Narrower Risks on the International Investing page at www.schwab.com.

Tomorrow's international economic calendar will include retail sales and the trade balance from Japan, CPI from Spain, consumer and business confidence from the Eurozone, and CPI from Germany.

Lackluster Reports Pressure Equities for Second Day

Charles Schwab; On the Market

Posted: 5/31/2017 4:15 PM ET

Lackluster Reports Pressure Equities for Second Day

U.S. equities finished lower for a second session with financials taking the brunt of the losses following some trading revenue warnings from within the sector, while the Fed's Beige Book noted some districts saw some slowing in growth. Crude oil's continued descent pressured the energy sector, and domestic economic data was less-than-stellar. Meanwhile, Treasury yields lost ground and gold was higher, while the U.S. dollar was flat.

The Dow Jones Industrial Average (DJIA) declined 21 points (0.1%) to 21,009, the S&P 500 Index decreased 1 point (0.1%) to 2,412, and the Nasdaq Composite moved 5 points (0.1%) lower to 6,199. In heavy volume, 1.5 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.34 to $48.32 per barrel and wholesale gasoline lost $0.02 to $1.60 per gallon. Elsewhere, the Bloomberg gold spot price increased $5.57 to $1,268.66 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 97.09.

Michael Kors Holdings Ltd. (KORS $33) reported a fiscal Q4 loss of $0.17 per share, or earnings-per-share (EPS) of $0.73 ex-items, versus the $0.70 FactSet estimate, as revenues dropped 11.2% year-over-year (y/y) to $1.1 billion, roughly in line with forecasts. Q4 same-store sales fell 14.1% y/y, compared to the projected 12.8% decrease. The company noted a challenging year as it continued to operate in a difficult retail environment with elevated promotional levels. KORS issued Q1 and full-year guidance that was below the Street's expectations, as it characterized the current year as "a transition year." Separately, the company announced a new $1.0 billion stock repurchase program. Shares were sharply lower.

Bank of America Corp. (BAC $22) and Dow member JPMorgan Chase & Co. (JPM $82) lead the financial sector lower after executives from the two companies at separate conferences in New York City warned that trading revenues in Q2 are lower y/y.

Regional manufacturing growth slows, Fed report shows moderating growth

The Chicago Purchasing Managers Index (chart) slowed but remained at a level depicting expansion (above 50), after declining to 55.2 in May, from 58.3 in March, which was the highest level since January 2015, and versus the Bloomberg expectation of a decrease to 57.0.

Pending home sales fell 1.3% month-over-month (m/m) in April, versus projections of a 0.5% increase, and following the downwardly revised 0.9% decline registered in March. Compared to last year, sales were 5.4% lower. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which fell more than expected in April.

The MBA Mortgage Application Index decreased 3.4% last week, following the previous week's 4.4% gain. The drop came as a 5.6% fall in the Refinance Index was met with a 1.4% decline for the Purchase Index. The average 30-year mortgage rate remained at 4.17%.

The Federal Reserve's Beige Book, a look at business activity across the nation used as a preparation tool for the Fed's next two-day monetary policy meeting set to conclude on June 14th, was released in afternoon action. The report showed that the U.S. economy as a whole continued to grow at a "modest to moderate" pace, but the districts of Boston and Chicago noted slowing growth, while New York "indicated that activity had flattened out." Meanwhile, the report indicated that "labor market conditions continued to tighten, with most districts citing shortages", while prices overall "were little changed from the previous report, with most districts reporting modest increases."

Expectations are elevated that the Fed will raise interest rates following its June meeting, though the frequency of further hikes this year is in question as the Central Bank looks to begin the process of shrinking its bloated balance sheet, a move that Schwab’s Chief Investment Strategist Liz Ann Sonders notes is a form of tightening. Liz Ann discusses this in her latest article, Gimme Three Steps … and a Stumble?, noting that the transition from quantitative easing (QE) to quantitative tightening (QT) begs the question whether we are heading into another period of heightened volatility. She concludes that although stocks tend to fare well during rate hike cycles, the unprecedented nature of this tightening cycle suggests bouts of volatility are likely. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Treasuries finished modesly higher, as the yields on the 2-year and 10-year notes, along with the 30-year bond, dipped by 1 basis point to 1.28%, 2.20% and 2.87%, respectively. For analysis of the bond markets amid the expected Fed interest rate action, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, as well as Schwab's Chief Fixed Income Strategist, Kathy Jones' article, Three Reasons to Own Bonds When the Fed is Raising Interest Rates on the Fixed Income page at www.schwab.com. Follow Kathy on Twitter: @kathyjones.

Tomorrow's economic calendar will heat up with a plethora of key reports for the markets to digest ahead of Friday's labor report, beginning with ADP's private sector payroll release and weekly initial jobless claims. However, the following releases of the ISM Manufacturing Index and May auto sales figures are likely to garner the most scrutiny. ISM is expected to show manufacturing activity is expected to slow slightly to 54.6 in May from 54.8 April but remain solidly in expansion territory a depicted by a reading above 50. According the FactSet, adjusted auto sales are projected to post another y/y decline, likely preserving concerns about the divergence between hard and soft data.

As noted in the latest Schwab Market Perspective: Unprecedented! Or Maybe Not?, leading indicators continue to show a growing economy, bouncing back from the weak first quarter, while the labor market continues to tighten, and globally, we are seeing improving growth. This should help the bull market continue. Read more on the Markets & Economy page at www.schwab.com. Other reports on tomorrow's calendar include the final Markit Manufacturing PMI Index and construction spending.

Europe and Asia mixed in the face of heightened political uncertainty

European equities finished mixed amid elevated political uncertainty in the region. Recent polls suggested U.K. Prime Minister Theresa May's Conservative Party could lose seats in Parliament and may not win an overall majority in next week's election. This came against the backdrop of the nation's ongoing Brexit negotiations to foster some increased political uncertainty, while elections loom in Italy and Germany later this year. The British pound overcame early losses and was higher versus the U.S. dollar. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick offer the video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. In economic news, the eurozone consumer price inflation estimates for May came in cooler than expected, while the region's unemployment rate unexpectedly dipped to 9.3%. Also, Germany's unemployment change declined by a slightly smaller amount than anticipated and the nation's retail sales surprisingly slipped. The euro was higher versus the greenback and bond yields in the region finished mixed. Healthcare stocks gained solid ground, though the oil & gas sector came under pressure as crude oil prices extended losses. Basic materials were lower despite some relatively upbeat Chinese manufacturing and services data, while financials were hampered by a flare-up in Italian banking concerns and warnings about trading revenues out of the U.S. banking sector.

Stocks in Asia finished mixed amid lingering political uncertainty in the U.S. and Europe, while the markets digested some divergent reads on economic activity in the region. Japanese equities dipped slightly, with the yen choppy after paring gains late in the session, while a report showed the nation's industrial production rebounded solidly in April, but at a pace that was just shy of expectations. Stocks in mainland China advanced, but those traded in Hong Kong declined, as traders grappled with a recent credit rating downgrade of the nation, festering regulatory crackdown concerns, and the aforementioned political uncertainty. Also, the markets digested China's official May business activity reports, which showed growth in manufacturing output held steady, slightly above forecasts, while its expansion in its key services sector accelerated slightly. Meanwhile, markets in Australia and South Korea gained modest ground, while securities in India finished flat ahead of the release of its Q1 GDP report. After the markets closed, India reported that its Q1 GDP growth slowed to a 6.1% y/y pace of expansion, from a 7.0% pace in Q4, and compared to the projected acceleration to a rise of 7.1%.

For a look at the global markets and economy, see Schwab's Jeffrey Kleintop's, CFA, article, The Long Period of Underperformance for Emerging Market Stocks May Finally Be Over on the Markets & Economy page at www.schwab.com, as well as his video, What's the Current State of the Global Economy? on the Insights & Ideas page at www.schwab.com.

Reports on tomorrow's international economic calendar include: the Markit Manufacturing PMIs from across the globe, CPI from South Korea, and GDP from Italy.

Stocks Lack Direction in a Fairly Flat Finish

Charles Schwab: On the Market

Posted: 4/27/2017 4:15 PM ET

Stocks Lack Direction in a Fairly Flat Finish

U.S. stocks oscillated around the flatline before ultimately closing with mild gains as the global markets continued to grapple with political uncertainty. A plethora of earnings reports hit the Street highlighted by Comcast and Under Armour, while in economic news, durable goods orders missed expectations and jobless claims rose. Gold and crude oil prices were lower, the U.S. dollar was mostly flat and Treasuries gained ground.

The Dow Jones Industrial Average (DJIA) added 6 points to 20,981, the S&P 500 Index increased 1 point (0.1%) to 2,389, and the Nasdaq Composite was 24 points (0.4%) higher at 6,049. In heavy volume, 1.0 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.65 to $48.97 per barrel and wholesale gasoline was $0.04 lower at $1.55 per gallon. Elsewhere, the Bloomberg gold spot price ticked $4.42 lower to $1,264.80 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% higher at 99.12.

Comcast Corp. (CMCSA $40) reported 1Q earnings-per-share (EPS) of $0.53, above the $0.44 FactSet estimate, with revenues growing 8.9% year-over-year (y/y) to $20.5 billion, topping the forecasted $20.1 billion. Shares finished nicely higher.

Under Armour Inc. (UA $20) posted a 1Q loss of $0.01 per share, compared to the $0.04 per share shortfall that the Street had projected, as revenues rose 7.0% y/y to $1.1 billion, roughly in line with forecasts. UA reaffirmed its full-year revenue outlook. Shares rallied.

United Parcel Service Inc. (UPS $109) announced 1Q EPS of $1.32, exceeding the expected $1.29, with revenues increasing 6.2% y/y to $15.3 billion, north of the estimated $15.2 billion. UPS reaffirmed its full-year earnings guidance and shares traded to the upside.

Bristol-Myers Squibb Co. (BMY $56) reported 1Q EPS of $0.94, or $0.84 ex-items, versus the estimated $0.73, as revenues rose 12.0% y/y to $4.9 billion, above the forecasted $4.8 billion. BMY raised its full-year EPS outlook and shares gained solid ground.

American Airlines Group Inc. (AAL $44) posted 1Q profits of $0.46 per share, or $0.61 ex-items, compared to the expected $0.57, as revenues grew 2.0% y/y to $9.6 billion, roughly in line with estimates. Shares traded decisively to the downside as analysts express profit margin concerns as the company announced pay increases for employees that could exacerbate cost pressures facing the airline. 

Ford Motor Co. (F $11) reported 1Q EPS of $0.40, or $0.39 ex-items, versus its guidance of between $0.30-0.35 issued last month, as revenues rose 4.0% y/y to $39.1 billion, compared to the projected $34.2 billion. Shares lost ground.

Durable goods orders miss, jobless claims rise

March preliminary durable goods orders (chart) increased 0.7% month-over-month (m/m), compared to the Bloomberg estimate of a 1.3% rise, but February's 1.8% gain was revised to a 2.3% rise. Ex-transportation, orders were 0.2% lower m/m, compared to forecasts of a 0.4% gain and versus February's upwardly revised 0.7% increase. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, rose 0.2%, versus projections of a 0.5% increase, and following the favorably revised 0.1% increase in the month prior. Demand for autos slipped to weigh on the headline figure and offset some of the solid growth in volatile component of aircraft and parts. Weakness in computers, communications equipment, fabricated metal products and machinery led to the first decline in the ex-transportation figure since June 2016.

The report is in line with the data divergence seen between "hard" and confidence/survey-based "soft," and the average trend of flat growth in Q1 that we have seen over the past 10 years. Schwab’s Chief Investment Strategist Liz Ann Sonders discusses this phenomenon in her latest article, ½ Full: Seeing Through a Weak Q1, but points out that the average GDP growth for the subsequent quarters over the past 10 years has been 1.8%, and forward looking data remains quite healthy. Read more on the Markets & Economy page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

Weekly initial jobless claims (chart) rose by 14,000 to 257,000 last week, above forecasts of 245,000, with the prior week’s figure being downwardly revised to 243,000. The four-week moving average dipped by 500 to 242,250, while continuing claims grew by 10,000 to 1,988,000, south of estimates of 2,007,000.

Pending home sales declined 0.8% m/m in March, versus projections of a 1.0% decrease, and following the unrevised 5.5% gain registered in February. Compared to last year, sales were 0.5% higher. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which rose more than expected in March to the fastest pace since 2007.

The advance goods trade deficit widened to $64.8 billion in March, from the downwardly revised $63.9 billion in February, and compared to expectations for it to increase to $65.2 billion.

Preliminary wholesale inventories dipped 0.1% m/m in March, versus forecasts for a 0.2% increase, and following February's downwardly revised 0.2% gain.

The Kansas City Fed Manufacturing Activity Index for April slid to 7, from March's 20 reading, below forecasts of a decline to 17, though a level north of zero depicts expansion.

Treasuries were higher, with the yield on the 2-year note slipping 2 basis points (bps) to 1.25% and the yield on the 10-year note dipping 1 bp to 2.29%, while the 30-year bond rate was unchanged at 2.96%. Bond yields have rebounded recently following eased European political risk concerns in the wake of the French Presidential election and as earnings season has remained favorable. For analysis of the bond markets, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, Three Reasons to Own Bonds When the Fed is Raising Interest Rates on the Markets & Economy page at www.schwab.com. Follow Kathy on Twitter: @kathyjones. Also, Schwab's Vice President of Trading and Derivatives, Randy Frederick and Senior Fixed Income Research Analyst, Collin Martin, CFA, offer the video What's Driving the Ongoing Drop in Long-Term Bond Yields? on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick.

The markets are digesting yesterday's rough framework of President Trump's tax-reform plan, but political uncertainty remains elevated as discussed by Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend in his latest article, Congress Facing Possible Government Shutdown—Again, on the Insights & Ideas page at www.schwab.com.

Tomorrow, the U.S. economic calendar will bring the first look (of three) at 1Q GDP, projected to show growth slowed to a 1.0% quarter-over-quarter (q/q) annualized pace, from 4Q's 2.1% rate of expansion. Personal consumption is expected to rise 0.9% after 4Q's 3.5% increase. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in the latest Schwab Sector Views: Is Retail Really Dead?, that it seems like a daily fixture of the business news: Another retailer announcing it is closing stores, warning of declining sales or declaring bankruptcy. There is no doubt that online shopping has changed the way Americans consume, and many industry observers have been sounding the death knell of “brick and mortar” retailers for some time. But is this really a terminal case? Read more, as well as Brad's views on other sectors on the Markets & Economy page at www.schwab.com and follow Schwab on Twitter: @schwabresearch.

Additionally, we will receive the 1Q Employment Cost Index, expected to have increased by 0.6% quarter-over-quarter, after rising 0.5% in the 4Q and the Chicago Purchasing Managers Index for April, expected to show activity in the Midwest declined to 56.2 from the 57.7 posted in March, though a reading above 50.0 represents expansion. The last release for the day will be the final University of Michigan Consumer Sentiment Index for April, forecasted to remain at the preliminary level of 98.0, but above the final reading of 96.9 for March.

Europe lower and Asia mixed amid central bank decisions, data and political uncertainty

European equities finished lower, with oil & gas issues leading to the downside amid some weakness in crude oil prices, while the markets took a breather from the strong gains seen this week that were fostered by the French Presidential election and mostly upbeat earnings reports. The markets paid close attention to the customary press conference by European Central Bank (ECB) President Mario Draghi that followed the central bank's unchanged monetary policy stance. Comments were scrutinized for any clues to the timing regarding when the ECB may begin to dial back its highly accommodative monetary policy position. Draghi noted that downside risks to the economy have further diminished and the recovery is now solid and broad. However, he noted that the ECB did not discuss options for June or changing its policy bias as underlying inflation remains subdued and has yet to show a convincing upward trend. The euro was volatile on the comments, briefly spiking but then moving lower versus the U.S. dollar.

U.S. President Trump's tax-reform plan also garnered attention, along with recent comments and actions regarding the world's largest economy's global trade relations. For analysis of the political uncertainty on both sides of the pond, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com. Eurozone economic confidence improved, while German consumer price inflation remained subdued but slightly hotter than expected. The British pound was higher versus the U.S. dollar, while bond yields in the region were mostly lower.

Stocks in Asia finished mixed, following a two-session rally, with the markets digesting an expected unchanged monetary policy decision from the Bank of Japan (BoJ), some details of U.S. tax-reform plans, and economic data. Japanese equities declined, paring a four-day jump as the yen recovered some of a recent slide in the wake of the BoJ's decision, which included an increased economic forecast. South Korean stocks ticked higher after a report showing the nation's 1Q GDP growth accelerated more than expected. Shares trading in mainland China and Hong Kong gained ground on the heels of a report showing the country's industrial profits jumped, helping overshadow lingering concerns about regulatory crackdowns. Australian securities rose, while Indian listings decreased. The markets also continued to grapple with exacerbated U.S. trade relation uncertainty and festering geopolitical concerns toward North Korea. Schwab's Jeffrey Kleintop, CFA, offers timely commentary in his article, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, while he also delivers a look at the global landscape in his article, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com.

The international economic docket for tomorrow will yield a plethora of reports from Japan as the island nation is expected to deliver reads on its jobless rate, household spending, CPI, retail sales, industrial production, housing starts, construction orders and vehicle production. Additional releases will include private sector credit from Australia, consumer confidence and GDP from the U.K., retail sales and the import price index from Germany and CPI and PPI from Italy and France, while France will also report GDP.