Stocks Rally Ahead of Senate Tax Vote

Charles Schwab: On the Market

Posted: 11/30/2017 4:15 PM EST

Stocks Rally Ahead of Senate Tax Vote

 

U.S. stocks traded nicely higher as market participants weighed the likelihood of the Senate passing its tax reform bill, with a vote expected to be held soon. Energy stocks rose as crude oil prices ticked higher and Treasury yields extended recent gains, while gold and the U.S. dollar traded lower. Domestic economic reports showed that personal income and spending in October rose and weekly jobless claims dipped. Kroger announced upbeat quarterly profits and Costco reported better-than-expected same-store sales growth. 

The Dow Jones Industrial Average (DJIA) rallied 332 points (1.4%) to 24,272, the S&P 500 Index advanced 22 points (0.8%) to 2,648, and the Nasdaq Composite gained 50 points (0.7%) to 6,874. In heavy volume, 1.5 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.10 higher to $57.40 per barrel and wholesale gasoline was unchanged at $1.73 per gallon. Elsewhere, the Bloomberg gold spot price decreased $8.30 to $1,275.34 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 93.07.

PVH Corp. (PVH $135) reported Q3 earnings-per-share (EPS) of $3.05, or $3.02 ex-items, versus the $2.91 FactSet estimate, as revenues increased 5.0% year-over-year (y/y) to $2.4 billion, above the projected $2.3 billion. PVH issued Q4 EPS guidance that was below expectations, though it raised its full-year profit outlook. The parent of Calvin Klein and Tommy Hilfiger projected Q4 and full-year revenues to be slightly above estimates. Shares declined.

Kroger Co. (KR $26) posted Q3 profits of $0.44 per share, compared to the forecasted $0.40, with revenues rising 4.5% y/y to $27.7 billion, above the expected $27.5 billion. The grocer's Q3 same-store sales grew 1.1% y/y, versus the estimated 0.9% gain. KR reaffirmed its full-year EPS outlook. Shares rallied.

Costco Wholesale Corp. (COST $184) moved nicely higher after the company said its November same-store sales grew 10.8% y/y, above the projected 7.9% increase. L Brands Inc. (LB $56) said its November same-store sales declined 1.0% y/y, versus the forecasted 0.2% gain, but noted that it sees December sales being flat to up low-single digits. LB rallied.

Personal income and spending rise, jobless claims dip

Personal income (chart) rose 0.4% month-over-month (m/m) in October, above the Bloomberg forecast of a 0.3% gain, and compared to September's unrevised 0.4% increase. Personal spending increased 0.3% last month, matching expectations, and versus September's downwardly revised 0.9% gain. The October savings rate as a percentage of disposable income was 3.2%. The PCE Deflator was 0.1% higher, in line with expectations and versus the prior month's unrevised 0.4% gain.

Compared to last year, the deflator was 1.6% higher, north of estimates of a 1.5% rise and compared to September's upwardly revised 1.7% gain. Excluding food and energy, the PCE Core Index was 0.2% higher m/m, matching expectations, and versus the prior month's upwardly revised 0.2% gain. The index was 1.4% higher y/y, in line with estimates, and compared to September's upwardly revised 1.4% increase.

Weekly initial jobless claims (chart) declined by 2,000 to 238,000 last week, versus forecasts calling for it to match the prior week’s upwardly revised 240,000 figure. The four-week moving average rose by 2,250 to 242,250, while continuing claims grew by 42,000 to 1,957,000, north of estimates of 1,890,000.

The Chicago Purchasing Managers Index (chart) declined in November to 63.9 from October's unrevised 66.2 level, and better than expectations calling for a decline to 63.0. The index remained solidly in expansion territory (above 50) and pulled back from the highest level since March 2011, adding to a long list of signs that the manufacturing sector remains solid.

Schwab's Chief Investment Strategist Liz Ann Sonders notes that U.S. business capital spending has already picked up but an even sharper recovery could be in the cards for 2018, while tax reform—if we get it—would be an additional kicker in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle. Tomorrow, November manufacturing activity will be on display with the releases of the ISM Manufacturing Index and the final Markit Manufacturing PMI Index. The ISM index is projected to dip to 58.3 from 58.7 in October, while Markit's index is expected to be revised higher to 54.0 from the preliminary 53.8 reading, but slightly below October's 54.6 level. Readings above 50 for both reports denote expansion.

Treasuries traded lower, with the yield on the 2-year note rising 2 basis points (bps) to 1.78%, the yield on the 10-year note gaining 3 bps to 2.42%, and the 30-year bond rate ticking 1 bp higher to 2.83%.

Treasury yields added to yesterday's noticeable curve steepening after a recent bout of flattening that fostered some market weariness, while the U.S. dollar pared its modest weekly rebound.
The markets continued to grapple with the continued signs of broad-based global economic growth and mostly favorable earnings results, along with tax reform uncertainty. The Senate appears headed to vote later today or tomorrow on its bill with signs emerging the past couple days that it has been tweaked enough to find enough support to pass. This has fostered some optimism regarding tax reform becoming a reality this year, but has also resulted in some rotation in the stock market sectors, which helped lead yesterday's selloff in the tech sector.

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, if the bill passes the Senate, the House and Senate would need to convene a conference to negotiate and reconcile differences between the two bills to produce a single consensus bill. That bill would then need to be approved by both chambers before it could be sent to President Donald Trump for his signature.

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

Tomorrow, the U.S. economic calendar will give us a look at national manufacturing activity in November with the releases of the ISM Manufacturing Index, projected to dip to 58.3 from 58.7 in October, and the final Markit Manufacturing PMI Index, expected to be revised higher to 54.0, but down from October's 55.3 level. Readings above 50 for both depict expansion. Construction spending for October will also be reported, forecasted to have increased 0.5% after rising 0.3% in September.

Europe gives up gains as euro and pound rally, Asia mostly lower

European equity markets relinquished early gains and finished mostly lower, with the euro extending a rise amid a downside reversal for the U.S. dollar late in the session and the British pound jumping on signs of progress in deadlocked Brexit negotiations. Energy issues gave up an advance as crude oil prices were choppy ahead of today's OPEC production decision. OPEC is expected to deliver an extension of cuts to the end of 2018 but there were some uncertainties that lingered ahead of the decision. U.S. tax reform optimism continued but this fostered yesterday's noticeable rotation out of the technology sector, and the group remained under pressure on this side of the pond. In economic news, eurozone consumer price inflation estimates came in a bit cooler than expected for November, while the region's October unemployment rate dipped unexpectedly. German retail sales surprisingly fell last month. 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. Bond yields finished mostly lower to exacerbate pressure on financials.

Stocks in Asia finished mostly lower, with the global selloff in the tech sector weighing on markets, while optimism of U.S. tax reform lingered and a flood of data in the region was digested. Shares trading in mainland China and Hong Kong fell, with the weakness in tech more than offsetting the government's reports on manufacturing and the key services sectors showing growth accelerated for both, with the former surprisingly increasing. South Korean equities dropped as the tech pullback was met with an expected increase in the Bank of Korea's benchmark interest rate and an unexpected drop in the nation's industrial production. Australian securities moved lower with financials seeing some pressure after the government announced that it will launch an inquiry into the sector. Indian stocks also traded to the downside on the tech volatility and ahead of the nation's Q3 GDP report. After the closing bell, India's Q3 GDP accelerated to a 6.3% y/y pace of growth, but slightly below the projected 6.4% expansion.

However, Japanese equities rose with the yen extending yesterday's weakness and strength in financials helping counter the slide in the tech sector. Japan reported that industrial production rose at a smaller rate than expected but growth in vehicle production accelerated solidly in October. Despite the downside pressure on most markets, they remain nicely higher on the year, fostered by the broadest economic growth in a decade and is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, in his article, 5 Reasons Investors Should Give Thanks.

The international economic docket for tomorrow will yield a host of reports from Japan as the island nation reports its jobless rate, CPI, capital spending, company sales and vehicle sales. China, India and South Korea will deliver manufacturing PMI reads and the latter will also announce final Q3 GDP. Reports from across the pond will include Markit Manufacturing PMI reads from the U.K., Germany, France, Italy and the eurozone.

Record High Rally Pauses

Charles Schwab: On the Market

Posted: 10/30/2017 4:15 PM EDT

Record High Rally Pauses

 

U.S. equities took a breather from their recent tech-fueled rally to fresh record highs ahead of a heavy slate of economic and earnings reports, with investors eyeing Dow member Apple's results and the Fed monetary policy decision later in the week. Caution also ensured amid uncertainty ahead of President Trump's pick for the next Fed Chief this week. Treasury yields and the U.S. dollar gave back some of their recent runs, despite an upbeat personal spending report and solid read on regional manufacturing activity. Crude oil and gold are moved higher.

The Dow Jones Industrial Average (DJIA) fell 85 points (0.4%) to 23,349, the S&P 500 Index decreased 8 points (0.3%) to 2,573, and the Nasdaq Composite ticked 2 points lower to 6,699. In moderate volume, 871 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.25 to $54.15 per barrel and wholesale gasoline lost $0.01 to $1.71 per gallon. Elsewhere, the Bloomberg gold spot price rose $2.87 to $1,276.22 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 94.50.

Lennar Corp. (LEN $56) announced an agreement to merge with CalAtlantic Group Inc. (CAA $49) in a transaction valued at $9.3 billion, including $3.6 billion of net debt. Under the terms of the deal, each share of CAA stock will be exchanged for 0.885 shares of LEN. Shares of CAA rallied over 20%, while LEN traded lower.

Vistra Energy Corp. (VST $19) and Dynegy Inc. (DYN $12) announced an agreement to combine, with the latter merging into the former, creating a company projected to have a market capitalization in excess of $10 billion. Under the terms of the deal, DYN shareholders will receive 0.652 shares of VST for each share owned. VST fell and DYN traded solidly higher.

Personal income and spending rise, with the latter topping forecasts

Personal income (chart) rose 0.4% month-over-month (m/m) in September, matching the Bloomberg forecast, and compared to August's unrevised 0.2% increase. Personal spending gained 1.0% last month, above expectations of a 0.9% increase, and versus August's unrevised 0.1% gain. The September savings rate as a percentage of disposable income was 3.1%. The PCE Deflator was 0.4% higher, in line with expectations and versus the prior month's unrevised 0.2% gain. Compared to last year, the deflator was 1.6% higher, matching estimates and compared to August's unrevised 1.4% rise. Excluding food and energy, the PCE Core Index was 0.1% higher m/m, matching expectations, and the index was 1.3% higher y/y, in line with estimates calling for it to match August's unrevised increase.

The Dallas Fed Manufacturing Activity Index unexpectedly jumped further into expansion territory (a reading above zero). The index rose to 27.6 in October—the highest since March 2006—from 21.3 in September, and versus forecasts of a dip to 21.0. Manufacturing activity has ramped up along with business capital spending (capex) and Schwab's Chief Investment Strategist Liz Ann Sonders points out that capex may be in for an even sharper recovery in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle.

Treasuries were higher, as the yield on the 2-year note decreased 2 basis points (bps) to 1.57%, while the yields on the 10-year note and the 30-year bond rate dropped 4 bps to 2.37% and 2.88%, respectively.

Treasury yields and the U.S. dollar have given back some gains seen as of late, that have come courtesy of Fed leadership speculation, an upbeat global economic outlook, and optimism regarding U.S. tax reform. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend and Vice President of Trading and Derivatives, Randy Frederick, discuss tax reform in the video, Where Does Tax Reform Stand?.

This week, earnings season will remain robust, but a fully-loaded economic calendar will likely go a long way in shaping market direction, continuing tomorrow with the S&P CoreLogic Case-Shiller Home Price Index, with economists anticipating that home prices in the 20-city composite increased 5.9% y/y during August and 0.40% m/m on a seasonally-adjusted basis, as well the Consumer Confidence Index, forecasted to have moved higher to a level 121.4 for October following the 119.8 posted in September. The Chicago Purchasing Managers Index will also be reported, expected to have moved lower for this month to a reading of 60.0 from the 65.2 registered in the month prior, while the Employment Cost Index will sum up the day's docket.

However, the headlining events for the week will likely be the midweek Federal Open Market Committee (FOMC) monetary policy decision, the ISM Manufacturing and non-Manufacturing 

Indexes, monthly auto sales, and the nonfarm payroll report.

A flood of upbeat earnings reports from some heavyweights in the tech sector bolstered the markets to end last week and Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers timely analysis of our outperform rating we have held for some time on the group in his latest, Schwab Sector Views: Technology Trick or Treat?. As noted in the latest Schwab Market Perspective: Stocks Aren't so Spooky, we believe the bull market will continue, and suggest investors remain at their target allocations, but worry a bit about complacency. Third quarter earnings season has been solid so far and economic growth has picked up. But the pick of the next Fed chair—expected this week—could cause an uptick in volatility. Globally earnings have been strong as well and are helping to support stocks, but geopolitical and trade issues could cause some consternation.

Europe and mixed ahead of monetary policy decisions, data

European equity markets finished mixed, with Spanish stocks rallying amid apparent eased political concerns as the Spanish government called for elections in December after taking control of Catalonia last week in response to the region's parliament declaring independence. Economic data in the region was mostly positive, with German retail sales rising for September, while eurozone economic confidence improved more than expected for this month. Global monetary policy remained in focus as this week's decisions in the U.S. and Japan will be followed by Thursday's announcement from the Bank of England amid the backdrop of stalled Brexit talks and last week's dovish takeaway from the European Central Bank's decision to trim and extend its stimulus measures. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market, and talks with Randy Frederick in the video about Is An Optimistic Outlook for Global Equities Warranted?. The euro and British pound traded higher versus the U.S. dollar, while bond yields in the region were lower.
 
Stocks in Asia finished mixed, with the markets taking a breather that has been bolstered by late last week's host of favorable earnings reports out of the U.S. tech sector. Japanese stocks finished flat, pausing from a recent run that has taken the island nation's markets to highs not seen since 1996, with the yen choppy and a report showing the nation's retail sales rose in line with forecasts. Also, traders awaited the Bank of Japan monetary policy decision tomorrow, which will be followed by Wednesday's Fed decision. Mainland Chinese stocks and those traded in Hong Kong were bogged down by flared-up concerns as the bond markets came under pressure. The upbeat earnings sentiment also supported markets in India and South Korea, while strength in the energy sector helped lift Australian securities.

A slew of data from Japan in addition to the Bank of Japan's monetary policy meeting will highlight tomorrow's international economic calendar, including employment data, industrial production, construction orders, housing starts and trade figures, while a look at China's manufacturing activity is set for release, as well as GDP, CPI, PPI and consumer spending from France, PPI and CPI from Italy, and CPI and GDP from the Eurozone.

Stocks Trade Higher, Finish Q3 with Solid Gains

Charles Schwab: On the Market

Posted: 9/29/2017 4:15 PM EDT

Stocks Trade Higher, Finish Q3 with Solid Gains

 

U.S. stocks closed the last trading day of Q3 higher as shares added to weekly, monthly and quarterly advances. In economic developments, personal income and spending matched forecasts though the PCE deflator—a measure of consumer price inflation—was cooler-than-expected, and the Chicago Purchasing Managers Index unexpectedly jumped further into expansion territory. In equity news, KB Home topped earnings estimates and mostly matched revenue forecasts, while Tyson Foods increased its earnings outlook for the current year. Treasury yields diverged and the U.S. dollar was lower. Crude oil prices were mixed and gold traded lower.

The Dow Jones Industrial Average (DJIA) increased 24 points (0.1%) to 22,405, the S&P 500 Index was 9 points (0.4%) higher at 2,519, and the Nasdaq Composite advanced 43 points (0.7%) to 6,496. In moderate-to-heavy volume, 929 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq.

WTI crude oil added $0.11 to $51.57 per barrel and wholesale gasoline was $0.02 lower at $1.59 per gallon. Elsewhere, the Bloomberg gold spot price declined $6.66 to $1,280.64 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 93.06.

Markets were higher for the week, as the DJIA gained 0.3%, the S&P 500 Index added 0.7% higher and the Nasdaq Composite increased 1.1%.

KB Home (KBH $24) reported Q3 earnings-per-share (EPS) of $0.51, above the $0.46 FactSet estimate, as revenues rose 25.0% year-over-year (y/y) to $1.1 billion, roughly in line with forecasts. The homebuilder said deliveries, average selling price, net order value and operating margin all grew. KBH said it believes it is well positioned heading into the closing months of the year, with a backlog value of more than $2.0 billion and positive conditions in most of its served markets. Shares traded solidly higher.

Tyson Foods Inc. (TSN $70) raised its earnings outlook for the current year, due primarily to much better-than-expected profits in its beef segment. The protein producer also said all its segments will perform well in 2018. Shares jumped.

The consumer staples sector is the focus of Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Consumer Staples: More than Meets the Eye, on the Market Commentary page at www.schwab.com. Brad notes that the consumer staples sector is broader than most investors likely think it is and is often perceived as boring. But the group has had some real action lately, although not all of it positive. The staples group can be an important part of a portfolio, but without deteriorating economic conditions, a market weighting is the most we can justify. Follow us on Twitter: @schwabresearch.

Personal income and spending match forecasts, regional manufacturing activity jumps

Personal income (chart) was 0.2% higher month-over-month (m/m) in August, in line with the Bloomberg forecast, and compared to July's downwardly revised 0.3% increase. Personal spending ticked 0.1% higher last month, matching expectations, and versus July's unrevised 0.3% gain. The

August savings rate as a percentage of disposable income was 3.6%. The PCE Deflator was 0.2% higher, below expectations of a 0.3% gain and versus the prior month's unrevised 0.1% rise. Compared to last year, the deflator was 1.4% higher, south of estimates of a 1.5% increase and in line with July's unrevised rise. Excluding food and energy, the PCE Core Index was 0.1% higher m/m, below expectations of a 0.2% gain, and the index was up 1.3% y/y, versus estimates calling for it to match July's unrevised 1.4% increase.

The final September University of Michigan Consumer Sentiment Index (chart) was revised lower to 95.1 from the preliminary level of 95.3, where it was expected to remain. The index was down versus August's level of 96.8. Compared to last month, the expectations component of the report improved, though the current conditions portion slipped. The 1-year inflation outlook ticked higher to 2.7% from August's 2.6% rate, and the 5-10 year forecast remained at 2.5%.

The Chicago Purchasing Managers Index (chart) unexpectedly jumped further into expansion territory (above 50) for September, after rising to 65.2 from August's unrevised 58.9 level, and versus expectations calling for a dip to 58.7. The index moved back to near June's three-year high of 65.7 as new orders and production continued to grow, while employment moved back into expansion territory and order backlogs hit a 29-year high. However, prices paid increased significantly to the highest since July 2011, bolstered by elevated commodity prices and the hurricane(s)-induced materials shortage.

Treasuries were mixed, but tilted to the downside following the regional manufacturing report, with the yields on the 2-year and 10-year notes rising 3 basis points (bps) to 1.48% and 2.34%, respectively, while the 30-year bond rate dipped 1 bp to 2.86%.

Treasury yields and the U.S. dollar have rallied recently, with the rate on the 10-year note hitting multi-month highs and the greenback moving to a level not seen in over a month. These moves have been bolstered by heightened December Fed rate hike expectations and apparent cautious optimism regarding fiscal policy as the markets scrutinize this week's release of tax reform details.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market, on the Market Commentary page at www.schwab.com. Also, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend discusses the tax reform details his latest article, Tax Reform Framework Released, But The Road Ahead Is Long, on the Insights & Ideas page. Follow Jeff on Twitter: @jeffreykleintop.

The stock markets have shown some relative resiliency in the face of a plethora of things to worry about, as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her article, Comfortably Numb? An Update on Investor Sentiment, on the Market Commentary page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

Europe adds to weekly, monthly and quarterly gains, Asia mostly higher

European equity markets finished higher, adding to solid gains for the week, month and quarter, as a plethora of diverging economic data in the region was highlighted by an upbeat read on German unemployment and U.K. consumer data. The euro gained ground on the U.S. dollar but pared an upside move as the greenback found some support from a jump in regional manufacturing activity.

The British pound saw some pressure to help bolster the U.K. markets. The eurozone consumer price inflation estimate came in a bit cooler than expected for this month, while German retail sales unexpectedly declined last month. U.K. Q2 GDP growth was unrevised at a 0.3% quarter-over-quarter pace, but the 1.5% y/y expansion came in below estimates. Economists are pointing to the savings and income component of the GDP report, which showed the former rose and the latter outpaced inflation for the first time in a year to boost optimism regarding the health of the U.K. consumer, per Bloomberg. French consumer spending surprisingly declined last month, though Germany's unemployment fell more than forecasted for this month. In other economic news, U.K. business investment for Q2 and September home prices came in above estimates. Bond yields in the region moved to the downside. For a look at the global markets, see Schwab's Jeffrey Kleintop's, CFA, article, U.S. vs International: What Do Earnings Tell Us About What May Be Ahead?, on the Market Commentary page at www.schwab.com.

Stocks in Asia tilted to the upside to close out a mixed month, though conviction may have been held in check ahead of next week's plethora of holidays, notably in China where the markets will experience an extended break. Also, the markets digested a host of Japanese economic data. Japan's consumer price inflation rose mostly in line with forecasts in August, but a read on consumer inflation in Tokyo for September a bit cooler than expected. Also, the nation's household spending and retail sales for last month missed forecasts but its preliminary read on industrial production rose more than expected. Japanese equities finished flat, with the yen paring a recent drop that has fueled solid gains for the stock markets this month. Shares trading in mainland China and Hong Kong rose ahead of next week's holidays and tonight's reads on manufacturing and services sector activity.

Australian securities gained ground and South Korean stocks advanced, while Indian equities finished little changed. As the quarter comes to a close, Schwab's Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick offer the video, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick.

Stocks nudge higher on week to tack onto solid Q3 gains

U.S. stocks capped off a Q3 rally with a modest weekly advance. The business spending component of the August durable goods orders report posted a back-to-back monthly jump and Q2 GDP growth was unexpectedly revised higher to 3.1%, adding to an upbeat economic backdrop. This may have helped the markets shrug off elevated December Fed rate hike expectations, which were preserved by continued hawkish rhetoric from the Fed, headlined by Chairwoman Janet Yellen's speech. Financials were one of the best performers as Treasury yields extended a rally, along with the U.S. dollar. Energy issues continued their quarterly rally as crude oil prices remained in recovery mode. The release of the framework for tax reform also appeared to underpin sentiment even as the timing and potential areas of contention were highly scrutinized. Technology issues gained slightly, adding to their decisive quarterly outperformance. However, utilities finished lower on the week amid the upside move in interest rates and healthcare stocks saw some pressure as the sector continued to face regulatory uncertainty and fiscal policy concerns. The consumer staples sector, the worst quarterly performer, nudged higher on the week, along with consumer discretionary issues, despite Dow member Nike Inc's (NKE $52) disappointing outlook.

As Q4 begins next week, the economic calendar will be robust, beginning with the ISM Manufacturing Index, Markit's Manufacturing PMI Index and September auto sales. The ISM non-Manufacturing Index and Markit's Services PMI Index will follow, along with the trade balance and factory orders. However, the docket will culminate with Friday's September nonfarm payroll report, with the wage component likely poised to garner the heaviest attention.

As noted in the latest Schwab Market Perspective: Fourth Quarter Fun…or Folly?, the resiliency of stocks continues but risks of a pullback exist with signs of investor complacency and heightened political and geopolitical uncertainties. U.S. economic data will likely be skewed by the hurricanes' impact but the underlying trend should remain positive. Earnings reporting season will begin with elevated expectations, so the ability to hurdle the bar is getting tougher, but if surprises are biased to the upside, stocks should perform well. Non-U.S. stocks are about to hit multiple milestones, which typically shouldn't concern investors as underlying fundamentals continue to appear solid. Read more on the Market Commentary page at www.schwab.com.

International reports due out next week that deserve a mention include: Australia—the Reserve Bank of Australia monetary policy decision, building approvals and trade balance. China—Manufacturing and non-Manufacturing PMIs. India—Reserve Bank of India monetary policy decision and PMIs. Japan—Q3 Tankan Large Manufacturing Index and labor earnings. Eurozone—unemployment rate, Markit's business activity reports, retail sales, and the minutes from the European Central Bank's September meeting, as well as German factory orders. U.K.—Markit's business activity reports and new car registrations.

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.

Stocks Mixed in Final Trading Session of First Half of 2017

Charles Schwab: On the Market

Posted: 6/30/2017 4:15 PM ET

Stocks Mixed in Final Trading Session of First Half of 2017

U.S. stocks finished the last trading session of the first half of 2017 mixed as tech issues succumbed to some late-day pressure. The major equity indexes were lower for the week, with the Nasdaq outpacing its peers for the steepest decline. Some favorable earnings and economic data may have aided in today's advance as Dow member Nike's results were met with cheers and Chicago-area manufacturing activity unexpectedly jumped further into expansion territory. U.S. Treasuries were lower, joining a wave of global yield gains in the wake of some recent rhetoric from central bank officials. The U.S. dollar was nearly unchanged, crude oil prices were higher and gold saw a minor decline.

The Dow Jones Industrial Average (DJIA) increased 63 points (0.3%) to 21,350, the S&P 500 Index gained 4 points (0.2%) to 2,423, and the Nasdaq Composite declined 4 points (0.1%) to 6,140. In moderately-heavy volume, 952 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil gained $1.11 to $46.04 per barrel and wholesale gasoline was $0.03 higher at $1.51 per gallon. Elsewhere, the Bloomberg gold spot price decreased $4.29 to $1,241.22 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 95.69. Markets were lower for the week, as the DJIA was 0.2% lower, the S&P 500 Index declined 0.6% and the Nasdaq Composite tumbled 2.0%.

Dow member Nike Inc. (NKE $59) reported Q4 earnings-per-share (EPS) of $0.60, above the FactSet estimate of $0.50, as revenues rose 5.0% year-over-year (y/y) to $8.7 billion, north of the projected $8.6 billion. The company said it had double-digit revenue growth in Western Europe, Greater China, and the Emerging Markets, as well as strong growth in sportswear and running, helping offset continued sluggishness in North America. The company offered full-year guidance that appeared to please analysts, notably its forecast for a rebound in sales in North America, while announcing plans to sell products directly on Amazon.com (AMZN $968) and Facebook Inc's. (FB $151) Instagram. Shares of NKE traded nicely higher.

Micron Technology Inc. (MU $30) posted fiscal Q3 EPS of $1.40, or $1.62 ex-items, versus the projected $1.52, as revenues rose 20% quarter-over-quarter (q/q) to $5.6 billion, above the forecasted $5.4 billion. The chip maker said its results reflect solid execution of its cost reduction plans and ongoing favorable industry supply and demand dynamics as DRAM average selling prices rose double digits and NAND sales volumes jumped. MU issued Q4 guidance that exceeded the Street's forecasts. Shares gave up early gains and finished lower despite the results.

The tech sector has led the markets solidly lower for the week and yesterday's decisive decline, on heightened volatility as the group is facing scrutiny regarding valuations as discussed in our article, Tech's Rough Ride: Is There More Turmoil Ahead? on the Insights & Ideas page at www.schwab.com.

However, the tech sector remains one of the best performers over the past twelve months and Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest commentary, The Space Between … Tech Today Doesn't Resemble Tech Circa 2000, that tech companies' fundamentals and valuations look vastly dissimilar to the 2000 era. We think the latest pullback in tech is more likely to represent a pause that refreshes some excess optimistic sentiment than it is the start of something nastier. We are maintaining our outperform rating on the tech sector, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: From the Top Down for more, but as with any fast-growing segment of a portfolio’s holdings, we also remind investors of the power of diversification and periodic rebalancing. Read both articles on the Markets & Economy page at www.schwab.com and be sure to follow us and Liz Ann on Twitter: @schwabresearch and @lizannsonders.

Personal income and spending tick higher, Chicago PMI jumps 

Personal income (chart) was up 0.4% month-over-month (m/m) in May, above the Bloomberg forecast of a 0.3% gain, and compared to April's downwardly revised 0.3% increase. Personal spending ticked 0.1% higher last month, in line with expectations and versus April's unrevised 0.4% gain. The May savings rate as a percentage of disposable income was 5.5%. The PCE Deflator was down 0.1%, matching expectations, after the prior month's 0.2% rise. Compared to last year, the deflator was 1.4% higher, below estimates of a 1.5% gain. April's y/y figure was un revised at a 1.7% increase. Excluding food and energy, the PCE Core Index was up 0.1% m/m, in line wih expectations, and the index was 1.4% higher y/y, matching estimates. April's y/y figure was unrevised at a 1.5% increase.

The final May University of Michigan Consumer Sentiment Index (chart) was unexpectedly revised higher to 95.1 from the preliminary level of 94.5, where it was expected to remain. But the index is down versus May's level of 97.1. Compared to last month, the expectations component dipped, while the current conditions component jumped. The 1-year inflation outlook remained at May's 2.6% rate, while the 5-10 year forecast dipped to 2.5% from 2.6%.

The Chicago Purchasing Managers Index (chart) surprising surged further into a level depicting expansion (above 50), after jumping to 65.7 in June—the highest since May 2014—from 59.4 in May, and versus the expectations of a decrease to 58.0.

Treasuries dipped, with the yield on the 2-year note gaining 1 basis point (bp) to 1.38%, the yield on the 10-year note adding 3 bps to 2.30% and the 30-year bond rate ticking 2 bps higher to 2.83%. Bond yields have rebounded from depressed levels and Schwab's Chief Fixed Income Strategist 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 uncertainty being exacerbated by this week's delayed Senate healthcare bill vote until after the July 4th holiday, 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.

Europe dips and Asia mixed following recent tech slide

European equities turned lower on some possible quarter end posturing with the markets continuing to grapple with the recent rallies in the euro and British pound and bond yields in the region. These moves have come courtesy of commentary from European Central Bank (ECB) President Mario Draghi and Bank of England (BoE) Governor Mark Carney that have caused some uneasiness that global central banks may be turning more hawkish. 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 euro and British pound pared recent gains but bond yields continued to move higher. Also, the recent tech rollover that has pressured the markets also remained in focus, with the group showing some modest signs of stabilization. In economic news, German retail sales topped forecasts and the eurozone consumer price inflation estimate came in a bit hotter than expected, while U.K. Q1 GDP growth was unrevised at a 0.2% q/q gain, as projected. The political front continued to garner attention 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.

Stocks in Asia finished mixed on the heels of some upbeat Chinese business activity data, while technology issues weighed on the markets after leading U.S. equities solidly lower yesterday. Uneasiness amid the apparent shift among global central banks to a slightly-more-hawkish stance also hampered the markets. China's official Manufacturing PMI Index surprisingly improved to 51.7 in June from 51.2 in May, and compared to the 51.0 level that was forecasted, with a reading above 50 denoting expansion. Additionally, China's key services sector growth accelerated. Mainland Chinese shares ticked higher and those traded in Hong Kong declined. Japanese equities fell with the yen gaining ground, while the nation reported cooler-than-expected national consumer price inflation data for May, which was accompanied by an unexpected flat reading for consumer price inflation for Tokyo in June, versus expectations of a slight gain. Also, Japan's household spending declined by a smaller amount than expected and industrial production dropped more than forecasted in May. Australian and South Korean securities declined, while Indian stocks rose. 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.

Tech selloff, central banks and quarter-end conspire to pressure stocks

U.S. stocks finished the week lower amid some posturing to close out a strong quarter. The global equity markets felt pressure from the continued rollover in the tech sector, which had helped drive the markets higher for the past year. Also, the markets appeared slightly shaken by an apparent shift in tone to slightly more hawkish from global central banks. ECB President Draghi noted that "the threat of deflation is gone and reflationary forces are at play," while BoE Governor Carney said the discussion of beginning to remove stimulus will be on the docket in the months to come. The euro and British pound rallied versus the U.S. dollar, leading to a weekly pullback for the greenback, while Treasury yields bounced off recent lows amid a jump in global bond rates. The downward move for equities was limited by a rally in financials on the recovery in bond yields and bolstered by upbeat results from the Fed's latest banking sector stress tests, which opened the floodgates to a plethora of hiked dividends and share buybacks, headlined by Dow member JPMorgan Chase & Co. (JPM $91) and Citigroup Inc. (C $67). Energy issues also helped limit the damage as crude oil prices recovered from a recent tumble amid some resiliency in face of an unexpectedly bearish oil inventory data.

Next week, although the domestic markets will have an abbreviated session on Monday and be closed on Tuesday in observance of the Independence Day Holiday, the economic calendar will be robust possibly adding to the aforementioned central bank volatility. The week will commence with the release of the ISM Manufacturing PMI Index and monthly auto sales, while factory orders, the Fed's June meeting minutes, the ISM non-Manufacturing Index, and trade balance will come after the break. However, the headlining report will likely be Friday's June nonfarm payroll report, which is expected to show job growth remains steady at a 175,000 pace and average hourly earnings continue to creep higher, rising 0.3% m/m.

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

International reports due out next that deserve mention include: Australia—building approvals, retail sales, trade balance and the Reserve Bank of Australia monetary policy decision. China—Caixin's manufacturing and services sector reports. India—manufacturing and services reports. Japan—Q2 Tankan Large Manufacturing Index. Eurozone—Markit's business activity reports, retail sales and ECB monetary policy meeting minutes, along with German factory orders and industrial production. U.K.—Markit's business activity reports, trade balance and industrial and manufacturing production.

Markets Lower in Return to Action

Charles Schwab: On the Market

Posted: 5/30/2017 4:15 PM ET

Markets Lower in Return to Action

U.S. equities fell modestly in their return to action from the long holiday weekend, amid some mixed economic news, and festering global political and geopolitical uncertainty. Treasuries rose amid reports showing personal income and spending matched expectations, but Consumer Confidence slipped slightly. The U.S. dollar, crude oil and gold were all slightly lower.

The Dow Jones Industrial Average (DJIA) declined 51 points (0.2%) to 21,029, the S&P 500 Index fell 3 points (0.1%) to 2,413, and the Nasdaq Composite moved 7 points (0.1%) lower to 6,203. In moderate volume, 768 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.14 lower to $49.66 per barrel and wholesale gasoline lost $0.01 to $1.62 per gallon. Elsewhere, the Bloomberg gold spot price decreased $5.26 to $1,262.84 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 97.29.

Citigroup Inc. (C $62) announced an agreement to sell its Fixed Income Analytics and Index Businesses to London Stock Exchange Group PLC (LNSTY $11) for total cash consideration of $685 million. C traded modestly lower, while LNSTY gained ground.

Ensco PLC (ESV $6) announced an agreement to acquire Atwood Oceanics Inc. (ATW $10) in an all-stock transaction valued at about $863 million. Under the terms of the deal, Atwood shareholders will receive 1.60 shares of Ensco for each share owned, valuing Atwood at $10.72 per share. ATW jumped over 20%, while ESV was lower.

Personal income and spending in line with forecasts, Consumer Confidence dips

Personal income (chart) was up 0.4% month-over-month (m/m) in April, matching the Bloomberg forecast, and compared to March's unrevised 0.2% increase. Personal spending also rose 0.4% last month, in line with expectations and March's favorably revised 0.3% gain, from an initial flat reading. The April savings rate as a percentage of disposable income was 5.3%. The PCE Deflator was up 0.2%, matching expectations, after the prior month's 0.2% decline. Compared to last year, the deflator was 1.7% higher, in line with estimates. March's y/y figure was upwardly revised to a 1.9% increase. Excluding food and energy, the PCE Core Index was up 0.2% m/m, versus expectations of a 0.1% increase, and the index was 1.5% higher y/y, matching estimates. March's y/y figure was unrevised at a 1.6% increase.

The Consumer Confidence Index (chart) declined to 117.9 in May from the downwardly revised 119.4 in April, and compared to estimates of a 119.9 reading. Sentiment toward the present situation increased slightly, though the expectations of business conditions for the next six months decreased. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 11.7 from the downwardly revised 10.9 level posted in April.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.9% gain in home prices y/y in March, versus expectations of a 5.8% increase. M/M, home prices were up 0.9% on a seasonally adjusted basis for March, above forecasts of a 0.8% gain.

The Dallas Fed Manufacturing Activity Index unexpectedly moved further to a level depicting expansion (a reading above zero). The index rose to 17.2 in May, from 16.8 in April, and compared to the expected decline to 15.4.

Treasuries finished higher, as the yield on the 2-year note dipped 1 basis point (bp) to 1.29%, while the yields on the 10-year note and the 30-year bond declined 3 bps to 2.22% and 2.89%, respectively. For analysis of the bond markets, see our article, Mixed Signals: What Does Recent Economic Data Mean for Bonds?, on the Insights & Ideas page at www.schwab.com, where you can also find Schwab's Vice President of Trading and Derivatives, Randy Frederick's and Chief Fixed Income Strategist, Kathy Jones' video, Fed Rate-Hike Cycle: How Can Bond Investors Prepare? Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones. Also, for more on the Fed as it tries to walk the fine line between raising interest rates and reducing its bloated balance sheet, see Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, Gimme Three Steps … and a Stumble?, where she discusses the transition from quantitative easing (QE) to quantitative tightening (QT) on the Markets & Economy page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

Although this week's economic calendar will be truncated by Monday's holiday, it will bring plenty of data to digest ahead of the Fed's monetary policy meeting later in June. Tomorrow’s Fed Beige Book, the ISM Manufacturing Index and monthly auto sales are some highlights from the docket, but the week will culminate with Friday's key May nonfarm payroll report. Other reports slated for release tomorrow include the Chicago PMI Index, forecasted to decline to 57.5 this month from April’s 58.3, as well as pending home sales, with economists anticipating the pipeline of existing home sales to have increased 0.5% m/m in April following the prior month’s 0.8% decline, and MBA Mortgage Applications.

As noted in the latest Schwab Market Perspective: Unprecedented! Or Maybe Not?, U.S. markets were roiled by so-called "unprecedented" political issues but bounced back quickly. Investing based on political winds is not likely to be a successful strategy and we urge focus on economic and earnings fundamentals. The U.S. economy is bouncing back from the weak first quarter while the labor market continues to tighten. A June rate hike by the Federal Reserve remains on the table for now. Global growth has picked up, but the recent slowdown and inversion of the yield curve in China are causing some concerns. Read more on the Markets & Economy page at www.schwab.com.

Europe mostly lower, Asia mixed as global markets set to get back to action

European equities finished mostly lower with some markets returning to action following yesterday's holiday, while political uncertainty flared up ahead of next week's election in the U.K. as Brexit negotiations continue. Also, Italian election risk gained ground after Democratic Party leader Renzi pushed for an early election, while Germany is set to hold an election later this year. For analysis, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond? on the Insights & Ideas page at www.schwab.com, where you can also find our article, Brexit Begins: What's Next for the U.K?. Geopolitical uncertainty also festered amid rhetoric between the U.S. and Germany regarding trade and defense. In economic news, France's Q1 GDP growth topped forecasts, while eurozone consumer, economic and business sentiment all deteriorated. The euro and British pound ticked higher versus the U.S. dollar, while bond yields traded mostly to the downside. The markets also digested some comments from European Central Bank (ECB) President Mario Draghi, which appeared to foster a dovish reaction, as he reiterated that it is still too early to consider pulling back its highly accommodative monetary policy stance. Oil & gas issues declined as crude oil prices extended last week's drop, while financials also saw some pressure on the lower bond yields, comments from the ECB's Draghi and the flared up political and geopolitical uneasiness.

Stocks in Asia finished mixed as the U.S. and some European markets returned to action following yesterday's holiday, though Chinese markets remained closed for a holiday. The markets are grappling with political uncertainty in the U.S. and Europe, along with geopolitical concerns as North Korea continued to conduct missile tests and rhetoric out of Germany toward the U.S. For analysis see, Schwab's Jeffrey Kleintop's, CFA, articles, Missiles and Markets: An investor guide to geopolitical risks on the Markets & Economy page at www.schwab.com, as well as, Top Five Trade Issues Investors Should Be Watching on the International Investing page at www.schwab.com. Stocks in Japan finished little changed, as traders digested data showing the nation's household spending fell more than expected but retail sales grew by a larger amount than projected, while the yen gained some ground. South Korean equities declined, while those traded in Australia overcame early weakness to finish higher, and Indian listings advanced, remaining at record high levels.

International reports for tomorrow include manufacturing and services PMIs from China, business confidence from Australia, housing data from Japan, GDP from India, employment figures and retail sales from Germany, PPI and CPI from France, as well as CPI and employment data from the Eurozone.

Financial Review

See What Sticks

Sinclair Noe — May 1, 2017

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

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DOW – 27 = 20,913
SPX + 4 = 2388
NAS + 44 = 6091
RUT + 6 = 1407
10 Y + .04 = 2.32%
OIL – .56 = 48.77
GOLD – 11.60 = 1257.10

Once again, the Nasdaq hit a record high close. And the VIX, the volatility index dipped down under 10. Nothing to worry about here. Meanwhile, investors braced for another heavy week of quarterly corporate results in an earnings season that has exceeded expectations.

Overall, profits at S&P 500 companies are estimated to have risen between 12 percent and 13.6 percent in the first quarter, the most since 2011. First quarter GDP came in at 0.7 percent. The difference between earnings per share growth and gross domestic product expansion in the first quarter is the widest since the third quarter of 2011.

S&P 500 companies that generate more than half their revenue overseas are posting quarterly earnings growth of 19.9 percent on average, double that of companies that conduct most of their business domestically. About 46 percent of S&P 500 sales overall come from foreign markets. Other factors helping earnings and overseas economic growth are softness in the U.S. dollar and stabilizing oil prices.

The greenback has traded mostly lower this year after sharp gains in 2014 and 2015 that cut into overseas profits. Meanwhile, oil recovered from a sub-$30 a barrel low last February to trade in a range near $50 a barrel. U.S. crude is up about 7 percent over the last 12 months.

To be sure, there’s another reason why earnings look so good: A year ago, they were bad. Last year’s poor results for S&P 500 companies overall, including four straight quarters of earnings decline, set a low bar for companies to overcome.

You’ve heard the old axiom, Sell in May and Go Away; that is the simplified version. If you follow the directions, you could sell in May, or slightly before or after depending on when the market gives a sell signal. The critical reference point for the adage is the MACD. A traditional sell signal occurs when the MACD line crosses below the signal line. The Sell in May refers to the best and worst six month, so the idea is to stay away until the end of October.

The saying may be better at avoiding volatility in September and October than any big downturn in May. If you don’t want to sell in May, you might consider more defensive positions, or even a few short trades.  The next week could provide direction for the markets. We have a Federal Reserve policy meeting on Wednesday, a jobs report on Friday, and Sunday brings the French election between Macron and Le Pen. Buckle up.

Over the weekend, congressional negotiators have hammered out a bipartisan agreement on a spending package to keep the federal government funded through the end of the current fiscal year on Sept. 30. You are probably shocked by the news that congress worked over the weekend. Congress is expected to vote on the roughly $1.1 trillion package early this week.

The White House sought funding to begin building the wall, as well as $18 billion in cuts to domestic agencies, and both demands were rebuffed. The spending deal includes money for Planned Parenthood. The package includes $12.5 billion in new military spending and $1.5 billion more for border security, but not for a wall or additional Immigration and Customs Enforcement agents.

The Environmental Protection Agency, which Trump has sought to shrink dramatically, would receive a 1 percent reduction of $81 million in funding and no staff cuts. The deal also includes steady or slight increases in funding for agencies within the Department of Energy, such the Office of Energy Efficiency and Renewable Energy, which would get a $17 million increase, and the Office of Science, which would get a boost of $42 million compared to fiscal 2016 funding levels.

One provision allows the secretary of Homeland Security to temporarily increase the cap in H-2B visas for temporary labor through the end of September. Agencies Trump has sought to eliminate, like the National Endowment for the Arts and the National Endowment for the Humanities and the Appalachian Regional Commission, would get modest increases in funding instead.

Today, President Trump told Bloomberg News that he’s considering breaking up giant Wall Street banks by reinstating Glass-Steagall, the 1933 law that separates investment banking from traditional banking. Trump also suggested raising the gas tax to fund infrastructure.

The Trump administration released an outline of a tax plan last week that would slash tax rates for businesses and reduce the number of tax brackets for individuals. The plan, however, was silent on gasoline taxes. So, throw it on the wall and see if it sticks.

The European Union’s summit in Brussels ended with EU leaders suggesting that British Prime Minister Theresa May’s ambitions for the looming Brexit negotiations are unrealistic. May stuck to her guns, however, arguing that Britain should be allowed to line up a “comprehensive” free-trade deal with the EU post-Brexit and denying accusations that she’s in a “different galaxy.”

Meanwhile, Marine Le Pen and Emmanuel Macron are kicking off the final week of the French presidential campaign with major rallies in Paris. Macron is still leading the polls, although his margin has slipped slightly in recent days.

Oil and gold moved lower, but in the commodity markets, it was a big jump for wheat. A winter storm dropped more than 12 inches of snow across four Midwest states. While it will take several days before the damage can be assessed accurately as the snow melts, early estimates suggest losses could exceed 50 million bushels but quite possibly more.

Heavy rains are forecast for the region later in the week. Many reports of snapped wheat stems, and for a crop in the early stage of forming grain, that suggests there could be “substantial” production losses. For hard red winter wheat, a variety of the grain used to make bread, futures for July delivery surged 6.5 percent to close at $4.6575.

July futures for soft red winter wheat, which is used to make cookies and cake, jumped 5.5 percent to $4.56, also a record, while corn prices climbed 3 percent in active trading. Wheat has been in a long-term bear market thanks to near ideal growing conditions the past couple of years, and the feeling among many traders was that the only direction for wheat was down. The dominant position for speculative traders has been short. The freak storm caught many by surprise.

America’s largest oil refinery is now fully owned by Saudi Arabia. Saudi Aramco, the kingdom’s state-owned oil behemoth, took 100% control of the sprawling Port Arthur refinery in Texas on Monday, completing a deal that was first announced last year. Port Arthur is considered the crown jewel of the US refinery system.

The Gulf Coast facility can process 600,000 barrels of oil per day, making it the largest refinery in North America. Aramco previously owned 50% of Port Arthur through a joint venture co-owned with Royal Dutch Shell.

The ISM manufacturing report shows manufacturers scaled back hiring plans in April and demand for new products slowed, but most companies said business was still quite brisk, a survey of executives found. The Institute for Supply Management said its manufacturing index slipped to 54.8% in April from 57.2%. Any reading above 50 indicates expansion.

Spending on construction dipped 0.2% in March following an unusually strong pace of spending in February. For the first three months of the year, spending was 4.9% higher than in the same period in 2016. Much of the increase came from housing. Residential construction was up 1.2% during the month, but stood 7.3% higher than a year ago.

Overall private construction was flat in March, as lower levels of spending on public works continued to drag. Overall public construction was 0.9% lower during the month, and 6.5% lower than in March 2016.

Personal income rose less than expected in March while spending was flat, according to the Bureau of Economic Analysis.  Personal income rose 0.2%, missing the forecast for 0.3% growth. The report also included data on personal consumption expenditures, a gauge of consumer purchases that the Fed prefers to measure inflation. The PCE deflator fell 0.2% month-on-month and rose 1.8% year-on-year, slipping from 2.1% in February.

American consumers are holding $1 trillion in revolving credit, mostly in credit card debt. So how well is this segment of consumer debt holding up? Synchrony Financial – GE’s spin-off that issues credit cards for Walmart and Amazon says net charge-offs would rise to at least 5% this year.

Credit-card specialist Capital One disclosed in its Q1 earnings report last week that provisions for credit losses rose to $2 billion, with net charge-offs jumping 28% year-over-year to $1.5 billion. Synchrony, Capital One, and Discover – a gauge of how well over-indebted consumers are managing to hang on – have together increased their Q1 provisions for bad loans by 36% year-over-year. Other worries about consumer debt in the US are piling up.

The $1.4 trillion in student loans are already in crisis, though the government backs them, and they cannot be charged off in bankruptcy. Of the $1.1 trillion in auto loans, subprime loans packaged into asset backed securities are getting crushed by net charge-off rates that are worse than during the Financial Crisis.

In a new study, life insurer and financial services provider Northwestern Mutual found that 45% of Americans that have debt spend “up to half of their monthly income on debt repayment.” Those are the true debt slaves. Excluding mortgage debt, American carry an average debt of $37,000. Of them, 47% carry $25,000 or more, and more than 10% carry $100,000 or more in debt, excluding mortgage debt.