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 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.

Stocks Close Lower to Round-Out a Solid Week

Charles Schwab: On the Market

Posted: 3/31/2017 4:15 PM ET

Stocks Close Lower to Round-Out a Solid Week

U.S. stocks finished the regular trading session lower, but were nicely higher for the week and posted a strong quarterly advance. In economic news, a rise in personal income for February matched expectations, while personal spending missed estimates and consumer sentiment was revised to a lower-than-expected level. Treasury yields dipped after rebounding yesterday and the U.S. dollar was nearly unchanged. Crude oil prices extended a recent recovery and gold managed minor gains. In equity news, BlackBerry rallied after announcing its 4Q results.

The Dow Jones Industrial Average (DJIA) lost 65 points (0.3%) to 20,663 and the S&P 500 Index shed 5 points (0.2%) to 2,363, while the Nasdaq Composite was 3 points lower at 5,912. In moderately-heavy volume, 983 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.25 higher to $50.60 per barrel and wholesale gasoline gained $0.02 to $1.70 per gallon. Elsewhere, the Bloomberg gold spot price rose $4.91 to $1,247.55 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 100.47. Markets were higher for the week, as the DJIA increased 0.3%, the S&P 500 Index advanced 0.8%, and the Nasdaq Composite rallied 1.4%.

BlackBerry Ltd. (BBRY $8) reported a 4Q loss of $0.09 per share, or earnings-per-share (EPS) of $0.04 ex-items, compared to the breakeven FactSet estimate, as revenues fell 38.4% year-over-year (y/y) to $286 million, versus the projected $288 million. Adjusted revenue was $297 million. The company said looking ahead, it expects to grow at or above the overall market in its software business and generate positive free cash flow for the full year. Shares rallied. 

FMC Corp. (FMC $70) jumped after announcing an agreement to acquire a portion of Dow member DuPont's (DD $80) crop protection business and simultaneously sell DD its health & nutrition business. The divestiture of DD's crop protection business will satisfy its commitments to the European Commission in connection with its conditional regulatory clearance of its merger with Dow Chemical Co. (DOW $64), which is now expected to close between August 1 and September 1. DD traded lower.

Personal income and spending mixed, consumer sentiment unexpectedly revised lower

Personal income (chart) was up 0.4% month-over-month (m/m) in February, matching the Bloomberg forecast, and compared to January's upwardly revised 0.5% gain. Personal spending ticked 0.1% higher last month, below expectations and January's unrevised 0.2% gain. The February savings rate as a percentage of disposable income was 5.6%. The PCE Deflator was up 0.1%, matching expectations. Compared to last year, the deflator was 2.1% higher, in line with estimates. Excluding food and energy, the PCE Core Index was up 0.2% m/m, matching expectations, and the index was 1.8% higher y/y, above estimates of a 1.7% gain. January's y/y figure was revised higher to a 1.8% increase.

The final March University of Michigan Consumer Sentiment Index (chart) was revised to 96.9 from the preliminary level of 97.6, where it was expected to remain. However, the index was up slightly compared to February's level of 96.3. Compared to last month, the expectations component was unchanged, while the current conditions component moved higher. The 1-year inflation outlook declined to 2.5% from February's 2.7% rate, and the 5-10 year inflation projection dipped to 2.4% from 2.5%.

The Chicago Purchasing Managers Index (chart) unexpectedly moved further into a level depicting expansion (above 50), after rising to 57.7 in March—the highest level since January 2015—from 57.4 in February, and versus expectations of a decline to 56.9.

Treasuries were higher, with the yields on the 2-year note and the 30-year bond declining 2 basis points (bps) to 1.26% and 3.02%, respectively, while the yield on the 10-year note declined 3 bps to 2.40%. 

Bond yields rebounded yesterday, helping the stock markets gain ground as financials led the way, while the U.S. dollar extended a recent recovery. For analysis of the financial sector, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Financials—Opportunity or End of the Run?, at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

The markets continue to grapple with upbeat economic data, festering political uncertainty and the Fed's March rate hike and outlook for future increases. Amid this backdrop, check out Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, Hard Times: Time for the Hard Data to Catch Up to the Soft Data, at www.schwab.com/marketinsight, as well as our video's by Schwab's Vice President of Trading and Derivatives, Randy Frederick and Senior Fixed Income Research Analyst, Collin Martin, CFA, titled, Fed Hiked Interest Rates, So Why Are Bond Yields Still So Low?, and Randy's and Schwab's Chief Fixed Income Strategist, Kathy Jones' discussion, Three Fed Hikes Seen in 2017: How Should Bond Investors Respond, at www.schwab.com/insights. Follow Liz Ann, Randy and Kathy on Twitter: @lizannsonders, @randyafrederick and @kathyjones.

And for our latest commentary on the political front, read Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's article, Why the Health Care Stumble Could Complicate Tax Reform, at www.schwab.com/insights.

Europe mixed, Asia mostly lower

European equities finished mixed, with basic materials and oil & gas issues pulling back from recent recoveries, exacerbated by a government shakeup in resource-heavy South Africa and the pause in the run in crude oil prices as of late. The global markets reacted to a plethora of economic data, while political uncertainty on both sides of the Atlantic continued to stymie conviction, amid U.S. President Donald Trump's comments and expected actions on trade, while Brexit negotiations begin and a key French Presidential election looms. For analysis of the European political front, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, and Randy Frederick's video's, "Brexit" Underway: How Can Investors Prep Now That Article 50 Has Been Triggered? and Why Should the French Presidential Election Be Important to Investors? at www.schwab.com/insights. Follow Jeff on Twitter: @jeffreykleintop. Also, Director of International Research, Michelle Gibley CFA, offers her article, Europe Votes: Could More Countries Reject the EU? at www.schwab.com/oninternational. Eurozone consumer price inflation came in below forecasts for this month, German retail sales rose much more than expected and U.K. 4Q GDP growth was unrevised. The euro and British pound moved higher versus the U.S. dollar, while bond yields in the region traded mixed. The Stoxx Europe 600 Index rose solidly this week, adding to a rally for 1Q and posting the best March performance since 2010, per Bloomberg.

Stocks in Asia finished mostly lower as the global markets digested comments from U.S. President Trump regarding upcoming trade negotiations with China and expected executive orders aimed at combating the trade deficit and tariff enforcement. Moreover, traders digested a plethora of economic data in the region, while posturing for the end of the quarter. Japan reported an increase in inflation and stronger-than-expected industrial production for February, though household spending fell more than anticipated. China's government reads on manufacturing and services sector growth for March both showed acceleration. Japanese equities declined despite an extension of weakness in the yen, while mainland Chinese shares rose, but those traded in Hong Kong finished lower. South Korean stocks traded to the downside, while a pullback in oil & gas issues from a recent run weighed on Australian securities. Indian listings dipped, snapping a string of gains. Amid the trade concerns and lingering grappling with the Fed's March rate hike, see Schwab's Jeffrey Kleintop's, CFA, article, President Trump and Global Trade: How Will Campaign Promises Play Out?, along with his commentary The Fed has China in a Tough Spot and Michelle Gibley's, CFA, recent article, Fed Rate Hikes May Benefit Japanese Stocks at www.schwab.com/oninternational.

Stocks post solid weekly gain to close out quarterly rally

Stocks closed out a solid quarterly advance with a respectable rebound from recent pressure, showing some resiliency in the face of festering political uncertainty, which was exacerbated by last week's failed healthcare reform bill. Energy issues led the way as crude oil prices snapped back from a recent tumble on the heels of some bullish inventory data and speculation of an extension of OPEC's production cut agreement, per Bloomberg. Stocks were also bolstered by an unexpected jump in Consumer Confidence to the highest level since December 2000 and a stronger-than-expected final read on 4Q, as well as comments out of Washington suggesting the healthcare hiccup would likely not derail efforts on tax reform and infrastructure spending. Financials also contributed to the week's gain as the drop in Treasury yields showed some signs of stabilizing. The U.S. dollar rebounded on the economic data and some hawkish commentary from a Fed official.

The stage is set for next week's heavy dose of data, to see if economic optimism can continue to counter political uncertainty. The ISM and Markit will deliver their March reads on manufacturing and key services sector activity and the Fed will release the minutes from its meeting that yielded a rate hike earlier this month, while the trade balance, monthly auto sales and factory orders are likely to garner attention. However, the headlining event will close out the week, courtesy of Friday's March nonfarm payroll report.

As noted in the latest Schwab Market Perspective: Working off the Froth, the modest downward pressure on stocks recently appears to be working off some overly optimistic sentiment. We view this as a healthy pause in an ongoing bull market. U.S. political realities and the failure of healthcare reform contributed to the recent pullback in stocks but investors shouldn't get discouraged. Economic data has hooked up—notably business confidence, which has led to a pickup in capital spending. The official Brexit process has begun, and although a recession doesn't appear imminent, risks have risen and volatility will likely rise. Read more at www.schwab.com/marketinsight.

International reports due out next week include: Australia—retail sales, building approvals, trade balance, and the Reserve Bank of Australia's monetary policy decision. China—manufacturing and services sector reports. India—manufacturing and services reports, and the Reserve Bank of India's monetary policy decision. Japan—1Q Tankan Large Manufacturing Index, as well as manufacturing and services reports. Eurozone—retail sales, Markit's Composite PMI Index, European Central Bank meeting minutes, along with Germany's factory orders and trade balance. U.K.—Markit's Composite PMI Index, industrial and manufacturing production, and trade balance.

Uncertainty Keeps Markets Rangebound

Charles Schwab: On the Market

Posted: 10/31/2016 4:15 PM ET

Uncertainty Keeps Markets Rangebound

U.S. equities finished modestly lower and near the unchanged mark, as investors look ahead to monetary policy meetings out of the U.S., the U.K. and Japan, as well as Friday's domestic jobs report, to gain more clarity. M&A activity dominated the equity front, headlined by Dow member General Electric's oil and gas combination with Baker Hughes and CenturyLink's tie-up with Level 3 Communications. Treasuries were modestly higher, following mixed economic data, while crude oil prices continued to selloff, exacerbated by disappointing OPEC talks over the weekend. Gold was higher, while the U.S. dollar was nearly flat.

The Dow Jones Industrial Average (DJIA) declined 19 points (0.1%) to 18,142, the S&P 500 Index was nearly unchanged at 2,126 and the Nasdaq Composite ticked nearly 1 point lower to 5,189. In heavy volume, 1.0 billion shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil tumbled $1.84 to $46.86 per barrel, wholesale gasoline ticked $0.03 lower to $1.42 per gallon and the Bloomberg gold spot price rose $2.58 to $1,278.05 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 98.35.

Dow member General Electric Co. (GE $29) announced that it will combine its oil and gas business with Baker Hughes Inc. (BHI $55). Under the terms of the deal, Baker Hughes shareholders will receive a special one-time cash dividend of $17.50 per share and 37.5% of the new company. GE will own 62.5% of the company and the transaction is expected to close in mid-2017. Both GE and BHI finished lower.

CenturyLink Inc. (CTL $27) announced an agreement to acquire Level 3 Communications Inc. (LVLT $56) for $66.50 per share in cash and stock, in a transaction valued at about $34.0 billion, including the assumption of debt. Under the terms of the deal, LVLT shareholders will receive $26.50 per share in cash and a fixed exchange ratio of 1.4286 shares of CTL for each share they own. Shares of CTL were lower, while LVLT gained solid ground. Both companies separately reported 3Q earnings results, with CenturyLink topping profit forecasts and matching revenue expectations, while Level 3 missed estimates.

Cardinal Health Inc. (CAH $69) reported fiscal 1Q earnings-per-share (EPS) ex-items of $1.24, above the $1.21 FactSet estimate, with revenues rising 14.0% year-over-year (y/y) to $32.0 billion, north of the expected $31.1 billion. Shares were nicely higher despite the company lowering its full-year EPS guidance, as its pharmaceutical segment profit is expected to be down y/y, due to generic pharmaceutical pricing and reduced levels of branded inflation.

Personal income and spending rise

Personal income (chart) was 0.3% higher month-over-month (m/m) in September, below the Bloomberg forecast of a 0.4% rise, and compared to August's unrevised 0.2% increase. Personal spending gained 0.5% last month, north of the expected 0.4% increase and versus August's downwardly revised 0.1% dip. The September savings rate as a percentage of disposable income was 5.7%. The PCE Deflator was up 0.2%, matching expectations. Compared to last year, the deflator was 1.2% higher, in line with estimates. Excluding food and energy, the PCE Core Index moved 0.1% higher m/m, matching expectations, and the index was up 1.7% y/y, in line with estimates.

For more on the consumer, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Vertigo: Effect of Spiking Healthcare Costs on Consumers, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

The Chicago Purchasing Managers Index (chart) fell but clung to expansion territory (above 50), after dropping to 50.6 in October from 54.2 in September and versus expectations of a dip to 54.0. New orders, production and inventories declined, while order backlogs and employment rose.

The Dallas Fed Manufacturing Index improved to -1.5 for October, from September's unrevised -3.7 level, with economists forecasting an increase to 2.0. A reading below zero denotes contraction in activity.

Treasuries were higher, as the yield on the 2-year note lost 1 basis point (bp) to 0.85%, while the yields on the 10-year note and the 30-year bond dipped by 3 bps to 1.83% and 2.59%, respectively. Bond yields have given back some of a recent rally that has come from some relatively upbeat economic data and elevated Fed rate hike expectations and Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her article, Are Bond Yields About to Rise?, the shift to higher yields is likely to be slow, in our view, but markets don’t appear to be prepared for the change. We suggest investors prepare for a potential rise in bond yields by trimming exposure to bonds with either long durations or high credit risk. Read more at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.

A heavy week of data will continue tomorrow, with key reads on October manufacturing activity, courtesy of the ISM Manufacturing Index and the final Markit Manufacturing PMI Index (economic calendar). ISM's index is projected to tick higher to 51.7 from 51.5 in September, while Markit's index is estimated to be unrevised at 53.2, and up from September's 51.5 level. Readings above 50 denote expansion. As well, construction spending will be reported, forecasted to have risen 0.5% m/m during September, following the 0.7% decline seen in August.

However, Wednesday's monetary policy decision from the Federal Open Market Committee (FOMC) and Friday's October nonfarm payroll report are poised to command most of the attention, with traders looking to clear up uncertainty regarding a December rate hike.

As noted in the recent Schwab Market Perspective: Looking Past the Election, economic data continues to support a sluggish growth narrative, although there are glimmers of hope that we could see at least a modest acceleration in 2017. Barring a surprise move on Wednesday, which could jolt the market as odds of a hike at that meeting remain low, the focus on the Fed will move back to the forefront following the election, with all eyes on the December meeting. Fed members have been preparing the market and investors for a hike, and we believe, after several false starts, it will actually follow through this time around. Perhaps equally as important will be the message the Fed sends around the next two meetings regarding what it may be looking to do into 2017. Read more at www.schwab.com/marketinsight. Be sure to follow Schwab on Twitter: @schwabresearch.

Finally, with U.S. political risk hamstringing the global markets Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Final Clinton-Trump Debate Sets Up a Sprint to the Finish Line, as part of our election 2016 commentary at www.schwab.com/insights/category/election-2016, where you can also find timely analysis of The Stock Market and Election Cycles.

Europe sees red, Asia mixed amid lingering uncertainty

European equities finished lower, with oil & gas issues seeing pressure after talks over the weekend between the Organization of the Petroleum Exporting Countries (OPEC) yielded no new developments regarding a production cut. Also, global sentiment was stymied by flared-up U.S. Presidential uncertainty as the November election looms, while Italian banking concerns resurfaced. In economic news, preliminary eurozone 3Q GDP rose at a 0.3% quarter-over-quarter (q/q) pace, matching forecasts and 2Q's expansion, while output grew 1.6% year-over-year, in line with estimates and the prior quarter's gain. However, German retail sales unexpectedly dropped in September. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers timely analysis of the global economic picture in his article, World Tour: An Around The World Look At the Economic Landscape, at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop. The euro was lower versus the U.S. dollar and British pound reversed to the upside in late-day action, while bond yields in the region dipped.

Stocks in Asia finished mixed, as the global markets remain uncertain regarding the presidential race in the U.S., while the world monetary policy landscape continues to garner attention, with decisions looming in the U.S. and U.K. this week, and the Bank of Japan expected to announce its policy stance tomorrow. For our latest analysis of Japan's monetary policy, see Schwab's Jeffrey Kleintop's, CFA, article, Going Godzilla: What has the Bank of Japan Unleashed?, at www.schwab.com/oninternational. The persistent pressure on crude oil prices also bogged down the energy sector, exacerbated by no production cut agreement following weekend talks between OPEC. Stocks in Japan dipped on the heels of a disappointing September industrial production report, which may have overshadowed some weakness in the yen and the announcement that the nation's three largest shipping companies agreed to combine their container operations. Mainland Chinese equities and those traded in Hong Kong also dipped, while South Korean listings declined markedly, even as a report showed the country's industrial production unexpectedly rose in September. Strength in Australian mining issues gave that nation's markets a boost, as China strengthened its currency, more than offsetting sluggishness in oil & gas stocks and a drop in the tech sector. Finally, markets in India were closed for a holiday.

Tomorrow, the economic calendar overseas will focus primarily on the Asia/Pacific region, with South Korea set to release CPI and the trade balance, as well as China's trade balance and manufacturing and non-manufacturing PMIs, and Japan's manufacturing PMI. In addition to the aforementioned monetary policy meeting of the Bank of Japan, the Reserve Bank of Australia will also meet to discuss policy, with no change to its benchmark rate expected.

U.S. Stocks Outdo Global Markets

Charles Schwab; On the Market

Posted: 8/29/2016 :15 PM ET

U.S. Stocks Outdo Global Markets

U.S. equities bucked the global trend to finish solidly in the green, showing some resiliency in the face of the continued pressure on crude oil prices, as well as weakness overseas on increased Fed rate hike expectations. Favorable economic data likely lent some support, despite the global markets treading cautiously ahead of Friday's key August nonfarm payroll report. Treasuries and gold were higher, while the U.S. dollar was flat.

The Dow Jones Industrial Average (DJIA) rose 108 points (0.6%) to 18,504, the S&P 500 Index gained 11 points (0.5%) to 2,180, and the Nasdaq Composite increased 13 points (0.3%) to 5,232. In light volume, 647 million shares were traded on the NYSE and 1.4 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.66 to $46.98 per barrel, wholesale gasoline declined $0.03 to $1.40 per gallon and the Bloomberg gold spot price increased $2.35 to $1,323.53 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was unchanged at 95.58.

Mylan NV (MYL $43) announced that it will launch the first generic EpiPen Auto-Injector at a list price of $300 for a two-pack carton, representing a discount of more than 50% to its branded EpiPen. The drug maker came under scrutiny last week for its pricing of its branded EpiPen shots at $600, which it said today that it will continue to sell. Shares were higher.

Personal income and spending rise as expected

Personal income (chart) was 0.4% higher month-over-month (m/m) in July, matching the Bloomberg forecast and compared to June's upwardly revised 0.3% increase. Personal spending came in 0.3% higher m/m last month—the fourth-straight monthly gain—in line with expectations and versus June's favorably revised 0.5% rise. The July savings rate as a percentage of disposable income was 5.7%. The PCE Deflator came in flat, as expected. Compared to last year, the deflator was 0.8% higher, matching estimates. Excluding food and energy, the PCE Core Index ticked 0.1% higher m/m, in line with expectations, and the index was up 1.6% y/y, above estimates of a 1.5% rise.

The Dallas Fed Manufacturing Index fell to -6.2 for August from July's unrevised -1.3 level with economists forecasting a decrease to -3.9. A reading below zero denotes contraction in manufacturing activity.

Treasuries finished higher, as the yield on the 2-year note declined 4 basis points (bps) to 0.81%, while the yields on the 10-year note and the 30-year bond dropped 7 bps to 1.57% and 2.22%, respectively. For analysis on the fixed income markets see the video from Schwab's Managing Director of Trading and Derivatives, Randy Frederick and Fixed Income Director Collin Martin, CFA, titled Tempered Expectations for Bond Returns: Why Hold Bonds? at www.schwab.com/insights and follow Randy on Twitter: @randyafrederick.

On the heels of last week's comments from Federal Reserve Chairwoman Janet Yellen and Vice Chair Stanley Fischer that suggested a September rate hike remains a possibility, this Friday's August nonfarm payroll report is poised to be a key focus for the global markets. The report will also be preceded by key reads on Manufacturing Purchasing Managers Indexes (PMIs) from ISM and Markit, the trade balance, Consumer Confidence, and August vehicle sales. Tomorrow will bring the Consumer Confidence Index, which economists expect to fall slightly to a level of 97.0 for August from July's 97.3, and the S&P CoreLogic Case-Shiller Home Price Index, forecasted to show prices in the 20-city composite rose 5.12% y/y in June, but ticked 0.1% lower m/m on a seasonally-adjusted basis  (economic calendar).

Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her article, What Does Strong Job Growth Mean for Bond Investors?, recent strong job growth has improved the odds the Fed will raise short-term interest rates in the coming months and this has potentially negative implications for the U.S. bond market, which has put in a strong performance so far this year. The risk of higher rates appears greater than the potential for lower rates. We suggest investors keep the average duration of their portfolios within the short- to intermediate-term bond range to help reduce volatility, and consider holding Treasury Inflation-Protected Securities. Read more at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.

Europe lower on oil and Fed rate hike uneasiness, Asia mixed

European equities traded to the downside, amid lighter-than-usual volume as the U.K. markets were closed for a holiday. Fed rate hike expectations got a boost from Friday's comments from Federal Reserve Chairwoman Janet Yellen, which was followed by Fed Vice Chair Stanley Fischer's remarks that suggested rate hikes next month and in December could be possibilities. The euro and British pound finished lower versus the U.S. dollar, while bond yields in the region mostly dipped. Amid the elevated Fed rate hike expectations, utilities led to the downside, along with oil & gas issues, which saw pressure as crude oil prices declined on supply concerns and a stronger U.S. dollar. Political uncertainty lingered in the region as Spain's Prime Minister Rajoy is set to face a confidence vote tomorrow, per Bloomberg. For more on the global political landscape, see Schwab's Director of International Research, Michelle Gibley's, CFA, article, Performing Reformers: How Political Change Can Affect Stocks at www.schwab.com/oninternational, and be sure to follow Schwab on Twitter: @schwabresearch. Also, with global uncertainty remaining elevated to open the door for some possible increased volatility, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think. Read both articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed on the heels of Friday's comments from the Fed's Yellen and Fischer that kept the possibility of a September rate hike in play. Mainland Chinese equities finished flat and those traded in Hong Kong declined, while the nation reported a year-over-year (y/y) acceleration in July industrial profits. Australian securities dropped amid weakness in basic materials and oil & gas stocks, while South Korean listings also declined. However, India's markets advanced, and stocks in Japan rallied as the yen weakened amid a rise in the U.S. dollar on the aforementioned Fed comments, as well as Bank of Japan Governor Kuroda's reiterated pledge to deploy further stimulus measures if needed. For more on Japan's potential increased stimulus measures see Jeffrey Kleintop's, CFA, article, What investors need to know about helicopter money at www.schwab.com/oninternational.

A host of economic reports from Japan will dominate tomorrow's international economic calendar, including labor data, personal income and consumption, retail sales and trade figures. From across the pond will come Germany's Import Price Index, housing prices from the U.K., CPI from Spain, retail sales from Italy, and confidence gauges from the Eurozone.

Markets Lose on Trifecta of Events

Charles Schwab: On the Market

Posted: 8/2/2016 4:15 PM ET

Markets Lose on Trifecta of Events

U.S. equities finished solidly lower amid a triple dose of negativity, with global sentiment dampened on festering European banking concerns, disappointment surrounding Japan's stimulus measures, as well as a drop into bear market territory for crude oil prices. Meanwhile, dismal July domestic auto sales figures didn't help matters. Treasuries were mixed on the heels of a divergent domestic personal income and spending report, the U.S. dollar was lower and gold moved higher.

The Dow Jones Industrial Average (DJIA) fell 91 points (0.5%) to 18,314, the S&P 500 Index declined 14 points (0.6%) to 2,157 and the Nasdaq Composite tumbled 46 points (0.9%) to 5,138. In moderately-heavy volume, 931 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.55 to $39.51 per barrel, wholesale gasoline inched $0.01 higher to $1.31 per gallon, while the Bloomberg gold spot price rose $12.30 to $1,365.45 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.7% lower at 95.09.

Dow member Procter & Gamble Co. (PG $87) reported fiscal 4Q earnings-per-share (EPS) ex-items of $0.79, above the $0.74 FactSet estimate, as revenues decreased 3.0% year-over-year (y/y) to $16.1 billion, versus the projected $15.8 billion. PG warned that core 1Q EPS will be disproportionately affected by foreign exchange headwinds and the impact of lost finished product sales to its Venezuelan subsidiaries. Shares finished higher.

Dow component Pfizer Inc. (PFE $36) posted 2Q EPS ex-items of $0.64, two cents above expectations, with revenues growing 11.0% y/y to $13.2 billion, versus the projected $13.0 billion. PFE reaffirmed its full-year guidance and shares were lower.

CVS Health Corp. (CVS $98) announced 2Q EPS ex-items of $1.32, above the expected $1.30, as revenues rose 17.6% y/y to $43.7 billion, below the forecast $44.3 billion. CVS issued 3Q earnings guidance that was mostly above expectations, and raised its full-year profit outlook. Shares were nicely higher. 

The major automakers reported U.S. July sales today, with Ford Motor Co's (F $12) sales falling 2.8%, below the FactSet estimate of a 0.3% decrease, while General Motors Co's (GM $30) sales dropped 1.9%, compared to the projected 0.1% dip. Fiat Chrysler Automobiles NV's (FCAU $6) Chrysler brand's sales ticked 0.3% higher y/y, compared to the expected 2.3% gain. Toyota Motor Corp. (TM $110) posted a 1,5% y/y decline in sales, besting the 3.8% shortfall expected, and Volkswagen AG (VLKAY $29) saw an 8.1% y/y decline in sales for the month, well above the 20% plunge forecast. Shares of all five of the automakers were lower.

Personal income and spending report mixed

Personal income (chart) was 0.2% higher month-over-month (m/m) in June, below the Bloomberg forecast of a 0.3% rise and matching May's unrevised increase. Personal spending came in 0.4% higher m/m last month, north of expectations of a 0.3% gain and matching May's unrevised rise. The June savings rate as a percentage of disposable income was 5.3%. The PCE Deflator rose 0.1% m/m, below forecasts of a 0.2% increase. Compared to last year, the deflator was 0.9% higher, matching estimates. Excluding food and energy, the PCE Core Index was 0.1% higher m/m, in line with expectations, and the index was up 1.6% y/y, in line with estimates.

Treasuries were mixed, as the yield on the 2-year note dipped 1 basis point (bp) to 0.68%, while the yield on the 10-year note ticked 1 bp higher to 1.54%, and the 30-year bond rate gained 3 bps to 2.30%. Bond yields have rebounded somewhat from last week's drop that came courtesy of the Fed leaving its monetary policy unchanged and 2Q GDP growth decisively missing expectations.  

Schwab's Chief Investment Strategist, Liz Ann Sonders provides analysis of last week's Fed's decision in her commentary, A Hopeful Transmission: Fed Holds Rates Steady, But… and Schwab's Chief Fixed Income Strategist, Kathy Jones discusses in her article, With a Whimper Instead of a Bang: Is the Great Bond Bull Market Over?. Read both articles at www.schwab.com/marketinsight and follow Liz Ann and Kathy on Twitter: @lizannsonders and @kathyjones.

Tomorrow the domestic economic calendar will bring some reads on the key services sector for July courtesy of the Institute for Supply Management's (ISM) non-Manufacturing Index and Markit's final Services PMI Index. ISM's index is projected to decline to 55.9 from 56.5 in June, and Markit's index is anticipated to be revised slightly higher to 51.0 from the preliminary level of 50.9, just shy of June's 51.4 figure. However, both reports are projecting continued expansion in the services sector as denoted by readings above 50.

Although last week's 2Q GDP report disappointed, the consumer spending component was a bright spot and today's personal spending data came in stronger than expected, suggesting the consumer may be poised to bolster the U.S. economy. As noted in the latest Schwab Market Perspective: New Records…Same Skepticism, the U.S. economy continues to show signs of improvement, with jobless claims reinforcing a healthier employment picture, wage growth starting to perk up, and housing continuing to be a bright spot and indicating better confidence among consumers. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

As well, the ADP Employment Change report is slated for release, forecast to show private sector payrolls added 170,000 jobs during July, as well as MBA Mortgage Applications.

Europe and Asia lower amid banking concerns and Japan stimulus details

European equities finished lower, with oil & gas issues remaining weak as the recent tumble in crude oil prices to bear market territory weighed on the energy sector. Financials led to the downside, amid festering uneasiness toward the Italian banking sector in the wake of late-Friday's European banking sector stress test results. Mixed earnings reports in the region, coupled with lackluster global economic data as of late and disappointment toward Japan's new stimulus measures weighed on the markets, overshadowing a rate cut in Australia today. Amid this backdrop, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification. Read more at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop. The euro and the British pound were higher versus the U.S. dollar, while bond yields in the region gained ground. Switzerland's markets saw some pressure in a return to action following yesterday's holiday, on the heels of some disappointing retail sales and manufacturing data.

Stocks in Asia finished mostly lower with energy issues seeing pressure as crude oil prices continued to fall yesterday, entering bear market territory. Japanese equities dropped sharply, with the yen gaining ground late in the session, while the markets appeared to be disappointed by details of the government's fiscal stimulus package announced last week and approved after the markets closed. Markets in Australia declined, bogged down by oil & gas and basic materials issues, while failing to get a boost from the expected monetary policy decision from the Reserve Bank of Australia (RBA) to cut its benchmark interest rate by 25 bps to 1.50%. The RBA noted that the global economy is continuing to grow at a lower-than-average pace, with conditions becoming more difficult for a number of emerging markets, while inflation remains quite low. Jeffrey Kleintop, CFA, offers Five ways investors can make the most of slower growth, at www.schwab.com/oninternational. Meanwhile, Indian securities and those traded in South Korea's declined, but mainland Chinese listings bucked the trend to finish higher, rising for the first time in three sessions, led by property-related issues, and those traded in Hong Kong were closed due to the impact of tropical storm Nida on the region.

For tomorrow, the Markit Service PMI Indexes from around the globe will likely dominate the international economic calendar, with other reports scheduled for release to include wage data from Australia and retail sales from the Eurozone.