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U.S. equities reversed course in late-day trading to finish mixed, bringing an end to a recent string of gains, as caution appeared to set in ahead of tomorrow's monetary policy decision from the Federal Reserve. News on the equity front was light and focused on some M&A activity and second-tier earnings releases, while the economic calendar provided a look at factory orders that were shy of forecasts. Treasury yields were higher and gold gained ground, while the U.S. dollar was lower and crude oil prices were mixed.
The Dow Jones Industrial Average (DJIA) declined 27 points (0.1%) to 25,887, the S&P 500 Index was nearly unchanged at 2,833, while the Nasdaq Composite increased 9 points (0.1%) to 7,724. In heavy volume, 968 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.09 lower to $59.29 per barrel and wholesale gasoline added $0.02 to $1.88 per gallon. Elsewhere, the Bloomberg gold spot price advanced $2.99 to $1,306.70 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—lost 0.2% to 96.37.
Michaels Companies, Inc. (MIK $13) reported a Q4 gain of $1.44 per share, versus the $1.42 earnings-per-share (EPS) FactSet estimate. Revenues declined 5.4% year-over-year (y/y) to $1.8 billion, in line with expectations, with same-store sales moving 0.4% lower y/y. Management issued Q1 EPS and same-store sales guidance that was below the Street's expectations. Shares rallied.
Jones Lang LaSalle Incorporated (JLL $160) announced that it has entered into a definitive agreement to acquire HFF, Inc. (HF $49) in a cash and stock transaction with an equity value of approximately $2 billion. Under the terms of the agreement, shareholders of the real estate intermediary would receive $24.63 in cash and 0.1505 JLL shares for each HFF share owned. JLL traded lower, while shares of HF were higher.
DSW Inc. (DSW $22) posted Q4 losses of $0.07 ex-items per share, versus the expected $0.04 gain, with revenues rising 16.4% y/y to $843 million, slightly above estimates, and same-store sales ascending 5.4%, above forecasts. The retailer's gross margin and operating margin were below expectations. Shares were sharply lower.
Factory orders flat, Fed meeting begins
Factory orders (chart) grew 0.1% month-over-month (m/m) in January, versus expectations of a 0.3% rise, and compared to December's unrevised 0.1% increase. Stripping out the volatile transportation component, orders moved 0.2% lower, above December's upwardly-revised loss. Final durable goods orders (chart) were revised downward to 0.3% higher m/m for January, below December's 1.3% rise. Ex-transportation, orders were down 0.2% m/m, compared to December's 0.3% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, were unrevised at a 0.8% gain versus December's 0.1% increase.
Treasuries were lower, as the yields on the 2-year and 10-year notes, along with the 30-year bond, were 1 basis point (bp) higher at 2.47%, 2.61% and 3.02%, respectively.
The Federal Open Market Committee's (FOMC) monetary policy meeting began today, which will conclude tomorrow with its rate decision. It is widely expected the Committee will leave the target range for the fed funds rate unchanged, while the press conference by Fed Chairman Jerome Powell is likely to be of significant interest to investors. However, the accompanying updated economic projections—particularly the glimpse at interest rate expectations, known as the "dots plot"—will probably garner the highest degree
As noted in our latest Schwab Market Perspective: Sliding into Recession…or Another Q1 Quirk?, recession fears have increased but first quarter growth weakness could be short-lived, as has often been the case with first quarters. We don’t see a recession in the near term, but believe trade policy remains a key factor in the span between now and the next recession. Economic and earnings growth risks have risen and the short-lived volatility spike we saw earlier this month could reemerge. Given late-cycle tendencies, we continue to recommend investors remain at or near their longer-term U.S. and global equity allocations, remain diversified, and use volatility for rebalancing opportunities.
In addition to the conclusion of the FOMC monetary policy meeting, the only other item on tomorrow's economic calendar is MBA Mortgage Applications.
Europe higher with caution set aside, Asia mixed
European equities finished higher, as this week's positive returns in the U.S. and tomorrow’s Fed rate decision seemed to stoke confidence. Meanwhile, economic news in the region was upbeat, as strong unemployment data in the U.K. complemented a rise in a read on economic sentiment out of Germany. The unemployment measures in the U.K. hit a 44-year low, but the reaction was muted as an unchanged monetary policy decision by the Bank of England in May is widely expected, while the Zew Economic Sentiment Survey in Germany rose 9.8 points to a level of -3.6, with the current conditions reading moving lower. The euro traded to the upside versus the U.S. dollar, while bond yields in the region were higher. The British pound finished higher versus the greenback in choppy action, as Brexit uncertainty over a possible European Union extension and a third vote of the Prime Minister's plan persisted. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article on the subject, titled Brexit: What’s Next for Investors.
Stocks in Asia finished mixed on the heels of yesterday’s modest gains in the U.S., as caution ahead of tomorrow’s monetary policy decision out of the U.S. coupled with continued U.S./China trade uncertainty to drag on conviction. Japanese equities declined slightly, with some choppiness in the yen, and Australian securities were flat following the release of the minutes from the Reserve Bank of Australia’s latest monetary policy meeting. The report cultivated somewhat mixed reviews, as it reinforced labor and trade conflict concerns that were behind the decision to leave the board's inflation target unchanged, noting that trade tensions "remained a continued source of uncertainty for the global outlook." Meanwhile, stocks in mainland China declined, but those traded in Hong Kong ticked higher, while markets in India and South Korea gained ground. Schwab's Jeffrey Kleintop, CFA, offers his article, Tax War: Will Global Competition to Lower Taxes Lift Growth?, discussing the potential for global competition to lower corporate tax rates, aimed at supporting slowing global economic and earnings growth.
Tomorrow's international economic calendar will also be light, offering only leading indicators from Australia, PPI from Germany, and CPI and PPI from the U.K.
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