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Schwab Market Update

Stocks Recovering from Yesterday's Drop

U.S. stocks are recovering from yesterday's late-session slide that snapped a six-day winning streak, with technology issues leading the way and the minutes from the Fed's January monetary policy meeting looming. A disappointing existing home sales report is being countered by some upbeat Markit business activity data. Treasury yields are slightly adding to a recent run, while the U.S. dollar is modestly extending yesterday's solid rebound. Crude oil prices are dipping and gold is little changed. Asia finished mostly higher and Europe is mixed.

At 10:51 a.m. ET, the Dow Jones Industrial Average is up 0.5%, the S&P 500 Index is rising 0.6%, and the Nasdaq Composite is advancing 0.8%. WTI crude oil is down $0.24 at $61.55 per barrel, Brent crude oil is dipping $0.10 to $65.15 per barrel, and wholesale gasoline is flat at $1.94 per gallon. The Bloomberg gold spot price is decreasing $0.53 at $1,328.66 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is ticking 0.1% higher to 89.81.

Dish Network Corp. (DISH $44) reported Q4 earnings-per-share (EPS) of $2.64, including a $1.2 billion benefit resulting from the Tax Cuts and Jobs Act (TCJA), which more than offset a charge related to asset impairments. The items appear to be impacting the comparability to the FactSet estimate of $0.55. Revenues declined 7.2% year-over-year (y/y) to $3.5 billion, roughly in line with expectations. Shares are lower. 

Advance Auto Parts Inc. (AAP $119) posted Q4 EPS of $2.49, which included a benefit related to the TCJA, or $0.77 ex-items, versus the expected $0.65, as revenues decreased 2.2% y/y to $2.0 billion, mostly in line with forecasts. Q4 same-store sales declined 2.6% y/y, compared to the projected 3.8% drop, and its gross margin topped estimates. AAP issued 2018 sales guidance that came in a bit shy of expectations. Shares are rallying.  

Existing homes sales unexpectedly decline, business activity accelerates, ahead of Fed report 

Existing-home sales in January declined 3.2% month-over-month (m/m) to a 5.38 million annual rate, compared to the Bloomberg forecast of a 5.60 million pace, and versus December's downwardly revised 5.56 million rate. Sales of single-family homes declined 3.8% m/m and purchases of multi-family structures rose 1.6%, with both down y/y. The median existing-home price was 5.8% above year ago levels at $240,500. Unsold inventory came in at a 3.4-months pace at the current sales rate, up from last month's record low. Inventory of homes for sale rose m/m but was down 9.5% y/y. Sales were lower m/m in all regions. Existing home sales account for the majority of the housing sales market.   

The National Association of Realtors (NAR) said the utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month, though buyer traffic was stronger than the beginning of last year. NAR added that it's very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth. Since existing home sales are based on contract closings instead of signings, pressure on affordability may be set to intensify due to the recent run in interest rates that are likely not reflected in the January report. This is something we are keeping an eye on due to the impact on mortgage demand and the financial sector, as discussed by Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, in the latest Schwab Sector Views: What Sectors Can Tell Us About the Market Action.  

The preliminary Markit U.S. Manufacturing PMI Index showed expansion in output surprisingly accelerated, rising to 55.9 in February, versus expectations to remain at January's 55.5 figure. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector increased more than expected this month to 55.9 from January's 53.3 figure, and versus forecasts calling for it to rise to 53.7. Readings above 50 for both indexes denote expansion.

The MBA Mortgage Application Index fell 6.6% last week, following the prior week's 4.1% decrease. The decline came as a 7.1% drop in the Refinance Index was met with a 6.2% fall for the Purchase Index. The average 30-year mortgage rate gained 7 basis points (bps) to 4.64%.

In afternoon action, the Federal Reserve will release the minutes from its January monetary policy meeting in which it kept its stance unchanged. However, the Fed noted a pickup in inflation, which remains a factor in the increased volatility we expect this year, as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her article, Say Goodbye: Yellen Passes the Baton to Powell with Little Drama.

Treasuries are dipping, with the yields on the 2-year note and the 30-year bond ticking 1 bp higher to 2.26% and 3.17%, respectively, while the yield on the 10-year note is flat at 2.89%. 

Bond yields have seen a steady rise as of late and the U.S. dollar is extending yesterday's rebound but has been choppy. Schwab's Chief Fixed Income Strategist Kathy Jones discusses the bond and currency markets in her article, Twin Bears: U.S. Bond Prices and Dollar Fall in Tandem, while offering analysis of the jump in yields as of late in her latest commentary, The Upside of Bond Market Volatility, as well as her timely video, What's Causing the Sudden Rise in Bond Yields?

The stock markets stepped back late-yesterday from last week's sharp rebound, which was the largest weekly gain in five years, as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading & Derivatives Randy Frederick in the video, What Causes a Market to Rebound? Last week's bounce followed a spike in volatility that ushered in a tumble to correction territory earlier this month. Amid the wild swings in the markets, Schwab's Senior Vice President with the Schwab Center for Financial Research, Mark Riepe, CFA, offers some sage advice for investors in his article, Is Overconfidence Affecting Your Investing Outcomes?

Europe mixed on earnings and economic data

European equities are mixed in late-day action, with the U.S. markets rebounding from late-yesterday's slide, while some mixed earnings and economic data is being sifted through.  Markit's Eurozone Composite PMI Index—a gauge of business activity in both the manufacturing and services sectors—declined to 57.5 for February, from 58.8 in January, and compared to the projected decrease to 58.4. However, a reading above 50 denotes expansion. The euro and British pound are trading lower as the U.S. dollar extends a rebound, while the markets are awaiting today's release of the Fed meeting minutes. Bond yields in the region are lower. Shares of AA PLC. (AADTF $1) are falling sharply after the insurance firm cut its dividend and lowered its earnings outlook, while Lloyds Banking Group PLC. (LYG $4) is rising as its guidance is overshadowing its profit miss.  With the markets remaining choppy after the sharp recovery from the tumble that ushered in February, Schwab's Liz Ann Sonders delivers her latest article, Volatility Gets Back in the Saddle Again, while Jeffrey Kleintop, CFA, offers his latest commentary, Is it Over? Five Misconceptions About Corrections. Jeff notes that the worst of the current global stock market correction may be over, but it is unlikely to be the last one this year. He adds that there are a lot of misconceptions about what signals the end of a correction and unfortunately, there aren’t simple rules to follow that work every time to call the bottom.

The U.K. FTSE 100 Index is up 0.4%, France's CAC-40 Index is ticking 0.1% higher and Switzerland's Swiss Market Index is little changed, while Germany's DAX Index is declining 0.3%, Spain's IBEX 35 Index is falling 0.7%, and Italy's FTSE MIB Index is decreasing 0.2%.

Asia mostly higher despite late-day slide in U.S.

Stocks in Asia finished mostly higher, shrugging off late-yesterday's decline in the U.S., with the yen extending its weakness versus the U.S. dollar to boost Japan's Nikkei 225 Index 0.2% higher and counter weakness in retail and financial issues. The Hong Kong Hang Seng Index jumped 1.8% rebounding from yesterday's decline that followed a long Lunar New Year holiday break, which kept mainland Chinese markets closed today. South Korea's Kospi Index moved 0.6% higher and India's S&P BSE Sensex 30 Index gained 0.4%, while Australia's S&P/ASX 200 Index ticked 0.1% higher. Schwab's Jeffrey Kleintop, CFA, offers his Five Global Risks for Investors in 2018 article, in which he discusses how having a well-balanced, diversified portfolio and being prepared with a plan in the event of an unexpected outcome is a key to successful investing. 

Schwab Center for Financial Research - Market Analysis Group

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Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions. 

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