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Upbeat Earnings, Economic Data Boost Stocks

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U.S. equities finished solidly higher following a host of positive earnings reports from Bank of America, PepsiCo, Dow member UnitedHealth Group, and Citigroup, as well as upbeat economic data. Retail sales rebounded by a larger-than-expected amount, jobless claims posted a sizable decline to breach below the 600,000 mark, and manufacturing output in the Philadelphia and New York Regions showed continued expansion. Treasuries gained ground despite the data that also continued to show input pricing pressures remain robust, fostering a downside moves in yields and likely overshadowing some of the upbeat results out of the banking sector. Energy issues also lagged as crude oil prices were mixed to little changed despite the strong economic data. The U.S. dollar was nearly flat and gold was sharply higher. Europe finished mixed amid the sluggishness in Financials and Energy, while markets in Asia also diverged. 

The Dow Jones Industrial Average rose 305 points (0.9%) to 34,036, the S&P 500 Index increased 46 points (1.1%) to 4,170, and the Nasdaq Composite was up 181 points (1.3%) at 14,039. In moderate volume, 849 million shares were traded on the NYSE and 4.3 billion shares changed hands on the Nasdaq. WTI crude oil nudged $0.31 higher to $63.46 per barrel. Elsewhere, the Bloomberg gold spot price was $28.09 higher at $1,764.52 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was little changed to 91.65. 

Bank of America Corp. (BAC $39) reported Q1 earnings-per-share (EPS) of $0.86, above the $0.66 FactSet estimate, as revenues ticked 0.2% higher year-over-year (y/y) to $22.8 billion, topping the Street's $21.9 billion forecast. BAC noted a $1.9 billion benefit to its provision for credit losses reflecting a $2.7 billion release of its loan loss reserves.

The company noted record or near-record levels of deposits, investment flows, investment banking revenue, digital users and client engagement. "While low interest rates continued to challenge revenue, credit costs improved and we believe that progress in the health crisis and the economy point to an accelerating recovery," BAC added. Shares traded lower.

PepsiCo Inc. (PEP $142) posted core Q1 EPS of $1.21, exceeding the expected $1.12, with revenues rising 6.8% y/y to $14.8 billion, north of the estimated $14.6 billion. PEP said, "We are pleased with our results for the first quarter as we successfully overcame challenges related to difficult year-over-year comparisons, uneven recoveries across many of our international markets and weather-related business disruptions in the U.S." The company highlighted its diversified portfolio, agile supply chain and go-to-market systems and strong marketplace execution. PEP reaffirmed its full-year guidance. Shares finished higher.

Dow member UnitedHealth Group Incorporated (UNH $390) announced adjusted Q1 earnings of $5.31 per share, above the expected $4.39, as revenues grew 9.0% y/y to $70.2 billion, topping the forecasted $69.1 billion. The company noted the combined capabilities of its Optum and UnitedHealthcare units that helped advance the way care is delivered, while noting that its Q1 medical care ratio—the rate at which premiums received are paid out in medical care and services—improved. UNH raised its full-year guidance, noting that it continues to expect a negative impact to accommodate continuing COVID-19 effects. Shares were higher.

Citigroup Inc. (C $73) reported Q1 EPS of $3.62, above forecasts of $2.60, as revenues declined 7.0% y/y to $19.3 billon, above the expected $18.8 billion. Citigroup noted that its EPS reflects increased net income and a slight decline in shares outstanding, along with strong performance in its institutional clients group and a significant release from its allowance for credit losses, as a result of the improving economic outlook.

The company added that while its global consumer banking revenues were down quarter-over-quarter as a result of the pandemic, this is the healthiest it has seen the consumer emerge from a crisis in recent history and its capital levels remained strong and stable. Separately, the company announced strategic actions, including intentions to exit from its consumer franchises in thirteen markets across two regions, with affected businesses including Australia, China and India. C added that its institutional clients group will continue to serve clients in these markets, which remain important to its global network. Shares dipped. 

Delta Air Lines Inc. (DAL $47) reported an adjusted Q1 loss of $3.55 per share, versus the $3.17 per share shortfall that the Street was calling for. Adjusted revenues fell 65.0% y/y to $3.6 billion, on 55.0% lower sellable capacity, compared to the projected $3.9 billion. DAL said it expects a Q2 loss and it looks to break even in June and deliver a profitable Q3. Shares were lower. 

Q1 earnings season is heating up and earnings expectations are running high for 2021, led by improved estimates out of the Financials and Energy sectors. Check out our assessments, including our outperform rating on Financials, for all the major market sectors in our Schwab Sector Insights: A View on 11 Equity Sectors.

Keep up with our latest views on the market landscape at our Market Insights page on www.schwab.com, and you can follow us on Twitter @SchwabResearch.

Retail sales jump and jobless claims decelerate sharply to kick off heavy economic day

Advance retail sales (chart) for March rose 9.8% month-over-month (m/m), well above the Bloomberg consensus forecast of a 5.8% gain and following February's favorably adjusted 2.7% drop. Last month's sales ex-autos rose 8.4% m/m, compared to expectations of a 5.0% increase and February's figure was positively revised to a 2.5% decline. Sales ex-autos and gas were up 8.2% m/m, compared to estimates of a 6.4% rise, and February's reading was adjusted higher to a 3.1% decrease. The control group, a figure used to calculate GDP, advanced 6.9% m/m, versus projections of a 7.2% jump and February's favorably adjusted 3.4% decline.

Weekly initial jobless claims (chart) came in at a level of 576,000 for the week ended April 10, noticeably south of estimates of 700,000, and compared to the prior week's upwardly revised 769,000 level. The four-week moving average fell by 47,250 to 683,000, and continuing claims for the week ended April 3 rose by 4,000 to 3,731,000, north of estimates of 3,700,000. The four-week moving average of continuing claims fell by 98,000 to 3,763,000.

The Philly Fed Manufacturing Business Outlook Index (chart) unexpectedly moved further into expansion territory (a reading above zero) for April. The index rose to 50.2 versus estimates of a decrease to 41.5 from March's downwardly revised 44.5 level. Growth in new orders decelerated but remains comfortably in expansion territory and employment growth accelerated, while prices paid remained sharply above zero despite a decline. 

The Empire Manufacturing Index, a measure of activity in the New York region, showed growth accelerated more than expected, with the index rising to 26.3 in April from 17.4 in March, and compared to forecasts of a rise to 20.0. A reading above zero denotes growth. The report marks the tenth-straight month of expansion and the fastest pace of business activity since 2017, as new orders jumped and employment expanded at a faster pace, though prices paid continued to climb, hitting 74.7.

The Federal Reserve's industrial production (chart) rose 1.4% m/m in March, below estimates of a 2.5% gain, and versus February's downwardly revised 2.6% decrease. Manufacturing and mining output both rose solidly, but utilities production dropped. Capacity utilization increased to 74.4% versus forecasts calling for a rise to 75.6% from the prior month's downwardly revised 73.4% rate. Capacity utilization is 5.2 percentage points below its long-run average.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment in April ticked higher to 83 to match estimates from March's 82 reading. A level north of 50 depicts positive conditions.

Business inventories (chart) rose 0.5% m/m in February, matching forecasts and compared to January's upwardly revised 0.4% gain.

Treasuries were mostly higher despite the data, as the yield on the 2-year note little changed at 0.16%, while the yields on the 10-year note and the 30-year bond declined 8 bps to 1.55% and 2.23%, respectively.

Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her latest article, How to Handle a Bond Bear Markethow it can be challenging to handle a bond bear market, a period during which investors drive bond prices down and yields—which move inversely to prices—higher. She points out that the good news is that the worst of this phase of the bond bear market may be over, and you can take steps to help mitigate the impact of increased volatility and higher interest rates.

Moreover, amid the backdrop of the massive amounts of monetary and fiscal stimulus support, Schwab's Chief Investment Strategist Liz Ann Sonders addresses in her latest commentary the question of Will Rising Federal Debt Slow Economic Growth?, and Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his latest article, Stimulus Payback: 2023.

Tomorrow the economic calendar will come to a close for the week with more housing data in the form of housing starts and building permits, forecasted to show starts rose 13.4% m/m to an annual rate of 1,421,000 units and permits gained 1.7% m/m to 1,682,000 units. After the opening bell, the preliminary University of Michigan Consumer Sentiment Index for April will be reported, expected to rise to 89.0 from March's final reading of 84.9.

Europe and Asia mixed amid flood of data

European equities were mixed, with the markets reacting to mostly upbeat earnings reports in the U.S. and Europe, while also digesting the strong retail sales and jobless claims reports out of the world's largest economy of the U.S. However, Energy and Financials hamstrung the markets as bond yields declined and crude oil prices were sluggish despite the upbeat earnings and economic data. March consumer price inflation out of Germany and France both accelerated y/y but likely not enough to impact the highly-accommodative monetary policy from the European Central Bank. The euro dipped versus the U.S. dollar and the British pound was little changed, while bond yields in the Eurozone and the U.K. gained ground. In geopolitical news, the U.S. announced that it will take action in the form of sanctions against Russia in retaliation for alleged misconduct related to the SolarWinds cyber attack and the U.S. election.  

Schwab's Jeffrey Kleintop notes in his article Bull? Bear? How about a "Bunny" Market?, that there are a variety of clashing factors affecting the stock market this year, including worries over rising interest rates countered by the confidence seen in booming business investment, and robust M&A activity. We expect the bunny market to continue hopping around in the weeks ahead, as it reacts to these factors. Also, Jeff discusses in his latest article, The Next Bubble?, how the specific set of conditions that have historically characterized the start of an investment bubble appear to be forming.

The U.K. FTSE 100 Index was up 0.6%, France's CAC-40 Index and Switzerland's Swiss Market Index increased 0.4%, and Germany's DAX Index rose 0.3%, while Spain's IBEX 35 Index and Italy's FTSE MIB Index dipped 0.1%.

Stocks in Asia finished mixed with the markets digesting the heating up of earnings season in the U.S. amid the backdrop of elevated expectations of robust economic and profit growth as vaccine rollouts pave the path to normalizing economic activity. However, optimism is being somewhat offset by the rise in COVID-19 cases in parts of Asia and Europe, as well as the recent jump in global bond yields. Schwab's Jeffrey Kleintop discusses in his article, Have EM Stocks Lost Their Immunity to Rising Rates?, how Emerging Market (EM) stocks have taken the rise in yields the worst among major equity asset classes, but offering five reasons why EM stocks can likely still perform well as rates climb this year. 

In economic data in the region, Australia's March employment change came in above forecasts, and India's wholesale price inflation came in much hotter than expected for last month, while the People's Bank of China's liquidity injection seemed to disappoint the markets. Japan's Nikkei 225 Index ticked 0.1% higher, with the yen firming slightly late in the day, while China's Shanghai Composite Index and the Hong Kong Hang Seng Index declined 0.5% and 0.4%, respectively. Australia's S&P/ASX 200 Index and India's S&P BSE Sensex 30 Index both gained 0.5%, and South Korea's Kospi Index moved 0.4% to the upside.

A flood of data from China will dominate tomorrow's international economic calendar, with the Asian nation reporting GDP, retail sales, industrial production, fixed asset investment and housing prices, while other reports of note overseas include trade figures from Italy and the trade balance and CPI from the Eurozone.

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