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Stocks End Mixed Despite Upbeat Start to Q1 Earnings Season

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U.S. stocks finished mixed, as investors analyzed upbeat results from Dow members JPMorgan Chase & Co and Goldman Sachs, as well as with Wells Fargo to unofficially kick off Q1 earnings season. Strength in financial issues boosted the Dow, while weakness in tech shares pressured the Nasdaq. Treasuries dipped to lift yields, following another hotter-than-expected read on March inflation in the form of import prices, and after the Fed's Beige Book noted continued acceleration in economic activity. The U.S. dollar extended a recent rollover and crude oil prices were solidly higher, while gold traded lower. Overseas, markets in both Europe and Asia finished mixed.

The Dow Jones Industrial Average rose 54 points (0.2%) to 33,731, the S&P 500 Index decreased 17 points (0.4%) to 4,125, and the Nasdaq Composite was down 138 points (1.0%) at 13,858. In moderate volume, 861 million shares were traded on the NYSE and 4.1 billion shares changed hands on the Nasdaq. WTI crude oil jumped $2.97 to $63.15 per barrel. Elsewhere, the Bloomberg gold spot price was $8.82 lower at $1,736.69 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—lost 0.2% to 91.65.

Dow member JPMorgan Chase & Co. (JPM $151) reported Q1 earnings-per-share (EPS) of $3.31 ex-items, versus the $3.10 FactSet estimate, as revenues grew 14.2% year-over-year (y/y) to $33.1 billion, topping the Street's forecast of $30.5 billion. The company said its results reflect strong underlying performance across its businesses, partly driven by a rapidly improving economy. JPM said its results included a benefit from credit reserve releases of $5.2 billion that it does not consider core or recuring profits. The company said its credit reserves of $26.0 billion are appropriate and prudent, all things considered, while consumer spending has returned to pre-pandemic levels, and its very strong home lending originations are expected to slow with the recent rise in interest rates.

JPM added that with all of the stimulus spending, potential infrastructure spending, continued quantitative easing, strong consumer and business balance sheets and euphoria around the potential end of the pandemic, it believes that the economy has the potential to have extremely robust, multi-year growth. Shares were lower.

Dow component Goldman Sachs Group Inc. (GS $335) posted Q1 EPS of $18.60, above the projected $10.22, as revenues jumped 102% y/y to $17.7 billion, above the forecasted $12.6 billion. The company noted higher revenues across all segments, including significant increases in asset management, global markets and investment banking. GS said, "We have been working hard alongside our clients in preparation for a world beyond the pandemic and a more stable economic environment. Our businesses remain very well positioned to help our clients reposition for the recovery, and that strength is reflected in the record revenues and earnings achieved this quarter." GS traded higher.

Wells Fargo & Company (WFC $42) announced Q1 EPS of $1.05, including a $1.6 billion pre-tax reduction in the allowance for credit losses, compared to the projected $0.71, as revenues grew 2.0% y/y to $18.1 billion, exceeding the forecasted $17.5 billion. WFC said its results reflected an improving U.S. economy, continued focus on its strategic priorities, and ongoing support for its customers and its communities. The company added that charge-offs are at historic lows and it is making changes to improve its operations and efficiency, but low interest rates and tepid loan demand continued to be a headwind for it in the quarter. Shares of WFC gained ground.

The reports signify the unofficial start of Q1 earnings season, and S&P 500 Q1 earnings growth is projected to be well above 20% y/y, which would mark the highest rate since Q3 2018 per data compiled by FactSet, which notes that the Financials sector recorded the second-largest increase in EPS estimates of all eleven sectors, trailing only the Energy sector's sharp increase.

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.

Mortgage apps decline, import prices top forecasts, Fed reports on business activity

The Import Price Index (chart) rose 1.2% month-over-month (m/m) for March, versus the Bloomberg consensus estimate of a 0.9% gain, and compared to February's unrevised 1.3% increase. Versus last year, prices were up by 6.9%, compared to forecasts of a 6.4% increase and February's upwardly adjusted 3.1% gain.

The MBA Mortgage Application Index declined 3.7% last week, following the prior week's 5.1% decrease. The downturn came as a 5.0% drop in the Refinance Index was met with a 1.4% fall for the Purchase Index. The average 30-year mortgage rate declined 9 basis points (bps) to 3.27%.

In afternoon action, the Federal Reserve released its Beige Book—an anecdotal read on the nation's business activity that policymakers use to prepare for the next monetary policy meeting set to conclude on April 28. The report showed that, "National economic activity accelerated to a moderate pace from late February to early April," with growth in consumer spending and upbeat reports on tourism and a pickup in demand for leisure activities and travel. Most districts noted modest to moderate growth in economic activity, citing faster-than-expected expansion in vaccination trends. Regarding employment, the report noted a pickup in job growth, particularly in manufacturing, construction, leisure and hospitality.

Treasuries were mostly lower, with 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 rose 2 bps to 1.63% and 2.31%, respectively. Bond yields and the U.S. Dollar Index have cooled off from recent rises and Schwab's Chief Fixed Income Strategist Kathy Jones discusses bonds and the greenback in her articles Why Bonds Still Matter and Will the U.S. Dollar Lose its Reserve Status?.

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's economic calendar will be a busy one, beginning with advance retail sales, forecasted to have increased 5.8% m/m during March, while sales ex-autos and ex-autos and gas are expected to post respective m/m gains of 5.0% and 6.4%. Weekly initial jobless claims for the week ended April 10 will also be released, with expectations of 700,000 first-time unemployment applications filed, as well as the Empire Manufacturing Index, with economists anticipating a level of 19.6, with zero the demarcation point between expansion and contraction. The Federal Reserve's industrial production and capacity utilization report will come shortly before the start of trading, with forecasts calling for production to have increased 2.5% m/m in March and utilization to have risen to 75.6%. The NAHB Housing Market Index will come after the opening bell, projected to move upward to a level of 84 from April from the 82 posted in March, and business inventories will round out the day, with expectations for a 0.5% m/m increase for February.

Europe and Asia mixed with focus on start of earnings season and vaccines

European equities finished mixed, with Information Technology issues continuing to regain some footing, while the markets paid close attention to the ramp up of earnings season. Financials dipped despite some mostly upbeat earnings out of the U.S. in the sector, while the fallout from the Archegos implosion continued to hamper Credit Suisse Group AG (CS $11). Shares of SAP SE (SAP $136) rose after the German software company's earnings results that included an increased revenue outlook. In economic news, Eurozone industrial production in February fell by a smaller amount than anticipated. The euro and British pound were higher versus the U.S. dollar, and bond yields in the region and in the U.K. were tilted to the upside.  

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 and Spain's IBEX 35 Index were up 0.7%, France's CAC-40 Index gained 0.4% and Switzerland's Swiss Market Index rose 0.3%, while Germany's DAX Index lost 0.2%, and Italy's FTSE MIB Index dipped 0.1%.

Stocks in Asia finished mixed with Chinese and Hong Kong markets rebounding amid some eased concerns about regulatory pressures in the Technology sector. The markets continued to grapple with expected robust 2021 economic growth and festering COVID-19 uneasiness as cases rise in India and as a vaccine was halted in the world's largest economy of the U.S. Banking sector earnings results were also anticipated as Q1 earnings season in the U.S. is set to unofficially begin. China's Shanghai Composite Index rose 0.6% and the Hong Kong Hang Seng Index gained 1.4%. However, Japan's Nikkei 225 Index declined 0.4%, with the yen gaining some ground and a report showing February core machine orders—a gauge of capital investment—unexpectedly dropped. Australia's S&P/ASX 200 Index moved 0.7% higher and South Korea's Kospi Index advanced 0.4%. Markets in India were closed for a holiday. 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.

Tomorrow's international economic calendar will hold employment data from Australia, as well as CPI from Germany, France and Italy.  

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