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Stocks Close Mostly Higher on an Abundance of Economic Data

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U.S. stocks finished mostly higher as the markets in the U.S. enter the Thanksgiving holiday break.

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U.S. stocks finished mostly higher as the markets in the U.S. enter the Thanksgiving holiday break. The day’s session took a cautious tone as the markets parsed through a deluge of economic data, headlined by a drop in initial jobless claims, better-than-expected personal income and spending figures. and a mixed read on durable goods orders. Moreover, the minutes from the early-November FOMC monetary policy meeting offered insights into the Fed’s concerns about inflation and discussion around the pace of its announced taper policy. Meanwhile, on the corporate front, retail earnings were in focus as Gap and Nordstrom struggled after both severely missed profit projections. Treasuries were mixed after a recent rise in yields, while the U.S. dollar gained solid ground. Gold inched higher and crude oil prices turned downward. Asia finished mixed as Japan returned to action following a holiday and Europe also diverged as Tech stocks remained under pressure.

The Dow Jones Industrial Average declined 9 points to 35,804, while the S&P 500 Index increased 11 points (0.2%) to 4,701, and the Nasdaq Composite advanced 70 points (0.4%) to 15,845. In moderate volume, 3.4 billion shares of NYSE-listed stocks were traded, and 4.1 billion shares changed hands on the Nasdaq. WTI crude oil slid $0.11 to $78.39 per barrel. Elsewhere, the gold spot price rose $0.50 to $1,784.30 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—advanced 0.3% to 96.82.

Gap Inc. (GPS $18) reported adjusted Q3 earnings-per-share (EPS) of $0.27, well below the $0.50 FactSet estimate, with revenues declining 1.3% year-over-year (y/y) to $3.9 billion, missing the expected $4.4 billion. The company said acute supply chain headwinds affected its ability to fully meet strong customer demand. GPS lowered its full-year guidance. Shares fell over 20%. 

Nordstrom Inc. (JWN $23) reported Q3 EPS of $0.39, south of the expected $0.57, as revenues rose 18.0% to $3.6 billion, above the forecasted $3.5 billion. JWN noted continued challenges at its off-rack business. The company reaffirmed its full-year guidance. Shares were down over 25%. 

The markets have remained near record highs for the past couple weeks, though action has been choppy, and Schwab's Chief Investment Strategist Liz Ann Sonders provides her latest article, Mysterious Ways: Bullish Sentiment Grows, With Positive Offsets, discussing how both the market's churn and success have bred a resurgence in optimism which, for now, has been positively offset by strong breadth and firm profit margins.

Find all our market commentary on our Market Insights page and follow us on Twitter at @SchwabResearch.

Jobless claims fall, personal income and spending rise as heavy economic calendar unfolds

Weekly initial jobless claims (chart) came in at a level of 199,000 for the week ended November 20, versus the Bloomberg consensus estimate of 260,000 and compared to the prior week's 268,000 level. The four-week moving average fell by 21,000 to 252,250, and continuing claims for the week ended November 13 fell by 60,000 to 2,049,000, above estimates of 2,032,000. The four-week moving average of continuing claims dropped by 47,500 to 2,117,000.

October preliminary durable goods orders (chart) fell 0.5% month-over-month (m/m), versus estimates of a 0.2% gain and compared to September's downwardly-revised 0.4% decline from an initial 0.3% decrease. Ex-transportation, orders were up 0.5% m/m, in line with forecasts and compared to September's upwardly-adjusted 0.7% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, increased 0.6%, compared to projections of a 0.5% rise, and versus the prior month's upwardly-revised 1.3% increase.

Personal income (chart) rose 0.5% month-over-month (m/m) in October, versus forecasts of a 0.2% increase and following September's unrevised 1.0% drop. Personal spending rose 1.3%, above estimates of a 1.0% gain, and compared to the prior month's unadjusted 0.6% increase. The October savings rate as a percentage of disposable income was 7.3%.

The PCE Deflator rose 0.6% m/m, below expectations of a 0.7% increase, and above September's upwardly-adjusted 0.4% gain. Compared to last year, the deflator was 5.0% higher, below estimates of a 5.1% rise and north of the prior month's unrevised 4.4% increase. Excluding food and energy, the PCE Core Price Index rose 0.4% m/m, matching expectations, and compared to September's unadjusted 0.2% rise. The index was 4.1% higher y/y, in line with estimates, and above September's upwardly-revised 3.7% rise.

The November final University of Michigan Consumer Sentiment Index (chart) was revised to a higher level than expected, at 67.4, compared to expectations for it to be adjusted to 66.9 from the preliminary reading of 66.8. The upward revision came as the expectations component of the survey and the current conditions portion both were revised higher. However, the overall index was lower versus October's 71.7 level, as sentiment regarding both expectations and current conditions deteriorated m/m. The 1-year inflation forecast rose to 4.9% from October's 4.8% rate, and the 5-10 year inflation forecast ticked higher to 3.0% from the 2.9% level in the prior month.

New home sales (chart) rose 0.4% m/m in October to an annual rate of 745,000 units, below forecasts calling for a rate of 800,000 units, and compared to September's negatively-revised 742,000-unit level. The median home price jumped 17.5% y/y to $407,700. New home inventory rose to 6.3 months from September's level of a 6.1-months supply at the current sales pace. Sales fell m/m in the Northeast and West, but rose in the Midwest and South and all were solidly lower compared to the same period a year ago. New home sales are based on contract signings, offering a timelier read on housing activity compared to the larger contributor of existing home sales, which are based on closings.

The second look (of three) at Q3 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 2.1%, revised from the first release's 2.0% figure and compared to estimates of an upwardly-revised 2.2% pace of growth. Q2's figure was unadjusted at a 6.7% increase. Personal consumption was revised to a 1.7% increase, versus expectations of an unrevised 1.6% rise. Q2 consumption was unadjusted at a 12.0% gain.

On inflation, the GDP Price Index was revised to a 5.9% rise, versus estimates of an unadjusted 5.7% increase, while the core PCE Index, which excludes food and energy, was unadjusted at a 4.5% gain, in line with expectations.

The MBA Mortgage Application Index rose 1.8% last week, following the prior week's decrease of 2.8%. The rise came as a 0.4% gain for the Refinance Index was met with a 4.7% rise for the Purchase Index. The average 30-year mortgage rate rose 4 basis points (bps) to 3.24%.

The advance goods trade balance showed that the October deficit shrunk more than expected, coming in at $82.9 billion, versus estimates calling for it to decrease to $95.0 billion from September's upwardly-revised shortfall of $97.0 billion.

Preliminary wholesale inventories rose 2.2% m/m for October, compared to expectations of a 1.0% gain, and versus September's unrevised 1.4% rise.

In afternoon action, the Federal Reserve revealed the minutes from its early-November monetary policy meeting, where the Fed announced the beginning of its campaign to taper its monthly asset purchases. As expected, discussions of inflation concerns and details surrounding the taper program highlighted the report. The minutes showed that some officials preferred a faster pace of tapering, as opposed to the announced plan of cutting $10 billion a month in Treasuries and $5 billion monthly in mortgage-backed securities, with a target date to end purchases by mid-2022. Further, the report offered that, “Various participants noted that the Committee should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee’s objective,” and that “the Committee would not hesitate to take appropriate actions to address inflation pressures that posed risks to its longer-run price stability and employment objectives.” The FOMC's next two-day monetary policy meeting is slated for December 14-15. For more insight on the Fed's November decision, Schwab's Liz Ann Sonders offers her commentary, Begin the Begin: Fed Announces Start of Tapering.

Treasuries were mixed, as the yield on the 2-year note rose 3 bps to 0.64%, the yield on the 10-year note decreased 3 bps 1.64%, and the 30-year bond rate dipped 7 bps to 1.96%.

Bond yields have been choppy as of late and Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her latest 2022 Fixed Income Outlook: Rough Waters how we expect another wave up in bond yields in 2022 as central banks around the world shift away from the very easy policies of the past few years. Kathy points out that with the pandemic-era policies ending, investors should be prepared for shifting tides and the risks and opportunities they present.

The U.S. economic calendar will be dormant for the remainder of the week.

Please note: all U.S. markets will be closed on Thursday and trade in an abbreviated session on Friday in observance of the Thanksgiving holiday.

Asia diverges and Europe mixed as Tech stocks continue to soften

European equities closed mixed as Tech stocks continued to see pressure as bond yields in the Eurozone and the U.K. were mixed, while the markets remain hampered by the COVID-19 spread in the region. In addition, global supply chain issues continue to be a concern for markets. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his 2022 Global Outlook: Slowing But Not Slow, noting how global GDP surpassed its pre-pandemic level in 2021, and although it's expected to slow in 2022, it is still expected to grow at an above average rate. Further, Jeff notes that fiscal policy in the U.K. and Europe is expected to support economic growth, while central banks have been slow to end their loose monetary policy, and supply and inflationary pressures may soon ease up. Amid all this, Jeff highlights four themes for investors: consider international stocks, go green and look at eco-friendly investments, look into firms that are buying back shares, and guard against potential gluts that might emerge. In economic news, German November business sentiment declined, while French business and manufacturing confidence both improved unexpectedly for this month. The euro and British pound traded to the downside versus the U.S. dollar.

The U.K. FTSE 100 Index was up 0.3%, Italy's FTSE MIB Index rose 0.6%, Switzerland's Swiss Market Index increased 0.2%, while France's CAC-40 Index was little changed, Germany's DAX Index fell 0.4%, and Spain's IBEX 35 Index traded 0.3% lower.

Stocks in Asia finished mixed with Japanese markets returning to action following yesterday's holiday break, while the markets continued to grapple with rising inflation pressures and global supply chain challenges, along with uncertainty regarding the path of global monetary policies. Schwab's Jeffrey Kleintop offers his article, Will Shortages Lead to Gluts?, noting how the global economy may be closer to the end of supply chain problems than the beginning. He points out how markets tend to look six to twelve months into the future, and they may soon begin to consider the possibility that some shortages may start to ease, and gluts may have started to form by the second half of next year. If that happens, we may see some easing of inflation pressures. In economic news, Japan's preliminary Manufacturing PMI showed growth accelerated in November.

Japan's Nikkei 225 Index fell 1.6%, with the yen softening slightly, while China's Shanghai Composite Index and Hong Kong's Hang Seng Index both ticked 0.1% higher. South Korea's Kospi Index also edged 0.1% lower, and India's S&P BSE Sensex 30 Index declined 0.6%. Australia's S&P/ASX 200 Index decreased 0.2%.

Tomorrow’s international economic calendar will see Australia’s capital expenditure report, leading index data for Japan, the Bank of Korea’s repo rate decision, consumer confidence and the final read on GDP for Germany, and French jobs data.

Friday’s international calendar will bring Japanese CPI and trade data, followed by French and Italian consumer confidence data, British trade information and a report on M3 from the Eurozone.

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