Schwab Market Update

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U.S. equities closed lower on the day, though managed to claw back some earlier losses, as the markets remained wary of the implications of the recent moves in the interest rate markets. Aside from the caution stemming from the recent spike in yields, stocks were also hampered by a range of mixed, but largely uninspiring economic and corporate earnings reports. A busy economic agenda showed initial jobless claims surprisingly accelerated, housing starts fell much more than expected, and import prices were hotter than forecasted, while building permits unexpectedly jumped and regional manufacturing activity growth topped estimates. On the earnings front, Dow member Walmart missed earnings estimates and offered tepid guidance as shares fell, while Twilio rallied on its more upbeat earnings report. Treasuries saw some pressure as yields ticked higher, amid a backdrop offering signs of rising inflation, the expectation of further fiscal support, and a highly accommodative monetary policy. The U.S. dollar, crude oil, and gold were all lower. Asia finished mostly lower, but China returned from the long Lunar New Year holiday in modestly positive fashion, and Europe closed down.    

The Dow Jones Industrial Average fell 120 points (0.4%) to 31,493, the S&P 500 Index was down 17 points (0.4%) at 3,914, and the Nasdaq Composite lost 100 points (0.7%) to 13,865. In moderate volume, 941 million shares were traded on the NYSE and 6.4 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.63 to $60.53 per barrel. Elsewhere, the Bloomberg gold spot price fell $1.33 to $1,774.80 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 90.56.

Dow member Walmart Inc. (WMT $138) reported a Q4 loss of $0.74 per share, or adjusted earnings-per-share (EPS) of $1.39 ex-items mainly related to losses on operations held for sale in the U.K. and Japan, but including a $0.07 per share impact from repaying property tax relief in the U.K. FactSet had estimated the company to post earnings of $1.51 per share. Revenues rose 7.3% year-over-year (y/y) to $152.1 billion—with currency changes negatively impacting sales—exceeding the Street’s forecast of $148.5 billion. U.S. same-store sales grew 8.6% y/y compared to the forecasted 6.0% gain, with eCommerce sales jumping 69.0%—the slowest since the start of the pandemic. WMT issued current year EPS and revenue guidance that was a bit shy of forecasts, while announcing a 2.0% increase of its annual cash dividend to $2.20 per share.

WMT said the change in retail accelerated in 2020 and the capabilities it built in previous years put it ahead, adding that its business is strong, and it is making it even stronger with targeted investments to accelerate growth, including raises for 425,000 associates in frontline roles driving the customer experience. WMT also noted that it is raising the associate average wage to above $15.00 per hour, but its starting wage will remain at $11.00 per hour. Shares were solidly lower.  

For a look at the earnings season performance among the major market sectors, including our rationale for our underperform rating for the Consumer Staples sector, check out our latest Schwab Sector Views: The Earnings Recession Has Ended. 

Twilio Inc. (TWLO $443) posted a Q4 loss of $1.13 per share, or EPS of $0.04 ex-items related to stock-based compensation, amortization of acquired intangibles and acquisition-related expenses, versus the Street’s expected loss of $0.08 per share. Revenues jumped 65.0% y/y to $548 million, north of the anticipated $455 million. The cloud communications platform said its active customer accounts increased and political traffic positively contributed to revenues. TWLO issued Q1 earnings guidance that was short of forecasts, but its revenue outlook was well above estimates. Shares traded nicely higher.

Keep up with our latest views on the markets and investing, including our latest Schwab Market Perspective: Disconnection, on our Market Insights page at and be sure to follow us on Twitter @SchwabResearch.

Jobless claims surprisingly rise, housing construction data mixed, regional manufacturing strong

Weekly initial jobless claims (chart) came in at a level of 861,000 for the week ended February 13, above the Bloomberg estimate of 773,000, and compared to the prior week’s upwardly revised 848,000 level. The four-week moving average declined by 3,500 to 833,250, and continuing claims for the week ended February 6 decreased by 64,000 to 4,494,000, south of estimates of 4,425,000. The four-week moving average of continuing claims fell by 120,250 to 4,632,000.

Housing starts (chart) for January dropped 6.0% month-over-month (m/m) to an annual pace of 1,580,000 units, below forecasts of 1,660,000 units, and compared to December’s upwardly revised pace of 1,680,000 units. However, building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, unexpectedly jumped, climbing 10.4% m/m at an annual rate of 1,881,000, well above expectations of 1,680,000 units, and compared to the unrevised 1,709,000 unit pace in December.

The Philly Fed Manufacturing Business Outlook Index (chart) dipped by a smaller amount than expected and remained solidly in expansion territory (a reading above zero) for February. The index declined to 23.1 versus estimates to fall to 20.0 from January’s 26.5 level. Growth in new orders and shipments both decelerated but employment expanded at a faster pace. 

The Import Price Index (chart) rose 1.4% m/m for January, versus expectations to match December’s upwardly revised 1.0% increase. Versus last year, prices were up by 0.9%, compared to forecasts of a 0.4% increase and December’s unadjusted 0.3% dip.

Treasuries were lower as the recent choppiness continued in the wake of Tuesday’s drop, and as recent economic data suggests inflation is showing signs of heating up, while retail sales jumped. The rate on the 2-year note was little changed at 0.11%, while the yield on the 10-year note gained 2 basis points (bp) to 1.29% and the 30-year bond rate increased 4 bps to 2.08%.

The Treasury yield curve has steepened noticeably as of late, amid increasing expectations of a strong economic rebound and higher inflation, while we believe the rate on the 10-year note could reach 1.60% this year. We have a tame inflation outlook for the near term, with an expected uptick in the coming months as we lap a drop in prices amid the height of the pandemic, but longer term, the case for a move up in inflation grows stronger.

For more on our views about bond rates and inflation, check out Schwab’s Chief Fixed Income Strategist Kathy Jones’ article, Why Longer-Term Treasury Yields Are Rising, and her commentary, along with Senior Fixed Income Research Analyst Christina Shaffer, Inflation Expectations Are Up. Should Investors Worry?. 

The week’s economic calendar will wrap up tomorrow with preliminary reads on Manufacturing and Services PMIs for February as reported by Markit, with the former expected to decline to 58.7 from January’s 59.2, and the latter to fall to 58.0 from the prior month’s 58.3. Readings above 50 for both indexes denote expansion. Existing home sales are also on the schedule, forecasted to have declined 2.4% m/m to an annual rate of 6.60 million units.

Asia mostly lower and Europe closes in the red as earnings results, U.S. data and interest rates eyed

European equities traded to the downside, as the markets continued to assess the impact of the recent rise in borrowing costs for the world’s largest economy of the U.S. Interest rate or currency shocks are one of the Top Five Global Investment Risks In 2021 that Schwab’s Global Investment Strategist Jeffrey Kleintop, CFA, notes, while reiterating how having a well-balanced, diversified portfolio and being prepared with a plan in the event of an unexpected outcome are keys to successful investing. The rising interest rate environment in the U.S. and mixed economic data, including a read of negative 14.8 for February’s consumer confidence report on the Eurozone were in focus. While tomorrow will bring a plethora of global February business activity reports. The Financials sector in the region saw some pressure, despite bond yields in the Eurozone and the U.K. moving higher, as shares of Barclays PLC. (BCS $8) and Credit Suisse Group AG (CS $14) were lower following their earnings reports. The euro and British pound gained ground on the U.S. dollar.    

As the markets grapple with the frothy sentiment and stretched equity market valuations, Schwab’s Jeffrey Kleintop offers his article, Your Portfolio May Be Less Diversified Than You Think. He points out how investors with a large home bias may not be nearly as diversified across sectors as they believe and risk missing their financial goals as longer-term trends tend to shift with the start of a new global economic cycle. Jeff urges investors to consider rebalancing portfolios back toward international stocks as years of U.S. stock outperformance may have caused a drift away from longer-term asset allocation targets. He adds that fortunately, obtaining global diversification has never been easier or less expensive.

The U.K. FTSE 100 Index fell 1.4%, France’s CAC-40 Index was down 0.7%, Germany’s DAX Index dipped 0.2%, Spain’s IBEX 35 Index was 0.8% lower, Switzerland’s Swiss Market Index decreased 0.9%, and Italy’s FTSE MIB Index dropped 1.1%.  

Stocks in Asia finished mostly to the downside as the global markets grapple with the recent rally in the equity markets and the implications of the increase in interest rates in the U.S., particularly on the growth sectors of the markets, which were exacerbated by yesterday’s jump in U.S. wholesale price inflation. Moreover, a host of global February business activity reports loom on tomorrow’s horizon and Chinese markets digested a week’s worth of market developments in a return to action following the long Lunar New Year holiday break. China’s Shanghai Composite Index advanced 0.6%. Japan’s Nikkei 225 Index dipped 0.2%, with the yen firming, while South Korea’s Kospi Index fell 1.5% and the Hong Kong Hang Seng Index dropped 1.6%. India’s S&P BSE Sensex 30 Index traded 0.7% lower, and Australia’s S&P/ASX 200 Index finished little changed following some employment data that showed the unemployment rate declined more than expected in January but job growth decelerated slightly more than anticipated.  

Schwab’s Jeffrey Kleintop notes in his latest article, Year of the Ox: Bullish for China?, China’s growth for 2021 appears strong, but February holds key developments that could impact this outlook. He points out that key developments include stock delistings, trade, and COVID-19. Jeff concludes with a look at how China’s stock market is the best performing in the world so far this year and the country’s economic growth is driving the world’s recovery, so these developments can have far reaching impacts.

Tomorrow’s international economic calendar will include inflation data from Japan, Germany, France and Italy, as well as manufacturing and services reports from France, Germany, the U.K., and the Eurozone.

©2021 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

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