The Fixed Income Daily

Cryptocurrency

2017-12-18T19:30:00.002-07:00

Cryptocurrency

Number of Currencies: 1,366
Total Market Cap: $623,112,015,112
Volume (24h): $38,904,934,796

Top Cryptocurrencies

Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
Bitcoin	BTC	18,685.0	$316.27B	$14.09B	36.21%	1	-1.21%	+11.39%
Ethereum	ETH	808.58	$77.75B	$3.23B	8.30%	0.0429867	+2.91%	+57.32%
Bitcoin Cash	BCH	2,168.3	$37.37B	$2.54B	6.53%	0.118148	+0.81%	+53.10%
Ripple	XRP	0.77277	$30.80B	$1.32B	3.39%	0.00004236	+1.90%	+210.10%
Litecoin	LTC	352.99	$19.15B	$1.95B	5.00%	0.0187702	-1.78%	+55.05%
Cardano	ADA	0.528302	$13.43B	$270.30M	0.69%	0.00002761	+9.72%	+341.19%
IOTA	MIOTA	4.1312	$11.73B	$440.75M	1.13%	0.00022501	-0.41%	-2.41%
Dash	DASH	1,166.81	$9.23B	$277.88M	0.71%	0.0633837	+1.88%	+55.30%
NEM	XEM	0.91339	$8.42B	$156.67M	0.40%	0.00004988	+10.40%	+96.55%
EOS	EOS	9.0990	$5.92B	$727.40M	1.87%	0.0005764	+2.44%	+146.79%

Tax Reform Again Provides Fuel for Stock Rally

2017-12-18T19:26:00.001-07:00

Charles Schwab; On the Market

Posted: 12/18/2017 4:15 PM EST

Tax Reform Again Provides Fuel for Stock Rally

U.S. stocks joined their foreign counterparts in a global rally, courtesy of optimism regarding tax reform which is expected to make its way through Congress this week. An unexpected jump in homebuilder sentiment to a more than 18-year high and a host of global M&A deals also aided in providing support. Treasury yields were mostly higher and the U.S. dollar lost ground, while gold was higher and crude oil prices were mixed.

The Dow Jones Industrial Average (DJIA) increased 140 points (0.6%) to 24,792, the S&P 500 Index was 15 points (0.6%) higher at 2,691, and the Nasdaq Composite jumped 58 points (0.8%) to 6,995. In heavy volume, 921 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil decreased $0.11 to $57.22 per barrel and wholesale gasoline added $0.02 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price moved $4.99 higher to $1,261.43 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 93.70.

Hershey Co. (HSY $114) announced an agreement to acquire Amplify Snack Brands Inc. (BETR $12), for $12.00 per share in cash, or about $1.6 billion including debt. HSY was higher, while BETR surged over 70%.

Campbell Soup Co. (CPB $50) announced an agreement to acquire Snyder's-Lance Inc. (LNCE $50) for $50.00 per share in cash, or about $4.9 billion. Shares of both companies were higher.

Penn National Gaming Inc. (PENN $29) announced an agreement to acquire Pinnacle Entertainment Inc. (PNK $31) for $32.47 per share in cash and stock, valued at about $2.8 billion. Under the terms of the deal, PNK stockholders will receive $20.00 in cash and 0.42 shares of PENN for each share owned. In connection with the deal, Boyd Gaming Corp. (BYD $35) agreed to acquire four assets of PNK for $575 million in cash. Shares of PENN were lower, while PNK and BYD were higher.

CSX Corp. (CSX $54) announced that Chief Executive Officer (CEO) Hunter Harrison passed away over the weekend after taking a medical leave due to unexpected severe complications from a recent illness. The board has named Chief Operating Officer James Foote as acting CEO. Shares were higher.

Homebuilder sentiment unexpectedly jumps to 18-year high, kicking off busy week

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month unexpectedly jumped to over an 18-year high of 74, versus the Bloomberg forecast calling for a 70 reading and November's downwardly revised 69 level. The index sits decisively above the 50 mark, the point of separation for good versus poor conditions. The NAHB said housing market conditions are improving partially because of new policies aimed at providing regulatory relief to the business community.

The NAHB added that with low unemployment rates, favorable demographics and a tight supply of existing home inventory, we can expect continued upward movement of the single-family construction sector next year. Tomorrow, we will get a look at November housing construction activity in the form of housing starts and building permits (economic calendar). Starts are projected to decline 3.2% month-over-month (m/m) to an annual rate of 1,249,000 units and permits are forecasted to decrease 3.1% to an annual rate of 1,275,000 units.

New home construction rebounded in October to the fastest pace in a year, suggesting a potential boost for Q4 GDP growth as construction spending subtracted from GDP in the second and third quarters, per Bloomberg. Schwab's Chief Investment Strategist Liz Ann Sonders notes in our 2018 Market Outlook: U.S. Stocks and Economy, animal spirits are keeping business optimism alive and broad U.S. growth should remain healthy in 2018, however late cycle tendencies should be on investors’ radar screen.

Treasuries were mostly lower, with the yield on the 2-year note flat at 1.84%, while the yield on the 10-year note rose 3 bps to 2.39% and the 30-year bond rate gained 4 bps to 2.75%. Schwab's Chief Fixed Income Strategist Kathy Jones provides a look at the bond markets heading into the New Year, in her video, What Could Fixed Income Investors Expect in 2018?.

Treasury yields have diverged and the U.S. dollar has fallen, though the stock markets continue their ascent, as the House and Senate are expected to vote on a final tax bill this week. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers a look at the tax bill and the votes in his latest commentary, Sweeping Tax Bill Poised to Become Law. Also, Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, delivers his article, Tax Reform: Frequently Asked Questions and as you conduct your year-end tax planning, check out our, Tax Reform: 11 Questions to Ask Your Advisor.

Europe and Asia higher, bolstered by U.S. tax reform optimism

European equity markets finished broadly higher, with the global markets rallying on hopes that U.S. tax reform will face final votes this week, while a flood of M&A deals buoyed global sentiment. Stocks gained ground despite gains in the euro and British pound versus the U.S. dollar, while bond yields in the region traded mixed. In economic news, eurozone consumer price inflation rose in line with expectations for November. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his, 2018 Global Market Outlook: Three Actions to Take for the Year Ahead, in which he says 2018 global stock market gains could potentially be in the double-digits and international stocks may outperform U.S. stocks. Jeff urges investors to rebalance as 2018 gains in stocks may result in a higher risk asset allocation ahead of a potential recession and bear market.

Stocks in Asia finished higher with growing optimism of U.S. tax reform, as lawmakers are set to vote on the final bill this week, lifting global economic sentiment. The global markets have rallied this year, bolstered by the broadest economic growth in a decade and is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, in his article, 5 Reasons Investors Should Give Thanks. Japanese equities rallied, with the yen holding onto Friday's losses, while a report showed the nation's exports grew more than expected. Mainland Chinese stocks and those traded on Hong Kong were higher, with the People's Bank of China continuing to raise short-term interest rates and home price data came in mostly positive. Meanwhile, markets in Australia and India rose, and shares listed in South Korea finished flat.

From tomorrow's international economic calendar, investors will get the minutes from the Reserve Bank of Australia's last monetary policy meeting, PPI from South Korea, and the Ifo Business Climate Survey from Germany.

Cryptocurrency

2017-12-15T17:35:00.000-07:00

Cryptocurrency

Number of Currencies: 1,366
Total Market Cap: $536,436,603,266
Volume (24h): $33,142,542,117

Top Cryptocurrencies

Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
Bitcoin	BTC	17,525.0	$296.87B	$14.20B	42.85%	1	+6.96%	+10.00%
Ethereum	ETH	680.94	$66.28B	$2.75B	8.30%	0.0389515	-0.81%	+48.24%
Bitcoin Cash	BCH	1,769.5	$30.20B	$1.44B	4.34%	0.10154	-8.65%	+20.97%
Ripple	XRP	0.73273	$29.15B	$3.08B	9.29%	0.00004261	-0.64%	+197.33%
Litecoin	LTC	301.23	$16.20B	$2.57B	7.76%	0.0168843	-0.84%	+119.97%
IOTA	MIOTA	3.8611	$10.91B	$423.39M	1.28%	0.0002224	+3.22%	-18.75%
Dash	DASH	898.01	$7.01B	$192.02M	0.58%	0.0512062	+0.56%	+21.77%
Cardano	ADA	0.210526	$5.47B	$198.25M	0.60%	0.00001197	+7.01%	+81.31%
NEM	XEM	0.57221	$5.24B	$67.45M	0.20%	0.00003298	-2.01%	+7.12%
Bitcoin Gold	BTG	286.46	$4.97B	$174.77M	0.53%	0.0168633	-6.08%	+14.36%

Markets Notch Solid Weekly Gains

2017-12-15T17:28:00.001-07:00

Charles Schwab: On the Market

Posted: 12/15/2017 4:15 PM EST

Markets Notch Solid Weekly Gains

U.S. equities finished out the week solidly in the green on optimism surrounding reports that final-hour tweaking of the tax reform bill appears to be enough to pass it after yesterday's uncertainty. Treasury yields were mixed as industrial production missed expectations but the prior month's jump was revised higher, crude oil prices also diverged, while the U.S. dollar and gold finished higher. Upbeat results from Costco and yesterday's jump in retail sales upped the consumer outlook.

The Dow Jones Industrial Average (DJIA) increased 143 points (0.6%) to 24,652, the S&P 500 Index was 24 points (0.9%) higher at 2,676, and the Nasdaq Composite jumped 80 points (1.2%) to 6,937. In heavy volume due to quadruple witching, or the simultaneous expiration of options and futures contracts, 2.4 billion shares were traded on the NYSE and 3.2 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.26 to $57.30 per barrel and wholesale gasoline lost $0.02 to $1.65 per gallon. Elsewhere, the Bloomberg gold spot price moved $2.84 higher to $1,255.80 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 93.93. Markets were higher for the week, as the DJIA increased 1.3%, the S&P 500 Index rose 0.8%, and the Nasdaq Composite advanced 1.4%.

Costco Wholesale Corp. (COST $193) reported fiscal Q1 earnings-per-share (EPS) of $1.45, or $1.36 ex-items, versus the $1.34 FactSet estimate, as revenues rose 13.2% year-over-year (y/y) to $31.8 billion, above the projected $31.1 billion. Q1 same-store sales grew 10.5% y/y, versus the expected 10.2% gain. Shares were nicely higher.

Oracle Corp. (ORCL $48) posted fiscal Q2 EPS of $0.52, or $0.70 ex-items, compared to the projected $0.68, with revenues rising 6.0% y/y to $9.6 billion, roughly in line with forecasts. ORCL increased its share repurchase plan by $12 billion, but the company issued Q3 guidance that was below expectations. Shares saw solid pressure.

Adobe Systems Inc. (ADBE $177) announced Q4 EPS of $1.00, or $1.26 ex-items, versus the expected $1.16, as revenues grew 25.0% y/y to $2.0 billion, mostly matching estimates. The company issued Q1 and 2018 revenue guidance that matched forecasts, while its Q1 EPS outlook was above expectations. Shares were higher.

CSX Corp. (CSX $53) announced that its Chief Executive Officer (CEO) Hunter Harrison is on medical leave due to unexpected complications from a recent illness. The board has named Chief Operating Officer James Foote as acting CEO. Shares finished decisively lower.

Shares of Sirius XM Holdings Inc. (SIRI $5) fell after announcing a decision by the Copyright Royalty Board (CRB) of the Library of Congress that will require the royalty rate it has to pay for a five-year period starting January 1, 2018 to increase. The rate will rise to 15.5% of gross revenues from its current rate of 11.0% and well above expectations.

Industrial production slightly misses, but prior month's strong gain revised higher

Industrial production (chart) rose 0.2% month-over-month (m/m) in November, slightly below the Bloomberg estimate of a 0.3% gain, but October's solid 0.9% rise was upwardly revised to a 1.2% jump. Manufacturing production ticked higher and mining output jumped, though utilities production dropped. Capacity utilization ticked higher to 77.1% from the prior month's unrevised 77.0% rate, and compared to forecasts of 77.2%. Capacity utilization is 2.8 percentage points below its long-run average.

The Empire Manufacturing Index showed output from the New York region slowed more than expected but remained solidly at a level depicting expansion (a reading above zero) for December. The index decreased to 18.0 from November's unrevised 19.4 level, with forecasts calling for a decline to 18.7.

Treasuries were mixed, as the yield on the 2-year note rose 3 basis points (bps) to 1.84% and the yield on the 10-year note was flat at 2.35%, while the 30-year bond rate dipped 3 bps to 2.68%. In her video, What Could Fixed Income Investors Expect in 2018?, Schwab's Chief Fixed Income Strategist Kathy Jones offers three reasons we think investors might want to be a bit more cautious about where they look for yield in 2018.

The Treasury yield curve continues to flatten and the U.S. dollar found support after yesterday's jump in retail sales followed Wednesday's highly-expected Fed rate hike as discussed by Schwab's Senior Fixed Income Research Analyst, Collin Martin, CFA, in his article, Fed Raises Rates, Projects More to Come in 2018, as well as Schwab's Chief Investment Strategist Liz Ann Sonders' and Vice President of Trading and Derivatives Randy Frederick's video, How Will Rate Hike Affect Investors?.

Tax reform continued to be in focus and Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend analyzes in his latest commentary, Tax Plan Set for Final Vote, the deal reached on Capitol Hill regarding a massive tax package that would cut the corporate tax rate and make sweeping changes to individual taxes. Late-yesterday's flared up uncertainty regarding if the bill has enough support is being calmed by headlines suggesting final-hour adjustments to the bill will likely be enough ahead of next week's expected vote. Also, Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of what investors should be paying attention to, in his article, Tax Reform: What Investors Should Know, while also addressing questions regarding how the potential tax overhaul may affect you as an investor in his article, Tax Reform: Frequently Asked Questions. Moreover, as you conduct your year-end tax planning, check out our latest article, Tax Reform: 11 Questions to Ask Your Advisor.

Europe and Asia mixed on U.S. tax reform uncertainty

European equity markets traded mixed, with the euro giving back early gains versus the U.S. dollar amid choppy trading to help provide some late-day support and help offset a flare-up in U.S. tax reform uncertainty ahead of an expected vote sometime next week. Technology issues remained hamstrung, and consumer discretionary stocks led to the downside. Bond yields in the region pared losses to help financials limit a downside move and German markets finished higher, while the nation's central bank upped its economic growth forecast. The U.K. markets rose as the British pound fell, pressured by increased Brexit uncertainty as talks move on to the next stage but revolve around trade, which is seen to be a tougher hurdle to overcome than previous negotiations that have been contentious. In economic news, the eurozone trade surplus narrowed more than expected for October.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his, 2018 Global Market Outlook: Three Actions to Take for the Year Ahead, in which he says stay invested: with 2018 global stock market gains potentially being in the double-digits and go global: as international stocks may outperform U.S. stocks in 2018. Jeff also urges investors to rebalance: with rebalancing back to target allocations important as 2018 gains in stocks may result in a higher risk asset allocation ahead of a potential recession and bear market.

Stocks in Asia finished mixed as the scrutiny of the deal reached on tax reform by lawmakers in the U.S. heats up as it moves closer to a final vote. Also, the markets are digesting this week's Fed rate hike that was followed by unchanged monetary policy decisions from the European Central Bank and the Bank of England yesterday. The yen moved higher to pressure Japanese equities, and while the nation's Q4 Tankan Large Manufacturing Index improved more than expected, suggesting sentiment is improving, the Tankan outlook component came in a bit below forecasts. Stocks in mainland China and Hong Kong fell amid some continued paring of solid gains seen this year amid the market uncertainty. The Global markets have been bolstered by the broadest economic growth in a decade and is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, in his article, 5 Reasons Investors Should Give Thanks. Meanwhile, stocks in Australia declined, but South Korean listings rose, and markets in India advanced amid some supporting exit polls that suggested continued support for Prime Minister Modi's party, per Bloomberg. After the closing bell, India reported a sharp jump in the country's exports for November.

Stocks move higher as tax reform and data bolster fresh record highs

Stock markets moved back to record high territory this week amid optimism tax reform successfully scaled the reconciliation hurdle clearing a way to a final vote, while a jump in retail sales suggested the health of the all-important U.S. consumer was strong. Moreover, Dow member Walt Disney Co's (DIS $111) $52 billion agreement to acquire a large portion of Twenty-First Century Fox Inc. (FOXA $35) fueled a positive M&A sentiment. The telecommunications sector extending its recent run, and consumer-related stocks rallied to lead a broad-based advance, which saw technology issues regain some of its momentum that has led the year's decisive rally as the tax-reform sector rotation out of the group seemed to ease. However, the utilities sector was the lone group in the red after the Fed's highly-expected rate hike and forecast for more to come in 2018.

Outside the stock market trading was choppy as the Fed's hike was followed by unchanged monetary policy decisions from the European Central Bank, Bank of England and Swiss National Bank. The Treasury yield curve continued to flatten, with the 2-year rate rallying but the 10-year note finished little changed and the 30-year bond yield slipped. The U.S. dollar was extending last week's gain but following a mid-week slide and flared-up tax reform uncertainty the greenback lost momentum and finished little changed to slightly down. Crude oil prices rallied early on amid exacerbated supply concerns on a key pipeline crack and a gas plant explosion overseas, but lost ground and finished near the unchanged mark on the heels of mixed oil & gas inventory data.

Next week will the last before the Christmas holiday and the economic calendar will hopefully bring more gifts than coal, with a fully-loaded sleigh of releases including: the NAHB Housing Market Index, housing starts and building permits, existing home sales, the final revision of Q3 GDP, the Leading Index, personal income and spending, durable goods orders, new home sales, and the final December University of Michigan Consumer Sentiment Index.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in our 2018 Market Outlook: U.S. Stocks and Economy, animal spirits are keeping business optimism alive and well: U.S. growth broadly—and capex and productivity specifically—should remain healthy in 2018. Late cycle tendencies should be on investors’ radar screen: A tight labor market augurs for higher wage growth, higher inflation and tighter monetary policy. Tax reform would be a plus, but skepticism is warranted: Failure to pass tax reform would dent business and investor confidence, but not necessarily actual growth or corporate earnings.

International reports due out next week include: China—property prices. Japan—trade balance and the Bank of Japan's monetary policy decision. Eurozone—consumer price inflation and German business confidence. U.K.—consumer confidence and final read on Q3 GDP.

Cryptocurrency

2017-12-14T21:32:00.002-07:00

Cryptocurrency

Number of Currencies: 1,364
Total Market Cap: $520,605,181,069
Volume (24h): $41,426,354,226

Top Cryptocurrencies

Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
Bitcoin	BTC	17,201.0	$291.05B	$15.80B	38.15%	1	+6.30%	+1.83%
Ethereum	ETH	665.44	$64.22B	$3.84B	9.28%	0.0386732	-3.79%	+54.31%
Bitcoin Cash	BCH	1,740.7	$30.36B	$2.86B	6.91%	0.104484	+10.07%	+25.05%
Ripple	XRP	0.74500	$29.57B	$6.40B	15.46%	0.00004428	-8.59%	+210.17%
Litecoin	LTC	277.03	$15.03B	$2.36B	5.69%	0.0160539	-2.39%	+184.05%
IOTA	MIOTA	3.4840	$9.85B	$570.51M	1.38%	0.00020566	-13.87%	-11.98%
Dash	DASH	873.30	$6.80B	$242.09M	0.58%	0.050891	-5.83%	+27.36%
Cardano	ADA	0.206897	$5.29B	$344.55M	0.83%	0.00001184	+5.18%	+90.41%
NEM	XEM	0.54131	$4.99B	$105.43M	0.25%	0.00003216	-9.79%	+132.97%
Bitcoin Gold	BTG	282.04	$4.95B	$465.19M	1.12%	0.0171954	+7.20%	+13.23%

Early Gains Fade to Red

2017-12-14T21:29:00.001-07:00

Charles Schwab: On the Market

Posted: 12/14/2017 4:15 PM EST

Early Gains Fade to Red

Early gains for U.S. equities faded throughout the day and stocks finished lower, despite a jump in November retail sales and positive service sector data, and reports that a tentative tax bill deal has been reached. Consumer discretionary stocks got a boost from the sales report, but the gains were muted by a fall in the health care sector. Pressure on financials after Treasury yields pared gains contributed to the downdraft, as investors asses yesterday's Fed rate hike and a host of European monetary policy decisions. Crude oil and the U.S. dollar were higher, while gold was lower. Attention toward the equity front focused on Dow member Walt Disney’s agreement to acquire parts of Twenty-First Century Fox for $52 billion.

The Dow Jones Industrial Average (DJIA) declined 77 points (0.3%) to 24,509, the S&P 500 Index lost 11 points (0.4%) to 2,652, and the Nasdaq Composite decreased 19 points (0.3%) to 6,857. In moderate volume, 810 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.44 to $57.074 per barrel and wholesale gasoline gained $0.02 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price moved $2.42 lower to $1,253.08 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.52.

As was widely speculated, Dow member Walt Disney Co. (DIS $111) announced an agreement to acquire parts of Twenty-First Century Fox Inc. (FOXA $35), including the Twentieth Century Fox Film and Television studios, along with cable and international TV businesses, for about $52.4 billion in stock. Under the terms of the deal, Twenty-First Century Fox stockholders will receive 0.2745 Disney shares for each share they hold. Immediately prior to the acquisition, Twenty-First Century Fox will separate the Fox Broadcasting network and stations into a newly listed company that will be spun off to its shareholders. Walt Disney also announced that it has extended Robert Iger's contract and he will remain Chairman and Chief Executive Officer of the company through 2021. DIS and FOXA both gained solid ground.

Express Scripts Holding Co. (ESRX $69) raised its full-year earnings-per-share (EPS) outlook, while issuing 2018 EPS guidance that exceeded expectations. Shares finished higher.

Shares of Teva Pharmaceutical Industries Limited (TEVA $17) jumped after announcing a comprehensive restructuring plan aimed at reducing costs by $3 billion by the end of 2019, including reducing its workforce by over 25%. Also, the company suspended its dividend.

Delta Air Lines Inc. (DAL $55) gained solid ground after the airline issued 2018 revenue guidance with a midpoint above the FactSet estimate after guiding that it expects December passenger unit revenue to be up roughly 4.0%. Separately, the company announced that it agreed to order 100 of Airbus SE's (EADSY $25) A321neo aircraft with options of up to 100 additional jets.

Retail sales jump, jobless claims drop, business activity reports mixed

Advance retail sales (chart) for November rose 0.8% month-over-month (m/m), compared to the Bloomberg forecast of a 0.3% gain and compared to October's upwardly revised 0.5% increase. Last month's sales ex-autos were up by 1.0% m/m, versus expectations of a 0.6% gain, and following the favorably revised 0.4% increase seen in the previous month. Sales ex-autos and gas gained 0.8% m/m, above estimates of a 0.4% rise, and versus October's upwardly revised 0.4% gain. The retail sales control group, a figure used to help calculate GDP, increased 0.8%, north of projections of a 0.4% rise, and versus the prior month's favorably revised 0.4% gain.

The report suggests the holiday season got off to a strong start and the all-important U.S. consumer continues to be underpinned by the solid labor market and signs of wage growth. Growth was broad-based across the 13 categories, led by a 2.5% jump in sales at nonstore retailers—which includes online shopping—but auto sales were the lone group that declined. Per Bloomberg, core retail sales—ex food, gas, building materials and autos—on a three-month annualized basis rose at the fastest pace since June 2014. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, has touted the broad-based economic impact of the consumer as of late, which has led to elevated business optimism that could bolster already rising capital investments as he discusses in his latest Schwab Sector Views: 18 Thoughts Heading into '18.

Weekly initial jobless claims (chart) dropped by 11,000 to 225,000 last week, versus forecasts to remain at the prior week's unrevised 236,000 level. The four-week moving average came in at 234,750, while continuing claims fell by 27,000 to 1,886,000, south of estimates of 1,900,000.

The preliminary Markit U.S. Manufacturing PMI Index showed expansion in output surprisingly accelerated, rising to 55.0 in December, versus expectations to match November's 53.9 level. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector this month unexpectedly slowed, declining to 52.4 from November's 54.5 figure, and versus forecasts calling for it to rise to 54.7. However, readings above 50 for both indexes denote expansion.

The Import Price Index (chart) rose 0.7% m/m for November, matching projections, following October's downwardly revised 0.1% rise. Compared to last year, prices were up by 3.1%, below forecasts of a 3.2% rise and compared to October's downwardly revised 2.3% increase.
Business inventories (chart) dipped 0.1% m/m in October, matching forecasts, and versus September's unrevised flat reading.

Treasuries were mixed, as the yield on the 2-year note rose 4 basis points (bps) to 1.81%, the yield on the 10-year note was flat at 2.35%, while the 30-year bond rate dipped 2 bps to 2.71%.

Bond yields were mixed but the U.S. dollar got back on the winning path after yesterday's drop, with the markets grappling with today's data and unchanged monetary policy decisions by the European Central Bank and Bank of England, which followed yesterday's highly-expected Fed rate hike. For analysis of the Fed's monetary policy decision, check out Schwab's Senior Fixed Income Research Analyst, Collin Martin's, CFA, article,

Fed Raises Rates, Projects More to Come in 2018, as well as our commentary, Fed Rate Hike: What Does It Mean for Your Portfolio.

Tax reform also remained a source of market attention, bolstered by reports that lawmakers have reached a tentative deal on a final bill. Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of what investors should be paying attention to, in his article, Tax Reform: What Investors Should Know, while also addressing questions regarding how the potential tax overhaul may affect you as an investor in his article, Tax Reform: Frequently Asked Questions. Moreover, as you conduct your year-end tax planning, check out our latest article, Tax Reform: 11 Questions to Ask Your Advisor.

The economic calendar will round out the week with the Federal Reserve’s industrial production and capacity utilization report, with production forecasted to have increased 0.3% m/m during November and capacity utilization to tick higher to 77.2%, as well as the Empire Manufacturing Index, with economists expecting a level of 18.0, with a reading above zero indicating expansion in activity.

Europe and Asia lower as central bank action in focus

European equities finished lower, with technology issues seeing some pressure and financials extending losses late as bond yields moved to the downside and the markets digested a flood of monetary policy decisions. The European Central Bank (ECB) and the Bank of England (BoE), along with the Swiss National Bank (SNB) all kept their monetary policy stances unchanged as expected, on the heels of yesterday's highly-expected rate hike in the U.S. The euro and Swiss franc lost ground on the U.S. dollar, while the British pound reversed modestly to the upside late in the session.

The markets paid close attention to the customary press conference following the ECB's decision by President Mario Draghi, who raised the region's economic growth outlook but was seen as dovish in regard to inflation, noting that an ample degree of stimulus is still needed. Draghi said the structure of its bond-buying program nor a change in guidance were discussed at the meeting as it has only been six weeks since it announced that it will cut the amount of monthly purchases in half starting in January. He did say that it could increase asset purchases or the duration if its outlook becomes less favorable and inflation fails to make progress toward a sustained path to its goal of just under 2.0%.

The focus on monetary policy decisions overshadowed stronger-than-expected U.S. retail sales and eurozone business activity reports, along with headlines suggesting a U.S. tax reform agreement has been reached. Markit's preliminary December Composite PMI Index—a gauge of business activity in both the manufacturing and services sectors—surprisingly improved to 58.0 from 57.5 in November and compared to forecasts calling for a dip to 57.2. As noted in our 2018 Schwab Market Outlook: Executive Summary, we anticipate solid growth in 2018 and don't see a recession on the horizon. However, with markets priced for ongoing moderate growth and low volatility, the risks we’re monitoring include the potential for higher inflation and more central bank tightening than expected.

Stocks in Asia finished mostly to the downside as the markets digested a host of economic data in the region, along with yesterday's rate hike in the U.S., while awaiting today's monetary policy decisions from the European Central Bank and the Bank of England. China reported roughly in line figures on November retail sales, fixed asset investment and industrial production, while Australian employment grew more than expected last month and Indian wholesale price inflation came in a bit cooler than expected for November. The yen gained ground on the U.S. dollar to weigh on Japanese stocks, ahead of a key read on the nation's manufacturing sentiment for Q4 due out tonight. Mainland Chinese equities and those listed in Hong Kong declined, while markets in Australia and South Korea also lost ground. However, stocks in India finished higher. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers a look at the global markets heading into the New Year in his, 2018 Global Market Outlook: Three Actions to Take for the Year Ahead.

Tomorrow’s international economic calendar will offer the Tankan Large Manufacturing and non-Manufacturing Indexes from Japan, India’s trade balance, and wage data from France.

Cryptocurrency

2017-12-13T22:30:00.000-07:00

Cryptocurrency

Number of Currencies: 1,364
Total Market Cap: $507,822,940,436
Volume (24h): $33,978,649,946

Top Cryptocurrencies

Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
Bitcoin	BTC	16,437.0	$275.83B	$12.81B	37.70%	1	+1.58%	+11.92%
Ethereum	ETH	739.53	$71.98B	$4.72B	13.90%	0.0452334	+6.92%	+73.54%
Bitcoin Cash	BCH	1,806.1	$29.36B	$1.33B	3.90%	0.105649	+14.21%	+25.53%
Ripple	XRP	0.54000	$22.32B	$3.34B	9.83%	0.00003488	+19.80%	+151.28%
Litecoin	LTC	316.10	$16.68B	$2.94B	8.65%	0.0185956	+0.99%	+209.68%
IOTA	MIOTA	4.2579	$11.62B	$470.50M	1.38%	0.0002535	+5.26%	+9.28%
Dash	DASH	894.10	$7.27B	$283.48M	0.83%	0.0567572	+3.54%	+35.10%
Monero	XMR	314.24	$5.12B	$274.27M	0.81%	0.0200164	+5.81%	+19.84%
NEM	XEM	0.51982	$4.90B	$53.81M	0.16%	0.00003293	+2.29%	+103.31%
Bitcoin Gold	BTG	282.33	$4.76B	$215.33M	0.63%	0.0172957	+7.31%	+4.97%

Stocks Mostly Advance Amid Fed Hike and Tentative Tax Deal

2017-12-13T22:26:00.001-07:00

Charles Schwab: On the Market

Posted: 12/13/2017 4:15 PM EST

Stocks Mostly Advance Amid Fed Hike and Tentative Tax Deal

U.S. stocks traded mostly higher mid-week as the Federal Reserve expectedly increased its federal funds rate target range and recent headlines suggest that legislators have reached a tentative agreement on a final tax bill with full House and Senate votes expected to be held next week. Treasury yields declined despite the Fed decision and the U.S. dollar lost ground on the heels of a cooler-than-forecasted core consumer price inflation reading. Crude oil prices were lower and gold ticked higher. Shares of Finisar surged after receiving an investment from Dow member Apple.

The Dow Jones Industrial Average (DJIA) increased 81 points (0.3%) to 24,585, the S&P 500 Index ticked 1 point lower to 2,663, and the Nasdaq Composite advanced 13 points (0.2%) to 6,876. In moderate volume, 874 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil decreased $0.54 to $56.60 per barrel and wholesale gasoline lost $0.05 to $1.65 per gallon. Elsewhere, the Bloomberg gold spot price moved $10.93 higher to $1,255.43 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.7% lower at 93.46.

VeriFone Systems Inc. (PAY $18) reported Q4 earnings-per-share (EPS) of $0.03, or $0.44 ex-items, versus the $0.43 FactSet estimate, as revenues rose 2.6% year-over-year (y/y) to $477 million, compared to the projected $472 million. The payment transaction device company issued Q1 and 2018 EPS guidance that missed expectations. PAY also announced the sales of its Taxi business and a new $100 million share repurchase program. Shares were solidly lower.

Finisar Corp. (FNSR $24) jumped after Dow member Apple Inc. (AAPL $173) announced it will invest $390 million into the manufacturer of optical communications components. AAPL said the investment is part of its Advanced Manufacturing Fund and will enable Finisar to increase its production of vertical-cavity surface-emitting lasers (VCSELs) that power some of Apple's new features, including Face ID, Animoji, and Portrait mode selfies. AAPL traded higher.

Honeywell International Inc. (HON $156) reported that it expects Q4 EPS to be at the high end of its previous guidance, while issuing a 2018 profit outlook that had a midpoint below expectations as it executes its previously-announced restructuring plans that include spinning off a couple business units. HON gained ground.

Eli Lilly and Company (
LLY $88) issued 2018 EPS guidance with a midpoint slightly above the Street's expectations, while noting that in 2018 it expects continued product pipeline progress, including U.S. regulatory action for some of its experimental treatments. Shares traded higher.

Fed raises target range as expected, consumer price inflation report mixed

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, voting seven to two to increase the target range for the federal funds rate by 25 basis points (bps) to 1.25-1.50%, a move that was widely expected. The Committee noted that it expects "with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong." The Fed also updated its economic projections, increasing its GDP annual growth estimate to 2.5% from September's forecast of 2.1% and Janet Yellen held her final press conference as the Fed Chair. For in depth analysis of the Fed’s decision look for commentary later today from Schwab's Senior Fixed Income Research Analyst, Collin Martin, CFA, on the Market Commentary page and see Schwab's article, Fed Rate Hike: What Does It Mean for Your Portfolio.

As noted in the latest Schwab Market Perspective: The Big Picture Heading into 2018, uncertainty is elevated as the Fed faces several changes in 2018 but recent comments from incoming Fed Chief Jerome Powell suggest continuity and transparency are priorities. However, if inflation should flare up, or growth start to lag, the Fed may be challenged early in the new regime.

The Fed's decision will be followed by tomorrow's fully-loaded economic calendar, expected to show jobless claims remain at low levels, import prices nudged higher, business activity continued to grow solidly per Markit, business inventories dipped, and retail sales accelerated as the holiday season rolls on. The retail sales data will likely carry the most weight, given heavy impact of the U.S. consumer on economic output as we head into 2018.

The Consumer Price Index (CPI) (chart) rose 0.4% month-over-month (m/m) in November, matching the Bloomberg estimate, while October's 0.1% rise was unrevised. The core rate, which strips out food and energy, was 0.1% higher m/m, compared to expectations to match October's unrevised 0.2% increase. Y/Y, prices were 2.2% higher for the headline rate, in line with forecasts and following October's unrevised 2.0% rise. The core rate was up 1.7% y/y, versus projections to match October's unadjusted 1.8% increase.

The MBA Mortgage Application Index decreased 2.3% last week, following the prior week's 4.7% gain. The decline came as a 2.5% drop in the Refinance Index accompanied a 1.1% decrease in the Purchase Index. The average 30-year mortgage rate ticked 1 basis point (bp) higher to 4.20%.

Treasuries finished higher, with the yields on the 2-year note and the 30-year bond dipping 5 bps to 1.77% and 2.73%, respectively, and the yield on the 10-year note decreasing 6 bps to 2.35%. The yield on the 10-year note retreated after reaching the high end of its recent range and the U.S. dollar dipped after a run as of late following the inflation report, while the stock markets continue to notch record highs.

In her video, What Could Fixed Income Investors Expect in 2018?, Schwab's Chief Fixed Income Strategist Kathy Jones offers three reasons we think investors might want to be a bit more cautious about where they look for yield in 2018. As noted in our 2018 Schwab Market Outlook: Executive Summary, we anticipate solid growth and don't see a recession on the horizon. However, with markets priced for ongoing moderate growth and low volatility, the risks we’re monitoring include the potential for higher inflation and more central bank tightening than expected.

As the tax reform reconciliation process continues, recent headlines suggest that the House and Senate negotiators have reached a tentative deal on a final tax bill. Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of this process and what investors should be paying attention to, in his article, Tax Reform: What Investors Should Know, while also addressing questions regarding how the potential tax overhaul may affect you as an investor in his article, Tax Reform: Frequently Asked Questions. Moreover, as you conduct your year-end tax planning, check out our latest article, Tax Reform: 11 Questions to Ask Your Advisor.

Europe declines and Asia mixed ahead of Fed decision

European equity markets finished mostly lower, with the markets treading cautiously ahead of today's Fed monetary policy decision, which will be followed by tomorrow's decisions from the European Central Bank and Bank of England. Also, some key Chinese economic data loomed on the horizon, while tax reform and the Alabama Senate election results in the U.S. garnered attention. The euro and British pound traded higher versus the U.S. dollar and bond yields in the region were mixed. In economic news, German consumer price inflation rose in line with expectations, eurozone industrial production unexpectedly increased, and U.K. employment change declined more than expected.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his, 2018 Global Market Outlook: Three Actions to Take for the Year Ahead, in which he says stay invested: with 2018 global stock market gains potentially being in the double-digits and go global: as international stocks may outperform U.S. stocks in 2018. Jeff also urges investors to rebalance: with rebalancing back to target allocations important as 2018 gains in stocks may result in a higher risk asset allocation ahead of a potential recession and bear market.

Stocks in Asia finished mixed, with tax reform reconciliation and the Alabama Senate election results in the U.S. garnering attention, while the markets awaited today's Fed monetary policy decision. Japanese equities declined, with the yen gaining solid ground and despite a stronger-than-expected rebound in machine orders—a gauge of capital investment—for October. Stocks trading in mainland China and Hong Kong advanced, led by strength in the banking sector and ahead of some key economic data due out tonight. Australian securities ticked higher and South Korean shares increased, while Indian equities declined amid some weakness in the financial sector. Schwab's Jeffrey Kleintop, CFA, offers a look at the global markets, which have rallied this year due to the broadest economic growth in a decade, in his article, 5 Reasons Investors Should Give Thanks.

In addition to the aforementioned central bank decisions, tomorrow's stacked international economic docket will yield industrial production and capacity utilization from Japan, retail sales and industrial production from China, consumer inflation expectations and employment data from Australia and wholesale prices from India. Releases from across the pond will include Markit Manufacturing and Services PMIs from the U.K., Germany, France and the eurozone, while the U.K. will also report retail sales.

Cryptocurrency

2017-12-12T18:02:00.001-07:00

Cryptocurrency

Number of Currencies: 1,364
Total Market Cap: $504,065,212,678
Volume (24h): $37,882,880,036

Top Cryptocurrencies

Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
Bitcoin	BTC	17,228.0	$293.53B	$14.67B	38.71%	1	+1.54%	+44.26%
Ethereum	ETH	634.10	$62.84B	$5.09B	13.45%	0.037398	+0.02%	+42.02%
Bitcoin Cash	BCH	1,635.00	$27.63B	$1.37B	3.62%	0.0939669	+2.29%	+8.41%
Litecoin	LTC	368.000	$17.75B	$7.07B	18.66%	0.0187437	+4.55%	+216.60%
Ripple	XRP	0.34815	$14.31B	$1.65B	4.36%	0.00002117	-0.66%	+50.40%
IOTA	MIOTA	4.60290	$12.88B	$667.51M	1.76%	0.00026553	-2.63%	+12.22%
Dash	DASH	864.67	$7.05B	$368.76M	0.97%	0.0521725	-2.19%	+19.23%
NEM	XEM	0.52885	$5.01B	$106.37M	0.28%	0.00003188	+5.07%	+89.77%
Monero	XMR	295.00	$4.80B	$263.95M	0.70%	0.0178028	+1.06%	+14.62%
Bitcoin Gold	BTG	278.90	$4.75B	$214.85M	0.57%	0.0163109	+3.49%	-6.77%

Stocks Mixed as Tech Dips

2017-12-12T17:58:00.001-07:00

Charles Schwab; On the Market

Posted: 12/12/2017 4:15 PM EST

Stocks Mixed as Tech Dips

Domestic stocks were mostly higher with financials leading the advance as Treasury yields gained ground early-on before finishing mostly flat, on the heels of a hotter-than-expected wholesale inflation report and a jump in small business optimism. The Nasdaq lagged its counterparts with technology shares finding pressure. Market participants are awaiting tomorrow's Fed decision, which is highly-expected to produce an increase to the target range for the fed funds rate, while the tax reform reconciliation process will also garner some attention. Crude oil prices declined, the U.S. dollar was higher and gold saw minor losses.

The Dow Jones Industrial Average (DJIA) increased 119 points (0.5%) to 24,505, the S&P 500 Index was 4 points (0.2%) higher at 2,664, and the Nasdaq Composite declined 13 points (0.2%) to 6,862. In moderate volume, 855 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil decreased $0.85 to $57.14 per barrel and wholesale gasoline lost $0.03 to $1.70 per gallon. Elsewhere, the Bloomberg gold spot price moved $0.80 lower to $1,242.69 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 94.05.

Dow member Boeing Co. (BA $290) announced a 20% increase to its quarterly dividend to $1.71 per share, while announcing a new $18 billion share repurchase program. Shares traded nicely higher.

Eli Lilly and Co. (LLY $87) reported that it will increase its quarterly dividend by 8% to $0.5625 per share. Shares of LLY dipped.

Urban Outfitters Inc. (URBN $32) finished to the upside after reporting that so far Q4 sales are tracking to be up in the mid-single-digits, which is above what FactSet is estimating.

Wholesale price inflation tops forecasts, small business optimism jumps

The Producer Price Index (PPI) (chart) showed prices at the wholesale level in November were up 0.4% month-over-month (m/m), above the Bloomberg expectation of a 0.3% gain, and matching October's unrevised increase. The core rate, which excludes food and energy, rose 0.3%, compared to forecasts of a 0.2% advance and versus October's unrevised 0.4% rise. Y/Y, the headline rate was 3.1% higher, north of projections of a 2.9% gain, after October's 2.8% increase. The core PPI rose 2.4% last month, matching estimates and October's gain.

Tomorrow, the economic calendar will complete the inflation picture, with the release of the Consumer Price Index (CPI), projected to rise 0.4% m/m in November, after the prior month's 0.1% gain, while the core CPI is forecasted to match October's 0.2% increase. Y/Y, the prices are expected to accelerate to a 2.2% gain from a 2.0% rise, and the core CPI is anticipated to match the prior month's 1.8% gain.

The National Federation of Independent Business (NFIB) Small Business Optimism Index for November jumped to 107.5, the highest level in over three decades, from October's unrevised 103.8 level, versus expectations of a gain to 104.0.

Treasuries were mostly flat, with the yields on the 2-year note and the 30-year bond nearly unchanged at 1.82% and 2.78%, respectively, while the yield on the 10-year note ticked 1 basis point higher to 2.40%.

In her video, What Could Fixed Income Investors Expect in 2018?, Schwab's Chief Fixed Income Strategist Kathy Jones offers three reasons we think investors might want to be a bit more cautious about where they look for yield in 2018. Also, heading into the New Year, as noted in our 2018 Schwab Market Outlook: Executive Summary, we anticipate solid growth in 2018 and don't see a recession on the horizon. However, with markets priced for ongoing moderate growth and low volatility, the risks we’re monitoring include the potential for higher inflation and more central bank tightening than expected.

Finally, the markets continue to eye the tax reform reconciliation process, and Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of this process and what investors should be paying attention to, in his article, Tax Reform: What Investors Should Know, while also addressing questions regarding how the potential tax overhaul may affect you as an investor in his article, Tax Reform: Frequently Asked Questions. Moreover, as you conduct your year-end tax planning, check out our latest article, Tax Reform: 11 Questions to Ask Your Advisor.

This sets the stage for tomorrow's conclusion of the Fed's two-day monetary policy meeting, which is highly expected to bring a third rate hike of this year. The accompanying updated Fed projections and subsequent final press conference by Chairwoman Janet Yellen are likely to garner the most attention as the markets try to determine the pace of rate hikes in 2018. As noted in the latest Schwab Market Perspective: The Big Picture Heading into 2018, there doesn’t appear to be any waning in the desire by the Federal Reserve to continue normalizing policy. However, with Jerome Powell taking over the Fed chair position in 2018, and several new members set to be appointed, uncertainty is elevated. Judging by the comments from Powell during his confirmation hearings, continuity and transparency are priorities; but if inflation should flare up, or growth start to lag, the Fed may be challenged early in the new regime.

Tomorrow's domestic docket will also include weekly MBA mortgage applications.

Europe mostly higher on tech rebound, Asia mostly lower ahead of central bank decisions

European equities traded mostly to the upside, with technology issues recovering from a recent bout of weakness. Energy issues led to the upside even as crude oil prices gave back some of yesterday's rally that came amid exacerbated oil and gas supply concerns following a hairline crack found in the North Sea Forties pipeline, as well as an explosion at a natural gas plant in Austria. However, weakness in consumer discretionary and telecom issues bogged down the Spanish markets. The British pound dipped versus the U.S. dollar in choppy trading as a hotter-than-expected read on U.K. consumer price inflation was countered by festering Brexit uncertainty. The euro was lower compared to the greenback after a mixed read on German investor confidence as the current situation unexpectedly improved for this month but the expectations component declined more than expected. Bond yields in the region moved higher. The markets awaited tomorrow's Fed monetary policy decision in the U.S., which will be followed by Thursday's decisions by the European Central Bank and the Bank of England. Also, U.S. tax reform continued to be a source of market focus as the reconciliation process rolls on.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his, 2018 Global Market Outlook: Three Actions to Take for the Year Ahead, in which he says stay invested: for 2018 global stock market gains that could potentially be in the double-digits, and go global: as international stocks may outperform U.S. stocks in 2018. Finally, Jeff says rebalance: with rebalancing back to target allocations important as 2018 gains in stocks may result in a higher risk asset allocation ahead of a potential recession and bear market.

Stocks in Asia finished mostly to the downside, with the markets treading cautiously ahead of tomorrow's Fed monetary policy decision, which is highly expected to deliver a rate hike, and will be followed by decisions from the European Central Bank and Bank of England. The U.S. tax reform reconciliation process continues to garner attention, while a rise in crude oil prices offered support to the energy sector. Japanese equities declined, with the yen paring some of yesterday's gains, and South Korean shares declined. Stocks trading in mainland China and Hong Kong finished lower despite late yesterday's stronger-than-expected November lending statistics, with insurers leading to the downside. Indian equities dropped, while Australian securities gained ground, with energy issues moving higher. The broadest economic growth in a decade has underpinned this year's global market rally, and is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, in his article, 5 Reasons Investors Should Give Thanks.

The international economic calendar for tomorrow will yield consumer confidence from Australia, the unemployment rate from South Korea, employment data from the U.K., wholesale prices and CPI from Germany and industrial production from Italy and the Eurozoone.

Tech Assistance Boosts Gains

2017-12-11T19:54:00.000-07:00

Charles Schwab: On the Market

Posted: 12/11/2017 4:15 PM EST

Tech Assistance Boosts Gains

U.S. stocks began the week modestly higher with gains led by the technology sector, while healthcare shares advanced amid a flood of reports from the annual Meeting of the American Society of Hematology. Market participants appeared to exercise a cautious approach as legislators continue to grapple with reconciling the Senate and House tax reform bills. Treasury yields ticked higher ahead of this week's Fed monetary policy decision. Crude oil prices gained ground, gold ticked lower and the U.S. dollar was nearly unchanged.

The Dow Jones Industrial Average (DJIA) increased 57 points (0.2%) to 24,386, the S&P 500 Index was 8 points (0.3%) higher at 2,660, and the Nasdaq Composite advanced 35 points (0.5%) to 6,875. In moderate volume, 782 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.63 to $57.99 per barrel and wholesale gasoline gained $0.01 to $1.73 per gallon. Elsewhere, the Bloomberg gold spot price moved $5.80 lower to $1,242.69 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 93.94.

Mattel Inc. (MAT $15) announced bond offerings totaling $1 billion, and it intends to use the proceeds to refinance debt coming due next year and repay all outstanding borrowings related to its commercial paper program. The toy company also warned that it anticipates Q4 sales to continue to be negatively impacted by key retail partners moving toward tighter inventory management and certain underperforming brands. Shares traded higher.

At the annual Meeting of the American Society of Hematology (ASH), Juno Therapeutics Inc. (JUNO $50) and Celgene Corp. (CELG $108) announced mixed results from a trial of their treatment for a type of non-Hodgkin lymphoma. However, Celgene also announced upbeat results of a study of its myeloma treatment with partner Bluebird Bio Inc. (BLUE $202). JUNO fell, while CELG traded higher and BLUE rallied. Dow member Merck & Co. Inc. (MRK $56) gained ground after it announced at the ASH meeting that the FDA assigned priority review for its treatment for large B-cell lymphoma known as Keytruda.

Job openings dip to kick off busy week

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, came in at a level of 6.0 million jobs available to be filled in October, down from the upwardly revised 6.2 million level in September. This compared to the Bloomberg forecast calling for a 6.1 million level. The hiring rate rose to 3.8% from September's 3.6% pace, and the separation rate dipped to 3.5% from the prior month's 3.6% rate.

Treasuries finished lower, with the yield on the 2-year note rising 2 basis points (bps) to 1.82%, while the yields on the 10-year note and the 30-year bond gained 1 bp to 2.39% and 2.77%, respectively.
Treasury yields ticked higher and the U.S. dollar gave back some of last week's gain, with U.S. tax reform remaining a key focus for the markets, as the House and Senate try to reconcile their bills with a goal of trying to get one bill on President Donald Trump's desk for a signature by the end of the year.

Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of this process and what investors should be paying attention to, in his article, Tax Reform: What Investors Should Know, while also addressing questions regarding how the potential tax overhaul may affect you as an investor in his article, Tax Reform: Frequently Asked Questions. Moreover, as you conduct your year-end tax planning, check out our latest article, Tax Reform: 11 Questions to Ask Your Advisor.

However, this week fiscal policy focus will share the spotlight with monetary policy as the Federal Open Market Committee (FOMC) is highly expected to conclude its Wednesday meeting with a 25 bps increase to its target fed funds rate to 1.50%. The accompanying updated FOMC projections and Chairwoman Janet Yellen's final press conference shortly after the decision will likely garner the most attention as the markets try to gauge the pace of rate hikes in 2018. The Fed's meeting will be followed by monetary policy decisions from the European Central Bank (ECB) and Bank of England (BoE) on Thursday. Other economic releases this week include: the Consumer Price Index (CPI), retail sales, Markit's business activity reports, and industrial production and capacity utilization.

As noted in the latest Schwab Market Perspective: The Big Picture Heading into 2018, a better-than-expected 2017 appears to be morphing into a solid start to 2018, but it is unlikely to be as smooth a ride. We believe the bull market still has room to run but it could shape up to be a bumpier ride as expectations and sentiment are elevated. For detailed market analysis heading into the New Year, check out our 2018 Schwab Market Outlook: Executive Summary.

Tomorrow, the U.S. economic calendar will include the National Federation of Independent Business (NFIB) Small Business Optimism Index, forecasted to move higher to a level of 104.0 during November from the 103.8 posted the month prior, followed by the first look at inflation readings in the form of the Producer Price Index (PPI), with economists anticipating a 0.3% month-over-month (m/m) increase for November, while the core rate, which excludes food and energy, expected to have gained 0.2%.

Europe mixed amid political focus, Asia mostly higher

European equities finished mixed, with the euro higher versus the U.S. dollar and technology issues remaining under pressure, while the markets likely treaded cautiously ahead of monetary policy decisions this week from the Fed, ECB and BoE. Politics also garnered attention as the U.S. tax reform reconciliation process continues and traders look to see if U.K. Brexit talks will move to the next stage after late last week's agreement that appeared to break the negotiation impasse between the U.K. and European Union. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, European equities finished mixed, with the euro higher versus the U.S. dollar and technology issues remaining under pressure, while the markets likely treaded cautiously ahead of monetary policy decisions this week from the Fed, ECB and BoE. Politics also garnered attention as the U.S. tax reform reconciliation process continues and traders look to see if U.K. Brexit talks will move to the next stage after late last week's agreement that appeared to break the negotiation impasse between the U.K. and European Union. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans. The British pound was lower versus the U.S. dollar and bond yields in the region moved mostly to the downside.

Stocks in Asia finished higher on the heels of the gains in the U.S. on Friday, with a relatively favorable labor report bolstering global economic optimism, while the markets kept an eye on the U.S. tax reform reconciliation process. Also, looming monetary policy decisions this week out of the U.S., eurozone and U.K. are in focus, along with a host of economic data in the region, commencing with inflation figures out of China that showed wholesale inflation rose in line with forecasts, but consumer inflation came in slightly cooler than expected. After the closing bell, China reported lending statistics for November that came in above forecasts. The global stock markets remain nicely higher for the year, bolstered by the broadest economic growth in a decade, which is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, discusses in his article, 5 Reasons Investors Should Give Thanks. Japanese equities advanced with the yen's recent weakness aiding the markets, while stocks trading in mainland China and Hong Kong gained solid ground. Australian and South Korean securities ticked higher, while Indian shares also advanced.

The international economic docket for tomorrow will yield PPI and the Tertiary Industry Index from Japan, export and import prices from South Korea, house prices from Australia and CPI and industrial production from India. Reports from across the pond will include CPI and PPI from the U.K., total payrolls from France and the Zew Economic Sentiment Survey from Germany.

November 2017 Jobs Report

2017-12-08T17:04:00.001-07:00

Financial Review

November 2017 Jobs Report

Sinclair Noe — December 8, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: Android | RSS

DOW + 117 = 24,329
SPX + 14 = 2651
NAS + 27 = 6840
RUT + 1 = 1521
10 Y + .01 = 2.38%
OIL + .67 = 57.36
GOLD + .90 = 1248.70

Cryptocurrency

Number of Currencies: 1,364
Total Market Cap: $441,929,662,542
Volume (24h): $35,290,508,598

Top Cryptocurrencies

Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
Bitcoin	BTC	15,990.0	$276.87B	$21.19B	60.04%	1	-3.69%	+51.10%
Ethereum	ETH	442.86	$43.91B	$2.35B	6.66%	0.0282401	+6.71%	-2.23%
Bitcoin Cash	BCH	1,390.00	$24.71B	$2.56B	7.26%	0.0906245	+12.80%	+0.18%
IOTA	MIOTA	4.87100	$13.84B	$910.05M	2.58%	0.00030818	+18.80%	+254.38%
Ripple	XRP	0.23333	$9.79B	$661.69M	1.87%	0.00001563	+14.89%	-1.52%
Litecoin	LTC	127.820	$6.82B	$1.52B	4.30%	0.00778303	+30.51%	+27.24%
NEM	XEM	0.63875	$5.87B	$252.16M	0.71%	0.00004038	+126.04%	+171.44%
Dash	DASH	702.00	$5.63B	$288.67M	0.82%	0.0450115	+5.92%	-8.31%
Bitcoin Gold	BTG	238.58	$4.36B	$179.46M	0.51%	0.0161369	+11.23%	-15.69%
Monero	XMR	260.48	$4.26B	$200.65M	0.57%	0.0170735	+0.27%	+44.91%

The economy added 228,000 new jobs in November, beating expectations for about 200,000. The unemployment rate was unchanged at 4.1%, a 17-year low.

October job gains were revised lower, to 244,000 from 261,000. The increase in jobs in September was raised to 38,000 from 18,000. Hurricane damage skewed the past two employment reports, with the storms temporarily pushing hundreds of thousands of workers, particularly in the service sector, out of their jobs.

They largely flocked back in October, accounting for much of the month’s larger-than-usual job growth. Payrolls for September and October were revised up by a combined 3 thousand. Accounting for these revisions, job gains have averaged 170,000 over the last three months.

In the first 10 months of the Trump administration the economy has added 1.7 million jobs. In the last 10 months of the Obama administration, the economy added 1.85 million jobs. For the full year of 2016, the economy added 2.24 million jobs.

The United States has now added jobs for 86 consecutive months — a downward blip in September was later revised to show a small gain — and the unemployment rate is lower than it ever got during the last boom, which ended when the housing bubble burst.

Job growth has gradually slowed since 2014, when the American economy added close to three million jobs. But hiring remains remarkably steady. Employers are on track to add about two million jobs in 2017, a solid pace 8 years into an economic expansion.

What we haven’t seen is a substantial increase in wage growth. Worker pay rose 5 cents, or 0.2%, to an average of $26.55 an hour. The yearly increase in hourly pay moved up to 2.5% from 2.3%; this means that over the past year, average hourly earnings have risen by 64 cents; an improvement but still tepid wage growth.

The increase in average hourly earnings is barely enough to keep up with inflation. The average workweek for all employees increased by 0.1 hour to 34.5 hours in November. So, wages didn’t really go up, workers just worked a little longer.

The Labor Force Participation Rate was unchanged in November at 62.7%. This is the percentage of the working age population in the labor force. So, while the labor market is strong, it was not strong enough to pull workers off the sidelines. Or perhaps more significantly, companies were not offering enough in wages to pull workers off the sidelines.

The unemployment rate is approaching the level many economists consider “full employment” — the point at which essentially everyone who wants a job can find one. But the unemployment rate may not fully reflect the number of available workers. Many employers are starting to complain about the lack of available workers – but we still do not see a big move in wage increases.

If workers are so hard to find, why aren’t companies raising pay? The simple answer is that there are plenty of people who still want a job, they just might not be an employers’ ideal candidate. We need to train workers or pay up for trained workers.

The U-6 unemployment rate ticked up to 8% from 7.9% in October. The headline unemployment rate or U-3 is at 4.1%. The U-6 includes the unemployed plus people who are marginally attached to the labor force or working part time for economic reasons. Year-over-year, however, the 8% rate marks an improvement; in November 2016, the figure stood at 9%.

The health care sector added 30,000 jobs. This has been one of the fastest growing sectors in the labor market, but not all those jobs offer good wages. The home health aide industry, paying workers about $22,000 per year, will produce an estimated 425,600 positions by 2026.

Education gained 24,000. Professional and business services added 46,000.

Manufacturing gained 31,000 and a total of 189,000 jobs over the past 12 months. What’s more, manufacturers have now added just over 1 million new jobs since industry employment fell to a post-World War II low of 11.45 million in early 2010. These companies now employ 12.5 million Americans.

Construction added 24,000 in November and a total of 132,000 for the 12 months. Leisure and hospitality up 14,000. Transportation gained 10,000. Financial activities 8,000. And government added 7,000 new jobs.

Retail gained over 18,000 jobs. Many of the jobs in retail are seasonal. Retailers hired 595,000 workers in October and November, this is up from just over 509,000 for the same period last year, and about the same level as the previous four years. This is a good indicator for holiday shopping sales.

The holiday shopping season had a strong kick-off to the year. Sales got off to a great start on Black Friday weekend, and a massive shift toward online shopping has sent shippers scrambling to catch up. Packages are taking longer to arrive, and it might get worse.

One caveat: Gasoline prices usually don’t rise in November, but this time they did. That will make retail sales look even better, even though it puts a dent into the finances of consumers.

In a separate report today, the University of Michigan consumer sentiment index dipped to a 3-month low of 96.8. Consumers are by and large upbeat. They’re expecting higher income, and higher inflation as well.

So long as the job market is strong — and the latest report from the Labor Department was — the economy should be in pretty good shape. Consumer expectations fell, while consumers said the current situation improved. The economy seems good now, but we are concerned it will get worse.

Policymakers at the Federal Reserve have sent clear signals that they plan to raise the benchmark interest rate at their meeting next week. It would probably have taken a nearly catastrophic jobs report to change that — and today’s report was a little better than expected.

If the economy continues to add jobs at the current rate, it probably means more rate hikes in 2018 – and especially if wages start to rise more quickly — Fed officials could feel pressure to raise rates faster to head off inflation.

There are also political implications to be drawn from the labor market. At the heart of the Republican tax plan hurtling through Congress is an implicit promise that cutting corporate taxes will lift the middle class through higher wages and more jobs.

Speaker Paul Ryan, for example, said in a recent speech that “fixing the business side of our tax code is really all about helping families and workers,” adding that “cutting the corporate tax rate means more jobs here in the United States. It will foster increased competition, which will directly drive up wages for our workers.”

Yet few American companies have offered specific plans that support those promises. The lack of pledges to create jobs has not been lost on Trump’s top economic adviser, Gary Cohn. At a recent Wall Street Journal conference, Cohn asked his audience of chief executives how many of them would invest more if the tax cut were passed.

When only a few attendees raised their hands, Cohn asked: “Why aren’t the other hands up?”

A few companies say they plan to hire if tax cuts are passed, but most will be looking at share buybacks, increased dividends, or just hoarding the cash. This highlights a critical question over who would benefit the most from the tax bill: shareholders or workers?

The promise of the administration is that a tax overhaul will result in faster economic growth, which will lead to more investment and will eventually trickle down in the form of higher wages. And there is near unanimous consensus among economists that the tax bill will not grow the economy.

Wage growth has remained relatively sluggish over the past several years, even as corporate profits hover near all-time highs as a share of the economy, and the unemployment rate continues to fall to levels that economists normally associate with rapid increases in worker pay. Corporate profit rates have been historically high since 2007, while business investment has been historically low, and that hasn’t been enough to spark meaningful gains in wages.

Productivity growth remains low, inching up at an average annual rate of 1.2 percent over the last eight years, compared with its historic rate of 2.1 percent from 1974 to 2017. There is a strong chance that business could invest in equipment to improve productivity, rather than investing in workers’ wages.

It is possible that a tax cut could increase wages even if companies do not intend it to, but that could just be because there is less slack in the labor market, where unemployment is hovering just above 4 percent.

Frankly it’s time to give up the charade that eliminating estate taxes for Ivanka Trump and her brothers or creating a lower “pass-through” rate for President Trump’s maze of LLC’s is going to boost the economy in the way we now need. We have jobs; we need higher skilled workers and other elements to make workers richer.

What would spur productivity and in turn raise wages? Invest in infrastructure, move capable workers to where the jobs are, get the best and the brightest people from around the world to immigrate here, invest in R & D, improve schools (for all the education “reform,” American students still trail their foreign peers in math) and create a path for teaching high-skill trades outside the four-year college system.

Stocks Extend Recent Gains

2017-12-08T16:45:00.001-07:00

Charles Schwab: On the Market

Posted: 12/8/2017 4:15 PM EST

Stocks Extend Recent Gains

U.S. stocks advanced during the regular trading session to extend recent gains and finish the week mostly higher. The advance for equities was aided by a relatively upbeat read on the domestic labor market which followed favorable economic reports out of China and Japan. Treasury yields were mixed and the U.S. dollar was higher, while gold was little changed and crude oil prices rallied.

The Dow Jones Industrial Average (DJIA) increased 119 points (0.5%) to 24,329, the S&P 500 Index was 15 points (0.6%) higher at 2,651, and the Nasdaq Composite advanced 27 points (0.4%) to 6,840. In moderate volume, 740 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.67 to $57.36 per barrel and wholesale gasoline gained $0.02 to $1.72 per gallon. Elsewhere, the Bloomberg gold spot price moved $0.71 higher to $1,247.93 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.90. Markets were mixed for the week, as the DJIA and the S&P 500 Index increased 0.4% and the Nasdaq Composite declined 0.1%.

United Continental Holdings Inc. (UAL $64) increased its Q4 passenger revenue outlook after reporting a 5.1% increase in November traffic, and it announced a new $3 billion share repurchase program. Shares traded higher.

Western Digital Corp. (WDC $81) is gained solid ground amid media reports that the company and Toshiba Corp. (TOSYY $16) have reached a deal in principle to settle their chip dispute and could announce a formal agreement next week. Neither company commented on the report.

Cooper Companies Inc. (COO $227) reported fiscal Q4 earnings-per-share (EPS) of $1.78, or $2.65 ex-items, versus the $2.64 FactSet estimate, with revenues rising 8.0% year-over-year (y/y) to $562 million, above the projected $559 million. The medical device company issued 2018 EPS guidance that had a midpoint below expectations. Shares finished solidly lower.

November labor report shows job growth tops forecasts, consumer sentiment slips

Nonfarm payrolls (chart) rose by 228,000 jobs month-over-month (m/m) in November, compared to the Bloomberg forecast of a 195,000 increase. The rise of 261,000 seen in October was revised to a gain of 244,000 jobs. The total upward revision to the job gains in October and September was 3,000.

Excluding government hiring and firing, private sector payrolls increased by 221,000, versus the forecasted gain of 195,000, after rising by 247,000 in October, revised from the 252,000 increase that was initially reported. The Department of Labor said employment continued to trend up in professional and business services, manufacturing and healthcare.

The unemployment rate remained at 4.1%, matching estimates, while average hourly earnings were up 0.2% m/m, below projections of a 0.3% increase and versus October's downwardly revised 0.1% decrease. Y/Y, wage gains were 2.5% higher, versus estimates of a 2.7% increase and October's downwardly revised 2.3% rise. Finally, average weekly hours ticked higher to 34.5 from October's unrevised 34.4 rate, where it was forecasted to remain.

Rate hike expectations for when the Fed concludes its meeting next week remained elevated following the relatively favorable employment report but the softer-than-expected wage growth and downward revision to the prior month may have caused some uncertainty regarding the pace of rate hikes in 2018. As we head toward the New Year, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers a look at the key issues to watch in his latest, Schwab Sector Views: 18 Thoughts Heading into '18, pointing out that business optimism is elevated, which could bolster already rising capital investments. This could help support a continuation of the strong labor market.
Schwab's Chief Investment Strategist Liz Ann Sonders points out that capital spending (capex) is likely to be an economic highlight in 2018 and coupled with the continued rebound in productivity is good news for wages in her articles, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle and One Thing Leads to Another: Productivity's Rebound.

The preliminary University of Michigan Consumer Sentiment Index (chart) declined to 96.8 in December, from 98.5 in November, and compared to expectations of an improvement to 99.0. The current economic conditions component of the survey improved but was more than offset by a decline in the expectations part of the report. The 1-year inflation forecast rose to 2.8% from November's 2.5% rate, while the 5-10 year inflation outlook ticked higher to 2.5% from the prior month's level of 2.4%.

Wholesale inventories (chart) were revised lower to a 0.5% m/m decline for October from the preliminary estimate of a 0.4% decrease, where it was forecasted to remain and compared to September's 0.1% gain. Sales grew 0.7% m/m, compared to forecasts of a 0.3% increase and September's upwardly revised 1.4% rise. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—dipped to a 1.25 months pace from September's 1.26 rate.

Treasuries finished mixed, with the yield on the 2-year note dipping 1 basis point (bp) to 1.79%, the yield on the 10-year note remaining at 2.37%, and the 30-year bond rate increasing 1 bp to 2.76%.

The U.S. dollar is extended its weekly gain and Treasury yields are diverged on the heels of the employment data, which followed favorable Chinese trade and Japanese GDP figures. Moreover, the markets cheered a breakthrough in the U.K. Brexit impasse, and a short-term government funding bill late yesterday that should help avoid a U.S. government shutdown this weekend. However, tax reform continues to be a main focus for the markets as the House and Senate grapple with reconciling key differences in their bills.

Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of the reconciliation process and what investors should be paying attention to, in his article, Tax Reform: What Investors Should Know.

If you have questions regarding how the potential tax overhaul may affect you as an investor, see Hayden's Tax Reform: Frequently Asked Questions.

Europe and Asia higher

European equity markets moved higher, with the markets cheering upbeat economic reports out of the U.S., China and Japan, which overshadowed an unexpected drop in German exports and mixed industrial and manufacturing production figures in the region. Financials led the way, bolstered by a long-awaited deal by regulators to complete the final batch of post-crisis capital rules, which offered clarity for the industry. The U.K. and European Union (EU) reached a deal on three key issues, including the Irish border, that paves the way to break the Brexit negotiation deadlock and likely leads to talks moving to the next phase ahead of next week's EU summit. However, the next stage would revolve around trade and headlines suggested this could be a lengthy process in getting an agreement, which appeared to weigh on the British pound versus the U.S. dollar. The Brexit breakthrough joined the agreement in the U.S. on a short-term government spending bill that likely avoids a near-term shutdown, though the markets continued to eye the U.S. tax reform reconciliation process.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans. The euro dipped versus the greenback and bond yields in the region finished mixed.

Stocks in Asia finished higher as the U.S. markets rose to break a string of sluggishness, while economic reports in the region fostered some optimism. Japan's Q3 GDP was revised to a 2.5% quarter-over-quarter annualized pace of growth, from the preliminary estimate of a 1.4% rise, and versus expectations of an adjustment to a 1.5% rate of expansion. China's November exports and imports rose much more than expected resulting in an unexpected widening of the nation's trade surplus. The yen lost ground for a second day amid some rejuvenated global economic optimism, helping lift Japanese share prices. Stocks trading in mainland China and Hong Kong advanced, while securities trading in Australia and India also gained ground and South Korean equities ticked to the upside. The markets rebounded after a recent stumble and Schwab's Jeffrey Kleintop, CFA, and Randy Frederick, discuss in the video, It's All Relative: Why Stocks May Not Be Overvalued.

Stocks nudge higher on week as tech rebounds and tax reform moves closer

U.S. stocks finished the week modestly higher with economic data continuing to paint a positive global backdrop, while the weekend passage of the Senate's tax reform bill fostered optimism that the most sweeping overhaul effort in decades was moving closer to President Donald Trump's desk. Moreover, the tech sector rollover that had pressured the markets as of late, reversed to the upside as the week matured to help nudge the markets into positive territory and the Nasdaq mostly recover early losses. Energy stocks lagged behind as crude oil prices moved to the downside. The U.S. dollar moved noticeably higher and Treasury yields ticked to the upside in choppy trading with political uncertainty in Europe also garnering attention.

Next week, fiscal policy focus will share the spotlight with monetary policy as the Federal Open Market Committee (FOMC) is highly expected to conclude its Wednesday meeting with a 25 bps increase to its target fed funds rate to 1.50% (economic calendar). However, the accompanying updated FOMC projections and Chairwoman Janet Yellen's final press conference shortly after the decision will likely garner the most attention as the markets try to gauge the pace of rate hikes in 2018. The decision will also be joined by releases next week including: JOLTS Job Openings report, the NFIB Small Business Optimism Index, the Consumer Price Index (CPI), the Producer Price Index (PPI), retail sales, Markit's business activity reports, and industrial production and capacity utilization.

As noted in the latest Schwab Market Perspective: The Big Picture Heading into 2018, a better-than-expected 2017 appears to be morphing into a solid start to 2018, but it is unlikely to be as smooth a ride. We believe the bull market still has room to run but it could shape up to be a bumpier ride as expectations and sentiment are elevated. U.S. economic growth appears to be picking up, but with the Federal Reserve tightening policy and inflation likely to heat up, we appear to be in the latter stages of the cycle. Global markets are also poised to have an unprecedented year of performance; which is unlikely to be repeated, but conditions around the world still look largely supportive of further gains.

International reports due out next week to look out for include: Australia—employment change. China—CPI and PPI, lending statistics, retail sales, and industrial production. India—CPI, industrial production, and trade balance. Japan—machine orders, industrial production and capacity utilization, and the Q4 Tankan Large Manufacturing Index. Eurozone—European Central Bank monetary policy decision, industrial production, Markit's business activity reports, and the trade balance, along with German investor sentiment and CPI. U.K.—the Bank of England monetary policy decision, CPI, employment change, and retail sales.

Ultra Violet

2017-12-07T20:42:00.002-07:00

Financial Review

Ultra Violet

Sinclair Noe — December 7, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: Android | RSS

DOW + 70 = 24,211
SPX + 7 = 2636
NAS + 36 = 6812
RUT + 11 = 1520
10 Y + .05 = 2.38%
OIL+ .66 = 56.62
GOLD – 16.00 = 1247.80

Cryptocurrency

Number of Currencies: 1,364
Total Market Cap: $443,799,771,860
Volume (24h): $29,879,496,699

Top Cryptocurrencies

Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
Bitcoin	BTC	16,012.0	$290.56B	$17.67B	59.15%	1	-3.56%	+74.30%
Ethereum	ETH	413.58	$41.34B	$2.10B	7.02%	0.0250542	-0.34%	-1.99%
Bitcoin Cash	BCH	1,378.80	$26.18B	$1.55B	5.20%	0.0906213	+11.89%	+15.99%
IOTA	MIOTA	3.71990	$10.57B	$1.14B	3.80%	0.00022174	-9.27%	+196.54%
Ripple	XRP	0.23500	$10.09B	$553.84M	1.85%	0.00001519	+15.71%	+6.01%
Dash	DASH	660.52	$5.36B	$242.77M	0.81%	0.0403684	-0.34%	-11.54%
Litecoin	LTC	97.110	$5.31B	$644.07M	2.16%	0.00571542	-0.85%	+13.95%
Bitcoin Gold	BTG	238.73	$4.52B	$146.44M	0.49%	0.0157946	+11.30%	-7.79%
Monero	XMR	251.29	$4.32B	$281.56M	0.94%	0.0163026	-3.27%	+59.69%
Cardano	ADA	0.112903	$2.98B	$64.74M	0.22%	0.0000067	+1.62%	-1.36%

Stocks closed higher. The S&P 500 snapped a 4-day losing streak. Tech stocks made something of a comeback after taking a battering earlier this week. From Friday through Tuesday, the Nasdaq fell 1.6%, with analysts largely blaming the drop on profit-taking after a big rally and on concerns about how the U.S. tax overhaul will impact the tech sector. Whatever rotation away from tech happened in the past few days, it was minor.

Hamas urged Palestinians to abandon peace efforts and launch a new uprising against Israel in response to Trump’s recognition of Jerusalem as the Israeli capital. Palestinian factions called for a “Day of Rage” on Friday, and today a wave of protest in the West Bank and Gaza brought clashes between Palestinians and Israeli troops.

Sen. Al Franken said he will resign in the coming weeks, in a speech on the Senate floor that put him face to face with dozens of Democratic colleagues who called for him to step down over mounting allegations of sexual misconduct.

General Electric plans to cut 12,000 jobs in its power division as the new CEO institutes sweeping changes and the company grapples with a decline in business for coal and natural gas products. The company will cut nearly one in five positions in its GE Power unit. Overall, the layoffs equal about 4% of the company’s workforce of about 295,000 employees at the end of 2016.

New CEO John Flannery is aiming to make GE more efficient. He has already earned a reputation for taking a microscope to GE’s global business to identify opportunities for savings and changes. GE said the cuts would contribute to its plans to slash $3.5 billion in “structural costs” in 2017 and 2018. That includes a $1 billion cost-cutting plan in 2018 by the GE Power division, which makes gas and steam turbines, electrical transmission products, nuclear plant infrastructure and other items.

Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 236,000 for the week ended Dec. 2. Last week marked the 144th straight week that claims remained below the 300,000 threshold, which is associated with a strong labor market. That is the longest such stretch since 1970, when the labor market was smaller.

This only tells part of the story about the strength of the economy. Yes, the unemployment rate is at 4.1%, a level considered near full employment. But many workers who leave or lose a job are not eligible for unemployment benefits. That is why the claims number has been so low for so long.

The bitcoin boom continued today, zipping past $17,000. Since its low of $11,450 on Tuesday to its peak Thursday, Bitcoin has rallied 45% in a roughly 48-hour span. Bitcoin soared above $19,500 a coin on Coinbase’s GDAX exchange at about 11:30 a.m. ET, three hours after it blew past $16,000.

The massive tear upward seems to have put pressure on Coinbase’s infrastructure — the exchange said on Twitter that users were experiencing issues logging into their accounts because of record traffic. Other exchanges had other prices. Pick one and wish.

If you placed a wager on bitcoin, congratulations. Don’t forget to cash in. If you didn’t put money in bitcoin and you are starting to feel tempted, just remember that you probably didn’t win the lottery this week either. So, what?

The only thing hotter than bitcoin is inflation in Venezuela, now running at 1,369 percent between January and November. The Venezuelan central bank reported inflation of 180 percent and 240 percent in 2015 and 2016, which had been the highest on record. It has since then stopped providing figures.

S&P Global analysts said a partial government shutdown would cost the economy about $6.5 billion per week, or about 0.2 percent of gross domestic product growth in the fourth quarter of 2017, as the impact of furloughing federal employees ripples across the country.

Lawmakers have until the end of Friday to reach an agreement to avert the shutdown. The House is slated to vote Thursday on a short-term extension to keep the government going a couple of more weeks while lawmakers try to work out the problems.

If a shutdown were to take place so far into the quarter, fourth-quarter GDP would not have time to bounce back, which could shake investors and consumers and, as a result, possibly snuff out any economic momentum. The bad news, is that even in a partial shutdown, Congress would continue to get paid for taking a holiday recess.

A faction of conservative Republicans is raising warnings about federal spending, two weeks after backing tax-cut legislation that would raise federal deficits by $1 trillion over the next decade. They say that compromises struck with moderate Senate Republicans, as well as negotiations to keep Democrats from filibustering spending bills, will contain measures that increase government spending.

As Congress turns attention to funding the government after months devoted to passing the tax cut package, some of the lawmakers who dismissed Congress’s own analysis that the tax cuts would add deficits are raising alarms about spending.

That may threaten some of the deals Senate Republican leaders cut to secure votes for the tax plan, including heading off cuts to Medicaid and legislation to stabilize Obamacare insurance markets. Killing your parents and then complaining about being an orphan.

Wildfires in Los Angeles have burned more than 120,000 acres, and it will get worse. Schools are closed, roadways are shut and nearly 200,000 people have been told to evacuate their homes. Winds were strengthening on Thursday, with warnings that gusts of 80 miles per hour. The high winds will continue at least through tomorrow.

Brush fires broke out this morning in Malibu, Oxnard and Huntington Beach; that in addition to the fires burning, basically out of control in Sylmar, Santa Clarita, Bel-Air and Ventura.

The Federal Reserve reports net worth of households and nonprofits hit a record of $96.9 trillion after a $1.74 trillion increase, or 1.8%, gain in the third quarter. Total debt grew at the fastest rate in nearly two years, 6.2% annualized, after the federal government was allowed to borrow again following the end of a debt-limit impasse. The stock market rally continued in the third quarter, and that $1.1 trillion gain was the big driver of the gain in net worth. Rising house prices added another $400 billion.

On the borrowing front, the story continued to be the rise in corporate debt, rising 6.4% annualized, as well as the continued auto- and student-loan driven rise in consumer credit, which rose 4.9% annualized. Cash on corporate balance sheets rose to $2.36 trillion from $2.29 trillion. So, tax cuts.

Goggle and Amazon are fighting. Google on Tuesday said it would pull its YouTube apps from Amazon’s Fire TV and Alexa-powered Echo Show starting next month. Why? Google pointed a finger at Amazon, which hasn’t been selling some products from Google and Nest, which is also owned by Google’s parent company.

Amazon also doesn’t allow Google products to have access to its Prime Video streaming service. These kinds of conflicts can be confusing for consumers who probably just want to watch the things they like on the devices they’ve bought. It’s childish that companies as big as Amazon and Google can’t work out a deal that makes sense for both, thereby helping the industry to grow and, instead, let consumers and content owners suffer.

Meanwhile, another long-standing streaming media tiff is getting (somewhat) resolved. As of Wednesday, Apple TV owners are finally able to add Amazon’s Prime Video to their devices — about six months after Apple chief executive Tim Cook promised the service was on its way. The two companies reportedly had trouble negotiating while wearing the hats of both partners and competitors.

With the holiday shopping season approaching and bankruptcy proceedings underway in federal court, Toys R Us just received court approval to pay 17 executives about $14 million in incentive bonuses, as long as the company hits its target of $550 million in earnings. It must hit a minimum of $484 million in adjusted earnings before any bonuses are awarded.

Attorneys for the company argued in court papers that the bonuses would help encourage executives to focus on driving up sales as the holidays approach. Because if they don’t get bonuses, they might not do a good job?

The national student loan debt is currently $1.4 trillion, an amount owed by more than 44 million borrowers. The average student loan borrower owes $27,857 in educational debt upon graduation.

The Student Loan Report polled 1,000 student loan borrowers currently in repayment to find out if they would rather receive a gift or an equally-valued student loan payment this holiday season, and 69% said they would like the money to go toward paying down the student loan debt. Just trying to help you work through your shopping list.

Wildfires torching California, sexual-harassment scandals toppling powerful men and a splintered political landscape — and that’s only a trickle of the headlines. It’s the sludge of earthbound news that has Pantone, the design world’s arbiter of color, looking to the night sky and the future for its 2018 color of the year.

Ultra Violet 18-3383, it is — a dramatically provocative and thoughtful shade. Pantone says the hue, a blue-based purple, expresses “originality, ingenuity and visionary thinking that points us toward the future.” Apparently this is an annual event.

Stocks Advance Ahead of Jobs Report

2017-12-07T20:23:00.001-07:00

Charles Schwab: On the Market

Posted: 12/7/2017 4:15 PM EST

Stocks Advance Ahead of Jobs Report

U.S. stocks traded higher with technology shares leading the advance on the heels of some upbeat results and guidance from Broadcom. Crude oil prices rose solidly and Treasury yields were mostly higher, while gold was lower and the U.S. dollar ticked to the upside to add to its recent gains. Market participants continued to assess the tax reform landscape amid the reconciliation process. Tomorrow, the morning release of the November labor report will likely garner much attention.

The Dow Jones Industrial Average (DJIA) increased 71 points (0.3%) to 24,211, the S&P 500 Index was 8 points (0.3%) higher at 2,637, and the Nasdaq Composite advanced 36 points (0.5%) to 6,813. In moderate volume, 824 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.73 to $56.69 per barrel and wholesale gasoline gained $0.04 to $1.70 per gallon. Elsewhere, the Bloomberg gold spot price moved $15.54 lower to $1,247.83 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% higher at 93.74.

Broadcom Limited (AVGO $264) reported fiscal Q4 earnings-per-share (EPS) of $1.50, or $4.59 ex-items, versus the $4.52 FactSet estimate, as revenues rose 17.0% year-over-year (y/y) to $4.9 billion, above the projected $4.8 billion. The chipmaker issued Q1 revenue guidance that had a midpoint above expectations. The company also announced a 72% increase to its quarterly dividend to $1.75 per share. Shares finished flat after initially trading higher.

Dollar General Corp. (DG $93) posted Q3 EPS of $0.93, versus the estimated $0.94, as revenues increased 11.0% y/y to $5.9 billion, topping the projected $5.8 billion. Q3 same-store sales grew 4.3% y/y, exceeding the forecasted 2.7% gain. DG narrowed its full-year earnings outlook, while increasing its sales guidance. Shares gained ground.

Dow member General Electric Co. (GE $18) announced that its GE Power group plans to reduce its global headcount by about 12,000 positions as part of its effort to reduce overall structural costs. GE traded to the upside.

Lululemon Athletica Inc. (LULU $72) announced Q3 EPS of $0.43, or $0.56 ex-items, versus the projected $0.52, with revenues rising 14.0% y/y to $619 million, north of the expected $610 million. Q3 same-store sales grew 8.0% y/y, above the estimated 5.3% gain. The company's gross and operating margins topped forecasts. LULU issued Q4 guidance that topped forecasts, while it raised its full-year outlook. Separately, the company authorized the repurchase of up to $200 million in its common shares. Shares gained solid ground.

Shares of SAGE Therapeutics Inc. (SAGE $156) rallied 70% after the company announced positive results regarding a trial of its treatment for major depressive disorder.

Consumer credit tops expectations, jobless claims surprisingly decline

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $20.5 billion during October, well above the $17.0 billion forecast of economists polled by Bloomberg, while September's figure was adjusted lower to $19.2 billion from $20.8 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $12.2 billion, a 5.3% increase y/y, while revolving debt, which includes credit cards, rose by $8.3 billion, a 9.9% y/y rise.

Weekly initial jobless claims (chart) decreased by 2,000 to 236,000 last week, versus the Bloomberg forecast of 240,000, as the prior week was unrevised at 238,000. The four-week moving average dipped by 750 to 241,500, while continuing claims dropped by 52,000 to 1,908,000, south of estimates of 1,919,000.

The upbeat report comes ahead of tomorrow's November nonfarm payroll report, with jobs projected to rise by 195,000, following October's 261,000 jump (economic calendar). Private sector employment is expected to grow 198,000 on the heels of the prior month's 252,000 gain. The unemployment rate is forecasted to remain at 4.1%. However, given the importance of the consumer on U.S. economic output and the subdued inflation outlook, tomorrow's wage component of the report is likely to garner the most attention as the markets try to project the pace of Fed rate hikes in 2018 after December's highly-expected increase. Average hourly earnings are anticipated to rise 0.3% month-over-month (m/m) after being disappointingly flat in October and the y/y pace of earnings is projected to accelerate to 2.7% from 2.4%.

As we head into 2018, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers his latest, Schwab Sector Views: 18 Thoughts Heading into '18. In our view, a repeat of 2017 is unlikely, and we’re expecting more sector changes in 2018 than there were in 2017. Brad adds that the Fed will be under new management and have several new members throughout the year, and we don’t currently expect major changes in the normalization process but the new makeup could change things.

Treasuries were mostly lower, with the yield on the 2-year note dipping 1 basis point (bp) to 1.80%, while the yield on the 10-year note increased 2 bps to 2.36%, and the 30-year bond rate advanced 3 bps to 2.76%.

The U.S. dollar slightly extended its weekly gain and Treasury yields dipped. Tax reform continues to be a main focus for the markets as the House and Senate grapple with key differences in their bills with the reconciliation process expected to be highly competitive.

Schwab's Director of Tax and Financial Planning, Hayden Adams, CPA, offers analysis of some likely changes, based on what we know about the current bills, in his article, Tax Reform: What Investors Should Know, though he cautions that it's hard to be certain what might be in the final bill.
We believe it would be premature for individual investors to make changes now, given the high degree of uncertainty over any eventual new tax law, but Hayden offers his Tax Reform: Frequently Asked Questions for investors wondering how the most sweeping tax overhaul effort in decades will affect them.

Additional economic reports expected tomorrow include wholesale inventories, forecasted to have declined 0.4% m/m in October, and the preliminary University of Michigan Consumer Sentiment Index, expected to have ticked higher for December's initial result to 99.0 from November's final read of 98.5.

Europe and Asia finish mixed

European equity markets finished mixed, following some divergent economic data in the region, while conviction remained stymied by policy uncertainty as the U.S. tax reform reconciliation process looms and U.K. Brexit concerns festered. The British pound turned slightly higher versus the U.S. dollar as U.K. Prime Minister May scrambles amid heightened political pressures to try to make progress on Brexit negotiations. The U.K. and EU have reportedly agreed on the future role of the European Court of Justice in British legal cases but the Irish border issues still remains a substantial sticking point as a deadline nears for the EU to deem if negotiations have progressed enough to move on to the next stage. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans. In economic news, German industrial production unexpectedly fell in October and the Q3 eurozone GDP growth rate was revised higher to a 2.6% y/y pace, from a previous estimate of a 2.5% gain, where it was expected to remain. The euro was little changed versus the U.S. dollar and bond yields in the region traded mixed.

Stocks in Asia finished mixed, with technology issues rebounding after a recent bout of pressure, while the focus on U.S. tax reform remained and the markets appear to be continuing to assess the year's strong advance. The global rally is discussed by Schwab's Jeffrey Kleintop, CFA, and Randy Frederick, in the video, It's All Relative: Why Stocks May Not Be Overvalued. Japanese equities almost overcame yesterday's entire drop, with the yen giving back yesterday's rise. Stocks trading in Hong Kong rebounded slightly from yesterday's slide, though mainland Chinese shares declined with banks seeing some pressure after a the IMF said lenders need more capital and the government proposed liquidity-management regulations. Australian securities traded higher, led by strength in banking stocks and Indian equities gained ground on the heels of yesterday's unchanged monetary policy decision by the Reserve Bank of India. South Korean stocks declined with the tech rebound being countered by weakness in manufacturing and energy issues.

The international economic docket for tomorrow will yield reports on Q3 GDP and bank lending from Japan, home loans from Australia, the trade balance and labor costs from Germany, and construction output, industrial and manufacturing production, and the trade balance from the U.K.

Buy Rumor, Sell Fact

2017-12-06T23:28:00.001-07:00

Financial Review

Buy Rumor, Sell Fact

Sinclair Noe — December 6, 2017

Podcast: Play in new window | Download (Duration: 13:16 — 7.6MB)

Subscribe: Android | RSS

DOW – 39 = 24,140
SPX – 0.30 = 2629
NAS + 14 = 6776
RUT – 23 = 1508
10 Y – .03 = 2.33%
OIL -2 .39 = 55.97
GOLD – 3.10 = 1263.80

Cryptocurrency

Number of Currencies: 1,363
Total Market Cap: $400,621,205,618
Volume (24h): $25,564,031,467

Top Cryptocurrencies

Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
Bitcoin	BTC	14,098.0	$246.80B	$13.60B	53.20%	1	+4.43%	+42.38%
Ethereum	ETH	421.98	$42.05B	$2.06B	8.07%	0.0305786	+2.01%	-2.87%
Bitcoin Cash	BCH	1,324.10	$23.66B	$1.12B	4.39%	0.0982471	-1.41%	-0.52%
IOTA	MIOTA	3.79990	$10.53B	$1.53B	6.00%	0.00026498	-13.64%	+186.70%
Ripple	XRP	0.21570	$8.97B	$256.64M	1.00%	0.0000162	-0.55%	-7.96%
Litecoin	LTC	101.580	$5.43B	$568.94M	2.23%	0.00700528	+1.57%	+11.97%
Dash	DASH	666.00	$5.39B	$238.50M	0.93%	0.0487566	-0.39%	-7.94%
Bitcoin Gold	BTG	249.00	$4.59B	$142.49M	0.56%	0.0192738	-3.16%	-10.61%
Monero	XMR	251.50	$4.19B	$360.16M	1.41%	0.0189806	-1.12%	+47.81%
Cardano	ADA	0.112676	$3.10B	$81.50M	0.32%	0.00000837	-4.81%	+16.92% Fix

Shares of Microsoft, Facebook and Google-parent Alphabet rose more than 1 percent as the technology sector recovered from a recent selloff. Microsoft was up more than 2 percent.

For the past 9 years, the Federal Reserve’s monetary policy has been the driving force in stock price appreciation. The Fed cut interest rates to near zero and then injected monetary credits into the economy through quantitative easing.

Look at a chart of the Fed’s balance sheet and then overlap a chart of the S&P 500. The 2 charts match almost perfectly. Now the Fed has stopped investing into new asset purchases and stopped rolling over existing holding, a tapering process that will eliminate more than $1 trillion from its balance sheet, slowly and gradually.

The removal of nearly $1 trillion in asset price support in 2018 is hardly insignificant. Further, whenever there was a dip in the markets, the Fed would step in with a little extra dose of accommodation. We became so accustomed to Fed intervention that we call it a Fed “put”, which in turn made it easy for investors to buy the dip.

We don’t know if the Fed has extra tools to provide a backstop for Wall Street, and if they have those tools, we don’t know if they will use them. But just when it looks like the Fed’s toolbox is empty, we have a tax plan.

Many believe that Republican-led tax plan is a phenomenal positive for bull market continuation stateside. Indeed, there’s little doubt that stock investors have been buying the proverbial rumor since the November 2016 election. The question is, should people consider selling the actual news of passage?

Granted, greater profits at public companies will make their way into dividends, mergers, and buybacks. Yet, there’s little evidence to suggest that the domestic economy will improve dramatically. Tax cuts might be inconsequential. Even if tax cuts produce a lot of stimulus out of the gate, it may not be a sustainable force. All credible analysis so far indicates the tax cuts will not produce enough growth to be deficit neutral.

And there is nothing to suggest that we will see a sustained burst of growth this late in the economic cycle. For a quarter or two? Sure. For another 5-10 years without a recession? Not a chance.

The Treasury bond market does not support the notion that tax reform will light the domestic economy on fire. Immediately following the November 2016 election, the difference between 10-year Treasury bonds and two-year Treasury bonds spiked from 1% to 1.35%. The implication at that time? Tax reform should stimulate economic growth beyond post-Great Recession levels.

Since the start of the year, however, the spread between 10-year Treasury notes and 2-year Treasuries has been whittled down to a mere 0.5%. If the bond market believed tax cuts would really provide solid, sustainable economic growth, the spread would stay elevated or widen, rather than compress.

The spread between key Treasury bond rates sits at a decade low. Should the spread turn negative, a phenomenon known as “yield curve inversion,” fears of recession would creep into everyday conversation.

The fact that the Federal Reserve is raising its overnight lending rate and seeing little reaction from the yields of intermediate and longer-term bonds is an indication that bond investors do not believe in the strength of the economic outlook going forward. And you must think most of the tax cut hype has already been priced into stocks; resulting in valuations not seen since 2000 and 1929.

Again, we could still see a short to intermediate pop higher on positive tax cut news, and December is a seasonally strong month on Wall Street; that just means now is a good time to make sure you have an exit strategy in place.

As Republicans hurtle toward making their massive tax plan into law, experts are starting to find a slew of errors they say are most likely the result of a rushed process. Republicans have argued that the plan is the culmination of years of work. But the resulting bill has moved through both chambers of Congress at legislative light speed; about 2 weeks in the House, and 2 weeks in the Senate.

Given the breakneck speed and last-minute deal making — Senate Republicans were making handwritten changes hours before passing their bill — it’s no surprise that experts have discovered complications in the immediate aftermath of the legislation’s passage. Perhaps the biggest was in the Senate bill, which, at the last minute, kept intact the corporate alternative minimum tax.

Leaving the corporate AMT could have major consequences on businesses, such as eliminating the benefit of the research and development tax credit. Repealing the corporate AMT could cause a revenue shortfall of an additional $300 billion. That would force Republicans to find more revenue in other places. I say it is a last-minute error, but it might not be a bad idea.

Critics of the corporate alternative minimum tax have two big complaints. First and most obviously, if the alternate minimum tax and the new corporate tax rate were both 20 percent, it would mean that almost everyone who is a corporate taxpayer will also be an AMT taxpayer. It would mean that all companies pay the same rate.

A 20-percent corporate alternative minimum tax — one that taxes all a company’s income — would effectively eliminate international tax breaks without attempting the politically daunting task of passing a law to eliminate international tax breaks. Indeed, it would also eliminate the incentive to park profits abroad in the first place.

Secondly, new tax breaks that have been written into the Senate bill for, say, spending on new equipment, would be rendered meaningless. That would mean companies would have to make decisions about capital spending, hiring, intellectual property and so on, based purely on what’s best for the business rather than for a big tax break. Anyway, this is seen as an error.

There are multiple other errors. Republicans are now convening a conference committee — made up of members of both chambers, mostly from the tax-bill-writing House Ways and Means and Senate Finance committees — to hash out differences in the versions of the bills – and work out the errors. From there, the House and Senate would both have to approve the compromise bill. And the next vote is not a slam dunk. Deals were made to secure votes and those deals might come undone in the reconciliation process.

That assumes that the government stays open past Friday. A partial shutdown looms. While the House potentially could pass upcoming spending bills without any Democratic support, that tactic would not work in the Senate where procedural rules give Democrats bargaining power.

As a condition of backing a new spending measure, many Democrats have demanded legislative protections for the nearly 700,000 undocumented immigrants who were brought into the United States as children. Trump has criticized that condition, saying it could set the stage for an impasse.

Beyond that are questions about defense spending versus funding for domestic programs. A partial government shutdown would leave “essential” government services operating, but could disrupt programs ranging from the operation of national parks to educational programs and scientific research. Of course, lawmakers could vote for an extension, but whatever happens, it will need to happen soon. The deadline is Friday.

Private-sector employment slowed down in November, as ADP reported employers added 190,000 jobs. According to ADP, small private-sector businesses added 50,000 jobs in November, midsize businesses added 99,000, and large businesses added 41,000. Most of those gains were in the service sector.

Markets look to ADP’s report on private-sector payrolls to provide guidance on the Labor Department’s jobs estimate, which will be released Friday and includes information on both private- and public-sector payrolls. The consensus estimate for the Friday jobs report is just over 200,000 new jobs in November, down from 261,000 in October.

Los Angeles is burning. Wildfires have hit densely packed urban areas of greater Los Angeles, including Ventura, Bel Air, Sylmar, and Santa Clarita. The first and largest blaze, dubbed the Thomas Fire, started Monday night in Ventura County. As of Wednesday afternoon, it had grown to more than 65,000 acres and destroyed at least 150 structures out of at least 12,000 threatened.

The flames have crossed the 101 Freeway near Solimar Beach in Ventura County and have now reached the Pacific Ocean. Mandatory evacuation orders affect nearly 200,000 people, and authorities have closed the 405 Freeway, causing gridlock throughout the region.

The Los Angeles Unified School District closed more than 50 schools. Gov. Jerry Brown has declared a state of emergency, freeing up state funds to help tackle the wildfires. Weather conditions aligned to make the LA area a tinderbox. The region is under a “red flag” advisory because of Santa Ana winds. Gusts of up to 80 mph are expected throughout the region.

Time magazine named the “Silence Breakers” for its 2017 person of the year, dedicating the magazine’s annual title to the “women and men who have broken their silence span all races, all income classes, all occupations and virtually all corners of the globe” on sexual harassment.

Stocks Little Changed Following Two-Day WobbleStocks Mostly Flat After Overcoming Morning Lows

2017-12-06T23:10:00.001-07:00

Charles Schwab: On the Market

Posted: 12/6/2017 4:15 PM EST

Stocks Little Changed Following Two-Day WobbleStocks Mostly Flat After Overcoming Morning Lows

U.S. stocks overcame some early weakness to finish the regular trading session fairly flat. U.S. tax reform continued to garner attention as the reconciliation process has begun. Treasury yields were lower and crude oil prices fell, while the U.S. dollar extended recent gains and gold was higher. Dow member Home Depot traded to the downside after announcing an accelerated business investment plan and the kidney dialysis services company DaVita agreed to sell its medical group to a unit of Dow component UnitedHealth for approximately $4.9 billion.

The Dow Jones Industrial Average (DJIA) declined 40 points (0.2%) to 24,141, the S&P 500 Index was nearly unchanged at 2,629, and the Nasdaq Composite traded 14 points (0.2%) higher to 6,776. In moderate volume, 801 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $1.66 to $55.96 per barrel and wholesale gasoline fell $0.06 to $1.66 per gallon. Elsewhere, the Bloomberg gold spot price ticked $1.39 higher to $1,267.79 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.2% higher at 93.55.

DaVita Inc (DVA $69) announced an agreement to sell its DaVita Medical Group to Optum, a unit of Dow member UnitedHealth Corp. (UNH $220), for about $4.9 billion in cash. DVA rallied and UNH dipped.

Dow member Home Depot Inc. (HD $181) reaffirmed its full-year guidance and announced a new $15 billion share repurchase program, along with providing an update on its strategic priorities including its intent to accelerate business investment over the next three years. The boosted investment plans pressured shares of HD due to concerns about margin expansion as it issued its long-term goal for operating margins that missed expectations.

Dave & Buster's Entertainment Inc. (PLAY $53) reported Q3 earnings-per-share (EPS) of $0.29, or $0.27 ex-items, versus the $0.24 FactSet estimate, as revenues rose 9.3% year-over-year (y/y) to $250 million, compared to the forecasted $256 million. Q3 same-store sales declined 1.3% y/y, versus the expected 1.0% decrease. PLAY raised its full-year earnings guidance, but lowered its sales outlook, while its longer-term guidance appeared to please the Street. Shares traded solidly higher.

ADP private sector payroll report matches forecasts

The ADP Employment Change Report showed private sector payrolls rose by 190,000 jobs in November, matching the Bloomberg forecast, while October's increase of 235,000 jobs was unrevised. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday's broader November nonfarm payroll report, expected to show jobs grew by 195,000 and private sector payrolls rose by 200,000 (economic calendar). The unemployment rate is forecasted to remain at 4.1% and average hourly earnings are projected to rise 0.3% month-over-month (m/m).

Final Q3 nonfarm productivity (chart) was unrevised at the preliminary estimate of a 3.0% rate of growth on an annualized basis, versus expectations of a revised 3.3% rise. Q2 productivity was unrevised at a 1.5% gain. Unit labor costs were adjusted to 0.2% decrease, from the initial report of a 0.5% increase, and versus the forecast calling for an adjustment to a 0.2% rise. Q2 labor costs were revised lower to a 1.2% drop.

The MBA Mortgage Application Index rose 4.7% last week, following the prior week's 3.1% decline. The increase came as a 9.0% jump in the Refinance Index was met with a 2.4% increase in the Purchase Index. The average 30-year mortgage rate dipped 1 basis point (bp) to 4.19%.
Treasuries traded higher, with the yields on the 2-year and 10-year notes dipping 2 bps to 1.80% and 2.33%, respectively while the 30-year bond rate decreased 1 bp to 2.72%.

The U.S. dollar added to its recent gains with European currencies seeing pressure, while Treasury yields dipped from levels near the top end of the year's trading range. The markets continue to await the expected competitive tax reform reconciliation process between the House and Senate as they try to find compromises on some key differences of their bills.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Bill Passes Senate, Clearing Key Hurdle, reaching consensus between the two chambers won’t be easy; there are significant differences between the two bills that will need to be resolved. The conference process will begin this week and Republican leaders are optimistic that a deal can be struck within a matter of days. Complicating matters, the two chambers also must find time this week to avert a government shutdown and approve legislation that extends funding to keep the government open and operating.

The tech sector has seen some volatility as of late with the prospects of tax reform improving and fostering some noticeable sector rotation, which Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, I Melt with You: Anatomy of a Market Melt Up, is a healthy occurrence, for now.

The U.S. economic calendar for tomorrow will be light, starting with weekly initial jobless claims, forecasted to have ticked higher to a level of 240,000 from 238,000. Consumer Credit will be released in the final hour of trading to round out the day, expected to have increased by $17.0 billion in October, after expanding $20.8 billion in September.

Europe mixed on data, Asia falls amid global retreat

European equity markets finished mixed in the wake of the recent global market pullback recently after a strong year, while the euro lost some ground on the U.S. dollar and technology issues remained under pressure. Financials were also lower along with bond yields in the region. The economic calendar delivered a surprising rise in German factory orders. The British pound lost ground versus the greenback, amid ramped up uncertainty as Brexit negotiations remain deadlocked and British Prime Minister May faces political pressures regarding her stance during the talks on how to resolve the Irish border issue. May has only a few days left to reach a deal on the Irish border issue as the European Union is due to decide on whether Brexit talks can move to the next stage. The markets also grappled with the looming highly expected contested U.S. tax reform reconciliation process. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans.

Stocks in Asia finished decisively lower amid a global market retreat as of late, with technology issues leading the slide, while traders assess the strong global rally this year and U.S. tax reform heads for a likely contested reconciliation process. The global rally and recent volatility is discussed by Schwab's Jeffrey Kleintop, CFA, and Randy Frederick, in the video, It's All Relative: Why Stocks May Not Be Overvalued. The yen showed some strength as risk aversion nudged higher, weighing on Japanese equities. Stocks trading in mainland China and Hong Kong declined, with the markets giving back some of the year's strong gains and concerns about government regulations lingered. South Korean shares traded lower. Australian securities slipped after the nation reported softer-than-expected Q3 GDP growth. Indian stocks finished lower ahead of today's monetary policy decision by the Reserve Bank of India (RBI). After the closing bell, the RBI left its monetary policy and benchmark interest rates unchanged as expected.

The international economic docket for tomorrow will include the trade balance from Australia, the Leading Index from Japan, industrial production from Germany, and house prices from the U.K.

Follow the Money

2017-12-05T16:50:00.002-07:00

Financial Review

Follow the Money

Sinclair Noe — December 5, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: Android | RSS

DOW – 109 = 24,180
SPX – 9 = 2629
NAS – 13 = 6762
RUT – 20 = 1516
10 Y – .02 = 2.36%
OIL – .88 = 57.48
GOLD – 9.70 = 1266.90

Number of Currencies: 1,362
Total Market Cap: $358,989,749,532
Volume (24h): $15,655,689,224

Top Cryptocurrencies

Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
Bitcoin	BTC	11,668.0	$199.82B	$6.95B	44.42%	1	+0.63%	+17.05%
Ethereum	ETH	453.66	$44.65B	$1.21B	7.71%	0.0395611	-2.44%	-2.83%
Bitcoin Cash	BCH	1,431.10	$25.53B	$1.03B	6.56%	0.128851	-7.02%	-2.10%
IOTA	MIOTA	3.94900	$10.95B	$1.43B	9.13%	0.00033564	+49.30%	+180.91%
Ripple	XRP	0.23477	$9.58B	$169.47M	1.08%	0.00002106	-4.18%	-14.06%
Dash	DASH	741.77	$5.88B	$201.44M	1.29%	0.0647502	-2.78%	+20.17%
Litecoin	LTC	101.700	$5.56B	$332.54M	2.12%	0.00874786	-2.26%	+5.92%
Bitcoin Gold	BTG	284.42	$5.15B	$112.20M	0.72%	0.0262096	-8.56%	-5.44%
Monero	XMR	246.00	$4.04B	$331.67M	2.12%	0.0223129	+19.11%	+33.20%
Cardano	ADA	0.127907	$3.30B	$49.71M	0.32%	0.00001083	-1.16%	+12.24%

The Dow slipped after posting its 64^th record high close yesterday. Not a surprise given the weak finish in the markets yesterday. Today was another example of stocks closing near the lows for the day. And for the broader market, the S&P and Nasdaq have now posted three consecutive losing sessions – we haven’t seen that since August.

A Tuesday pause aside, it’s been a rough week or so for technology shares, which have been the victim of a violent rotation that’s seen investors flee what’s been by far the hottest sector of 2017 for companies expected to get a bigger boost from tax legislation working its way through Congress.

Meanwhile, telecom shares, which have been the worst-performing sector of the year, were world beaters last week. And financials, which were also laggards, have also enjoyed a shot in the arm. In case you were wondering – yes, it is very rare for the tech sector to fall at least 2% while the S&P or Dow posts gains.

Risks “are high and rising” from the potential for a sudden drop in the stock and bond markets, according to the Office of Financial Research, the government agency tasked with looking for threats to the economy from the financial sector.

The report highlighted vulnerabilities to cybersecurity incidents, obstacles to resolving failing systemically important financial institutions and structural changes in markets and industry as three key threats to the financial system. Stock valuations are high by historical standards. The report noted that the cyclically adjusted price-to-earnings ratio of the S&P 500 is at its 97th percentile relative to the last 130 years.

In the bond market, sensitivity of bond prices to interest rate moves has steadily increased since the crisis. At current levels of duration, a 1 percentage point increase in interest rates would lead to a decline of almost $1.2 trillion in the securities underlying the index; and that doesn’t include high yield, or fixed-rate mortgages and fixed income derivatives. Some investors have been financing long-term asset with short-term loans and therefore a correction could trigger financial instability, according to the OFR annual report.

It looks like the bond market is worried that the Federal Reserve, which is due to raise interest rates for a third time this year next week, is being overly cautious and may end up curbing growth too much, especially since there’s few signs that inflation is accelerating. The fundamental story among bond investors is one of a central bank committed to the removal of accommodation late in a very long economic expansion.

The Senate Banking Committee backed the nomination of Jerome Powell to lead the Federal Reserve, in a vote that basically cements the likelihood he’ll run the central bank. Powell was backed by all the panel’s Republicans and Democrats except for Sen. Elizabeth Warren. Warren said she disagreed with Powell’s statement in his nomination hearing there was no danger of banks that are “too big to fail.”

Good point, the big banks are bigger now than in 2008. At some point you might think too big to fail might not be the best policy, but it will likely be policy for the next several years under the Powell Fed.

The Institute for Supply Management’s index of service-oriented companies fell to 57.4% in November from a 12-year high of 60.1% in October. Numbers over 50% are viewed as positive for the economy, however, and anything over 55% is considered exceptional.

The US trade deficit increased to a nine-month high in October due to rising oil prices and the widening of America’s long-standing deficits with China and Mexico. The Commerce Department said the trade gap widened 8.6 percent to $48.7 billion, the highest level since January. The politically sensitive U.S.-China trade deficit increased 1.7 percent to $35.2 billion and the deficit with Mexico surged 15.9 percent to $6.6 billion.

The worsening trade deficit came even as exports to China and Mexico were the strongest in more than three years, which challenges the argument that the United States was being disadvantaged in its dealings with trade partners.

Deutsche Bank AG has reportedly been told to hand over information about its dealings with President Donald Trump, as part of the U.S. investigation into suspected Russian meddling in the 2016 election. The German bank received a subpoena from Special Counsel Robert Mueller several weeks ago, asking for data on client accounts held by the president and his family, according to reports from Bloomberg and German newspaper Handelsblatt.

Trump owed Deutsche Bank about $360 million in real-estate loans before he became president. In June, the lender — Germany’s largest — rejected demands by House Democrats to share information on its dealings with Trump, citing privacy laws. The bank said at the time that it would hand over details if it received a formal request to do so.

Trump’s lawyer Jay Sekulow and White House press secretary Sarah Sanders say it’s not true that Special Counsel Robert Mueller has subpoenaed Deutsche Bank, as Handelsblatt and other media outlets have reported. “No subpoena has been issued or received,” Sekulow said in a statement. “We have confirmed this with the bank and other sources.”

This summer, Trump said he considered his family’s personal finances a “red line” that Mueller should not cross. But by targeting Deutsche Bank with a subpoena for more information about Trump’s accounts, Mueller may well be crossing that line.

More important perhaps, he is digging into a massive Trump conflict of interest and one of the biggest questions regarding Trump’s business empire: Why would this German bank lend him so much money when US banks wouldn’t?

Trump’s history with Deutsche Bank dates back to the 1990s, when his personal finances were at an all-time low. Trump’s reputation with major lenders was in tatters. So when he set out to relaunch his empire, he turned to Deutsche Bank for the financing he couldn’t find elsewhere. Deutsche Bank went on to back several lucrative deals.

In the summer of 2016, The New Yorker detailed how Deutsche Bank was involved with a complex scheme to move as much as $10 billion out of Russia on behalf of powerful individuals facing sanctions in the West.

Since Trump came to office, the Justice Department investigation into the Russian money-laundering scandal had gone dormant. It is not clear why. There is no public indication of precisely why Mueller subpoenaed the bank.

American voters say the Republican tax plan that both chambers of Congress have passed benefits the wealthy the most, a new poll finds. Quinnipiac University found that 64% of Americans — including 61% of independents and 94% of Democrats — say the plan benefits the wealthy the most.

An analysis of the final Senate bill by the Tax Policy Center shows that the voter assessment is correct. While the bill will not pay for itself, the Joint Committee on Taxation found an earlier version of the Senate tax bill would lift GDP by about 0.8% over a decade.

The Quinnipiac poll finds Americans disapprove of the bill by a 53% to 29% margin. A Gallup poll found that 29% of people surveyed approved of the tax bill, while 56% disapproved. The data-journalism site FiveThirtyEight found that the current legislation was one of the least popular tax-related bills dating to 1981 — even less so than two bills that hiked taxes in the 1990s.

Disney and Twenty-First Century Fox are closing in on a deal, and it could come as soon as next week. CNBC has been reporting that Disney has held talks with the Rupert Murdoch-controlled media company to acquire its studio and television production assets, leaving Fox with its news and sports assets. Fox is also talking with CNBC parent company Comcast, but the talks with Disney have progressed more significantly.

Nestle is buying Canadian vitamin maker Atrium Innovations for $2.3 billion.

Bitcoin powered to a record high of $11,850 It started the year at less than $1,000. CBOE plans to start trading bitcoin futures on Dec. 10 while CME Group has set Dec. 18 as its start date. Bitcoin itself is currently bought and sold on platforms that are virtually unregulated.

Russia’s team has been barred from the 2018 Winter Olympics in South Korea. Government officials will be forbidden from attending, the flag will not be part of the opening ceremony, and records will show that Russia didn’t win any medals. Some qualifying Russian athletes who have passed several drug tests will be allowed to compete at the IOC’s discretion, but they will do so in neutral uniforms.

The decision comes after a 17-month investigation by the IOC into what was deemed to be state-supported doping. It confirmed other findings that Russian officials had tampered with samples to conceal evidence of its systematic doping of top athletes.

California has already suffered a brutal season of massive fires. Now tens of thousands of people are being evacuated as a Ventura wildfire rages over 45,500 acres. Fire fighters in Ventura County say the prospects for containment are not good.

The blaze, dubbed the Thomas Fire, broke out on Monday evening in the foothills above Ventura. Winds quickly drove it west into the city some 50 miles northwest of Los Angeles. More than 250,000 homes were without power. All schools in the Ventura Unified School District were closed.

Stocks Lower as Tech Rebound Fizzles

2017-12-05T16:25:00.001-07:00

Charles Schwab: On the Market

Posted: 12/5/2017 4:15 PM EST

Stocks Lower as Tech Rebound Fizzles

U.S. equities finished lower, with an early rebound for tech stocks losing steam in late-day action, while attention has shifted to the looming likely highly-contentious reconciliation process for tax reform. Treasury yields were mixed but little changed despite reports showing services sector output remained solid and the trade deficit widened more than expected. Crude oil prices moved higher and gold was lower, while the U.S. dollar also gained ground.

The Dow Jones Industrial Average (DJIA) fell 109 points (0.5%) to 24,181, the S&P 500 Index lost 10 points (0.4%) to 2,629, and the Nasdaq Composite declined 13 points (0.2%) to 6,762. In moderate volume, 885 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.15 higher to $57.62 per barrel and wholesale gasoline gained $0.03 to $1.72 per gallon. Elsewhere, the Bloomberg gold spot price decreased $9.39 to $1,266.79 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 93.38.

Toll Brothers Inc. (TOL $47) reported fiscal Q4 earnings-per-share (EPS) of $1.17, compared to the $1.19 FactSet estimate, as revenues rose 9.0% year-over-year (y/y) to $2.0 billion, versus the projected $2.1 billion. The luxury homebuilder's Q4 deliveries came in below expectations. TOL issued full-year revenue guidance that had a midpoint just above estimates. Shares fell.

AutoZone Inc. (AZO $710) posted fiscal Q1 EPS of $10.00, compared to the forecasted $9.78, with revenues increasing 4.9% y/y to $2.6 billion, exceeding the projected $2.5 billion. The auto parts retailer said its Q1 same-store sales rose 2.3% y/y, north of the expected 0.9% gain. Shares were modestly higher.

Services sector growth slows but remains solid, trade deficit widens more than expected

The November Institute for Supply Management (ISM) non-Manufacturing Index (chart) declined to 57.4 from October's unrevised 60.1 reading, which was only the fourth time in its history above 60 and the highest level since August 2005. The Bloomberg forecast called for a decline to 59.0. A reading above 50 denotes expansion. New orders fell 4.1 points month-over-month (m/m) to 58.7, business activity dipped 0.8 points to 61.4, and employment decreased 2.2 points to 55.3. Prices declined 2 points but remained elevated at 60.7. Non-manufacturing activity accounts for a large majority of U.S. economic output and the ISM said respondents' comments indicate that the economy and sector will continue to grow for the remainder of the year.

This report joins a host of global PMIs that continue to suggest global growth could continue to underpin the world stock market rally. Schwab's Chief Investment Strategist Liz Ann Sonders points out in her latest article, I Melt with You: Anatomy of a Market Melt Up, we believe it's been the actual fundamentals that have driven the calm surge in stocks with all 45 OECD countries growing. Liz Ann adds that coupled with the start of a sharp turn-for-the-better in U.S. corporate earnings and you have the recipe for yet another leg up in the ongoing secular bull market. However, she cautions that melt ups can be fun while they’re underway; but they don’t tend to end well, and it’s tricky to time the inevitable failure, concluding that discipline is more important now than it’s been in quite some time.

The final Markit U.S. Services PMI Index was revised to 54.5 in November from the preliminary 54.7 level, versus expectations of an upward adjustment to 55.2, and below October's 55.3 level. A reading above 50 denotes expansion and the release is independent and differs from ISM's report, as it has less historic value and Markit weights its index components differently.

The trade balance (chart) showed that the deficit came in at $48.7 billion in October, compared to estimates of $47.5 billion. September's deficit was upwardly revised to $44.9 billion. Exports were flat month-over-month (m/m) at $195.9 billion, while imports rose by 1.6% to $244.6 billion.
Treasuries were mixed to little changed, as the yield on the 2-year note increased 1 basis point (bp) to 1.84%, while the yield on the 10-year note was flat at 2.35% and the 30-year bond rate lost 1 bp to 2.73%.

The U.S. dollar modestly extended yesterday's gain and Treasury yields remain near the top end of the range traded at this year as the markets continue to digest the weekend's Senate tax reform bill passage and prepare for the expected competitive reconciliation process between the House and Senate as they try to find compromises on some key differences of their bills.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Bill Passes Senate, Clearing Key Hurdle, reaching consensus between the two chambers won’t be easy; there are significant differences between the two bills that will need to be resolved. The conference process will begin this week and Republican leaders are optimistic that a deal can be struck within a matter of days. Complicating matters, the two chambers also must find time this week to avert a government shutdown and approve legislation that extends funding to keep the government open and operating. With regard to the tax bill, until the agreement is finalized, there is little for investors to do. But a year-end conversation with your financial advisor is always a good idea, and a discussion of the potential impacts to your tax situation as a result of the legislation would be prudent.

An initial look at job data for November will likely headline tomorrow's economic calendar ahead of Friday's November nonfarm payroll report, with the ADP Employment Change report expected to show private sector jobs increased by 190,000 following October's 235,000 increase. Final Q3 nonfarm productivity and unit labor costs will also be released, with the former forecasted to be upwardly revised to a 3.3% quarter-over-quarter (q/q) increase from the preliminarily-reported 3.0% and the latter to be adjusted downward to a 0.2% q/q rise from the 0.5% posted originally. MBA Mortgage Applications will also be released.

Europe dips on mixed data and Brexit uncertainty, Asia mostly lower

European equity markets finished mostly lower even as technology issues rebounded with a softer-than-expected eurozone retail sales report slightly more than offsetting Markit's data showing eurozone output from the manufacturing and services sectors continued to show solid growth. The euro saw some pressure versus the U.S. dollar, with the markets continuing to grapple with the prospects of U.S. tax reform and yesterday's failed Brexit talks putting some uncertainty regarding if negotiations can move forward. Talks are expected to continue this week, and the British pound traded lower compared to the greenback. Bond yields in the region were mostly lower and financials moved to the downside. Volatility has shown some signs of ticking higher as the markets assess the global market rally this year and in his article, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, tackles the question, Are Stocks too Expensive?, noting that although world stock market valuations are above average, similar valuations have produced double-digit gains over the following 12 months during the past 50 years. Jeff concludes that valuations support a globally diversified portfolio offering the best diversification benefits in 20 years.

Stocks in Asia finished mixed after the U.S. markets gave back most of their gains late yesterday as the recent pressure on the technology sector persisted and an early boost from the weekend's Senate tax reform bill faded. Japanese securities declined, with the yen gaining ground, while those in Australia were also lower after the Reserve Bank of Australia expectedly held its monetary policy stance steady including leaving its benchmark interest unchanged at 1.50%. Mainland Chinese stocks and listings in Hong Kong fell, despite a report by Caixin showing growth in output in the nation's key services sector accelerated. Meanwhile, markets in India declined modestly and stocks in South Korea were slightly higher. The markets have shown some signs of pausing from this year's strong global rally that has been fueled by the broadest economic growth in a decade, which Schwab's Jeffrey Kleintop, CFA, says is expected to continue in 2018 as discussed in his article, 5 Reasons Investors Should Give Thanks.

Reports from around the globe tomorrow will include GDP from Australia, manufacturing orders from Germany and CPI from Switzerland.

Happy Time Vibe

2017-12-04T19:39:00.004-07:00

Financial Review

Happy Time Vibe

Sinclair Noe — December 4, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: Android | RSS

DOW + 58 = 24,290 (Record)
SPX – 2 = 2639
NAS – 72 = 6775
RUT – 11 = 1532
10 Y + .02 = 2.38%
OIL – .91 = 57.45
GOLD – 4.00 = 1276.70

Cryptocurrency

Number of Currencies: 1,362
Total Market Cap: $349,166,950,507
Volume (24h): $13,255,090,001

Top Cryptocurrencies

Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
Bitcoin	BTC	11,582.0	$195.97B	$6.14B	46.29%	1	-0.11%	+19.49%
Ethereum	ETH	462.13	$45.26B	$1.03B	7.74%	0.0404611	-0.62%	-1.92%
Bitcoin Cash	BCH	1,508.90	$26.23B	$777.45M	5.87%	0.134083	-1.97%	-3.99%
Ripple	XRP	0.24700	$9.79B	$107.72M	0.81%	0.00002174	+0.82%	-3.39%
IOTA	MIOTA	2.23250	$7.22B	$1.08B	8.17%	0.00022357	-15.60%	+136.49%
Dash	DASH	754.28	$5.93B	$157.91M	1.19%	0.0658949	-1.14%	+21.57%
Litecoin	LTC	103.320	$5.61B	$331.87M	2.50%	0.00890391	-0.70%	+12.94%
Bitcoin Gold	BTG	305.21	$5.38B	$119.41M	0.90%	0.0277613	-1.87%	-9.77%
Cardano	ADA	0.127907	$3.45B	$77.64M	0.59%	0.00001145	-7.25%	+162.11%
Monero	XMR	210.35	$3.32B	$94.78M	0.72%	0.0185096	+1.85%	+21.83%

This morning, the markets surged – largely, a happy-time vibe from the tax cut plan – but as the day wore on, the euphoria faded. The Nasdaq turned south after about one hour of trading. The entire tech sector came under serious pressure.

Microsoft dropped 4%, its biggest single-day decline since June 2016. Facebook lost 3.6%. Amazon down almost 2.5%. Alphabet down 1%. Apple slipped about 0.7%. The S&P 500 managed to hang on until the final minutes of trading before the numbers turned red. The Dow Industrials managed to hold on to a positive session and a record high close, but that close was 245 points down from the intraday high.

Treasuries continued to slip. Even though yields rose today, they remain relatively subdued, with 10-year Treasury yields struggling to push much above 2.40 percent. If the economic outlook is so strong, then how does one explain long-term bond yields?

Bond traders are naturally more cautious, and appear to be taking their cue from forecasts that fiscal stimulus, including Republican-backed tax cuts, will deliver only a modest boost to the economy in the next two years.

Municipal bond investors are bracing for what promises to be the biggest week not only of 2017, but possibly of years to come. Estimates are that borrowers may sell $19 billion to $21 billion of tax-exempt bonds this week, almost triple the average this year. The reason why issuance will boom is that the Senate this weekend passed its version of tax reform, which includes prohibiting tax-exempt advance refunding.

Senate Republicans narrowly passed their tax bill over the weekend, and now must reconcile it with the House version before they can send it to the White House. Easier said than done. There are significant differences between the House and Senate versions.

The Senate calls for all individual tax breaks to expire after 2025 to comply with budget rules, while the House would keep most of the individual changes in place, except for a $300 per person family credit.

So-called pass-through businesses, such as partnerships and limited liability companies, are also treated differently under the bills. And the Senate bill would postpone a corporate tax rate cut — to 20 percent from 35 percent — for one year, until 2019; that means tax overhaul’s potential direct impact to 2018 corporate earnings is likely to be zero.

The House bill would consolidate the current seven individual tax brackets to four, leaving the top tax rate at 39.6 percent. The Senate bill would have seven brackets — with lower rates, and a top rate of 38.5 percent.

In a last-minute change, the Senate GOP decided to keep the alternative minimum tax for individuals, while raising the exemptions until 2026, and preserve the corporate AMT. The House would repeal both levies.

The Senate bill also keeps the estate tax (while doubling the exemption amount until 2026). The House plan doubles the threshold, but eventually fully repeals the levy. The Senate legislation also calls for repealing the Obamacare individual mandate — and while House Republicans mostly support that, it could get tricky if moderates’ votes are needed.

A key part of trying to make health insurance coverage universal is to require that everyone gets it; this helps spread the costs of health care among as broad a pool of people as possible. Repealing the requirement will save the government money because fewer people will enroll in publicly-subsidized health plans.

However, a good chunk of those subsidies underpinned the individual insurance market, so even people who don’t receive the payments are expected to see higher premiums.

The U.S. faces a partial government shutdown after money runs out on Dec. 8 if Congress can’t agree on a spending bill by then. House Republicans introduced a temporary stop-gap spending bill to fund the government until Dec. 22. The bill maintains the current federal spending levels but includes a provision to ensure that states are not forced to suspend the popular Children’s Health Insurance Program, which annually provides health insurance for nearly 9 million children in low-income families.

In the largest deal of 2017 CVS Health is buying Aetna, the third-largest US insurer, for $69 billion. Aetna stockholders will be paid $145 a share in cash and 0.8378 CVS shares per Aetna share. The acquisition is subject to regulatory approval, but if approved it will change the nature of retail and healthcare.

First, if CVS does buy Aetna, it might be able to win over more business—both from individual consumers and from employers buying plans on behalf of their workers. In theory, that’s because CVS could gain a competitive edge by reducing the cost of providing care to Aetna’s customers.

How could it do this? CVS is not just drugstores. In 2006, it acquired a company called MinuteClinic, which operates walk-in clinics. CVS now has more than 1,000 of them, including in its stores and in some Target locations. This is one of the main reasons CVS and Aetna could, together, save money: A company that sells insurance could start providing care directly, and steer customers not immediately to doctors but rather first to its own nurses and pharmacists working at CVS locations.

For example, if an Aetna customer has diabetes, it can be extremely costly (for both Aetna and the customer) for them to frequently see doctors for help managing their condition. Instead, a merged CVS-Aetna could encourage this customer to go to its walk-in clinics regularly for check-ins, potentially limiting those higher-cost doctor visits.

The merger is intended to shift the way consumers interact with their healthcare. The plan is to make pharmacies the “new front doors of healthcare” — as opposed to a traditional doctor’s office or a hospital; and once a customer is in the front door, the sale continues in the pharmacy.

The other reason for the CVS-Aetna deal is Amazon, which has been plotting to move into the pharmacy business. Amazon has already secured the necessary licenses in 12 states and there is a possibility they will try to start up an online pharmacy that could ship medications.

How does a brick and mortar retailer respond to Amazon? History shows that Amazon can crush competitors. Whether the CVS-Aetna deal could withstand the onslaught remains to be seen, but they are going to respond with some fresh new ideas. The actual amount of money prescriptions bring into pharmacies isn’t all that much, it’s what else you buy while you’re at the pharmacy — snacks, drinks, beauty products — that makes pharmacies a booming business.

Say that prescription portion went online, it would be much harder for retail pharmacies to compete with convenience stores, grocery stores and anyone else selling candy bars and deodorant. But say you’re an Aetna member, the preferred way to get your prescription might be by going to a CVS pharmacy, bringing foot traffic that might not come organically. And it is possible CVS-Aetna customers could see benefits if the new company can provide some innovative new services or pass through cost benefits to them.

On the other hand, the merger could give CVS control over drug wholesalers, pharmacies, insurers, and pharmacy benefit managers – in other words, a way to crush competition from other companies. One thing the two companies are hoping for is synergy – that’s corporate-speak for cost savings, and the big place to cut expenses is by firing workers.

For the first time in 40 years, power plants are no longer the biggest source of U.S. greenhouse gas pollution. That dubious distinction now belongs to the transport sector: cars, trucks, planes, trains and boats.

The big reversal didn’t happen because transportation emissions have been increasing. In fact, since 2000 the U.S. has experienced the flattest stretch of transportation-related pollution in modern record keeping, according to data compiled by the U.S. Energy Information Administration. The big change has come from the cleanup of America’s electric grid. Electricity use in the U.S. hasn’t declined much in the last decade, but it’s being generated from cleaner sources.

A dramatic switch away from coal, the dirtiest fuel, is mostly responsible for the drop in emissions. Coal power has declined by more than a third in the last decade. Meanwhile, the transportation sector is getting cleaner. Cars are becoming more efficient under aggressive pollution rules, or CAFÉ standards, but that’s so far been offset by an ever-rising American appetite for SUVs, crossovers and pickup trucks.

Investments in electric cars may soon begin to do to the transportation sector what wind and solar have done to the power sector: turn the pollution curve upside down. The price of battery packs has been plummeting by about 8 percent a year and electric cars are now projected to become cheaper, more reliable, and more convenient than their gasoline-powered equivalents around the world by the mid-2020s.

Dow Continues Rally, Techs Sock Nasdaq

2017-12-04T19:22:00.001-07:00

Charles Schwab: On the Market

Posted: 12/4/2017 4:15 PM EST

Dow Continues Rally, Techs Sock Nasdaq

The Dow added to its recent surge, with economic optimism getting a boost from another strong read on domestic business spending, while the Senate's passage of its tax reform bill over the weekend added to the enthusiasm. However, sustained weakness in the tech sector continued to weigh on the Nasdaq. Treasury yields and the U.S. dollar were higher ahead of a busy week of economic reports that will culminate with Friday's nonfarm payroll report, while crude oil and gold were lower.

The Dow Jones Industrial Average (DJIA) rose 58 points (0.2%) to 24,290, the S&P 500 Index lost 3 points (0.1%) to 2,639, and the Nasdaq Composite tumbled 72 points (1.1%) to 6,775. In heavy volume, 987 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.89 to $57.47 per barrel and wholesale gasoline declined $0.05 to $1.69 per gallon. Elsewhere, the Bloomberg gold spot price decreased $4.42 to $1,276.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 93.23.

CVS Health Corp. (CVS $72) announced an agreement to acquire Aetna Inc. (AET $179) for $207 per share in cash and stock, valued at about $69 billion, excluding debt. Under the terms of the deal, Aetna stockholders will receive $145 in cash and 0.8378 CVS Health shares for each share owned. Shares of both companies were lower.

Italy's Prysmian SpA (PRYMY $16) announced an agreement to acquire Kentucky-based General Cable Corp. (BGC $30) for $30 per share in cash, for a total value of about $3 billion, including the assumption of debt. Shares of BGC rallied over 35%.

Dollar, rates and stocks gain ground on tax reform and continued robust business spending

Treasuries finished lower, as the yield on the 2-year note rose 3 basis points (bps) to 1.80%, while the yields on the 10-year note and the 30-year bond advanced 1 bp to 2.37% and 2.76%, respectively.
Treasury yields and the U.S. dollar moved to the upside and the stock markets added to last week's strong gains, bolstered by the Senate's passing of its tax reform bill over the weekend. Now the reconciliation process looms as the House and Senate have to find some key areas of compromise before a tax reform bill can go to President Donald Trump's desk for a signature.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary,Tax Reform Bills Progress, but Many Hurdles Remain, negotiations between the House and Senate will likely be extremely challenging, given the differences between the two approaches. For investors, we still think it is too early to take any drastic action. If and when a tax bill passes, there will be time to review the details and amend your tax and financial plans accordingly. Regardless of the outcome of the tax bill, it’s always a good idea to meet with your tax and financial advisors before the end of the year to review your current financial situation and discuss your plans for the coming year.

Factory orders (chart) dipped 0.1% month-over-month (m/m) in October, better than the Bloomberg expectation of a 0.4% decline, and versus September's upwardly revised 1.7% gain. Stripping out the volatile transportation component, orders rose 0.8% and September's 0.7% gain was revised to a 1.1% increase. October durable goods orders—preliminarily reported last week to have dropped 1.2%—were favorably adjusted to a 0.8% decrease, and compared to forecasts of a revised 1.0% decline. Also, nondefense capital goods orders excluding aircraft, a gauge of business spending, were revised higher to a 0.3% decrease from the initially-reported 0.5% decline.

The highlight of the report was the upward revision to the gauge of business spending, which has risen for four-straight months, with an average month gain of 1.3% for the period. This adds credence to Schwab's Chief Investment Strategist Liz Ann Sonders' view that an even sharper recovery could be in the cards for U.S. business capital spending in 2018, while tax reform—if we get it—would be an additional kicker in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle.

Today's release kicked off a busy economic calendar that will continue tomorrow with a look at the all-important services sector in the form of the ISM non-Manufacturing Index, with economists forecasting a slight decline in the reading for November to a level of 59.0 from October's 60.1, as well as Markit's final Services PMI Index for November, expected to post a reading of 54.7, in line with its preliminary report, but below the 55.3 registered the month prior, while the trade balance will round out the day's docket, with the deficit expected to widen to $47.1 billion during October from September's $43.5 billion.

Europe higher on U.S. tax reform, Brexit negotiations in focus, Asia mixed

The European equity markets rallied, with financials a noticeable gainer along with industrials. Bond yields in the region were mostly higher, while the euro declined versus the U.S. dollar on the weekend's tax reform bill passage by the Senate and upbeat U.S. business spending data, which bolstered global economic optimism. The British pound reversed to the downside on the greenback after the meeting between Prime Minister Theresa May and European Commission President Juncker ended without reaching a deal on an Irish border issue. The meeting was highly expected to produce a deal and likely help Brexit talks end a deadlock. With volatility showing some signs of life last week, in his article, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, tackles the question, Are Stocks too Expensive?, noting that although world stock market valuations are above average, similar valuations have produced double-digit gains over the following 12 months during the past 50 years. Jeff concludes that valuations support a globally diversified portfolio offering the best diversification benefits in 20 years.

Stocks in Asia finished mixed as the markets grapple with the weekend's tax reform bill passing in the U.S. Senate, along with flared-up uncertainty regarding what possible ramifications former U.S. NSA advisor Mike Flynn's guilty plea for lying to the FBI may have for the Trump administration. This news on Friday caused the U.S. stock markets to dip but they held onto solid weekly gains. Stocks in Japan, mainland China and Australia all lost ground, but securities traded in South Korea, Hong Kong and India saw modest gains. Although showing some signs of choppiness, the global stock markets remain nicely higher for the year that has been bolstered by the broadest economic growth in a decade. This is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, in his article, 5 Reasons Investors Should Give Thanks.

Services PMI readings from across the globe will dominate tomorrow's international economic calendar, with other reports of note to include retail sales from the U.K. and the Eurozone, new home sales from Australia, and industrial production from Spain. In central bank action, the Reserve Bank of Australia will meet, with no change to its benchmark interest rate expected.

Ever-Flowing Streams

2017-12-01T17:52:00.000-07:00

Financial Review

Ever-Flowing Streams

Sinclair Noe — December 1, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: Android | RSS

Financial Review by Sinclair Noe for 12-01-2017
DOW – .40 = 24,231
SPX – 5 = 2642
NAS – 26 = 6847
RUT – 7 = 1537
10 Y – .06 = 2.36
OIL + .90 = 58.30
GOLD + 5.00 = 1280.60

Cryptocurrency

Number of Currencies: 1,361
Total Market Cap: $329,395,864,867
Volume (24h): $13,578,461,349

Top Cryptocurrencies

Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
Bitcoin	BTC	10,940.0	$185.18B	$6.82B	50.25%	1	+0.65%	+34.29%
Ethereum	ETH	462.42	$45.13B	$1.25B	9.22%	0.0428124	+0.41%	+0.52%
Bitcoin Cash	BCH	1,428.30	$24.71B	$964.91M	7.11%	0.133796	-0.21%	-10.75%
Ripple	XRP	0.24588	$9.93B	$182.64M	1.35%	0.00002343	+0.77%	+4.93%
Dash	DASH	777.55	$6.18B	$284.15M	2.09%	0.0728926	+0.76%	+38.64%
Litecoin	LTC	100.350	$5.41B	$567.91M	4.18%	0.00910838	+0.18%	+28.72%
Bitcoin Gold	BTG	301.96	$5.24B	$134.55M	0.99%	0.0286029	+0.95%	-18.70%
IOTA	MIOTA	1.40200	$3.97B	$143.02M	1.05%	0.00013003	-1.61%	+90.63%
Cardano	ADA	0.130435	$3.43B	$71.66M	0.53%	0.00001206	+11.93%	+366.10%
Ethereum Classic	ETC	29.2300	$3.07B	$850.97M	6.27%	0.0028576	-0.68%	+50.87%

Markets started the session wobbling between positive and negative; waiting for word on tax legislation. Then a political bombshell dropped. The major averages hit their session lows on the report, with the Dow Jones industrial average briefly dropping 350 points.

Mike Flynn, former National Security Adviser pleaded guilty to one count of lying to the FBI about contacts with Russia’s ambassador. Prosecutors said he consulted with a senior official in Donald Trump’s presidential transition team before speaking to the envoy. Flynn became the first member of Trump’s administration to plead guilty to a crime uncovered by the special counsel investigation into Russia’s alleged attempts to influence the 2016 U.S. presidential election.

The guilty plea is part of a plea deal. The White House said Flynn’s guilty plea on Friday implicated him alone. Ty Cobb, a White House attorney, said in a statement: “Nothing about the guilty plea or the charge implicates anyone other than Mr. Flynn.” If we parse that statement, it is at best, misleading.

Flynn’s testimony will reach into the administration, we just don’t know exactly who will be crushed, and how severe the damage will be. Flynn’s plea agreement stipulates that he’ll cooperate with federal, state or even local investigators in any way Mueller’s office might need. We know that Flynn will testify against senior administration officials.

Speaking in court as part of his plea agreement, Flynn described a series of conversations with the Russian ambassador to the U.S., Sergey Kislyak, in late December as the Trump team prepared to enter the White House. The talks were instigated by a “very senior member” of the Trump transition team. Media reports say that based upon date and location and other factors, that “very senior member” is White House advisor and Trump son-in-law, Jared Kushner.

Flynn said he then asked the ambassador to help delay or defeat a U.N. security council vote. Other senior officials who were involved in that vote include former advisor Steve Bannon, and former chief of staff Reince Preibus.

About a week later, Kislyak reached out to Flynn about sanctions that the Obama administration had just imposed on Russia. Flynn said he called a senior transition team official at Trump’s Mar-a-Lago resort for guidance, before asking Kislyak to moderate Russia’s response, which Russia ultimately did. Then, he told the court, he called transition team members to tell them what had transpired.

Flynn now says he lied to the FBI in January about the conversations, but that he had fully informed the transition team of the talks. The fact that Flynn was operating on behalf of the incoming government represents the first concrete case of Trump’s presidential staff, rather than his campaign team, covering up contacts with Russia.

Flynn’s guilty plea is notable because the former national-security adviser, the closest adviser to the president on the most sensitive issues of defense and national safety, is pleading guilty to a felony committed while he served as national-security adviser. Also, the move puts Mueller’s investigation inside the White House.

Before the Flynn charge, Mueller had charged two former campaign staffers with crimes committed outside of the campaign, and a low-level campaign staffer had pleaded guilty to lying to federal agents about his contacts with Russians during the campaign. Flynn was a top adviser to the president.

Due to his unique ties to both the Trump campaign and the Trump White House, Flynn is particularly well-suited to answer the two central questions in the Mueller probe: Did the Trump campaign knowingly collude with Russia, and did Trump obstruct justice by trying to limit or derail the FBI’s investigation?

And it’s possible that Flynn has even more Russia ties than is publicly known, since there’s already some reporting that suggests we don’t have the full story when it comes to Flynn and Russia.

Just to be clear – the Mueller investigation is working its way up the food chain. And Flynn is a pretty big fish. That means the next catch – the next indictment to come down will be even bigger. The very fact that Flynn was given a plea deal means that he has already provided valuable information to the special counsel’s investigation.

ABC’s Brian Ross reported that Flynn is indeed prepared to testify against President Trump himself — and to say that Trump personally directed him to make contact with Russians. This doesn’t mean that Flynn has evidence of Russian collusion in the election, but it probably gets to obstruction of justice.

If Trump had any knowledge of any kind of criminal liability that Flynn may have had — and he was trying to get Comey to drop the investigation — that essentially seals Mueller’s obstruction case. We still do not know that any laws were broken – innocent until proven otherwise – but we do know that Mueller has assembled a legal dream team, and if any laws were broken, they will uncover the violations.

If this was a normal day, the top story would be a vote on a massive piece of tax legislation. Senator Mitch McConnell, the majority leader, said “we have the votes” and the Senate will begin voting later today on tax legislation.

The Joint Committee on Taxation, the independent tax scorekeeper, announced that even with projected economic growth, the Republican tax bill still would add more than $1 trillion to the deficit over 10 years, throwing a monkey wrench into the works. The committee reported that the tax would grow the economy by just 0.8 percent over 10 years, and still blow a hole in the budget. This is the first dynamic score of the tax bill, meaning it forecasts how the economy will react to the policy.

Republicans are making the argument that huge corporate tax cuts will bring back jobs and investments and massively grow the economy — in other words, that tax cuts would pay for themselves.

They have long called for this kind of scoring. But now, with an estimate much less optimistic than what they’ve been selling to their constituents, they’re ignoring the numbers and going with intuition. They have done no economic analysis to back their fantasy of magical growth in the economy. The committee report should have killed the bill.

What followed was arm twisting and a few heated arguments. An effort by Senator Bob Corker of Tennessee to include future tax increases to offset the deficit impact of the bill appears to have been rejected by Senate leadership. Lawmakers are now considering reinstating a modified version of the alternative minimum tax on individuals and on corporations.

Arizona Sen. Jeff Flake, a key hold-out, announced just after noon that he would back the plan. Republicans can pass the legislation with 50 members and a tie-breaking vote from Vice President Mike Pence. This leaves Republican leaders a couple of undecideds — Republican Sens. Susan Collins of Maine (nope, she just flipped to a “yes” vote) and Bob Corker of Tennessee — assuming no further changes upset senators who are already backing the bill.

And Arizona Senator John McCain, previously considered a yes vote, has now reportedly moved to undecided. The predicament leadership faces now is similar to the one they found themselves in on health care. If McConnell appeases Johnson and boosts the tax break for pass-throughs (which costs money), he could alienate Corker and Flake who have lobbied to make the tax bill less expensive.

Although Flake looks like he worked a deal to vote yes in exchange for providing protections for DACA recipients. If he appeases Collins, he could face problems with the Senate bill when it goes to conference with the House.

There was even some communication between the aisles, between Ron Wyden, the Oregon Democrat, and Mitch McConnell. Wyden wanted to know when he’ll see the bill. McConnell: There’ll be “plenty of time to read” it. That’s not exactly specific. But remember this still has to be reconciled.

The Institute for Supply Management said its manufacturing index slipped to a still-strong reading of 58.2% last month from October’s 58.7%. The latest ISM reflects strong growth among U.S. manufacturers. Readings over 50% indicate more companies are expanding instead of shrinking. And readings near or above 60% are especially robust.

Earlier today, the Census Bureau reported that overall construction spending increased in October. The Atlanta Fed GDPNow model for fourth-quarter GDP growth jumped after the ISM data on manufacturing. The estimate climbed to 3.5% from 2.7%.

In corporate news, shares of Mylan jumped 4.4 percent after a report that Amazon has held preliminary talks with generic drug makers about a potential entry into pharmaceuticals.

Ulta Beauty was among the worst-performing stocks in the S&P 500, falling 4.1 percent after the cosmetics retailer issued weaker-than-expected guidance for the current quarter.

In other headlines on yet another slow news day in DC: Trump plans to declare Jerusalem the capital of Israel during a speech next week. And Rex Tillerson calls reports that White House wants him to resign laughable.

Let justice roll down like waters and righteousness like an ever-flowing stream.

Stocks Decline as Political Uncertainty Fuels Volatility

2017-12-01T17:30:00.001-07:00

Charles Schwab: On the Market

Posted: 12/1/2017 4:15 PM EST

Stocks Decline as Political Uncertainty Fuels Volatility

U.S. stocks finished the trading session lower, but well off the day's the worst levels as volatility ramped up on heightened uncertainty inside the beltway. Afternoon reports suggesting that the Senate has enough votes to pass its tax bill were overshadowed by some uncertainty regarding the possible ramifications that the developing situation surrounding former NSA advisor Mike Flynn may have for the Trump administration. Treasury yields and the U.S. dollar traded lower as some upbeat reads on the manufacturing sector were seemingly brushed aside. Energy shares outperformed amid a rise in crude oil prices and gold gained ground.

The Dow Jones Industrial Average (DJIA) declined 41 points (0.2%) to 24,232, the S&P 500 Index decreased 5 points (0.2%) to 2,642, and the Nasdaq Composite lost 26 points (0.4%) to 6,848. In heavy volume, 972 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.96 to $58.36 per barrel and wholesale gasoline ticked $0.01 higher to $1.74 per gallon. Elsewhere, the Bloomberg gold spot price increased $5.61 to $1,280.61 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.2% lower at 92.88. Markets were mixed for the week, as the DJIA rallied 2.9% and the S&P 500 Index advanced 1.5%, while the Nasdaq Composite declined 0.6%.

Ulta Beauty Inc. (ULTA $213) reported Q3 earnings-per-share (EPS) of $1.70, or $1.71 ex-items, versus the $1.66 FactSet estimate, as revenues rose 18.6% year-over-year (y/y) to $1.3 billion, roughly in line with forecasts. Q3 same-store sales rose 10.3% y/y, matching expectations. UTLA's gross margin came in south of expectations. The company issued Q4 EPS guidance that was below estimates, while its same-store sales outlook for the period had a midpoint that was just shy of forecasts. Shares closed solidly lower.

VMware Inc. (VMW $124) posted Q3 earnings of $1.07 per share, or $1.34 ex-items, compared to the projected $1.28, with revenues growing 11.0% y/y to $2.0 billion, roughly in line with forecasts. The cloud infrastructure and business mobility company issued Q4 guidance that exceeded expectations. Shares were nicely higher.

The major automakers reported November sales today, with General Motors Co's (GM $43) sales declining 2.9% y/y, compared to FactSet's projected 1.5% decrease. Ford Motor Co (F $13) reported a 6.7% rise in sales, versus the expected gain of 3.3%. Fiat Chrysler Automobiles NV's (FCAU $17) Chrysler sales fell 3.7%, compared to the expected 5.6% drop. GM and FCAU traded lower, while F finished higher.

Manufacturing activity continues to show solid expansion, tax reform uncertainty flares up

The Institute for Supply Management (ISM) Manufacturing Index (chart) for November declined to 58.2 from 58.7 in October, compared to the Bloomberg forecast calling for a dip to 58.3. New orders rose 0.6 points to 64.0 and production gained 2.9 points to 63.9, while employment dipped 0.1 points to 59.7 and prices declined 3.0 points to 65.5. Order backlog remained at 55.0 and new export orders decreased 0.5 points to 56.0. ISM said comments from respondents reflect expanding business conditions.

The final Markit U.S. Manufacturing PMI Index was revised to 53.9 for November from the preliminary reading of 53.8, versus expectations of 54.0, and below the 54.6 level posted in October. The release is independent and differs from ISM's manufacturing report, as it has less historic value and Markit weights its index components differently.

Although manufacturing slowed, these reports continue to suggest solid growth with readings above 50 denoting expansion for both indexes. Moreover, Schwab's Chief Investment Strategist Liz Ann Sonders notes that it’s time for optimism about a significant capex cycle unfolding as we look ahead to 2018, in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle, adding that tax reform—if we get it—would be an additional kicker.

Construction spending (chart) rose 1.4% month-over-month (m/m) in October, well above projections of a 0.5% increase, and following September's unrevised 0.3% increase. Residential spending was up 0.4% m/m, while non-residential spending jumped 2.1%.

Treasuries finished higher, with the yield on the 2-year note dipping 1 basis points (bp) to 1.77%, the yield on the 10-year note falling 5 bps to 2.36% and the 30-year bond rate dropping 7 bps to 2.76%.

The U.S. dollar reversed to the downside, along with Treasury yields following a two-day rally, after former National Security Advisor Flynn pleaded guilty for lying to the FBI and agreed to cooperate with the Special Counsel's Office. This caused a spike in volatility and fostered uncertainty about what this could mean for the Trump Presidency, with the Senate scrambling to find enough support to bring its tax bill to a final vote. The Senate delayed yesterday's final vote as a key area of compromise regarding deficit concerns hit a snag. The Senate spent much of the day in preliminary procedures to try to mend disagreements. Afternoon reports have suggested that the legislative body now has enough votes to pass its bill with a vote expected later in the day.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, if the bill passes the Senate, the House and Senate would need to convene a conference to negotiate and reconcile differences between the two bills to produce a single consensus bill. That bill would then need to be approved by both chambers before it could be sent to President Donald Trump for his signature.

Negotiations between the two chambers will likely be extremely challenging, given the differences between the two approaches. For investors, we still think it is too early to take any drastic action. If and when a tax bill passes, there will be time to review the details and amend your tax and financial plans accordingly. Regardless of the outcome of the tax bill, it’s always a good idea to meet with your tax and financial advisors before the end of the year to review your current financial situation and discuss your plans for the coming year.

Europe falls late in the day, Asia mixed

The European equity markets fell late in the session, with yesterday's delayed vote on tax reform in the U.S. stymieing recent optimism regarding progress being made to pass a bill and causing uncertainty to flare up. This was exacerbated former U.S. National Security Advisor Flynn pleading guilty for lying to the FBI and agreeing to cooperate with the Special Counsel's Office. Technology issues in the region extended the week's selloff, while auto-related issues saw some pressure. However, the energy sector was the lone group in positive territory amid a rally in crude oil prices on the heels of yesterday's OPEC agreement to extend its production cuts to the end of next year. An upbeat read on November eurozone manufacturing growth by Markit, which showed growth was revised to a higher acceleration from October's than initially estimated, was overshadowed.

The euro overcame early pressure as the U.S. dollar fell noticeably on the exacerbated U.S. political uncertainty, and the British pound came off the worst levels of the day but still modestly pared a recent rally. The pound found some strength this week amid signs that the deadlocked Brexit negotiations may be heading to the next stage. Bond yields in the region mostly saw solid pressure. Amid the flare-up in volatility, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Are Stocks too Expensive?, that although world stock market valuations are above average, similar valuations have produced double-digit gains over the following 12 months during the past 50 years. Jeff concludes that valuations support a globally diversified portfolio offering the best diversification benefits in 20 years.

Stocks in Asia finished mixed with the markets choppy following yesterday's delayed tax reform vote in the U.S. that appeared to cool some of the optimism that has led a sharp rally in the U.S. equity markets this week. Shares of Japanese companies advanced with the yen reversing a brief spike yesterday, while reports showed the nation's Q3 capital spending accelerated more than expected and household spending for October came in stronger than anticipated, while national October consumer price inflation rose in line with expectations. Mainland Chinese stocks finished flat and equities trading in Hong Kong declined on the heels of the flared-up U.S. tax reform uncertainty and a report from Caixin showing growth in the country's manufacturing output unexpectedly slowed, diverging from yesterday's government report that suggesting expansion surprisingly accelerated.

Australian securities gained ground with financials modestly paring yesterday's drop on the government's announcement that it will launch an inquiry into the sector, while energy issues rose following yesterday's OPEC production extension. Indian stocks fell on the heels of late-yesterday's report that showed Q3 GDP accelerated to a 6.3% y/y pace of growth, but slightly below the projected 6.4% expansion. South Korean equities finished flat in the wake of the recent selloff in the tech sector, yesterday's Bank of Korea rate hike, and today's stronger-than-expected Q3 GDP report. Even after this week's choppiness for the markets, they hold onto strong gains for the year fostered by the broadest economic growth in a decade, which is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, discusses in his article, 5 Reasons Investors Should Give Thanks.

Stocks higher on week as damage already done by the bulls

Despite the spike in volatility on Friday, most U.S. equity markets posted solid gains for the week, bolstered by signs the Senate's tax reform bill was finding enough support to gain momentum toward a final vote. Telecom and financial stocks led the way on the tax reform optimism, though a noticeable sector rotation came to the detriment of technology issues and the Nasdaq, which have led the markets' yearly rally and string of record highs. Economic optimism also helped boost the markets, with Consumer Confidence hitting a 17-year high, new home sales unexpectedly jumping to a decade high, Q3 GDP being revised higher to 3.3%, and culminating with the Fed's Beige Book showing business activity remained steady and noting a slight improvement in the outlook. Energy issues finished higher, while the highly-anticipated OPEC meeting delivered a production cut extension. Following Friday's volatility surge, the U.S. dollar finished little changed after showing mid-week signs of life and the Treasury yield curve gave back a brief bout of steepening.

This sets the stage for next week, in which the economic calendar will likely contend with continued scrutiny of tax reform, while delivering factory orders, the trade balance, the ISM non-Manufacturing Index, Q3 nonfarm productivity and unit labor costs, as well as the preliminary December University of Michigan Consumer Sentiment Index. However, the headlining report will likely be Friday's November nonfarm payroll report, with the Fed's December monetary policy meeting looming the following week and highly-expected to deliver a third rate hike of the year.

As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, the bull market continues to be undisturbed by a myriad of actual or potential negative events and momentum favors the bulls for the foreseeable future. However, elevated valuations and growing investor complacency pose risks that could lead to a long-awaited pullback and/or a pickup in volatility from today’s extremely low base.

International reports due out next week that deserve a mention include: Australia—Q3 GDP and the Reserve Bank of Australia's monetary policy decision. China—trade balance, Caixin's PMI Services Index and inflation statistics. India—the Reserve Bank of India's monetary policy decision. Japan—Q3 GDP. Eurozone—Markit's business activity reports, retail sales and Q3 GDP, along with German factory orders and trade balance. U.K.—industrial and manufacturing production, trade balance and the Bank of England's inflation target.

24K Magic

2017-11-30T19:21:00.001-07:00

Financial Review

24K Magic

Sinclair Noe — November 30, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: Android | RSS

DOW + 331 = 24,272 (Record)
SPX + 21 = 2647 (Record)
NAS + 49 = 6873
RUT + 1 = 1544 (Record)
10 Y + .04 = 2.42%
OIL + .08 = 57.38
GOLD – 8.80 = 1275.60

Cryptocurrency

Number of Currencies: 1,361
Total Market Cap: $297,611,083,181
Volume (24h): $15,874,370,947

Top Cryptocurrencies

Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
Bitcoin	BTC	9,621.2	$165.88B	$8.02B	50.52%	1	-2.89%	+22.45%
Ethereum	ETH	422.70	$41.83B	$1.76B	11.10%	0.0444209	-2.24%	+5.17%
Bitcoin Cash	BCH	1,276.60	$22.52B	$1.10B	6.94%	0.136491	-2.71%	-19.01%
Ripple	XRP	0.23100	$9.46B	$243.48M	1.53%	0.00002497	-2.53%	-0.01%
Dash	DASH	752.00	$6.05B	$489.20M	3.08%	0.079939	-0.84%	+38.02%
Bitcoin Gold	BTG	277.95	$4.88B	$139.16M	0.88%	0.0298825	-2.98%	-4.96%
Litecoin	LTC	84.410	$4.65B	$461.73M	2.91%	0.00876616	-1.75%	+15.77%
IOTA	MIOTA	1.27000	$3.58B	$166.62M	1.05%	0.00013133	-3.13%	+64.12%
Cardano	ADA	0.115385	$3.02B	$120.63M	0.76%	0.00001187	-0.94%	+321.83%
Monero	XMR	166.19	$2.68B	$116.47M	0.73%	0.0176935	-5.17%	+7.76%

Record highs for the Dow, the S&P, and the Russell. The Nasdaq recovered nicely from a nearly 1.5% decline yesterday, but not enough for a record.

Well, it’s easy to see that the promise of a tax cut has been a big boost to Wall Street. Some estimates claim a corporate tax cut could boost S&P 500 earnings by 6%. The Senate convened at 10:30 a.m. this morning to continue discussing the bill after it passed a procedural vote on Wednesday. Republicans are using special procedures that shield the measure from a Democratic filibuster.

Debate on the legislation is limited to 20 hours. When the debate ends, it will be time for a vote-a-rama, a marathon of amendment votes. Eventually, the Senate would vote to pass the tax bill. But before then, the contents of that bill are expected to change. Republicans have been discussing significant revisions to their bill as party leaders try to secure the votes they need for passage.

The congressional Joint Committee on Taxation said Wednesday afternoon that the Senate tax bill would add $1 trillion to federal budget deficits over the next decade, even after accounting for additional economic growth, a major blow to Republicans’ contention that the $1.5 trillion tax cuts in the bill will pay for themselves through growth.

The committee, which serves as the scorekeeper for growth and revenue estimates in tax bills, estimated that the Senate bill would boost economic growth by 0.8 percent over a decade. Republicans have said they expect substantially stronger growth than that to result from the tax cuts.

Throughout the tax debate over the last month, Republican leaders have frequently cited other analyses by the committee to make their case for the bill. The committee said economic growth generated by the tax cut will offset losses by about $458 billion over the next decade. Over that same period, an additional $51 billion will be needed to pay interest on the additional debt the government will borrow to pay for the tax cuts.

The Joint Committee on Taxation calculates the budgetary effects of changes in economic growth are projected to reduce the deficit by $407 billion during the budget window, with the net deficit increasing by $1 trillion. That’s consistent with the findings of the Penn-Wharton model, which projects the Senate tax bill would increase growth by less than 0.1 percent a year, due largely to the drag from increased debt.

Congressional Republicans and the Trump administration have yet to produce an analysis supporting their claims that the $1.5 trillion tax cut would not add to federal budget deficits. Instead, they cite a ballpark estimate of the additional economic growth the tax plan will unleash, which, they say, should be enough to make the cuts pay for themselves.

While there are still many unresolved details to the Tax Plan, at its core it is legislation that will change major areas of American life, plus everything from education to health care. Corporate taxes, along with those on wealthy Americans, would be slashed on the presumption that when people in penthouses get relief, the benefits flow down to basement tenements.

Elements in both the House and Senate bills could constrain the ability of state and local governments to levy their own taxes, pressuring them to limit spending on health care, education, public transportation and social services.

The Congressional Budget Office warned the tax cut package could trigger rules mandating cuts to Medicare. Some 13 million people could lose health care via the elimination of a key plank of Obamacare.

Insurance premiums are also expected to rise by 10 percent. The House bill includes provisions that would end the deductibility of tuition waivers for graduate students and repeal the deduction for interest paid on student loans. Both chambers’ bills would tax investment earnings from university endowments.

Economists and tax experts are overwhelmingly skeptical that the bills in the House and Senate can generate meaningful job growth and economic expansion. Many view the legislation not as a product of genuine deliberation, but as a transfer of wealth to corporations and affluent individuals — both generous purveyors of campaign contributions.

According to the Joint Committee on Taxation and the Congressional Budget Office, by 2027, people making $40,000 to $50,000 would pay a combined $5.3 billion more in taxes, while the group earning $1 million or more would get a $5.8 billion cut.

In a recent University of Chicago survey of 38 prominent economists across the ideological spectrum, only one said the proposed tax cuts would yield substantial economic growth. Unanimously, the economists said the tax cuts would add to the long-term federal debt burden, now estimated at more than $20 trillion.

Consumer spending slowed in October as the hurricane-related boost to motor vehicle purchases faded, while a sustained increase in underlying price pressures suggested that a recent disinflationary trend had probably run its course.

The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.3 percent last month after surging 0.9 percent in September. The jump in spending in September was the largest since August 2009 and was spurred by some drivers in Texas and Florida replacing automobiles destroyed when Hurricanes Harvey and Irma slammed the states.

Spending on long-lasting goods like autos fell 0.1 percent last month after accelerating 2.9 percent in September. Spending on nondurable goods such as prescription drugs and recreational items rose 0.2 percent. Outlays on services increased 0.3 percent.

The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, rose 0.2 percent in October after a similar gain in September. The so-called core PCE increased 1.4 percent in the 12 months through October.

The Labor Department said initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 238,000 for the week ended Nov. 25. Last week marked the 143rd consecutive week that claims remained below the 300,000 threshold, which is associated with a strong labor market. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is near full employment, with the jobless rate at a 17-year low of 4.1 percent.

The White House is contemplating a scenario to replace Secretary of State Rex Tillerson with CIA Director Mike Pompeo within the next few months, according to multiple reports. There’s no decision yet on the timing of Tillerson’s departure, which has been expected for months. But multiple sources close to the White House and across government said Pompeo is the leading candidate to take over at the State Department.

Shares of the retail-pharmacy giant CVS and health insurer Aetna jumped in trading on Thursday after The Wall Street Journal reported that the two companies were nearing a deal. CVS was reported in late October to be in talks to buy Aetna in a deal worth about $66 billion. According to the latest report, CVS is nearing a majority-cash purchase of Aetna of $200 to $205 a share. Aetna’s stock gained 2% on the news. CVS rose by as much as 5%.

Aetna previously agreed to buy rival insurer Human for $34 billion, but the Department of Justice blocked that deal. A judge ruled in favor of the DOJ in January, saying a combination of the two companies would be anticompetitive.

For CVS, the acquisition is a way to fend off competition from Amazon, which has been speculated to be interested in the healthcare industry. It would allow the retailer to keep a greater share of each drug sale and to direct more Aetna clients into its stores.

OPEC members and other oil-producing countries agreed to extend production cuts until the end of 2018. Crude prices rose.

Kroger jumped more than 6 percent after the company forecast strong same-store sales for the four quarter and posted better-than-expected earnings.

Meanwhile, Costco shares climbed 3.9 percent after the company reported a 7.9 percent rises in same-store sales for November.

This weekend, for the several billionth or so time in Earth’s history, the Moon will be in the part of its orbit around Earth where it’s a little closer, 16,000 miles closer than usual, and it looks a teeny amount larger. Call it a Supermoon or whatever, you should look at the moon – this weekend, tonight, every night. It helps keep things in perspective.

Stocks Rally Ahead of Senate Tax Vote

2017-11-30T19:03:00.001-07:00

Charles Schwab: On the Market

Posted: 11/30/2017 4:15 PM EST

Stocks Rally Ahead of Senate Tax Vote

U.S. stocks traded nicely higher as market participants weighed the likelihood of the Senate passing its tax reform bill, with a vote expected to be held soon. Energy stocks rose as crude oil prices ticked higher and Treasury yields extended recent gains, while gold and the U.S. dollar traded lower. Domestic economic reports showed that personal income and spending in October rose and weekly jobless claims dipped. Kroger announced upbeat quarterly profits and Costco reported better-than-expected same-store sales growth.

The Dow Jones Industrial Average (DJIA) rallied 332 points (1.4%) to 24,272, the S&P 500 Index advanced 22 points (0.8%) to 2,648, and the Nasdaq Composite gained 50 points (0.7%) to 6,874. In heavy volume, 1.5 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.10 higher to $57.40 per barrel and wholesale gasoline was unchanged at $1.73 per gallon. Elsewhere, the Bloomberg gold spot price decreased $8.30 to $1,275.34 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 93.07.

PVH Corp. (PVH $135) reported Q3 earnings-per-share (EPS) of $3.05, or $3.02 ex-items, versus the $2.91 FactSet estimate, as revenues increased 5.0% year-over-year (y/y) to $2.4 billion, above the projected $2.3 billion. PVH issued Q4 EPS guidance that was below expectations, though it raised its full-year profit outlook. The parent of Calvin Klein and Tommy Hilfiger projected Q4 and full-year revenues to be slightly above estimates. Shares declined.

Kroger Co. (KR $26) posted Q3 profits of $0.44 per share, compared to the forecasted $0.40, with revenues rising 4.5% y/y to $27.7 billion, above the expected $27.5 billion. The grocer's Q3 same-store sales grew 1.1% y/y, versus the estimated 0.9% gain. KR reaffirmed its full-year EPS outlook. Shares rallied.

Costco Wholesale Corp. (COST $184) moved nicely higher after the company said its November same-store sales grew 10.8% y/y, above the projected 7.9% increase. L Brands Inc. (LB $56) said its November same-store sales declined 1.0% y/y, versus the forecasted 0.2% gain, but noted that it sees December sales being flat to up low-single digits. LB rallied.

Personal income and spending rise, jobless claims dip

Personal income (chart) rose 0.4% month-over-month (m/m) in October, above the Bloomberg forecast of a 0.3% gain, and compared to September's unrevised 0.4% increase. Personal spending increased 0.3% last month, matching expectations, and versus September's downwardly revised 0.9% gain. The October savings rate as a percentage of disposable income was 3.2%. The PCE Deflator was 0.1% higher, in line with expectations and versus the prior month's unrevised 0.4% gain.

Compared to last year, the deflator was 1.6% higher, north of estimates of a 1.5% rise and compared to September's upwardly revised 1.7% gain. Excluding food and energy, the PCE Core Index was 0.2% higher m/m, matching expectations, and versus the prior month's upwardly revised 0.2% gain. The index was 1.4% higher y/y, in line with estimates, and compared to September's upwardly revised 1.4% increase.

Weekly initial jobless claims (chart) declined by 2,000 to 238,000 last week, versus forecasts calling for it to match the prior week’s upwardly revised 240,000 figure. The four-week moving average rose by 2,250 to 242,250, while continuing claims grew by 42,000 to 1,957,000, north of estimates of 1,890,000.

The Chicago Purchasing Managers Index (chart) declined in November to 63.9 from October's unrevised 66.2 level, and better than expectations calling for a decline to 63.0. The index remained solidly in expansion territory (above 50) and pulled back from the highest level since March 2011, adding to a long list of signs that the manufacturing sector remains solid.

Schwab's Chief Investment Strategist Liz Ann Sonders notes that U.S. business capital spending has already picked up but an even sharper recovery could be in the cards for 2018, while tax reform—if we get it—would be an additional kicker in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle. Tomorrow, November manufacturing activity will be on display with the releases of the ISM Manufacturing Index and the final Markit Manufacturing PMI Index. The ISM index is projected to dip to 58.3 from 58.7 in October, while Markit's index is expected to be revised higher to 54.0 from the preliminary 53.8 reading, but slightly below October's 54.6 level. Readings above 50 for both reports denote expansion.

Treasuries traded lower, with the yield on the 2-year note rising 2 basis points (bps) to 1.78%, the yield on the 10-year note gaining 3 bps to 2.42%, and the 30-year bond rate ticking 1 bp higher to 2.83%.

Treasury yields added to yesterday's noticeable curve steepening after a recent bout of flattening that fostered some market weariness, while the U.S. dollar pared its modest weekly rebound.
The markets continued to grapple with the continued signs of broad-based global economic growth and mostly favorable earnings results, along with tax reform uncertainty. The Senate appears headed to vote later today or tomorrow on its bill with signs emerging the past couple days that it has been tweaked enough to find enough support to pass. This has fostered some optimism regarding tax reform becoming a reality this year, but has also resulted in some rotation in the stock market sectors, which helped lead yesterday's selloff in the tech sector.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, if the bill passes the Senate, the House and Senate would need to convene a conference to negotiate and reconcile differences between the two bills to produce a single consensus bill. That bill would then need to be approved by both chambers before it could be sent to President Donald Trump for his signature.

Negotiations between the two chambers will likely be extremely challenging, given the differences between the two approaches. For investors, we still think it is too early to take any drastic action. If and when a tax bill passes, there will be time to review the details and amend your tax and financial plans accordingly. Regardless of the outcome of the tax bill, it’s always a good idea to meet with your tax and financial advisors before the end of the year to review your current financial situation and discuss your plans for the coming year.

Tomorrow, the U.S. economic calendar will give us a look at national manufacturing activity in November with the releases of the ISM Manufacturing Index, projected to dip to 58.3 from 58.7 in October, and the final Markit Manufacturing PMI Index, expected to be revised higher to 54.0, but down from October's 55.3 level. Readings above 50 for both depict expansion. Construction spending for October will also be reported, forecasted to have increased 0.5% after rising 0.3% in September.

Europe gives up gains as euro and pound rally, Asia mostly lower

European equity markets relinquished early gains and finished mostly lower, with the euro extending a rise amid a downside reversal for the U.S. dollar late in the session and the British pound jumping on signs of progress in deadlocked Brexit negotiations. Energy issues gave up an advance as crude oil prices were choppy ahead of today's OPEC production decision. OPEC is expected to deliver an extension of cuts to the end of 2018 but there were some uncertainties that lingered ahead of the decision. U.S. tax reform optimism continued but this fostered yesterday's noticeable rotation out of the technology sector, and the group remained under pressure on this side of the pond. In economic news, eurozone consumer price inflation estimates came in a bit cooler than expected for November, while the region's October unemployment rate dipped unexpectedly. German retail sales surprisingly fell last month. In his latest article, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, addresses the question Are Stocks too Expensive?, noting that although world stock market valuations are above average, similar valuations have produced double-digit gains over the following 12 months during the past 50 years. Jeff concludes that valuations support a globally diversified portfolio offering the best diversification benefits in 20 years. Bond yields finished mostly lower to exacerbate pressure on financials.

Stocks in Asia finished mostly lower, with the global selloff in the tech sector weighing on markets, while optimism of U.S. tax reform lingered and a flood of data in the region was digested. Shares trading in mainland China and Hong Kong fell, with the weakness in tech more than offsetting the government's reports on manufacturing and the key services sectors showing growth accelerated for both, with the former surprisingly increasing. South Korean equities dropped as the tech pullback was met with an expected increase in the Bank of Korea's benchmark interest rate and an unexpected drop in the nation's industrial production. Australian securities moved lower with financials seeing some pressure after the government announced that it will launch an inquiry into the sector. Indian stocks also traded to the downside on the tech volatility and ahead of the nation's Q3 GDP report. After the closing bell, India's Q3 GDP accelerated to a 6.3% y/y pace of growth, but slightly below the projected 6.4% expansion.

However, Japanese equities rose with the yen extending yesterday's weakness and strength in financials helping counter the slide in the tech sector. Japan reported that industrial production rose at a smaller rate than expected but growth in vehicle production accelerated solidly in October. Despite the downside pressure on most markets, they remain nicely higher on the year, fostered by the broadest economic growth in a decade and is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, in his article, 5 Reasons Investors Should Give Thanks.

The international economic docket for tomorrow will yield a host of reports from Japan as the island nation reports its jobless rate, CPI, capital spending, company sales and vehicle sales. China, India and South Korea will deliver manufacturing PMI reads and the latter will also announce final Q3 GDP. Reports from across the pond will include Markit Manufacturing PMI reads from the U.K., Germany, France, Italy and the eurozone.