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Market Update

Schwab clients get the latest in-depth U.S. market news as well as analysis and commentary from respected sources, both proprietary and third party.

Posted: 11/16/2018 11:15 AM EST

Equities Mixed as Tech Volatility Persists

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U.S. stocks are mixed, with chips stocks under pressure on weak guidance from NVIDIA and Applied Materials, ongoing trade concerns, exacerbated Brexit turmoil and positive manufacturing data. Crude oil prices and energy stock prices are higher. Treasury yields and the U.S. dollar are lower, while gold is up. Asia finished mixed and Europe is lower.

At 11:00 a.m. ET, the Dow Jones Industrial Average is up 0.3%, the S&P 500 Index is ticking 0.1% higher and the Nasdaq Composite is down 0.4%. WTI crude oil is increasing $1.27 to $57.97 per barrel, Brent crude oil is advancing $1.34 at $67.97 per barrel, and wholesale gasoline is up $0.05 at $1.61 per gallon. The Bloomberg gold spot price is decreasing $7.99 to $1,221.35 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is falling 0.4% to 96.52.

Applied Materials, Inc. (AMAT $34) reported fiscal Q4 earnings-per-share (EPS) of $0.89, or $0.97 ex-items, versus the $0.97 FactSet estimate, as revenues grew 1.1% year-over-year (y/y) to $4.0 billion, matching expectations. AMAT issued tighter fiscal Q1 EPS and revenue guidance, with Applied Global Services and display sales segments notable detractors. Shares are lower.

NVIDIA Corporation(NVDA $170) posted Q3 EPS of $1.97, compared to the forecasted $1.71, with the chipmaker noting excess channel inventory from the previous crypto-currency boom. Revenues rose 21.0% y/y to $3.2 billion, roughly in line with expectations. NVDA noted that its cash dividend would be raised by 7% and the company issued Q4 revenue guidance that was below the Street's forecasts. Shares are under heavy pressure.

Williams-Sonoma, Inc. (WSM $54) announced Q3 earnings of $0.95 per share, versus the $0.94 expectation, as revenues increased 4.4% y/y to $1.4 billion, below expectations, with analysts pointing to inventory delays during the quarter as a factor. WSM released full-year earnings and revenue guidance with a midpoint below forecasts. The company's same-store sales missed the Street's expectations, particularly in its Williams-Sonoma and Pottery Barn segments. WSM is trading sharply lower.

Manufacturing data improves

The September Kansas City Fed Manufacturing Activity Index surprisingly increased to 15, from September's 8 level, versus forecasts of 11, but a reading above zero denotes expansion.

The Federal Reserve's industrial production report (chart) showed a 0.1% m/m rise in October, compared to estimates of a 0.2% gain and below September's downwardly revised increase of 0.2%. Manufacturing output ticked higher, while mining and utilities production both fell. Capacity utilization ticked higher to 78.4% from the prior month's upwardly-revised 78.5% rate, and versus forecasts of 78.2%. Capacity utilization is 1.4 percentage points below its long-run average.

Treasuries are ticking higher, with the yield on the 2-year note falling 4 basis points (bps) to 2.82%, the yield on the 10-year note descending 2 bps to 3.09%, and the yield on the 30-year bond is decreasing 1 bp to 3.35%. Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest article, Where Will Long-Term Interest Rates Settle?, that as we approach the end of rate increases for this economic cycle, it's becoming increasingly tempting to start to add duration to portfolios. Not so fast, she adds, concluding that until we see spreads between short- and long-term debts widen again, we suggest sticking with short- and intermediate-term debt.

Europe mixed as Brexit developments closely followed

European equities are mixed in late-day action, with the latest Brexit developments in sharp focus. Banking shares were under pressure over concerns of a disorderly U.K. exit from the European Union, while the British pound is stabilizing after bearing its biggest one-day loss against the euro since October 2016 on Thursday. It remains unclear if the most recent Brexit proposal can gain enough support in Parliament to pass, after resignations from four cabinet ministers, and amidst speculation of whether Prime Minister Theresa May's political career is in jeopardy. Inflation data from the Eurozone showed a hotter-than-expected rise in supercore inflation, possibly offset by muted October price increase data, as concerns on the pace of European Central Bank monetary policy normalization are garnering attention, as the euro is higher. Bond yields in the region are mixed.

The U.K. FTSE 100 Index is dipping 0.1%, France's CAC-40 Index is ticking 0.1% higher, Germany's DAX Index is increasing 0.4%, Spain's IBEX 35 Index is retreating 0.2%, Italy's FTSE MIB Index is advancing 0.2% and Switzerland's Swiss Market Index is up 0.6%.

Asia mixed as Brexit turmoil raises new uncertainties

Asian equities were mixed to close the week on the cool reactions to a provisional Brexit agreement and on recent U.S., China trade conflict developments. Market sentiment may have been rattled by the resignation of four U.K. cabinet ministers, including Brexit Secretary Dominic Raab, as the ability for the U.K. to leave the European Union in an orderly manner remained in doubt. China's Shanghai Composite Index increased 0.4%, and the Hong Kong Hang Seng Index moved 0.3% higher, extending a recent rebound, in spite of conflicting reports on whether the next wave of tariffs against China were already on hold appearing to harm investor sentiment and on new reports questioning if the People's Bank of China will cut the benchmark rate to stimulate the economy. Stocks fell from their highs when a spokesperson for the U.S. Trade Representative told CNBC that reports of a hold on tariffs were incorrect. Japan's Nikkei 225 Index fell 0.5% as shares of semiconductor shares in Japan fell, following disappointing guidance from Nvidia, and as the yen fell after rising to an earlier high. Australia's S&P/ASX 200 Index retreated 0.1%. South Korea's Kospi Index ticked 0.2% higher and India's S&P BSE Sensex 30 Index moved 0.6% higher. In China, non-financial foreign direct investment rose, including U.S. investments during the period, as growth concerns have persisted. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, Should You Invest In The Only Country Planning Stimulus in 2019?

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