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Stocks Remain Mixed on Trade Headlines and Data

U.S. stocks are mixed, but remain near all-time highs and are heading toward a fifth-straight weekly gain that has been fueled by increased optimism of a U.S.-China "phase one" trade deal. However, some of the trade optimism luster has been rubbed off by President Donald Trump saying that the two sides have not agreed to rollback tariffs. Dow member Walt Disney is rising on its stronger-than-expected earnings, while Gap is falling after warning that profits will be below the Street's forecasts. Treasury yields are little changed after a recent rally and the U.S. dollar continues to firm, with consumer sentiment rebounding further from a three-year low. Crude oil and gold prices are lower. Asia finished mixed and Europe is mostly moving to the downside.

At 10:55 a.m. ET, the Dow Jones Industrial Average is declining 0.2% and the S&P 500 Index is dipping 0.1%, while the Nasdaq Composite is ticking 0.1% higher. WTI crude oil is dropping $0.76 to $56.39 per barrel, Brent crude oil is trading $0.77 lower at $61.52 per barrel, and wholesale gasoline is off $0.02 at $1.62 per gallon. The Bloomberg gold spot price is falling $3.35 at $1,465.15 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is increasing 0.2% to 98.34.

Dow member Walt Disney Company (DIS $138) reported fiscal Q4 earnings-per-share (EPS) of $0.43, or $1.07 ex-items, versus the $0.94 FactSet estimate, as revenues rose 34.0% year-over-year (y/y), reflecting its acquisition of Twenty-First Century Fox and a controlling interest in Hulu, to $19.1 billion, compared to the forecasted $19.2 billion. Revenues from its media and networks, and parks, experiences and consumer products business segments topped the Street's forecasts, while its studio entertainment revenues were below forecasts. The company also announced distribution deals for its Disney+ streaming service with Amazon, Samsung and LG. Shares are solidly higher.

Gap Inc. (GPS $17) is falling after the company warned that it expects Q3 EPS to be about $0.50-0.52, below the projected $0.55, noting that same-store sales at its Gap, Banana Republic, and Old Navy stores are expected to be down. Additionally, GPS announced that its Chief Executive Officer (CEO) Art Peck will step down and Robert Fisher has been named CEO on an interim basis.

With earnings season galloping down the home stretch, results have been better than feared, contributing to the rally to all-time highs for the U.S. stock markets, as discussed in the Schwab Center for Financial Research's latest, Schwab Sector Views: Macro View is Obscure, but the Earnings Landscape is Clearer.

Consumer sentiment improves slightly this month

The November preliminary University of Michigan Consumer Sentiment Index (chart) rose to 95.7 versus the Bloomberg expectation to remain at October's read of 95.5. The index continued to rebound off of the near three-year low in August and posted the highest level since July as a decline in the current conditions component of the survey was more than offset by an improvement in the expectations portion of the index. The 1-year inflation forecast remained at October's 2.5% rate, and the 5-10 year inflation forecast ticked higher to 2.4% from October's 2.3% pace.

September wholesale inventories (chart) were revised lower to a 0.4% month-over-month (m/m) increase, from the preliminary estimate of a 0.3% decline, where it was expected to remain, and compared to August's upwardly-revised 0.1% rise. Sales were flat, following August's downwardly-revised 0.1% dip.

With manufacturing data soft and being countered by relatively solid consumer/services reports, Schwab’s Chief Investment Strategist Liz Ann Sonders discusses in her latest article, Split Personality: U.S. Economy's Bifurcation Persists, that the bifurcation between weak manufacturing/capex and stronger services/consumption is seen in the stark differential between CEO and consumer confidence, while noting that profitability and employment data continues to be key to watch for any signs of the bifurcation breaking down.

Treasuries are little changed after a recent drop partly attributed to increased trade optimism, with the yield on the 2-year note dipping 1 basis point to 1.66%, while the yields on the 10-year note and the 30-year bond are little changed at 1.92% and 2.40%, respectively. For a look at fixed income investing, check out Schwab's Chief Fixed Income Strategist Kathy Jones' commentary, The Bond Investors' Dilemma.

Europe mostly lower as trade continues to garner attention, along with data

European equities are mostly lower in late-day action, on the heels of the recent rally in the global markets on increased optimism of a U.S.-China "phase one" trade deal that has taken the U.S. markets back to record high territory. However, mixed headlines seem to be fostering some uncertainty regarding when/if a deal between the two largest economies will be completed. Earnings and economic data is in focus, with shares of Richemont SA (CFRUY $7) falling after the Swiss watchmaker posted softer-than-expected profits, though German exports in September rose more than expected. In other economic news, French industrial and manufacturing production figures came in mixed. The euro and British pound are dipping versus the U.S. dollar, but bond yields in the region are mixed after a recent climb. Global economic data has been mixed and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, delivers his latest article, Will The Crash in Autos Drive The End Of This Cycle?, discussing the question of how the last global economic cycle ended with a housing bust; will the bust in auto sales end this cycle? Jeff notes that this auto-led downturn may be less damaging to the global economy than the housing bust was 10 years ago, but automobile manufacturing still accounts for a sizable amount of production, debt, and jobs.

The U.K. FTSE 100 Index and Spain's IBEX 35 Index are down 0.6%, France's CAC-40 Index is declining 0.2%, Germany's DAX Index is decreasing 0.4%, and Switzerland's Swiss Market Index is trading 0.3% lower, while Italy's FTSE MIB Index is little changed.

Asia mixed on data and trade focus

Stocks in Asia finished mixed, with the recent reports of progress toward a "phase one" U.S.-China trade deal, which have lifted sentiment, appearing to face some scrutiny regarding the possibility of a deal being signed. Also, the markets are digesting some key economic reports, with Chinese exports for October coming in better than expected, while September Japanese wage and household spending figures were above estimates. Japan's Nikkei 225 Index rose 0.3%, amid the data and as the yen held onto yesterday's decline, while Australia's S&P/ASX 200 Index finished little changed. China's Shanghai Composite Index decreased 0.5% and the Hong Kong Hang Seng Index declined 0.7%. South Korea's Kospi Index traded 0.3% lower and India's S&P BSE Sensex 30 Index fell 0.8%. Amid the recent rally in global markets that has led to a return to all-time highs for U.S. stocks, Schwab's Jeffrey Kleintop, discusses in his commentary, Are Stocks Priced for Perfection or Recession, how fortunately, stocks are nowhere near that overvalued, based on the price-to-earnings ratio. But, he adds that if we take a more refined look at historical stock market valuations at peaks and lows, we find some cause for concern.

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Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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