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Stocks Looking to End Week in the Green

U.S. stocks are higher in early action, even as U.S.-China trade uncertainty remains, with Chinese President Xi saying the nation wants to work out an initial trade agreement but it is not afraid to retaliate when necessary. Meanwhile, the global markets are digesting a host of manufacturing and services sector reports, which showed Eurozone business activity was mixed and the contraction in Japanese manufacturing output slowed and its services sector returned to growth. The data comes ahead of reports on the sectors out of the U.S. Treasury yields are declining, along with crude oil prices, while the U.S. dollar is little changed and gold is rising. Retail sector earnings reports continue to pour in, with results from Gap, Nordstrom and Williams-Sonoma coming in mixed. Asia finished mixed and Europe is trading to the upside.

As of 9:05 a.m. ET, the December S&P 500 Index future is 7 points above fair value, the DJIA future is 62 points above fair value, and the Nasdaq 100 Index future is 23 points north of fair value. WTI crude oil is increasing $0.12 to $58.70 per barrel and Brent crude oil is rising $0.08 to $64.05 per barrel. The Bloomberg gold spot price is trading $4.01 higher to $1,468.36 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is little changed at 98.01.

Gap Inc. (GPS $16) reported Q3 earnings-per-share (EPS) of $0.37, or $0.53 ex-items, versus the $0.51 FactSet estimate, as revenues declined 2.0% year-over-year (y/y) to $4.0 billion, roughly in line with forecasts. Q3 same-store sales declined 4.0% y/y, compared to the expected $3.9% decrease. Same-store sales at its Old Navy, Gap and Banana Republic units all were negative y/y. GPS reaffirmed its full-year earnings outlook, but lowered its forecast for same-store sales.

Nordstrom Inc. (JWN $34) posted Q3 EPS of $0.81, above the projected $0.63, with revenues decreasing 2.2% y/y to $3.6 billion, below the forecasted $3.7 billion. JWN raised the low end of its full-year EPS guidance, while reaffirming its revenue outlook.

Williams-Sonoma Inc. (WSM $69) announced Q3 earnings of $0.94 per share, or $1.02 ex-items, versus the estimated $1.01, as revenues rose 6.3% y/y to $1.4 billion, roughly in line with forecasts. Q3 same-store sales increased 5.5% y/y, compared to the expected 5.1% gain, as its Pottery Barn same-store sales rose more than expected, but its Williams-Sonoma sales fell more than projected. WSM raised the low end of its EPS, revenue and same-store sales outlooks.

Business activity, consumer sentiment and regional manufacturing reports set to hit

Treasuries are rising, with the yield on the 2-year note flat at 1.60%, while the yields on the 10-year note and the 30-year bond are declining 2 basis points to 1.76% and 2.21%, respectively. For a look at fixed income investing, check out Schwab's Chief Fixed Income Strategist Kathy Jones' commentary, The Bond Investors' Dilemma, and her latest video, Investing in Bonds with a Flat to Inverted Yield Curve.

After the opening bell, the economic calendar will bring the releases of the preliminary Markit U.S. Manufacturing PMI, forecasted to tick higher to 51.4 this month from October's 51.3 level, and the Markit U.S. Services PMI, expected to rise to 51.0 in November from last month's 50.6 figure, with readings above 50 for both indexes denoting expansion. Moreover, we will get the releases of the final University of Michigan Consumer Sentiment Index for November, estimated to be unrevised at the preliminary estimate of 95.7, above October's 95.5 figure, as well as the November Kansas City Fed Manufacturing Activity Index, forecasted to increase to -2 from -3 in October, with a reading below zero denoting contraction.

As the stock markets recently broke out to post a string of record highs, Schwab’s Chief Investment Strategist Liz Ann Sonders discusses in her latest article, Shiny Happy People: Investors Cheering Stocks' New Highs, for the past near-two years we have been pointing out the confluence of uncertainties that have meant the market could "go either way"—including most obviously trade/tariffs, but also the related economic trajectory, Fed policy and geopolitical/political uncertainty. She adds that it has led to a wide trading range—the peaks and valleys of which have been driven as much by extremes in sentiment as they have by the changing dynamics of the underlying fundamentals. Liz Ann concludes that in light of that, and the extremes of sentiment we are witnessing again, investors should not view the market’s latest high with rose-colored glasses.

Europe higher following business activity reports and continued focus on trade

European equities are trading higher in afternoon action, as the euro is little changed and the British pound is losing ground versus the U.S. dollar, while bond yields are seeing pressure. The markets are digesting a host of manufacturing and services sector reports for this month. Markit's Eurozone Manufacturing PMI improved more than expected but remained in contraction territory, while Markit's Services PMI unexpectedly declined but remained in expansion territory. Markit's U.K. Services and Manufacturing PMIs both surprisingly slowed to levels depiction contraction. The U.S.-China trade front remains in focus, with mixed headlines keeping uncertainty resurfacing, and European Central Bank President Christine Lagarde delivered her first speech, in which she pointed out the importance of fiscal policy in fixing the region's challenges. The hampered auto sector is trading higher to lend some support and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, delivers his 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 is rallying 1.4%, Germany's DAX Index is up 0.3%, France's CAC-40 Index is rising 0.4%, Italy's FTSE MIB Index is gaining 0.2%, Spain's IBEX 35 Index is increasing 0.5%, and Switzerland's Swiss Market Index is advancing 0.6%.

Asia mixed on data and as trade uncertainty lingers

Stocks in Asia finished mixed, with the markets focusing on a host of manufacturing and services sector data set for throughout the day, while uncertainty regarding a U.S.-China "phase one" deal remained, with Chinese President Xi saying the nation wants to work out an initial trade agreement but it is not afraid to retaliate when necessary. Schwab's Jeffrey Kleintop, discusses in his latest commentary, Tied to Trade: What's Next for Emerging Market Stocks?, how a wide range of outcomes from -10% to +40% may lie ahead of emerging market stocks depending on the timing and details of a trade deal. Japan's Nikkei 225 Index increased 0.3%, with the yen remaining choppy, while data showed the nation's manufacturing contraction slowed and its services sector output returned to expansion territory for November, and its consumer price inflation rose mostly in line with expectations for October. China's Shanghai Composite Index declined 0.6% and the Hong Kong Hang Seng Index rose 0.5%. Australia's S&P/ASX 200 Index gained 0.6% and South Korea's Kospi Index moved 0.3% higher, though India's S&P BSE Sensex 30 Index decreased 0.5%.

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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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