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Stocks Post Mixed Results Heading into the Long Weekend

U.S. stocks finished mixed in final session of the week, as investors continue to monitor developments and the potential economic impact surrounding the spreading coronavirus. In economic news, consumer sentiment hit a near two-year high. However, separate data showing some disappointing core retail sales and continued industrial production sluggishness tempered enthusiasm. NVIDIA delivered strong Q4 results and offered solid future guidance. Shares of eBay got a boost after the company upped its outlook following the closing of its StubHub sale. Results from Expedia exceeded bottom line expectations. Treasuries and the U.S. dollar were higher. Gold and crude oil prices gained ground. Global equities finished mixed.

The Dow Jones Industrial Average was down 25 points (0.1%) to 29,398, the S&P 500 rose 6 points (0.2%) to 3,380 and the NASDAQ was up 19 points (0.2%) to 9,731. 844 million shares were traded on the NYSE and 2.2 billion shares changed hands on the NASDAQ. WTI oil was up $0.63 to $52.05 per barrel and wholesale gasoline was flat at $1.58 per gallon. Elsewhere, the Bloomberg gold spot price was up $7.60 to $1,586.40 per ounce. The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat. For the week, the Dow rose 1.0%, the S&P 500 added 1.6% and the NASDAQ added 2.2%.

NVIDIA Corporation (NVDA $290) reported Q4 earnings-per-share (EPS) of $1.53, or $1.89 ex-items, versus the $1.67 FactSet estimate, as revenues rose 41.0% year-over-year (y/y) to $3.1 billion, north of the Street's $3.0 billion forecast. The chipmaker said adoption of its accelerated computing drove "excellent" results, with record data center revenue. NVDA issued Q1 revenue guidance that exceeded expectations, noting that while the ultimate effect of the coronavirus is difficult to estimate, it has reduced its revenue outlook by $100 million to account for its potential impact. Shares rose solidly.

eBAY Inc. (EBAY $38) gained ground after the company raised its Q1 EPS and 2020 earnings and revenue outlooks, to reflect the benefit of its expanded share buyback plans and investment timing—as it completed the sale of its StubHub unit to viagogo—partially offset by the impact of removing StubHub.

Expedia Group Inc. (EXPE $123) posted Q4 EPS of $0.52, or $1.24 ex-items, versus the projected $1.19, with revenues growing 8.0% y/y to $2.8 billion, roughly in line with expectations. The travel company's room night growth exceeded forecasts and its gross bookings were higher compared to last year. The company said it is not providing specific guidance regarding the full effect of the coronavirus but it expects 2020 operating earnings growth to be in the double-digits. Shares rallied.

Q4 earnings season is winding down, and approximately 66% of the 389 S&P 500 companies that have reported thus far have topped revenue forecasts and roughly 76% have exceeded earnings estimates, per data compiled by Bloomberg. Sales growth compared to last year is tracking at about 3.6%, and earnings expansion is on pace to post a 1.3% rate, with the healthcare sector leading on the revenue side, while utilities and communications services sectors are showing the strongest earnings growth. However, energy and materials sectors have seen their revenue and earnings fall decisively during the reporting season. Read why we still support an overweight of large caps at the expense of small caps, while holding outperform ratings on financials and healthcare sectors, in Schwab's Chief Investment Strategist Liz Ann Sonders' article, Best of What's Around: Sticking with Large Caps and the Schwab Center for Financial Research's Schwab Sector Views: New Sector Ratings for the New Year.

Core retail sales and industrial production miss, but consumer sentiment nears a two-year high

Advance retail sales (chart) for January rose 0.3% month-over-month (m/m), matching the Bloomberg forecast, and above December's downwardly-revised 0.2% increase. Last month's sales ex-autos moved 0.3% higher m/m, in line with expectations but below December's negatively-revised 0.6% increase. Sales ex-autos and gas grew 0.4% m/m, compared to estimates of a 0.3% gain, and December's reading was unadjusted at a 0.5% rise. Motor vehicle and furniture sales were higher, and sales at nonstore retailers, which includes online activity, ticked to the upside. However, the control group—a figure that excludes food services, car dealers, building materials and gasoline stations and is used to calculate GDP—was flat m/m, south of projections of a 0.3% gain and December's downwardly-adjusted 0.2% increase. Sales of clothing, electronics and appliances, and health and personal care, all declined to weigh on the report.

The February preliminary University of Michigan Consumer Sentiment Index (chart) rose to 100.9 versus expectations to dip to 99.5 from January's 99.8 reading. The index hit the highest level since March 2018, as a dip in the current conditions portion of the report was more than offset by a solid gain for the expectations component. The 1-year inflation forecast remained at January's 2.5% rate, but the 5-10 year inflation forecast declined to 2.3% from 2.5%.

The Federal Reserve's industrial production (chart) declined 0.3% m/m in January, versus estimates of a 0.2% decrease, and December's negatively-adjusted 0.4% drop. Unseasonably warm weather held down the output of utilities and Boeing's significantly slowed production caused manufacturing output to dip, but mining production rose solidly. Capacity utilization declined to 76.8% from the prior month's upwardly-revised 77.1% rate, and in line with expectations. Capacity utilization is 3.0 percentage points below its long-run average.

A healthy labor market has supported consumer-related activity and helped overcome sluggishness in the manufacturing sector but Schwab's Liz Ann Sonders notes in her latest article, Sleight of Hand: Dissecting the Latest Employment Data, that last Friday's jobs report, as well as other recent labor market data, has an "on the one hand; on the other hand" flavor to it.

The Import Price Index (chart) came in flat m/m for January, compared to projections of a 0.2% decline, and following December's downwardly-revised 0.2% gain. Compared to last year, prices rose 0.3%, above forecasts of a 0.2% rise and versus December's unrevised 0.5% increase.

Business inventories (chart) ticked 0.1% higher m/m in December, matching forecasts, and versus November's unadjusted 0.2% decrease.

Treasuries were higher, with the yield on the 2-year falling 2 basis points (bps) to 1.43% and the 10-year note and the 30-year bond rates shedding 3 basis points (bps) to 1.59% and 2.04%, respectively. Schwab's Chief Fixed Income Strategist Kathy Jones provides a look at fixed income investing in her latest article, Bond Market Outlook: Coronavirus Changes the Picture, noting that with China's industrial heartland at the center of the epidemic, the ripple effects may be larger and longer-lasting than in previous outbreaks.

Europe mixed on data and coronavirus uncertainty

Global equities finished mixed, with the markets continuing to grapple with the rising uncertainty regarding the spreading of the coronavirus. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Will the Coronavirus Outbreak Lead to a Market Breakdown?, that while it is impossible to predict the extent a virus can spread and have greater consequences than past epidemics, history indicates that the global economy and markets have been relatively immune to the effects of past epidemics. Jeff adds that investors may have little need to take action if their portfolios are diversified and aligned with their long-term plan. And for even more on the coronavirus issue, check out Schwab's Liz Ann Sonders' article, Virus: Could it be the Catalyst to Change Sentiment?

Eurozone Q4 GDP growth showed the combined economy of the 19 member nations grew 0.1% quarter-over-quarter to match forecasts, while a 0.9% year-over year growth rate was a bit south of the expected 1.0% gain. The euro was flat versus the U.S. dollar, the British pound paused from its recent rise and the Japanese yen strengthened modestly. Bond yields in Europe were mostly lower, while Japan saw higher rates.

As for the major global indexes, the U.K. FTSE 100 Index was down 0.6%, France's CAC-40 Index decreased 0.4%, and Italy's FTSE MIB Index dipped 0.1%, while Germany's DAX Index was little changed, Spain's IBEX 35 Index rose 0.5%, and Switzerland's Swiss Market Index advanced 0.3%. China's Shanghai Composite Index rose 0.4% and the Hong Kong Hang Seng Index gained 0.3%. South Korea's Kospi Index traded 0.5% to the upside and Australia's S&P/ASX 200 Index advanced 0.4%. Japan's Nikkei 225 Index declined 0.6%. India's S&P BSE Sensex 30 Index decreased 0.5%.

Stocks overcome coronavirus choppiness

Stocks posted a second-straight weekly rally, notching another round of record highs and showing some resiliency in the face of ongoing uncertainty and choppiness that stemmed from the spreading coronavirus. The markets appeared to look past the impact of the outbreak, aided by a host of containment and stimulus measures out of China, and as earnings season continued to be highlighted by the chip companies to bolster the tech sector. Moreover, economic data remained relatively positive, with small business optimism improving more than expected, subdued inflation persisting, jobless claims continuing at historically low levels, and consumer sentiment charging closer to a two-year high. All the major stock market sectors finished higher and the aforementioned tech strength was met with noticeable gains for real estate and consumer discretionary issues. The communications services sector also moved solidly higher, aided by a surge in Sprint Corp. (S $9) after a federal judge ruled in favor of its $26 billion merger withT-Mobile U.S. Inc. (TMUS $96) that has been in limbo for nearly two years. However, the coronavirus uncertainty has added another layer of pressure on Treasury yields as the curve remained flat, while the U.S. dollar extended its grind higher that began at the start of 2020. Crude oil prices recovered from Monday's year-low to help the energy sector stem a recent tumble and gold continued to find demand.

Next week, although shortened by Monday's Presidents' Day holiday, as all U.S. markets will be closed, Q4 earnings season will continue toward the home stretch, headlined by Dow member Walmart Inc's (WMT $118) results, and the economic calendar will remain robust. Housing will come into focus, courtesy of the releases of the NAHB Housing Market Index, housing starts and building permits, and existing home sales. Manufacturing data for February will also likely command attention, with key regional reports out of New York and Philadelphia, along with Markit's preliminary Manufacturing PMI. We will also get some timely data points in the form of weekly initial jobless claims and the Leading Index. Inflation data will continue to pour in as the Producer Price Index is set to hit the wires and the Fed could garner some attention on the heels of the midweek release of the minutes from its late-January monetary policy meeting as discussed by Schwab's Kathy Jones in her article, Fed Holds Rates Steady, Cites "Moderate" Economic Growth.

As noted in our latest Schwab Market Perspective: Will Coronavirus Have a Lasting Impact?, the coronavirus outbreak in China unnerved investors in January, leading to a sharp (but short) U.S. stock market drop. Although stocks quickly resumed their rally toward new highs, the reaction highlighted stocks' near-term vulnerability. At the same time, divergences and weak spots have become apparent in global economic data. It's hard to say if the coronavirus will be different from past epidemics that historically have had relatively minimal long-term effects on stocks. Investors may have little need to take action in the near-term if their portfolios are diversified and aligned with their long-term plan. We continue to recommend that investors remain at their long-term strategic equity allocations—but use swings in either direction to rebalance back toward those targets, if necessary.

Next week's international economic docket will also be heavy, with a plethora of manufacturing PMI reports being accompanied by potential market-moving data including: Australia—employment change. China—lending statistics and the setting of 1-year and 5-year prime loan rates. Japan—Q4 GDP, trade balance, core machine orders and consumer price inflation statistics. Eurozone—consumer confidence and consumer price inflation reports, along with German investor sentiment. U.K.—inflation data, employment change and retail sales.

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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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