Stocks Post Subdued Session Ahead of Holiday Break
U.S. stocks finished modestly higher in a subdued final session of a week that saw a solid advance bolstered by optimism regarding the continued reopening of global economies, recent signs of progress from the healthcare sector on potential defenses against COVID-19, and the massive monetary and fiscal policy responses. Adding to the long list of monetary policy actions, the Bank of Japan pledged further support, the European Central Bank signaled that it is ready to do more, and India cut interest rates after an unscheduled meeting. However, U.S.-China tensions continued to simmer as the latter proposed new laws against Hong Kong and scrapped its longstanding tradition of offering an annual growth target. Deere & Company reversed lower, while NVIDA and Splunk rose, on the heels of their quarterly results. Treasury yields dipped as bond prices ticked higher in a shortened session ahead of Monday's Memorial Day holiday break for the U.S. markets. The economic calendar was void of any major releases today. The U.S. dollar advanced, along with gold, while crude oil prices chipped away at a recent sharp surge. Europe finished mixed and Asia saw some pressure.
The Dow Jones Industrial Average dipped 9 points to 24,465, while the S&P 500 Index rose 7 points (0.2%) to 2,955 and the Nasdaq Composite moved 40 points (0.4%) higher to 9,325. In moderate volume, 720 million shares were traded on the NYSE and 3.6 billion shares changed hands on the NASDAQ. WTI crude oil fell $0.67 to $33.25 per barrel and wholesale gasoline dipped $0.01 to $1.05 per gallon. Elsewhere, the Bloomberg gold spot price advanced $8.23 to $1,735.23 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 0.4% to 99.77. Markets were higher for the week, as the DJIA rose 3.3%, the S&P 500 gained 3.2%, and the Nasdaq Composite rallied 3.4%.
Deere & Company (DE $141) reported fiscal Q2 earnings-per-share (EPS) of $2.11, compared to $3.52 a year ago, and versus the $1.69 FactSet estimate. Revenues fell 20.0% year-over-year (y/y) to $8.2 billion, above the Street's forecast of $7.9 billion. The company said its employees, dealers and suppliers worked tirelessly to keep its operations safe and its customers up and running during this challenging period. DE added that annual worldwide sales of agriculture and turf equipment are forecasted to decline 10-15% and sales of construction and forestry equipment are projected to be down 30-40%, though DE said many uncertainties remain regarding the effects of the COVID-19 global pandemic. Shares gave up an early gain and finished lower.
NVIDIA Corporation (NVDA $361) posted Q1 EPS of $1.47, or $1.80 ex-items, versus the $0.88 a year ago, and compared to the projected $1.65. Revenues grew 38.7% y/y to $3.1 billion, topping the expected $3.0 billion. NVDA said it saw record data center revenues, which were up 80% y/y, and its recent acquisition of Mellanox expands its cloud and data center opportunity. The computer graphic chip company issued Q1 revenue and gross margin guidance that was above estimates, while noting that it remains committed to paying its quarterly dividend, but due to current market uncertainties, it is evaluating the timing of resuming share repurchases and will remain nimble based on market conditions. Shares gained ground.
Splunk Inc. (SPLK $184) announced a Q1 loss of $1.94 per share, or a shortfall of $0.56 ex-items, versus EPS of $0.02 a year ago, and the Street's estimate of a $0.57 per share loss. Revenues rose 2.2% y/y to $434 million, south of the projected $443 million. The provider of the data-to-everything platform said its shift to a SaaS model is accelerating with cloud driving nearly half of total software bookings in the quarter with annual recurring revenue (ARR) growing 52% y/y. The company said COVID-19 has transformed the world into one that requires rapidly accelerated digital transformation to keep organizations moving and it is seeing some resilient customers complete three-to-five year projects in just months. SPLK added that as customers continue to adapt to this new normal, data matters more than ever, evidenced by its continued strong momentum this quarter. The company withdrew its full-year guidance. Shares were nicely higher.
The equity markets posted a solid weekly advance despite the festering COVID-19 pandemic that has caused a decisive disruption of economic activity and the global standard of living, aided by the massive fiscal and monetary policy relief efforts, the continued global reopening of economies and signs of progress regarding potential answers to the pandemic from the healthcare sector.
Our latest Schwab Market Perspective: Riding the Liquidity Wave, discusses the several reasons for the sharp gains for the U.S. stock markets in April and early May, including the massive injection of liquidity from both the Federal Reserve and Congress, the historically common trait of stocks rebounding in advance of the trough in economic activity and as the globe gets past the peak in lockdowns. Market volatility underscores the importance of having a portfolio that contains a variety of asset classes, including stocks and bonds, balanced in a way that reflects your risk tolerance and investment timeline. It's also a good idea to rebalance your portfolio periodically to bring it back to your original asset allocation targets. And for a look at the current highly uncertain environment in the stock markets, check out our latest Schwab Sector Views: On the Field Without a Playbook.
For timely news and analysis follow Schwab experts from the Schwab Center for Financial Research (SCFR) on Twitter at @SchwabResearch, and investors can stay up-to-date on all the content that Schwab offers on the unparalleled market action at www.schwab.com/volatility.
Treasury yields dip ahead of holiday weekend
Treasuries were higher, with the yield on the 2-year note little changed at 0.17%, while the yield on the 10-year note dipped 1 basis point (bp) to 0.66% and the 30-year bond rate declined 2 bps to 1.37%. Treasury yields have nudged higher on the week, while the U.S. dollar slipped, gold prices retreated modestly from multi-year highs and crude oil prices continued a sharp recovery despite today's drop.
With the Fed ramping up purchases of Treasuries and mortgage-backed securities, as well as lending support to some areas of the corporate and municipal debt markets, Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest article, Stimulus = Inflation? Why It May Be Different This Time, how despite massive fiscal and monetary stimulus, we believe there's little risk of inflation in the next few years.
economic calendar The was void of any major releases today, but this week saw evidence of the severe disruption of the COVID-19 pandemic, but some potential signs that economic activity may be improving in May from April's deep drop in business activity. April reads on housing construction activity, Leading Indicators and existing home sales all posted decisive declines, while weekly initial jobless claims for last week remained painfully elevated at roughly 2.4 million, though May reports on homebuilder sentiment and Markit’s manufacturing and services output
Every Picture Tells a Story: "Chartbook" Look at Economy/Marketshowed improvement but remained at poor and contraction territories, respectively. Schwab's Chief Investment Strategist Liz Ann Sonders provides her latest article, , offering a visual look at the latest trends and statistics across the spectrum of the economy, policy and the stock market.
Although next week will be shortened by the holiday and earnings season being all but in the books, the economic calendar is poised to garner scrutiny as the markets grapple with whether April was the trough in business activity that was impacted by disruption of the COVID-19 pandemic. May reads on Consumer Confidence,
regional manufacturing activity, initial jobless claims for the week ended May 23rd, the Fed's Beige Book and the final University of Michigan Consumer Sentiment Index, will likely carry the most weight. However, the first revision (of two) to Q1 GDP could command some attention, along with April data on personal income and spending and durable goods orders. Friday morning's virtual discussion from Federal Reserve Chairman Jerome Powell at a Griswold Center for Economic Policy Studies Princeton Reunion Talk event may also contend for market attention.
Please note: All U.S. markets will be closed on Monday in observance of the Memorial Day holiday.
Europe mixed Asia lower to close out the week
European equities finished mixed, with the markets continuing to focus on the progress of global economic reopenings, some monetary policy actions/guidance that suggested more relief is in the offing, and the flaring-up of U.S.-China tensions. Japan pledged to deploy further measures to aid the economy amid the COVID-19 pandemic and the minutes from the European Central Bank's April meeting noted that the central bank is ready to deploy further measures to support the recovery, while India cut interest rates after an unscheduled meeting. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers his latest article, What's the Future Payback for the Stimulus. Jeff notes that it is becoming increasingly clear that the massive global stimulus is being financed by a rise in money, not debt and the biggest difference between a one-time rise in money compared to a rise in debt is a potentially brighter economic outlook. He adds that the biggest risk may be that this isn't a one-time event and in the future, governments might be more inclined to keep on running big budget deficits financed by central bank money potentially leading to slower growth, weaker currencies, unwanted inflation, and central bank insolvency. In economic news, U.K. April retail sales fell sharply. The euro and British pound saw pressure versus the U.S. dollar, and bond yields in the region traded mixed.
The U.K. FTSE 100 Index was down 0.4%, Germany's DAX Index ticked 0.1% higher, France's CAC-40 Index was little changed, Spain's IBEX 35 Index gained 0.2%, Italy's FTSE MIB Index increased 1.3%, and Switzerland's Swiss Market Index dropped 1.0%.
Stocks in Asia finished mostly lower as the simmering tensions between the U.S. and China were met with China abandoning a longstanding practice of setting an annual economic growth target, while proposed new security laws against Hong Kong weighed on sentiment. Hong Kong's Hang Seng Index tumbled 5.6% in response to China's proposal, and the Shanghai Composite Index fell 1.9%. Meanwhile, the markets continued to eye the global economic reopenings and recent headlines regarding potential answers to the COVID-19 pandemic out of the healthcare sector. Schwab's Jeffrey Kleintop provides a look at What Will The Recovery Look Like?. Monetary policy moves were in focus, as the Bank of Japan (BoJ) and the Japanese government pledged to cooperate further on measures to help troubled companies and the economy, while the BoJ left its monetary policy stance unchanged. Also, the Reserve Bank of India announced further rate cuts in an unscheduled meeting. Japan's Nikkei 225 Index declined 0.8%, with the yen firming a bit late in the session, while India's S&P BSE Sensex 30 Index also moved 0.8% to the downside. South Korea's Kospi Index fell 1.4% and Australia's S&P/ASX 200 Index traded 1.0% lower.
Next week's international economic calendar has the potential to draw some focus with reports due worth noting including: China—industrial profits for April. India—2020 GDP estimate. Japan—April retail sales and industrial production. Eurozone—economic confidence and consumer price inflation for May, along with May German business and consumer confidence reports and April retail sales. U.K.—May retail sales.
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