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Stocks Head Into Weekend Mixed

The U.S. equity markets finished mixed, for the session and on a weekly basis, as investors eyed reports of worsening COVID-19 trends across the pond. Meanwhile, the markets continued to grapple with inflation pressures amid the supply chain and labor challenges, and monetary policy uncertainty. As earnings season heads towards its conclusion, Workday, Intuit, and Ross Stores reported results that topped expectations, while Applied Materials, despite strong revenue, missed on both the top and bottom lines, citing supply-chain constraints. News out of Washington was again in focus, as the House narrowly passed President Biden's $1.75 trillion social spending bill, sending it to the Senate. Treasuries were higher, putting downward pressure on yields, and the U.S. dollar gained ground, while gold finished to the downside and crude oil prices were sharply lower. Europe retreated from early gains to finish lower across the board after the increase in COVID-19 infections forced additional restrictions and lockdowns in the region, while markets in Asia were mixed as tech shares in Hong Kong declined.

The Dow Jones Industrial Average fell 269 points (0.8%) to 35,602, the S&P 500 Index shed 7 points (0.1%) to 4,698, while the Nasdaq Composite gained 64 points (0.4%) to 16,057. In moderately-heavy volume, 4.2 billion shares of NYSE-listed stocks were traded, and 4.8 billion shares changed hands on the Nasdaq. WTI crude oil tumbled $2.47 to $75.94 per barrel. Elsewhere, the gold spot price lost $12.80 to $1,848.60 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 96.03. Markets were mixed for the week, as the DJIA declined 1.4%, while the S&P 500 nudged 0.3% higher, and the Nasdaq Composite advanced 1.2%.

Workday, Inc. (WDAY $287) reported adjusted fiscal Q3 earnings-per-share (EPS) of $1.10, above the $0.87 FactSet estimate, as revenues rose 20% year-over-year (y/y) to $1.33 billion, above the Street's forecast of $1.31 billion. WDAY raised its fiscal year 2022 operating margin guidance to 22% from the prior 21%. The company named a new CFO and announced a proposed acquisition of VNDLY, a cloud-based vendor management system. The company said that together with VNDLY, it will be able to deliver a comprehensive total workforce optimization solution. Shares finished lower.

Applied Materials (AMAT $150) posted adjusted Q4 EPS of $1.94, missing the forecasted target of $1.96. Revenues of $6.12 billion were up 31% y/y, but came in lower than the forecasted $6.38 billion as well. The materials engineering solutions company noted that the demand for semiconductors and equipment continues to grow, but their supply chain struggles to persist. The company cited larger than expected and worsening supply chain constraints, and delayed shipments from suppliers as reasons for the quarterly revenue shortfall. Shares traded lower.

Intuit (INTU $692) reported adjusted Q1 profits of $1.53 per share, well above the forecasted $0.97, as revenues grew 52% y/y to $2.01 billion, exceeding the anticipated $1.81 billion. The technology platform raised its revenue guidance to 26 to 28 percent growth. Shares jumped 10%.

Ross Stores (ROST $113) delivered adjusted Q3 earnings of $1.09 per share, above the expected $0.78, as revenues rose 19% y/y to $4.57 billion, topping the estimated $4.33 billion. Q3 same-store sales were up 14% y/y, versus the forecasted 10.3% gain. ROST said it was encouraged by strength of consumer demand, but the company lowered its Q4 guidance citing uncertainty related to the worsening industry-wide supply chain congestion. The company cited ongoing headwinds from freight, wage, and COVID-related costs as reasons for declining overall profitability versus 2019. Shares were lower.

As the Q3 earnings season is heading toward the finish line with 95% of S&P 500 companies turning in their results, and per data compiled by Bloomberg, of the 475 S&P 500 companies that have reported thus far, roughly 68% have topped revenue forecasts and nearly 82% have bested profit projections. Compared to last year, sales growth has been approximately 18% higher and earnings are up about 41%.

Schwab's Chief Investment Strategist Liz Ann Sonders provides her latest article, Mysterious Ways: Bullish Sentiment Grows, With Positive Offsets, discussing how both the market's churn and success have bred a resurgence in optimism which, for now, has been positively offset by strong breadth and firm profit margins.

Find all our market commentary on our Market Insights page and follow us on Twitter at @SchwabResearch.

Treasuries rise amid empty economic calendar in the U.S.

As the calendar was free from major economic releases in the U.S. today, investors eyed the worsening COVID-19 trends and related restrictions in Europe and their potential economic impact. Meanwhile, events in Washington were also in focus, as the House passed President Biden's $1.75 trillion social spending package by a narrow margin. The bill now moves to the Senate, where many believe it is set to see revisions in the coming weeks.

Treasuries were mostly higher, as the yield on the 2-year note was flat at 0.50%, while the yield on the10-year note lost 5 basis points (bps) to 1.54%, and the 30-year bond decreased 7 bps to 1.91%.

Bond yields have been choppy as of late and Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her latest 2022 Fixed Income Outlook: Rough Waters how we expect another wave up in bond yields in 2022 as central banks around the world shift away from the very easy policies of the past few years. Kathy points out that with the pandemic-era policies ending, investors should be prepared for shifting tides and the risks and opportunities they present.

Europe lower amid fresh COVID restrictions, Asia mixed as Hong Kong tech shares decline

European equities finished lower, reversing earlier gains, as COVID-19 related concerns took hold after Germany announced additional restrictions and Austria re-imposed a full national COVID lockdown and made vaccinations mandatory. While the Austrian lockdown is not expected to last more than 20 days, worries escalated over its economic impact, and as restrictions and lockdowns could spread to other countries. In economic news, U.K. retail sales increased 0.8% month-over-month (m/m), above expectations, but declined less than expected on a year-over-year (y/y) basis. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Will Shortages Lead to Gluts?, noting how the global economy may be closer to the end of supply chain problems than the beginning. He points out how markets tend to look six to twelve months into the future, and they may soon begin to consider the possibility that some shortages may start to ease, and gluts may have started to form by the second half of next year. If that happens, we may see some easing of inflation pressures. Bond yields in the Eurozone and U.K. fell amid the concerns related to the increase of COVID cases in Europe. The British pound and the euro were lower versus the U.S. dollar after European Central Bank President Christine Lagarde said that the ECB may not raise rates next year.

The U.K. FTSE 100 Index was down 0.5%, Germany's DAX Index and France's CAC-40 Index declined 0.4%, Italy's FTSE MIB Index decreased 1.2%, Spain's IBEX 35 Index dropped 1.7%, and Switzerland's Swiss Market Index ticked 0.1% lower.

Stocks in Asia finished mixed as tech shares were under pressure in Hong Kong after Alibaba Group Holding Ltd (BABA $142) missed its top and bottom-line expectations, lowered its revenue guidance, and provided a downbeat outlook related to weaker Chinese consumer spending, a challenging macro environment, and increased competition. Price levels in Japan increased less than expected but stayed positive, as the y/y CPI printed a 0.1% increase versus the anticipated 0.2% gain. South Korea’s producer inflation, however, was reported at a 13-year high of 8.9%. The markets continue to grapple with rising inflation pressures and global supply chain challenges, along with uncertainty regarding the path of global monetary policies. Schwab's Jeffrey Kleintop offers his article, Inflation: Persistently Transitory, noting how persistently going from one transitory source of inflation to the next may keep inflation elevated for longer than markets currently anticipate. He also points out how the lift to earnings from inflation may more than offset any compression on stock valuations from any tightening of financial conditions, given the more relaxed inflation mandates of central banks. Japan's Nikkei 225 Index increased 0.5%, and yen gained some ground as the country’s Cabinet approved an economic stimulus package of $490 billion to aid the economy. China's Shanghai Composite Index moved 1.1% higher and the Hong Kong Hang Seng Index fell 1.1%, as tech issues struggled. South Korea's Kospi Index traded 0.8% to the upside and Australia's S&P/ASX 200 Index inched 0.2% higher. Markets in India were closed for a holiday.

Stocks mixed on the week but S&P 500 and Nasdaq see record highs

U.S. stocks finished the week mixed as inflation pressures persisted, supply-chain and labor shortage challenges remained, global monetary policy uncertainty festered, and COVID concerns resurfaced. However, the S&P 500 and Nasdaq did continue to rack up record highs as Q3 earnings season headed toward the finish line with a plethora of retailers reporting results along with some key companies in the tech sector. Earnings continued to provide the bulls sustenance, suggesting the all-important U.S. consumer remained healthy despite rising pricing pressures. Also, the economic calendar painted a positive backdrop with October retail sales, November regional manufacturing output, last month's industrial production, and weekly initial jobless claims all coming in better than expected to tamp down growing worries of a developing stagflation environment. The Treasury yield curve flattened modestly and the U.S. dollar posted a fourth-straight week of gains, while crude oil prices registered a weekly decline for a fourth week in a row. As such, the heavyweight Consumer Discretionary and Information Technology sectors outperformed, and the Energy and Financials sectors saw some solid pressure this week.

Director and Senior Investment Strategist with the Schwab Center for Financial Research (SCFR), David Kastner, CFA, provides his latest Schwab Sector Views: What's to Like and Dislike About Technology, offering a look at all the major sectors including a deep dive into the tech sector which is the largest contributor to the S&P 500.

Next week will be shortened by the Thanksgiving holiday market closures and a short session on Black Friday. However, the economic calendar will bring some reports that could garner some attention and potentially move the markets. We will get the releases of existing home sales for last month, Markit's preliminary November Manufacturing and Services PMIs, the first revision (of two) to Q3 GDP, October personal consumption and spending figures, jobless claimsfor the week ended November 20, and the final November University of Michigan Consumer Sentiment Index. Also, the week will culminate with the minutesof the Fed's monetary policy meeting held earlier this month, where the Central Bank expectedly announced the beginning of its campaign to taper its monthly asset purchases.

The international economic calendar next week will bring a host of global preliminary November Manufacturing and Services PMIs. Other international reports due out next week that could foster some market reactions include: Australia—retail sales. China—1-year and 5-year prime loan rate decisions. Japan—November Tokyo consumer price inflation figures. Eurozone—preliminary November consumer confidence, along with GermanNovember business sentiment. U.K.—retail sales statistics for October.

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