U.S. stocks finished the trading session mixed ahead of the long holiday weekend which will keep markets closed on Monday in observance of the Martin Luther King Jr. Day holiday. Energy stocks lagged on lower crude oil prices, while financials led the advance following some upbeat earnings from Dow member JPMorgan and Bank of America. Treasuries and the U.S. dollar were lower and gold was slightly higher. In economic news, retail sales came in just shy of estimates and a read on consumer sentiment missed expectations.
The Dow Jones Industrial Average decreased 5 points to 19,886, the S&P 500 Index was 4 points (0.2%) higher at 2,275 and the Nasdaq Composite advanced 27 points (0.5%) to 5,574. In moderate volume, 745 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.64 to $52.37 per barrel and wholesale gasoline was unchanged at $1.61 per gallon. Elsewhere, the Bloomberg gold spot price rose $2.95 to $1,198.38 per ounce, and the dollar index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 101.21. Markets were mixed for the week, as the DJIA decreased 0.4%, the S&P 500 Index shed 0.1% and the Nasdaq Composite advanced 1.0%.
Dow member JPMorgan Chase & Co (NYSE:JPM) ($87) reported 4Q earnings-per-share (EPS) of $1.71, including a tax benefit that may be impacting comparability to the FactSet estimate of $1.42. Revenues rose 2.0% year-over-year (y/y) to $24.3 billion, compared to the projected $23.9 billion. Net interest margin improved, fixed income trading activity topped estimates and the company reserves for bad loans shrunk. JPM's Chairman and Chief Executive Officer Jamie Dimon said the U.S. economy may be building momentum, while offering an upbeat outlook for potential impact of President-elect Donald Trump's incoming administration and noting that the company is "well positioned to play our part." Shares have pared early gains.
Bank of America Corp. (NYSE:BAC ($23) posted 4Q EPS of $0.40, north of the projected $0.38, with revenues rising 2.0% y/y to $20.0 billion, versus the expected $20.8 billion. The company said net interest income improved, reflecting benefits from higher interest rates as well as growth in loans and deposits. However, fixed income trading activity missed estimates as "things tapered off at the end of the year," after doing "very well" in the first two months of the quarter. The company's Chief Financial Officer Paul Donofrio noted that while the recent rise in interest rates came too late to impact 4Q results, "we expect to see a significant increase in net interest income in 1Q of 2017." BAC increased its planned stock repurchase program for the first half of 2017 by $1.8 billion. BAC nudged higher.
Wells Fargo & Co (NYSE:WFC) ($55) announced 4Q earnings of $0.96 per share, below the expected $1.00, as revenues were roughly flat y/y at $21.6 billion, below the forecasted $22.5 billion. Net interest income increased, largely driven by growth in loans and investments, as well as higher interest rates. Shares finished higher despite the earnings miss.
Retail sales miss, consumer sentiment remains near highest level since early 2004
Advance retail sales for December rose 0.6% month-over-month (m/m), just below the Bloomberg forecast of a 0.7% increase, and compared to November's upwardly revised 0.2% rise. Also, last month's sales ex-autos were higher by 0.2% m/m, south of expectations of a 0.5% gain, and following the favorable revision to a 0.3% rise seen in the previous month. Sales ex-autos and gas were flat m/m, compared to estimates of a 0.4% increase, and versus November's upward revision to a 0.3% gain. The retail sales control group, a figure used to help calculate GDP, was up 0.2%, compared to the projected 0.4% rise, and compared to the prior month's negatively revised flat reading. A solid gain in auto sales led the way, while online shopping saw solid demand, furniture and building materials gained ground and gasoline stations posted a respectable increase. However, sales declined at department stores, food and beverage stores and among food services and drinking places.
The preliminary University of Michigan Consumer Sentiment Index dipped this month to 98.1, from the prior month's 98.2 level—which was the highest since January 2004—and compared to expectations of a slight increase to 98.5. The current economic conditions component nudged higher m/m, while the outlook portion dipped. The 1-year inflation estimate jumped from 2.2% to 2.6%, and 5-10 year inflation outlook increased to 2.5% from 2.3%.
The Producer Price Index (PPI) showed prices at the wholesale level in December were up 0.3% m/m, matching expectations, and compared to November's unrevised 0.4% gain. The core rate, which excludes food and energy, gained 0.2% m/m, versus forecasts of a 0.1% increase and compared to November's unadjusted 0.4% increase. Y/Y, the headline rate was 1.6% higher, in line with projections, and the core PPI increased 1.7% last month, versus estimates of a 1.8% increase. In November, producer prices were 1.6% higher and up 1.8% y/y for the headline and core rates, respectively.
Business inventories (chart) rose 0.7% m/m in November, compared to forecasts of a 0.6% increase, and versus October's upwardly revised 0.1% gain.
Treasuries were lower with the yields on the 2-year note and the 30-year bond rising 2 basis points (bps) to 1.19% and 2.99%, respectively, while the yield on the 10-year note gained 3 bps to 2.39%. Bond yields and the U.S. dollar are regaining some of the lost momentum over past two sessions that came as the markets appeared to be disappointed with Wednesday's news conference by President-elect Donald Trump.
Please Note: All U.S. markets will be closed on Monday in observance of the Martin Luther King Jr. Day holiday.
Europe higher as healthcare issues rebound, Asia mixed
European equities moved higher, with healthcare issues recovering from yesterday's drop that came in the wake of U.S. President-elect Donald Trump vowing in his first news conference on Wednesday since winning the election to crack down on drug pricing. Financials led the charge as the markets digest the plethora of key earnings results from the banking sector in the U.S., while Italian banking concerns were held in check. The markets also sifted through some mixed trade figures out of China, which followed yesterday's upbeat lending statistics that added to a recent string of stronger-than-expected data to buoy global economic sentiment and fuel a rally in basic materials stocks. The euro ticked higher and the British pound gained ground on the U.S. dollar, while bond yields in the region moved mostly to the upside.
Stocks in Asia finished mixed on the heels of the declines in the U.S. and Europe yesterday as Wednesday's press conference by U.S. President-elect Donald Trump appeared to cool post-election optimism as it lacked discussions of his proposed economic policies that have fueled the late-2016 rally. The markets also digested some December trade data out of China, which showed imports came in stronger than expected, though exports decelerated solidly. The data comes after late-yesterday's better-than-forecasted lending statistics for last month. Mainland Chinese equities declined and stocks in Hong Kong rose.
However, Japanese equities advanced as the yen gave back some of yesterday's gains. Australian securities dropped as basic materials gave back a recent rally, while Indian listings finished flat. South Korean equities decreased as the Bank of Korea left its monetary policy unchanged.
Stocks mixed week as Trump-policy trade hits midweek snag
Stocks finished the first full week of 2017 mixed, with some of the post-election moves taking a step back as Wednesday's first news conference as President-elect by Donald Trump lacked details of proposed economic policies that have bolstered the late-2016 rally. The U.S. dollar dipped from a multi-year high and Treasury yields were little changed in choppy trading, while crude oil prices pulled back. Healthcare issues, while finishing near the unchanged mark, took a wild ride as pharmaceutical stocks sold off in the wake of Trump's presser as he vowed to crack down on the industry.
Technology stocks led to the upside after lagging the financials, industrials and telecom sectors since the November post-election push. However, real estate, energy and telecom stocks saw some pressure. Economic data continued to suggest continued momentum, but the NFIB Small Business Optimism Index stood out after jumping to the highest level since December 2004.
This sets the stage for a shortened next week, with a heating up 4Q earnings season continuing to vector some attention away from the economic calendar, which is poised to deliver the Consumer Price Index (CPI), industrial production and capacity utilization, the NAHB Housing Market Index, and housing starts and building permits. As noted in the Schwab Market Perspective: A Perfect Mix?, the conditions for a continuation of the long-running equity bull market appear to be intact.
The recent digestion of gains since the election is a healthy process as it forestalls a potentially dangerous "melt-up" scenario, at least for now. Economic data and corporate earnings growth are conspiring with a boost in consumer and business confidence to ignite "animal spirits." Add in a Federal Reserve that is slowly normalizing monetary policy, but still remains accommodative, and we see a good mix for further equity gains. Manufacturing has rebounded around the globe, and could continue on a positive trajectory in the first half of 2017.
International reports due out next week that deserve a mention include: Australia—consumer confidence and employment change. China—property prices, 4Q GDP, industrial production, retail sales and fixed asset investment. India—wholesale price inflation. Japan—machine orders. Eurozone—European Central Bank monetary policy decision, trade balance, CPI and German investor confidence. U.K.—CPI, employment change and retail sales.