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Market Update

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Posted: 4/23/2019 4:15 PM EDT

Markets Hit Record Highs

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U.S. equities finished solidly higher, with the S&P 500 and Nasdaq marking new record closing highs, as a host of upbeat earnings results, headlined by Dow members United Technologies and Coca-Cola, as well as Twitter and Hasbro, joined a 16-month high in new home sales to boost conviction. Treasury yields were lower, and gold lost ground, while the U.S. dollar was higher. Crude oil prices added to yesterday's rally to hit a six-month high, continuing to get a boost from the U.S. decision to end sanction waivers for Iranian oil importers.

The Dow Jones Industrial Average (DJIA) rose 145 points (0.6%) to 26,656, the S&P 500 Index was up 26 points (0.9%) to 2,934, and the Nasdaq Composite jumped 106 points (1.3%) to 8,121. In moderate volume, 823 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.75 to $66.30 per barrel and wholesale gasoline was unchanged at $2.08 per gallon. Elsewhere, the Bloomberg gold spot price fell $2.72 to $1,272.27 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 97.63.

Dow member United Technologies Corporation (UTX $140) reported Q1 earnings-per-share (EPS) of $1.56, or $1.91 ex-items, versus the $1.71 FactSet estimate, as revenues rose 20.0% year-over-year (y/y) to $18.4 billion, above the projected $18.0 billion. The industrial conglomerate noted that its revenue growth included 8 points of organic sales—excluding the impact of acquisitions and divestitures—and 15 points of acquisition benefit, which more than offset 3 points of foreign exchange headwind. UTX added that its Q1 results reflected better-than-expected performance from its Collins Aerospace and Otis units, as well as a slightly favorable effective tax rate. UTX raised the low end of its full-year EPS outlook, while reaffirming its revenue forecast. Shares were higher.

Dow component Coca-Cola Company (KO $48) posted Q1 EPS of $0.38, or $0.48 ex-items, versus the projected $0.46, with revenues rising 5.0% y/y to $8.0 billion, topping the expected $7.9 billion. The company said it saw continued momentum that included gaining global value share and organic revenues grew 6.0%, with positive performance across all operating groups, but pointed out a noticeable impact of currency headwinds and uncertainty related to Brexit. KO reaffirmed its full-year outlook and traded to the upside.

Dow member Verizon Communications Inc. (VZ $57) announced Q1 earnings of $1.22 per share, or $1.20 ex-items, compared to the expected $1.17, as revenues rose 1.1% y/y to $32.1 billion, slightly below the forecasted $32.2 billion. The company's retail wireless subscriber additions missed forecasts, but noted strong wireless service revenue growth. VZ raised its full-year EPS outlook and reaffirmed its revenue guidance. Shares were lower.

Dow component Procter & Gamble Company (PG $103) reported fiscal Q3 profits of $1.04 per share, or $1.06 ex-items, compared to the expected $1.03, as revenues grew 1.0% y/y to $16.5 billion, north of the estimated $16.4 billion. PG reaffirmed its full-year EPS outlook, which had a midpoint point just shy of forecasts, and it raised its organic sales outlook. Shares lost ground.

Hasbro Inc. (HAS $101) posted Q1 EPS of $0.21, versus the forecasted loss of $0.11 per share, with revenues rising 2.0% y/y to $733 million, topping the expected $663 million. Revenues increased for the first quarter in six, as a modest rise in the U.S. and Canada and a jump out of its entertainment, licensing and digital segment more than offset a decrease in international revenues that came due to a negative impact of foreign exchange. Shares rallied nearly 15%.

Twitter Inc. (TWTR $40) achieved Q1 EPS of $0.25, or $0.37 ex-items, compared to the expected $0.15, as revenues rose 18.0% y/y to $787 million, versus the estimated $775 million. The microblogging site posted stronger-than-expected monetizable daily active users—a metric that the company announced in December that it will focus on instead of monthly users. TWTR issued Q2 revenue guidance with a midpoint below expectations, while reaffirming its full-year outlook. Shares were sharply higher.

Shares of Kohl's Corporation (KSS $76) jumped after the company announced that all Kohl's stores will be accepting free, unpackaged returns for Amazon.com Inc. (AMZN $1,924) customers starting in July.

New home sales post third-straight monthly rise, regional manufacturing activity declines

New home sales (chart) rose 4.5% month-over-month (m/m) in March to an annual rate of 692,000 units—the highest since November 2017—versus the Bloomberg forecast calling for 649,000 units and the downwardly-revised 662,000 unit pace in February. The median home price was down 9.7% y/y to $302,700, a two-year low. New home inventory declined to 6.0 months of supply at the current sales pace from 6.3 in February. Sales rose in the Midwest, South and the West m/m but fell in the Northeast. New home sales are based on contract signings instead of closings and this was the third-straight monthly gain, likely due to improved affordability amid the drop in home prices and interest rates last month.

The paused rate hikes by the Fed likely helped foster the March pullback in interest rates and Schwab's Chief Fixed Income Strategist, Kathy Jones discusses how to invest in the current rate environment in her latest article, Fed Policy Is Back to Neutral—Now What?.

The Richmond Fed Manufacturing Activity Index for April surprisingly declined to 3, versus forecasts calling for the figure to match March's unrevised level of 10. A reading of zero is the demarcation point between expansion and contraction.

Treasuries rose, as the yield on the 2-year note fell 5 basis points (bps) to 2.35%, the yield on the 10-year note declined 2 bps to 2.57%, and the 30-year bond rate dipped 1 bp to 2.98%.

Schwab's Chief Investment Strategist Liz Ann Sonders offers her latest article, Better Days: Leading Indicators Inch Back to Cycle High, pointing out that a deteriorating six month trend; and the trends in several Leading Economic Indicators' components bear watching, and this year could be a mirror image of the typical year, with stronger first quarter growth giving way to a weaker second quarter.

Tomorrow’s domestic economic calendar will be very light, offering only MBA Mortgage Applications.

Europe and Asia mixed in a return to action for most markets

European equities finished mixed, with the markets returning to action following the extended Easter holiday break, as energy issues gained noticeable ground amid the continued run in crude oil prices, which has been amplified by the U.S. decision to end sanction waivers for Iranian oil importers. Also, the markets looked to a plethora of earnings reports across the pond, which appeared mostly better than expected. However, financials saw some pressure amid some possible caution ahead of some key reports out of the banking sector in the region this week. The euro and the British pound were lower, as the U.S. dollar rose solidly following the upbeat earnings and economic data. Bond yields in the region advanced. In light economic news, Eurozone consumer confidence unexpectedly deteriorated for April. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses the international investing front in his latest article, Diversification: Finally Back After 20 Years, noting that the trend in the degree to which the world's stock markets move in sync with each other has fallen to the lowest level in 20 years. Jeff adds that the lower correlation enhances the potential risk-reducing benefits of diversification, while concluding that this may be especially good news right now since stocks may be due for a pullback.

Stocks in Asia finished mixed with the markets eyeing the ramping-up earnings season, along with the jump in crude oil prices that was amplified by the decision in the U.S. yesterday to end sanction waivers to countries that import oil from Iran. Schwab's Vice President of Legislative and Regulatory Affairs, Michael Townsend offers a look at the implications of the trade developments in his latest video, International Trade Negotiations That Could Affect the Market. Stocks in Japan overcame early losses and finished higher, with the yen trimming a decisive gain late in the day, while the energy sector moved higher. Mainland Chinese equities decreased, extending yesterday's drop, bogged down by reports suggesting Beijing could refocus on structural reforms over stimulus efforts in the wake of the recent dose of upbeat economic data, while those traded in Hong Kong were little changed after returning from the long Easter holiday break. Markets in Australia also got back into action following the holiday by posting solid increases, while Indian securities declined and South Korean listings nudged higher.

Tomorrow’s international economic calendar will hold CPI from Australia, Japan’s Leading Index, the IFO Business Climate Survey from Germany, and public sector net borrowing from the U.K.

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