U.S. stocks are continuing to trade higher in the final session of the week and are on pace to end a three-week losing streak. The markets are showing resiliency in the face of solidified expectations that the Fed will remain aggressive despite a slowdown in economic growth, and following yesterday's historic rate hike by the European Central Bank. Earnings news is on the positive side, with Zscaler, DocuSign, and Kroger all rallying after topping profit projections and issuing upbeat guidance. The economic front is relatively quiet, but wholesale inventories for July were revised lower. Treasury yields are rising, and the U.S. dollar is pulling back from multi-decade highs. Crude oil and gold prices are increasing. Asia finished broadly higher, and Europe also saw widespread gains.
At 12:52 p.m. ET, the Dow Jones Industrial Average is up 1.1%, the S&P 500 Index is gaining 1.4%, and the Nasdaq Composite is rallying 1.9%. WTI crude oil is advancing $3.54 to $87.08 per barrel, and Brent crude oil is increasing $3.70 at $92.85 per barrel. The gold spot price is trading $10.20 higher to $1,730.40 per ounce, and the Dollar Index is dropping 0.7% to 108.98.
Zscaler Inc. (ZS $186) reported adjusted fiscal Q4 earnings-per-share (EPS) of $0.25, above the $0.21 FactSet estimate, as revenues rose 61.0% year-over-year (y/y) to $318 million, topping the Street's forecast of $305 million. The cloud security company said despite the uncertain macroeconomic landscape which continues to evolve, it continued to see favorable demand for its Zero Trust Exchange platform because it makes businesses more secure, simplifies IT, and reduces cost. ZS issued full-year guidance that came in north of expectations. Shares are rallying nearly 20%.
DocuSign Inc. (DOCU $64) posted adjusted Q2 EPS of $0.44, above the projected $0.42, with revenues growing 22.0% y/y to $622 million, exceeding the forecasted $602 million. The e-signature company's billings and subscription revenues both topped expectations. DOCU issued full-year guidance that came in above estimates. Shares are moving nicely higher.
Kroger Co. (KR $51) announced adjusted Q2 earnings of $0.90 per share, above the expected $0.82, with revenues rising 9.1% y/y to $34.6 billion, exceeding the forecasted $34.5 billion. Q2 same-store sales grew 5.8% y/y, north of the projected 4.6% gain. The grocer said its results were propelled by its digital strategy and its ability to manage product cost inflation. KR raised its full-year guidance. Shares are trading solidly higher.
The S&P 500 Index is on track to snap a three-straight week losing streak, even as expectations remain elevated regarding continued tighter monetary policy by the Fed amid the backdrop of slowing economic growth. Last week's employment report also fostered some volatility, and Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Are Jobs Livin' on the Edge?, how the August jobs report delivered something for both economic bulls and bears, but what matters more in the near term is the Fed's focus on seeing a continued easing in labor demand.
Treasury yields higher and U.S. dollar is pulling back, wholesale inventories rose
Treasury yields are higher, with the yield on the 2-year note rising 5 basis points (bps) to 3.54%, and the yields on the 10-year note and 30-year bond rate are ticking 1 bp higher to 3.30% and 3.45%, respectively.
The markets are digesting yesterday's commentary from Fed Chairman Jerome Powell, who reiterated that the Fed will remain aggressive with its monetary policy as containing inflation remains top priority. The U.S. dollar is seeing pressure, coming off a recent rally to multi-year highs.
Schwab's Chief Fixed Income Strategist Kathy Jones discusses in our Schwab Market Perspective: Mixed Signals, how the Fed has embarked on one of the most rapid tightening cycles in over 40 years, and with inflation continuing to outpace wage growth, more rate hikes are likely on the horizon. Kathy also offers analysis of the greenback in her commentary, The Strong Dollar: Can It Continue? You can follow Kathy on Twitter: @KathyJones, and check out our latest edition of our Financial Decoder podcast, When Interest Rates Rise, What Should You Do with Bonds?, featuring Kathy.
In light economic news, July wholesale inventories rose 0.6% month-over-month, downwardly revised from the previously reported 0.8% gain, where forecasts called for it to remain, and below June's 1.9% increase. Sales fell 1.4%, after June's downwardly adjusted 1.6% advance.
Europe added to weekly gains despite monetary policy tightening expectations
Stocks in Europe ended the day higher, adding to a weekly gain even as the markets grappled with yesterday's decision by the European Central Bank (ECB) to hike its benchmark interest rates by 75 bps, its highest ever increase. Also, equities showed some resiliency in the face of continued hawkish commentary from Fed Chairman Jerome Powell in the U.S. on Thursday. Inflation pressures have forced central banks to tighten policy aggressively and have been exacerbated by an energy crisis in the region that has ensued amid the ongoing war in Ukraine, amplified by Russia shutting off energy supplies to Europe through the Nord Stream 1 pipeline indefinitely this week.
Inflation pressures have forced the Fed, Bank of England, and European Central Bank to tighten monetary policies. However, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Shortages Have Led to Gluts, how inventory gluts have been bad news for the stocks of companies experiencing them, but could also be indicating an inflation peak, which tends to be an ingredient for market bottoms. Also, Jeff discusses in his article, The End of Rate Hikes?, how the signals from central banks that rate hikes, which began last year, may be coming to an end could be welcome news for investors looking ahead to the next 12 months. The passing of Queen Elizabeth II also commanded attention, and the Bank of England postponed its September monetary policy meeting as the nation mourns. The euro and British pound rose versus the U.S. dollar, which is pulling back from multi-decade highs. Bond yields in the Eurozone were mixed and rates in the U.K. traded lower. In economic news, French industrial and manufacturing production both fell more than expected in July.
The U.K. FTSE 100 Index rose 1.2%, Germany's DAX Index and France's CAC-40 Index were up 1.4%, Spain's IBEX 35 Index increased 1.5%, Italy's FTSE MIB Index rallied 1.9%, and Switzerland's Swiss Market Index advanced 1.0%.
Asia higher to close out the week
Stocks in Asia finished higher to close out the week, following the gains in the U.S. yesterday, which came even as the Fed continued to suggest further aggressive monetary tightening was in the offing to fight inflation. The markets finished mixed on the week as volatility remained amid the increased expectations of continued aggressive monetary policies from most major central banks, led by the Fed in the U.S., which has boosted the dollar. Yesterday, the European Central Bank hiked its benchmark interest rates by 75 bps—the largest increase in its history—and Australia raised rates by 50 bps earlier in the week.
However, the Bank of Japan (BoJ) has abstained from tightening monetary policy and China's central bank has diverged and actually loosened its policy recently. The moves come as China has continued to deploy COVID-related restrictions in parts of the country, which has negatively impacted economic growth. China, the world's second-largest economy, has also been hampered by real estate struggles, regulatory crackdowns, and geopolitical tensions with the U.S. Schwab's Jeffrey Kleintop provides commentary on China's situation in his latest article, China Q&A: Top 5 Questions, discussing various topics including inflationary concerns, currency movements, government policies, and more. Economic data today showed China's August consumer and wholesale price inflation both came in cooler than expected, possibly giving the country's central bank some cover for further stimulus measures.
Japan's Nikkei 225 Index rose 0.5%, with the yen gaining ground after recent weakness versus the U.S. dollar. The yen has hit multi-decade lows versus the greenback following a sharp drop that began in March amid the BoJ's lack of keeping up with other key global central banks in monetary policy. China's Shanghai Composite Index gained 0.8%, and the Hong Kong Hang Seng Index rallied 2.7%, amid the continued rebound in technology stocks. India's S&P BSE Sensex 30 Index moved 0.2% to the upside, and Australia's S&P/ASX 200 Index advanced 0.7%. Markets in South Korea were closed for a holiday.
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