U.S. equities were mixed following yesterday's rally, as the markets sifted through a host of divergent earnings and economic data. Netflix tumbled to weigh on the Nasdaq and the Communication Services sector, while stronger-than-expected results from Dow members Procter & Gamble and IBM provided a boost to the blue-chip index. Housing data continues to be hampered by the recent spike in interest rates and housing prices, with existing home sales falling to the lowest level since June 2020 and mortgage applications dropping for a sixth-straight week. The markets also digested the afternoon release of the Fed's Beige Book, a read on business activity ahead of its key May 4 monetary policy decision, which showed little signs of inflation waning any time soon. Treasuries were higher, pressuring yields, the U.S. dollar fell to pare a recent rally, while gold was little changed, and crude oil prices ticked higher. Europe finished broadly higher, recovering some of yesterday's slide, while markets in Asia were mixed amid continued caution.

The Dow Jones Industrial Average rose 250 points (0.7%) to 35,161, while the S&P 500 Index shed 3 points (0.1%) to 4,459, and the Nasdaq Composite decreased 167 points (1.2%) to 13,453. In moderate volume, 4.2 billion shares of NYSE-listed stocks were traded, and 4.5 billion shares changed hands on the Nasdaq. WTI crude oil nudged $0.14 higher to $102.19 per barrel. Elsewhere, the gold spot price inched $0.20 to the upside to $1,959.20 per ounce, and the Dollar Index lost 0.6% to 100.32.

Netflix Inc. (NFLX $226) reported Q1 earnings-per-share (EPS) of $3.53, above the $2.90 FactSet estimate, as revenues rose 9.8% year-over-year (y/y) to $7.87 billion, compared to the Street's forecast of $7.93 billion. The company said it saw a 200,000 decline in global streaming paid net subscriber additions, well below its guidance of a 2.5 million increase and analyst expectations of a 2.7 million gain. The streaming company said its relatively high household penetration, combined with competition, is creating growth headwinds. NFLX issued Q2 EPS and revenue guidance that came in below estimates, while it forecasted a drop of 2.0 million in subscriber additions, compared to the projected 2.6 million gain. Shares tumbled 35%.

Dow member Procter & Gamble Company (PG $164) posted adjusted fiscal Q3 EPS of $1.33, topping the expected $1.29, with revenues rising 7.0% y/y to $19.38 billion, compared to the expected $18.71 billion. The consumer products company said it delivered another quarter of strong sales and sequential earnings growth despite significant and increasing cost headwinds. PG reaffirmed its full-year EPS outlook and raised its revenue forecast. Shares were higher. 

Dow component International Business Machines Corporation (IBM $138) announced adjusted Q1 earnings of $1.40 per share, just above the expected $1.39, as revenues grew 8.0% y/y to $14.20 billion, topping estimates of $13.78 billion. The company's revenue out of its software and hybrid cloud units were both up double-digits y/y, though its infrastructure sales were down. IBM said it expects full-year revenue to come in at the high end of its previously-reported guidance, while foreign exchange rates are expected to be a headwind. IBM traded solidly higher.

Q1 earnings season continues to heat up and FactSet is estimating y/y earnings growth of 5.1%, which would mark the lowest pace of growth since Q4 2020. Although still early, of the 59 S&P 500 companies that have reported thus far, roughly 56% have topped sales expectations and about 78% have bested profit projections, per data compiled by Bloomberg.   

Schwab's Chief Investment Strategist Liz Ann Sonders discusses the market action in equities in her article, No Quarter (For Consistency), noting how at the industry level, economically sensitive areas have not held up as well as the broader S&P 500 Index. Moreover, she discusses the brutal start for the bond market this year and how earnings will start to matter again.

We recently changed all our sector calls to "neutral" until there's more clarity on how the Russia-Ukraine war will affect the global economy and we discuss the impact of the recent oil market action in our latest Schwab Sector Views: What's Up With Oil?.

Amid the volatility in the markets, you can find all our market commentary on our Market Insights page, and you can follow us on Twitter at @SchwabResearch.

Existing home sales decline, mortgage apps fall again, Fed report notes continued inflation

Existing home sales decreased 2.7% month-over-month (m/m) in March to an annual rate of 5.77 million units, in line with the Bloomberg consensus estimate, while February's figure was adjusted solidly lower to 5.93 million units. Contract closings hit the lowest since June 2020, as sales in three of the four major U.S. regions fell m/m, while sales in the West held steady. Compared to last year, sales were lower in all regions. Sales of single-family homes and purchases of condominiums and co-ops were both lower m/m and from the prior year.

The median existing home price was up 15.0% from a year ago to a record high $375,300 and are up for 121 straight months as prices grew in each region. Unsold inventory was at a 2.0-months pace at the current sales rate, up from the from the 1.7-months pace a year earlier. National Association of Realtors Chief Economist Lawrence Yun said, "The housing market is starting to feel the impact of sharply rising mortgage rates and higher inflation taking a hit on purchasing power. However, he added that still, homes are selling rapidly, and home price gains remain in the double-digits. Existing home sales account for a large majority of the home sales market and reflect contract closings instead of signings.

In other housing news, the MBA Mortgage Application Index declined 5.0% last week, following the prior week's decrease of 1.3%. The sixth-straight weekly downturn came as a 7.7% drop in the Refinance Index was met with a 3.0% fall for the Purchase Index. The average 30-year mortgage rate extended its climb, rising 7 basis points (bps) to 5.20%, and is up 200 basis points (bps) versus a year ago.

In afternoon action. the Fed's Beige Book was released, showing that while the U.S. economy grew steadily through early April, inflation showed little signs of abating, with firms in most Districts expecting inflationary pressure in the coming months. As well, the ambiguity surrounding the outcome of the war in Ukraine has made "Outlooks for future growth were clouded by the uncertainty created by recent geopolitical developments and rising prices." As a result of the increase in the cost of supplies, the report noted that, "A large and growing share of businesses plan to increase their selling prices in the months ahead." The shortage of available workers was prevalent, making it difficult to recruit and retain staff, even amid an increase in wages. The Beige Book is an anecdotal report used as a tool for the Fed's monetary policy meetings, with the next scheduled to conclude on May 4.

Treasuries were higher on the heels of a recent drop that has seen rates jump and the yield curve steepen. The bond markets have been driven primarily by expectations that the Fed is set to get substantially aggressive with tightening monetary policy to try to combat surging inflation. Recent data and comments from Fed officials have delivered details of the balance sheet reduction plan and suggested the potential for multiple rate hikes of 50 bps, which would be the first time it raised rates in excess of 25 bps in over 20 years. Fedspeak will remain in focus this week, headlined by tomorrow's commentary from Chairman Jerome Powell. 

Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest article, At Last—Income in the Fixed Income Market, noting how the first quarter was brutal for fixed income investors, as bond prices fell, and yields rose. However, she notes how the steep rise in yields should mean that income investors can finally earn relatively attractive yields in the bond market, after enduring nearly three years of near-zero interest rates.

The yield on the 2-year note was down 1 bp at 2.59%, the yield on the 10-year note declined 7 bps to 2.84%, and the 30-year bond rate fell 11 bps to 2.88%.

Tomorrow's economic calendar will offer initial jobless claims for the week ended April 16, forecasted to show 180,000 first-time unemployment applications were filed, as well as the Philadelphia Fed Business Outlook Index, expected to have declined to a level of 21.7 for this month from the 27.4 posted in March, with a reading above zero denoting expansion in activity. After the opening bell, the Leading Index will be released, with economists calling for a 0.3% m/m increase for March, matching that seen the moth prior.

Europe rebounds from yesterday's decline, Asia mixed as markets remain cautious

European equities finished higher on the heels of yesterday's decline. The markets showed some resiliency in the face of the ongoing war in Ukraine, which has escalated as Russia began an offensive in the eastern part of the country. Additionally, stocks gained despite elevated expectations of global central bank monetary policy tightening, which was furthered by yesterday's comments from Federal Reserve Bank of St. Louis President James Bullard who floated the idea of a 75-bp rate hike this year, but he did note that this was not the base case. Amid this backdrop, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers fresh commentary in his article, Deglobalization is Political, Not Economic, discussing how the "end of globalization" is a phrase that has come up a lot lately, with stories written about deglobalization hitting a fevered pitch with the war in Ukraine. Yet, Jeff adds, global trade hit a new all-time high this year after climbing steadily throughout the past six years despite the brief "V"-shaped disruption in response to the pandemic lockdowns. He notes that politics may have little impact on economic globalization or corporate profits—which gives little reason for investors to deglobalize their portfolio despite the headlines.

In economic news, German producer price inflation for March continued to surge, jumping 30.9% y/y, after the 25.9% gain in February, and compared to the expected 30.0% increase. Meanwhile, new car registrations in the European Union dropped 20.5% y/y for last month, and Eurozone industrial production rebounded 0.7% m/m for February, matching expectations. The euro and the British pound gained ground versus the U.S. dollar, and bond yields in both the U.K. and across Europe declined.

The U.K. FTSE 100 Index was up 0.4%, Germany's DAX Index rose 1.5%, France's CAC-40 Index gained 1.4%, Italy's FTSE MIB Index increased 1.0%, Spain's IBEX 35 Index advanced 0.9%, and Switzerland's Swiss Market Index traded 0.2% higher.

Stocks in Asia were mixed with markets continuing to grapple with the ongoing and escalating war in Ukraine, persisting inflation, and expectations that some key global central banks are moving toward tighter monetary policies. Meanwhile, China is dealing with its worst covid outbreak since the initial phase in early 2020, and its zero-covid policy is stifling business activity and offsetting some of the recent stimulus efforts that the country has announced. Schwab's Liz Ann Sonders, Jeffrey Kleintop, and Kathy Jones note in our latest Schwab Market Perspective: Inflation's Shadow, how rising prices and slowing demand have cast shadows on this year's economic outlook, especially as the Federal Reserve begins tightening monetary policy. Whether the situation will lead to a recession remains to be seen. Globally, there are signs that stretched supply chains are beginning to ease, potentially slowing the pace of inflation—which would be welcome news for investors and central bankers. In economic news, Japan's industrial production growth was revised solidly higher m/m for February, while its export growth for March slowed more than expected y/y.

Japan's Nikkei 225 Index extended yesterday's gain, rising 0.9%, as the yen rebounded somewhat after a recent tumble versus the U.S. dollar to a 20-year low. India's S&P BSE Sensex 30 Index advanced 1.0%, and Australia's S&P/ASX 200 Index ticked 0.1% higher. However, China's Shanghai Composite Index declined 1.4%, Hong Kong's Hang Seng Index was down 0.4%, and South Korea's Kospi Index was little changed.

The international economic calendar for tomorrow will be light, offering business confidence from France and CPI from the Eurozone.