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Market Update

Schwab clients get the latest in-depth U.S. market news as well as analysis and commentary from respected sources, both proprietary and third party.


Posted: 4/8/2020 1:15 PM EDT

Markets Higher on Increased Optimism

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U.S. stocks are trading higher amid renewed optimism over the U.S.' fight against the coronavirus, and after Bernie Sanders dropped out of the 2020 Presidential race to remove some uncertainty on that front. However, caution remains in the wake of yesterday's sharp late-day downside reversal, as the obscurity of the size and length of the extreme disruption of the world's largest economy persists. Crude oil prices are moving higher ahead of tomorrow's key OPEC+ meeting, with the energy sector remaining a major focal point. The meeting is expected to deliver production cuts, while investors are also eyeing as whether Saudi Arabia and Russia can strike a deal and end their price war. Treasury yields are higher, particularly at the long end of the curve, while the U.S. dollar and gold are seeing modest gains. Mortgage applications fell ahead of this afternoon's look at the details of the Federal Reserve's emergency March 15th meeting that began the flood of extraordinary monetary policy measures to support financial market functioning and combat the severe economic impact of the coronavirus disruption. In equity news, Dow member McDonald's withdrew its outlook and suspended its stock buyback campaign, with the COVID-19 outbreak applying heavy pressure on March global same-store sales. Europe finished mostly lower.

At 12:54 p.m. ET, the Dow Jones Industrial Average is up 2.4%, the S&P 500 Index is gaining 2.3%, while the Nasdaq Composite is increasing 2.0%. WTI crude oil is advancing $0.45 to $24.08 per barrel, Brent crude oil is rising $0.26 to $32.14 per barrel, and wholesale gasoline is $0.03 higher at $0.68 per gallon. The Bloomberg gold spot price is trading $2.28 higher to $1,650.00 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is 0.2% higher at 100.09.

The equity markets are higher, but remain skittish after yesterday's wild swing that saw a sizeable advance vanish sharply late in the session and the major indices post red figures. Stocks remain above the March 23rd low with early signs of potentially leveling off of COVID-19 (coronavirus) cases in hot spots of New York, Italy and Spain, as well as the continued recovery in the original epicenter of China and in South Korea. However, death tolls in the U.S. continue to rise to keep the markets uneasy and uncertainty remains extremely elevated regarding the depth and duration of the severe economic disruption of the coronavirus pandemic with the world's largest economy continuing to embrace social distancing to try to combat the outbreak. Drastic monetary and fiscal policy measures have flooded the financial system with trillions of dollars, delivered support for the massive spike in unemployment, provided a backstop for troubled industries, and targeted virus mitigation efforts and reinforcement for a stressed U.S. healthcare system. More stimulus measures are expected and the markets are also eyeing this week's meeting between OPEC and its allies, known as OPEC+, with expectations oil production cuts may be in the offing and potentially the end of the price war between Saudi Arabia and Russia.

The Schwab Center for Financial Research (SCFR) discusses in the article, How the U.S. Economic Stimulus Package May Affect Investors, with Schwab's Chief Investment Strategist Liz Ann Sonders noting that fiscal stimulus at this stage is really a rescue or triage mission but it is unlikely to actually stimulate growth, at least until the country is no longer shut down. Liz Ann adds that rather, it is meant to cushion the economic blow from the virus-containment policies, though it was important for the federal government to act quickly and decisively. In her latest article, Box of Letters: What Shape Will the Recession/Recovery Take?, Liz Ann notes that COVID-19-relevant leading indicators are painting a bleak economic picture and the murkiness in the outlook has resulted in an incredibly wide (and dour) outlook for second quarter real GDP. She concludes that most importantly, the hope is we begin to see a "bending of the curve" in the virus itself; so we can not only get back to some semblance of normalcy, but start to put the heartbreak of the past couple of months behind us.

Furthermore, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, discusses in his latest commentary, What Will The Recovery Look Like?, noting that this recession is the result of a shock, not the natural end result of a slow build-up of excesses. Jeff adds that this may mean the recession and bear market could be deeper, but also that the duration may be shorter. For timely news and analysis, follow Schwab experts from the SCFR on Twitter at @SchwabResearch, as well as our Q&A With Schwab Experts on Recent Market Volatility, while you can also acquire helpful insight and information on the current market volatility from Schwab at www.schwab.com/volatility.

In specific equity news, Dow member McDonald's Corporation (MCD $179) announced that the global outbreak of COVID-19 has significantly disrupted its business but about 75% of its restaurants around the world are operational, with the majority adapting to focus on drive-thru, delivery, and/or take-away. However, global same-store sales fell 22.2% year-over-year (y/y) in March and it is withdrawing its 2020 and long-term outlooks, while suspending its share repurchase program. Shares are gaining ground.

Mortgage apps fall, Fed emergency meeting details on deck, Treasury yield curve steepening

The MBA Mortgage Application Index fell by 17.9% last week, following the prior week's 15.3% gain. The drop came as a 19.4% tumble in the Refinance Index was met with a 12.2% fall for the Purchase Index. The average 30-year mortgage rate ticked 2 basis points (bps) higher to 3.49%.

Treasuries are mixed as the equity markets remain volatile with the potential flattening of the COVID-19 pandemic curve garnering the heaviest attention. The yield on the 2-year note is dipping 1 bp to 0.25%, while the yield on the 10-year note is gaining 3 bps to 0.74% and the 30-year bond rate is advancing 2 bps to 1.32%. Amid the unprecedented market action, Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her article how to Make Sense of Recent Bond Market Turmoil, noting that for some investors, the best course of action may be to do nothing. She adds that if you have a diversified portfolio that is designed to last through market ups and downs, you may be best off waiting out the storm. However, Kathy provides some advice for those who are upset by the volatility, delivering some steps that would make sense. Moreover, Schwab's Fixed Income Director, Cooper Howard, CFA, offers analysis outside the Treasury markets in his latest article, Coronavirus and the Municipal Bond Market: Questions and Answers.

At roughly 2:00 p.m. ET, the Federal Reserve will release the minutes from its March 15th emergency policy meeting that took the target for the fed funds rate to near zero and began the wave of monetary policy measures aimed at providing an unprecedented arsenal for the war on the coronavirus (economic calendar). Schwab's Kathy Jones offers analysis of the Fed's extraordinary measures in her article, Fed Cuts Rates to Near Zero.

Europe mostly lower as volatility flares back up

European equities ended mostly lower, as volatility flared back up yesterday with the U.S. markets swinging wildly amid festering uncertainty regarding when the world's largest economy can return to relative normalcy. The markets have been grappling with early signs of leveling off of cases in key global hot spots of New York, Italy and Spain, while death tolls continue to rise, and U.K. Prime Minister Boris Johnson remains in intensive care as he fights the coronavirus. The energy sector was also choppy ahead of this week's OPEC+ meeting, which is expected to bring further oil production cuts, but uncertainty remains regarding if Saudi Arabia and Russia can come to an agreement to end their price war. The euro dipped versus the U.S. dollar, but the British pound traded higher, while bond yields in the region were mixed. Schwab's Jeffrey Kleintop notes in his commentary, Q&A on COVID-19: The Economy, Markets and What Investors Should Do, that rather than trying to call the bottom, a more effective way to think about investing right now is to focus more on the duration rather than the decline.

The U.K. FTSE 100 Index was down 0.5%, Germany's DAX Index and Italy's FTSE MIB Index were 0.2% lower, Spain's IBEX 35 Index shed 0.7%, and Switzerland's Swiss Market Index fell 0.9%, while France's CAC-40 Index ticked 0.1% higher.

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Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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