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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: 9/24/2018 4:15 PM EDT

Stocks Pare Last Week's Rally

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U.S. equities finished the first trading session of the week mixed after rallying to record highs last week, amid lingering trade concerns with further tariffs between China and the U.S. going into effect. Meanwhile, caution may have ensued ahead of Wednesday's highly-expected Fed rate hike. Treasury yields ticked higher and the U.S. dollar was nearly unchanged, while crude oil prices rallied on supply worries and gold dipped. News on the equity front surrounded a number of M&A announcements.

The Dow Jones Industrial Average (DJIA) fell 181 points (0.7%) to 26,562, the S&P 500 Index was down 10 points (0.4%) to 2,919, and the Nasdaq Composite rose 6 points (0.1%) to 7,993. In moderate volume 853 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.30 to $72.08 per barrel and wholesale gasoline was $0.04 higher at $2.04 per gallon. Elsewhere, the Bloomberg gold spot price ticked $0.48 lower to $1,999.56 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 94.21.

Comcast Corporation (CMCSA $36) announced that it has prevailed following the conclusion of an auction process to acquire British broadcasting company Sky PLC. (SKYAY $90), with a bid of 17.28 British pounds per share, or a transaction value of about $40.0 billion. The bid for Sky topped a rival offer from Twenty-First Century Fox Inc. (FOXA $45). CMCSA traded solidly lower, FOXA was higher and SKYAY rallied.

Barrick Gold Corporation (ABX $11) and Randgold Resources Limited (GOLD $68) announced an agreement to merge in a stock-for-stock transaction valued at about $6.0 billion. Shares of both companies gained solid ground.

Sirius XM Holdings Inc. (SIRI $6) announced an agreement to acquire Pandora Media Inc. (P $9) in an all-stock transaction valued at approximately $3.5 billion. Both SIRI and P finished lower.

Symantec Corporation (SYMC $22) gained ground after the cybersecurity company announced that it has completed its audit committee investigation of allegations raised by a former employee. SYMC noted that it does not anticipate a restatement or adjustment of any audited or unaudited, filed or previously announced financial statements, with the exception of one $13 million transaction that should have been deferred rather than recognized in fiscal Q4 2018. The company added that a formal SEC investigation is ongoing and it continues to cooperate with the investigation.

Regional manufacturing unexpectedly dips to kick off heavy week headlined by Fed decision

The Dallas Fed Manufacturing Activity Index declined to 28.1 in September from August's unrevised 30.9 level and versus the Bloomberg forecast of 31.0, with a reading above zero denoting expansion.

Treasuries dipped, as the yield on the 2-year note was flat at 2.81%, while the yields on the 10-year note and the 30-year bond ticked 1 basis point (bp) higher to 3.08% and 3.22%, respectively.

Today's report begins the economic week that will likely be headlined by Wednesday's monetary policy decision from the Federal Open Market Committee (FOMC). A solid economic foundation has the probability of a Fed rate hike near 100%, but the accompanying statement and economic projections, as well as the subsequent press conference from Chairman Jerome Powell, are likely to face intense scrutiny. The markets are a bit less certain of a December rate increase, as cooler-than-expected August inflation data has countered signs that wage growth is picking up, while an escalation in global trade tensions may curb the Fed's appetite and/or need to aggressively tighten policy. Schwab's Chief Investment Strategist Liz Ann Sonders offers her latest video, A Closer Look at U.S. Tariffs, providing analysis of what’s been happening with trade and tariffs and two things that she thinks are not getting the attention that they deserve.

As noted in the latest Schwab Market Perspective: Healthy Skepticism?, the likelihood of a December rate increase could ebb and flow depending on incoming economic data between now and then. We are only now getting to a positive real rate on the short end of the curve, so it’s appropriate to continue to cheer still-fairly loose financial conditions; but with the tightness in the labor market and the Fed also shrinking its balance sheet, inflation could pick up further from here, causing some volatility to return to the markets.

Tomorrow's economic calendar will offer Consumer Confidence, expected to show a slight decline for September to a level of 132.0 from August's record high of 133.4, as well as the Richmond Fed Manufacturing Index, forecasted to decline to 20 for September from the 24 posted the month prior. Housing data is on deck, courtesy of the S&P CoreLogic Case-Shiller Home Price Index, with economists projecting the 20-city composite to have risen 6.2% y/y, and 0.1% on a monthly and seasonally-adjusted basis. Schwab's Liz Ann Sonders provides analysis of the housing market in her latest article, With or Without You: Can the Economy Still Hum if Housing Falters?

Europe and Asia lower ahead of Fed decision and amid festering trade uneasiness

European equities finished lower, with the global markets looking a bit cautious ahead of this week's monetary policy decision from the Fed, while trade concerns lingered as last week's announced further tariffs between U.S. and China went into effect. As well, comments from European Central Bank President Mario Draghi pressured sentiment, as Draghi indicated that he sees a "relatively vigorous" pickup in underlying inflation within the euro-area, adding to the notion the Central Bank could begin tightening monetary policy next year. The euro was higher versus the U.S. dollar, but the British pound rallied amid escalating Brexit uncertainty following reports that the British opposition party may be looking for a second Brexit referendum, while the U.K. government denied reports that it was planning to call a snap election. The markets were lower despite some M&A announcements with companies on both sides of the pond and as German business confidence came in above expectations for September. Bond yields in the region gained ground. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the global landscape in his articles, Where Will The Next Crisis Come From? and U.S. Bonds Have an Important Message for International stocks.

Stocks in Asia finished lower to begin the week, as lingering global trade uneasiness remained, with further tariffs between the U.S. and China announced last week going into effect, while reports are suggesting China has called off trade talks with the U.S. Also, the global markets appear a bit cautious ahead of this week's monetary policy decision out of the U.S., which is highly-expected to conclude with a rate hike. Stocks in Australia dipped and those traded in Hong Kong fell sharply, while markets in India also dropped, as flared-up banking system and liquidity concerns joined already skittish sentiment toward emerging markets. Schwab's Jeffrey Kleintop, CFA, provides in-depth analysis of emerging markets his latest article, Emerging Market Stocks: What We Are Watching, discussing signs we will be closely monitoring to see if the drop this year is typical volatility or something leading to a deeper and more prolonged downturn. Volume was lighter than usual as markets in mainland China, South Korea and Japan were closed for holidays.

Tomorrow's international economic calendar will include: PPI from Japan, new orders and the Ifo Business Climate Survey from Germany, and PPI from Spain.

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