Stocks | November 29, 2022

Schwab Market Update

Markets Close Off Lows to Finish Mixed

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U.S. equities were mixed, as the markets processed a number of events and data. Unrest in China amid protests in the region in response to its zero-tolerance COVID policy provided a source of uneasiness for the global markets, despite some optimism that the country may ease COVID-related restrictions. Meanwhile, a looming December 9 potential national strike date for rail workers added to the anxiety, all ahead of tomorrow’s comments from Fed Chairman Jerome Powell. Equity news was light, with Dow member UnitedHealth Group issuing mixed 2023 guidance, while Chemours issued a full-year outlook that came in below estimates. In economic news, home prices cooled, and the Consumer Confidence Index fell for the second straight month. Treasury yields were higher, and the U.S. dollar gained modest ground, while crude oil and gold prices advanced. Asia finished mostly to the upside, with mainland Chinese and Hong Kong markets leading the way amid the lingering optimism that COVID restrictions may ease and as China announced further measures to support its property market. Europe ended a choppy session mixed as the markets monitored the developments in China, as well as diverging economic data in the region.

The Dow Jones Industrial Average nudged 3 points higher to 33,853, while the S&P 500 Index declined 6 points (0.2%) to 3,958, and the Nasdaq Composite lost 66 points (0.6%) to 10,984. In moderate volume, 3.5 billion shares of NYSE-listed stocks were traded, and 4.5 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.96 to $78.20 per barrel. Elsewhere, the gold spot price advanced $6.70 to $1,747.00 per ounce, and the Dollar Index was 0.2% higher at 106.86.

Dow member UnitedHealth Group Incorporated (UNH $528) reaffirmed its current year earnings-per-share (EPS) guidance, while issuing 2023 EPS guidance with a midpoint below FactSet estimates. However, the company delivered 2023 revenue guidance that was above expectations. The guidance comes ahead of its annual investor conference that will take place tomorrow. Shares of UNH traded lower.

Chemours Co. (CC $31) issued full-year guidance below expectations after the Teflon maker said market demand for titanium dioxide has weakened in Q4, particularly in Europe and Asia amid an increasingly uncertain global outlook. CC also said Q4 seasonality and higher raw material costs are impacting its thermal & specialized solutions and advanced performance materials units. CC was lower.

Q3 earnings season is mostly in the books, and Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her article, Disappearing Act: Earnings, how earnings weakness is starting to materialize across a broader swath of industries, with hits coming from a strong dollar, weaker demand, and aggressive monetary policy. You can follow Liz Ann on Twitter: @LizAnnSonders.

Read all our market commentary on our Insights & Education page, and you can follow us on Twitter at @SchwabResearch.

Home prices decline month over month and consumer confidence slips again

The Conference Board's Consumer Confidence Index (chart) decreased to 100.2 in November from October's downwardly revised 102.2 level, and versus the Bloomberg estimate calling for a reading of 99.8. The index movement came as the Expectations Index of business conditions for the next six months portion of the index, decreased to 75.4 from October's 77.9 level, while the Present Situation Index portion of the survey declined to 137.4 from the previous month's 138.7 level. On employment, the labor differential—consumers’ appraisal of jobs being "plentiful" minus being "hard to get"—increased slightly to 32.8 from the 31.8 level posted in October.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index for September showed a 10.43% year-over-year (y/y) gain in home prices, below the Bloomberg consensus estimate of a 10.55% rise, and versus the prior month's downwardly revised 13.06% increase. Home prices were down 1.24% month-over-month (m/m) on a seasonally adjusted basis, compared to forecasts calling for a 1.20% decline, and versus the prior month's positively revised 1.30% decrease.

Treasury yields were higher, as the yield on the 2-year note rose 1 basis point (bp) to 4.47%, the yield on the 10-year note gained 5 bps to 3.76%, and the 30-year bond rate was up 6 bps to 3.81%.

Inflation has been the driving factor behind the aggressive monetary policy from the Federal Reserve. The increase in bond yields and this year's rally in the U.S. dollar have fostered the choppiness in the markets. Schwab's Chief Fixed Income Strategist Kathy Jones discusses the bond and currency markets in her article, Markets to Fed: Slow Down, You Move Too Fast, noting how if these trends continue, the Fed may end up slowing its pace of tightening—but not stopping it. You can follow Kathy on Twitter: @KathyJones. Additionally, as noted in the latest Schwab Market Perspective: Stress Cracks, as the Federal Reserve continues to ratchet up the pressure with higher interest rates, cracks are beginning to appear beneath the surface of the U.S. economy.

Tomorrow's economic calendar will offer the second look (of three) at Q3 GDP, expected to nudge higher to a quarter-over-quarter (q/q) rate of expansion of 2.7%, as well as the Chicago PMI, forecasted to increase to a reading of 46.5, but remaining in contraction territory as denoted by a reading below 50. Employment data will be in focus ahead of Friday's highly anticipated October labor report, with the ADP Employment Change report expected to show 196,000 private sector jobs were added this month, and the Job Openings and Labor Turnover Survey (JOLTS) to indicate 10.4 million jobs were available to be filled in October. Pending homes sales are on deck, with economists calling for a 5.0% m/m decline last month, and the MBA Mortgage Applications Index for the week ended November 25 will round out the docket.

Europe mixed amid data and China developments

Stocks in Europe finished mixed in a volatile session as global markets continued to monitor the developments in China looking to see if the country will ease COVID restrictions and as protests in the country in response to China's zero-tolerance policy continue. Meanwhile, the markets continue to be choppy as they grapple with the implications of the aggressive tightening of monetary policies on both sides of the pond to try to combat inflation pressures. However, there was some inflation data that may be easing concerns, with German November preliminary consumer prices declining m/m and rising by a smaller amount than expected y/y. In other economic news, Eurozone economic confidence improved more than anticipated for November, along with services sentiment, though its industrial confidence fell more than forecasted.   

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, Central Banks Stepping Down, how central banks seem to be stepping down from aggressive rate hikes, and this could lead to a year-end "Santa Pause" rally for stocks. You can follow Jeff on Twitter: @JeffreyKleintop. The euro was little changed versus the U.S. dollar and the British pound ticked higher, while bond yields in the Eurozone and the U.K. were lower.

The U.K. FTSE 100 Index was up 0.5%, France's CAC-40 Index and Italy's FTSE MIB Index ticked 0.1% higher, Germany's DAX Index fell 0.2%, Spain's IBEX 35 Index was nearly unchanged, and Switzerland's Swiss Market Index traded 0.8% lower.

Asia mostly higher as China remains in focus

Stocks in Asia were mostly higher as focus remained on China and optimism resurfaced that the country could ease COVID-related restrictions as virus cases were lower than Sunday's number and China announced increased vaccination rates for seniors. The optimism overshadowed the recent unrest in the region in response to the country's zero-tolerance COVID policy. In his latest article, Risk for 2023: China Reopening, Schwab's Jeffrey Kleintop notes that Chinese officials may be preparing to bring an end to China's zero-COVID policy but reopening the world's second-largest economy could bring inflationary challenges.

Investors also digested more stimulus measures from China's government, which yesterday lowered the reserve requirements for its largest banks to try to stabilize the economy that has been hampered by the impact of COVID lockdowns. Also, China announced further measures to try to help its struggling property market. The persistent inflation pressures have been a main factor in the aggressive measures taken by central banks across the world that have caused volatility in the markets. The Reserve Bank of New Zealand upped its benchmark interest rate by 75 bps last week, the largest increase in the bank's history, and the Reserve Bank of Australia (RBA) recently decided to raise interest rates for a second-straight meeting. Central banks in Europe have also aggressively tightened monetary policy, while the Fed in the U.S. has led the way with its string of four-straight 75-bp rate hikes. In economic news, Japan's October retail sales came in below expectations, South Korea's retail sales decelerated for last month, and Hong Kong's exports fell more than anticipated in October. 

Japan's Nikkei 225 Index was 0.5% lower, with the yen holding onto yesterday's gains versus the U.S. dollar. However, China's Shanghai Composite Index increased 2.3%, and the Hong Kong Hang Seng Index led the way, rallying 5.2%. Meanwhile, South Korea's Kospi Index rose 1.0%, while Australia's S&P/ASX 200 Index and India's S&P BSE Sensex 30 Index advanced 0.3%.

A number of economic reports are slated for tomorrow internationally, including import prices and employment data from Germany, Q3 GDP, CPI and PPI from France, Q3 GDP and CPI from Italy, and CPI from the Eurozone.

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