Schwab Market Update
Listen to the latest audio Schwab Market Update. Or listen and subscribe for free to the end-of-day Schwab Market Update podcast:
U.S. stocks are higher in early action to kick off the week and new month, with a flurry of M&A activity dominating the headlines, while reports on global manufacturing activity suggested the recovery in July continued. Marathon Petroleum is rising after selling its Speedway gas stations to 7-Eleven for $21.0 billion in cash, ADT is surging after announcing a partnership with Google, and Dow member Microsoft confirmed that it is in talks to acquire TikTok's U.S. operations. After the opening bell, the economic calendar will bring some reads on July manufacturing output, commencing the week that will culminate with Friday's nonfarm payroll report. Treasury yields are rising as bond prices slip, while the U.S. dollar is rebounding from a recent drop. Gold is trimming a record run and crude oil prices are little changed. Asia finished mixed and Europe is trading higher.
As of 8:52 a.m. ET, the September S&P 500 Index future is 21 points above fair value, the DJIA future is 148 points above fair value, and the Nasdaq 100 Index future is 100 points north of fair value. WTI crude oil is dipping $0.01 to $40.26 per barrel and Brent crude oil is increasing $0.03 to $43.55 per barrel. The Bloomberg gold spot price is declining $7.36 to $1,968.50 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is advancing 0.4% to 93.78.
Marathon Petroleum Corporation (MPC $38) is gaining ground after announcing an agreement to sell its Speedway gas stations to 7-Eleven, a wholly owned, indirect subsidiary of Japan's Seven & I Holdings Co. Ltd. (SVNDF $33) for $21.0 billion in cash. The announcement came ahead of today's earnings report from MPC, which posted a smaller-than-expected Q2 loss but a sharp drop in revenues compared to the prior year.
ADT Inc. (ADT $9) is surging after announcing a partnership with Google, owned by Alphabet Inc. (GOOGL $1,488), in which Google will invest $450 million to acquire a 6.6% ownership stake in the security and home solutions company. The companies said the deal is aimed at creating a leading smart home security offering. Each company will commit $150 million for co-marketing, product development, technology and employee training.
Dow member Microsoft Corporation (MSFT $205) confirmed that it is in discussions to explore the purchase of TikTok in the U.S. MSFT said following a conversation between its Chief Executive Officer Satya Nadella and President Donald Trump, it is prepared to continue talks to explore a purchase of TikTok in the U.S. from parent ByteDance. MSFT added that it fully appreciates the importance of addressing the President's concerns and it is committed to acquiring TikTok subject to a complete security review and providing proper economic benefits in the U.S. MSFT said it will move quickly to pursue discussions with TikTok in a matter of weeks and in any event completing these talks no later than September 15th. The two companies have provided notice of their intent to explore a preliminary proposal that would involve a purchase of the TikTok service in the United States, Canada, Australia, and New Zealand and would result in Microsoft owning and operating TikTok in these markets.
Earnings season is set to roll on this week and the markets remain focused on if a new fiscal relief package can be agreed upon between U.S. lawmakers as some key unemployment benefits aimed at supporting economic activity amid the severe disruption of the COVID-19 pandemic.
Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Running on Faith: Are Stocks Discounting Too Powerful an Earnings Recovery?, earnings have so far bested an extremely low bar, but stocks may be discounting too swift a recovery; while concentration remains a risk. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Stock Market Reaction to Expiring COVID-19 Programs, how if not extended or replaced, the fading support for the unemployed raises the risk of weakening economic momentum, turning the V-shaped recovery into a W.
For timely commentary, you can follow the experts from the Schwab Center for Financial Research (SCFR) on Twitter at @SchwabResearch, and you can visit www.schwab.com/volatility to find more analysis and strategies on the current market environment.
Manufacturing reports set to kick off economic week
Treasuries are lower to begin the week, with the yield on the 2-year note little changed at 0.11%, while the yield on the 10-year note is gaining 3 basis points (bps) to 0.56% and the 30-year bond rate is rising 6 bps to 1.25%. Treasury yields are rebounding from recently renewed pressure that has been exacerbated by last week's continued dovish tone from the Fed as it left its monetary policy stance unchanged as discussed by Schwab's Liz Ann Sonders in her article, Policy of Truth: Fed Holds Rates Steady Amid Somber Outlook.
After the opening bell, the economic calendarwill bring key reads on July manufacturing activity with the release of the ISM Manufacturing Index, projected to improve to 53.6 from June's 52.6 level. Also, we will get the final Markit Manufacturing PMI Index, projected to be unrevised at the preliminary estimate of 51.3, and above June's 49.8 level. A reading of 50 for both indexes is the demarcation point between expansion and contraction. The manufacturing data will be accompanied by the release of construction spending, forecasted to rebound 1.0% month-over-month (m/m) during June, after May's 2.1% drop.
Today's data will commence the economic week that will see ISM and Markit deliver its July reads on services sector activity which will be accompanied the June trade balance. However, data on the employment front is likely to carry the most weight as the markets look to see if the economic recovery will persist, with ADP delivering its private sector payroll figures for July and jobless claims for the week ended August 1st hitting the tape. However, the headlining report will likely be Friday's nonfarm Labor Report, expected to show roughly 1.5 million jobs were added to payrolls in July. For commentary on how long the resiliency in the stock markets can last, see our latest installment of the Schwab Market Perspective: Watching the Shape of the Recovery.
Europe higher as euro and British pound pullback and manufacturing data suggests growth
European equities are trading higher in afternoon action, with the euro trimming a recent rally versus the U.S. dollar, while Eurozone and U.K. manufacturing reports showed growth in the sector for last month. Bond yields in the region are mostly higher and the British pound is also losing ground on the greenback ahead of this week's monetary policy decision from the Bank of England. Schwab's Chief Fixed Income Strategist Kathy Jones offers her latest article, U.S. Dollar Outlook: What Could a Weaker Dollar Mean for Your Portfolio?, noting how the U.S. dollar has been showing signs of weakening, a trend that may underscore the importance of global diversification. However, the uncertainty regarding the size and timing of the expected next wave of U.S. fiscal stimulus measures remains, and focus continues to be on the recent flare-up in new COVID-19 cases globally, which may be limiting the upside moves in the region.
The U.K. FTSE 100 Index is up 1.3%, France's CAC-40 Index is increasing 1.4%, Germany's DAX Index is rallying 2.2%, Italy's FTSE MIB Index is advancing 0.8%, Spain's IBEX 35 Index is gaining 0.4%, and Switzerland's Swiss Market Index is trading 2.0% higher.
Asia mixed following data and as U.S. fiscal wrangling continues
Stocks in Asia finished mixed to commence a new month, with stronger-than-expected reports on Chinese and Japanese manufacturing output in July continuing to paint a recovery picture, while uncertainty remained regarding a next installment of fiscal relief measures out of the U.S. Also, conviction may have been stymied by simmering U.S.-China tensions and a rebound in the U.S. dollar from a recent drop that has supported some emerging market stocks. Schwab's Kathy Jones and Senior Fixed Income Analyst Christina Shaffer discuss Are Emerging-Market Bonds Worth the Risk?. Japan's Nikkei 225 Index rallied 2.2%, with the yen paring a recent gain, while China's Shanghai Composite Index advanced 1.8%. However, the Hong Kong Hang Seng Index declined 0.6% and Australia's S&P/ASX 200 Index finished flat. South Korea's Kospi Index ticked 0.1% higher and India's S&P BSE Sensex 30 Index fell 1.8% amid the rebound in the greenback and ahead of this week's monetary policy decision from the Reserve Bank of India.
©2020 Charles Schwab & Co., Inc., Member SIPC. All rights reserved.
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.
Apple Podcasts and the Apple logo are trademarks of Apple Inc., registered in the U.S. and other countries.
(0820-070V)