Schwab Market Update
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U.S. stocks are relinquishing yesterday's gains as the markets continue to grapple with uncertainties regarding the Delta variant, the timing of global monetary policy tightening, further fiscal stimulus, and the persistent supply chain disruptions. September has been historically sluggish for stocks which are seeing some pressure despite some upbeat economic reports. Retail sales unexpectedly rebounded, Philadelphia manufacturing growth surprisingly accelerated, and business inventories rose, while although jobless claims came in above estimates, the recent moderation trend remained intact. In equity news, Texas Instruments raised its dividend and Electronic Arts delayed the launch of its Battlefield 2042 game. Treasuries are lower to lift yields, and the U.S. dollar is gaining ground. Crude oil prices are giving back some of yesterday's rally and gold is falling. Asia finished mixed with the intensified regulatory crackdown in China weighing on Chinese and Hong Kong markets, while Europe is rising as value/cyclical sectors are leading the charge.
At 10:50 a.m. ET, the Dow Jones Industrial Average and the Nasdaq Composite are down 0.5%, while the S&P 500 Index is declining 0.6%. WTI crude oil is decreasing $0.65 to $71.96 per barrel, Brent crude oil is $0.66 lower at $74.80 per barrel. The gold spot price is falling $42.10 to $1,752.70 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is advancing 0.3% to 92.88.
Texas Instruments Incorporated (TXN $196) announced that it will increase its quarterly cash dividend by 13.0% to $1.15 per share. The company said this dividend increase is an integral piece of its disciplined approach to capital management and reflects the company's continued strength in free cash flow generation and its commitment to return excess cash to stockholders. TXN is trading lower.
Electronic Arts Inc. (EA $137) announced that it has delayed the launch date of its Battlefield 2042 game to November 19, 2021, noting how the global pandemic has created unforeseen challenges for its development teams. However, the company reiterated its net bookings guidance for fiscal year 2022, despite the changed launch date. Shares are ticking higher.
Stocks have been choppy amid a plethora of uncertainties regarding the Delta variant, monetary policy direction, China's intensifying regulatory crackdown, and supply-chain disruptions. Moreover, with fiscal stimulus adding another layer of reservation for the markets amid already hefty government spending and a potential government shutdown, Schwab's Chief Investment Strategist Liz Ann Sonders provides in her latest article, Will Rising Federal Debt Slow Economic Growth?, a discussion of how over the past 70 years, rising government debt generally has been accompanied by weaker economic activity. But she discusses how it's not a simple relationship.
Find all our market commentary on our Market Insights page at www.schwab.com and follow us on Twitter at @SchwabResearch.
Retail sales unexpectedly rise, jobless claims tick higher, regional manufacturing output jumps
Advance retail sales (chart) for August rose by 0.7% month-over-month (m/m), versus the Bloomberg consensus forecast of a 0.7% decrease, but July's figure was adjusted lower to a 1.8% decline. Last month's sales ex-autos gained 1.8% m/m, compared to expectations of a flat reading while July's figure was revised downward to a 1.0% decrease. Sales ex-autos and gas were up 2.0% m/m, versus estimates of a flat reading, though July's figure was adjusted lower to a 1.4% decline. The control group, a figure used to calculate GDP, advanced 2.5% m/m, versus projections of an unchanged reading, but July's pace was revised lower to a 1.9% drop.
Weekly initial jobless claims (chart) came in at a level of 332,000 for the week ended September 11, versus estimates calling for 322,000 and compared to the prior week's upwardly-revised 312,000 level. The four-week moving average decreased by 4,250 to 335,750, and continuing claims for the week ended September 4 dropped by 187,000 to 2,665,000, south of estimates of 2,740,000. The four-week moving average of continuing claims declined by 50,000 to 2,807,500.
The Philly Fed Manufacturing Business Outlook Index (chart) surprisingly moved further into expansion territory (a reading above zero) for September. The index jumped to 30.7 versus estimates of a dip to 19.0 from August's 19.4 level. General business activity and shipments both saw growth accelerate, while inventories jumped back into expansion territory. New orders and employment both continued to grow, but at slower rates, while prices paid declined but remained comfortably in expansion territory.
Business inventories (chart) rose 0.5% m/m in July, matching forecasts, and June's figure was upwardly-revised to a 0.9% gain.
Treasuries are lower, with the yield on the 2-year note ticking 1 basis point (bp) higher to 0.22%, the yield on the 10-year note rising 3 bps to 1.33%, and the 30-year bond rate gaining 2 bps to 1.88%.
The markets continue to grapple with when the Fed will begin to taper its monthly asset purchases as inflation has been running hot and employment data has been mixed, while the Delta variant and supply-chain challenges remain. Schwab's Chief Fixed Income Strategist Kathy Jones points out in her latest commentary, Is the Treasury Bond Market About to Wake Up?, that the bond market has been in hibernation for months, and investors may have become complacent about risks.
Europe higher following yesterday's decline
European equities are gaining ground in late-day action, with value/cyclical sectors noticeably higher, led by Industrials, while Financials are also contributing to the advance. Bond yields in the Eurozone have turned mixed, and rates in the U.K. are maintaining early gains. Bond yields in the region have advanced as of late amid some hotter-than-expected inflation figures in the region and as key central banks out of the U.S., Eurozone and U.K. are expected to begin reining in their extraordinary monetary policies put in place to combat the impact of the global pandemic. Economic data in the U.S. is being eyed, headlined by an unexpected rise in retail sales out of the world's largest economy. The markets are showing some resiliency in the face of expectations of tighter monetary policy, as well as lingering uneasiness regarding the Delta variant, supply-chain challenges, and the intensified regulatory crackdowns in China. The euro and British pound are losing some ground versus the U.S. dollar.
Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Payback Time With a Potential Payoff. Jeff notes how a gradual slowing of stimulus heralds a potential drop for the world's stock markets, but the evidence suggests a possibility for a positive outcome. Jeff also discusses in his article, Can Investors Avoid Rising Supply Chain Risks?, how supply chain issues are worsening, increasing the risk to sales, production, and inflation. He points out how European stocks may offer an opportunity to avoid these risks.
The U.K. FTSE 100 Index is up 0.3%, France's CAC-40 Index is rising 0.9%, Germany's DAX Index is gaining 0.5%, Italy's FTSE MIB Index is increasing 1.0%, Spain's IBEX 35 Index is rallying 1.2%, and Switzerland's Swiss Market Index is advancing 0.6%.
Asia mixed as China's crackdown continues to weigh on the markets
Stocks in Asia finished mixed in continued choppy action, as China's intensified crackdown on big businesses remained a drag as it has focused on the casino industry in Macau this week. China's Shanghai Composite Index fell 1.3% and the Hong Kong Hang Seng Index dropped 1.5%. For a look at the Chinese and Hong Kong markets amid the ramped-up volatility, check out Schwab's Jeffrey Kleintop's, CFA, article, Is China’s Bear Market an Opportunity.
In economic news, Japan's August exports slowed more than expected, while Australia's employment fell more than anticipated for last month, but its unemployment rate unexpectedly dropped. Japan's Nikkei 225 Index decreased 0.6% with the yen holding onto recent gains, but Australia's S&P/ASX 200 Index rose 0.6%. South Korea's Kospi Index declined 0.7%, and India's S&P BSE Sensex 30 Index advanced 0.7%, registering fresh record highs.
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