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Monday, June 13, 2016

Stocks Close Near Lows

Charles Schwab: On the Market
Posted: 6/13/2016 4:15 PM ET

Stocks Close Near Lows

U.S. stocks began the trading week lower on the heels of broad-based drops in Asia and Europe as global sentiment remained stymied by festering growth concerns. Traders may have been exercising additional caution with several high profile central bank decisions scheduled for this week and a vote regarding whether the U.K. should leave the European Union fast approaching. Treasuries and gold were higher and the U.S. dollar and crude oil prices were lower. In equity news, Microsoft agreed to acquire LinkedIn.

The Dow Jones Industrial Average (DJIA) lost 133 points (0.7%) to 17,732, the S&P 500 Index shed 17 points (0.8%) to 2,079, and the Nasdaq Composite finished 46 points (0.9%) lower at 4,848. In moderate volume, 856 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil decreased $0.19 to $48.88 per barrel and wholesale gasoline declined $0.02 to $1.54 per gallon, while the Bloomberg gold spot price increased $10.12 to $1,284.36 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 94.37.

Dow member Microsoft Corp. (MSFT $50) announced an agreement to acquire LinkedIn Corp. (LNKD $192) for $196.00 per share in cash, in a transaction valued at about $26.2 billion. The companies said LinkedIn will retain its distinct brand, culture and independence. MSFT traded lower, while LNKD rallied over 45%.

Symantec Corp. (SYMC $18) announced an agreement to acquire web security software company, Blue Coat Systems, for about $4.65 billion in cash. As part of the transaction, Blue Coat Chief Executive Officer (CEO), Greg Clark, will become Symantec's CEO and join its board after the deal closes. SYMC traded nicely higher.

Economic calendar quiet before the storm

Treasuries were higher, while the U.S. economic calendar was void of any major releases today. The yield on the 2-year note declined 1 basis point (bp) to 0.71%, the yield on the 10-year note decreased 3 bps to 1.61%, and the 30-year bond rate dipped 2 bps to 2.43%. Bond yields have shown some downside volatility as of late with recent data and last week's speech from Fed Chairwoman Janet Yellen dampening summer rate hike expectations, along with the recent flare-up in global growth concerns. Schwab's Fixed Income Director Collin Martin, CFA, offers timely analysis of bond investing amid this backdrop in his article, Waiting for a Fed Rate Hike: Bond Investments That May Make Sense Now. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

This week's economic docket will heat back up, beginning with tomorrow's release of retail sales, as the headline figure is forecasted to increase 0.3% month-over-month (m/m) after rising 1.3% in April, while stripping out autos, sales are projected to rise 0.4% m/m after gaining 0.8% the month prior. Excluding autos and gas, sales are anticipated to grow 0.2%, following April's 0.6% advance. The Import Price Index and NFIB Small Business Optimism Index will also be reported tomorrow.

Additional notable reports on this week's economic calendar include the Consumer Price Index (CPI), the Producer Price Index (PPI), industrial production and capacity utilization, along with housing starts and building permits. However, the headlining event is poised to be Wednesday's monetary policy decision from the Federal Open Market Committee (FOMC). Although June rate hike expectations were taken off the table by the severely disappointing May labor report and last week's speech from Fed Chair Yellen, the markets will be paying close attention to the FOMC's updated economic projections and Yellen's press conference shortly after the decision. As noted in our article, Weak Jobs Report Complicates Fed Interest Rate Policy, the latest U.S. employment report, and some of its accompanying components that suggested some worrisome labor market trends, may well be another bump in the road toward higher rates. While an increase in July isn't off the table, the likelihood of a rate hike has been reduced. Read more at www.schwab.com/insights.

Europe and Asia lower amid continued global uneasiness ahead of key events

European equities finished broadly lower, as global growth concerns continued to fester, while the latest polls regarding whether the U.K. should leave the European Union (EU), known as a Brexit, fostered uncertainty and sparked volatility for the British pound. The pound overcame an early drop and traded little changed versus the U.S. dollar. The U.K. will hold a referendum on June 23 to determine if it will leave the EU and for analysis on the issue read our article, Brexit: Will the UK Leave the EU? at www.schwab.com/insights. Moreover, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, discusses in his article, Brexit: 5 Things Investors Need to Know, at www.schwab.com/oninternational, and be sure to follow Jeff on Twitter: @jeffreykleintop.

Also, the global markets were likely cautious ahead of this week's monetary policy decisions in the U.S., U.K. and Japan. The euro ticked higher versus the U.S. dollar, while bond yields in the region were mixed. The uneasy global sentiment has pressured bond yields to exacerbate conviction toward equities, notably financials, as risk appetites appear to be shrinking amid the plethora of uncertainty in the markets.

Stocks in Asia fell broadly, with risk aversion continuing to flare-up ahead of this week's monetary policy decisions out of the U.S. and Japan, while the latest polls on a U.K. Brexit exacerbated the global mood. Also global growth concerns continued to fester and further dampen conviction toward equities. Schwab's Jeffrey Kleintop offers Five ways investors can make the most of slower growth, at www.schwab.com/oninternational. Japanese equities tumbled, with the yen rallying to weigh on the markets.

Stocks trading in mainland China and Hong Kong dropped following some mixed May economic data over the weekend and as caution prevailed ahead of this week's decision by MSCI Inc. on whether to include mainland shares in its global benchmark indexes. China's fixed asset investment missed economists' forecasts, while reads on the country's retail sales and industrial production both rose roughly in line with expectations. South Korean securities traded lower amid the soured global sentiment, while Indian listings finished to the downside, ahead of a report on the nation's consumer price inflation. After the closing bell India's Consumer Price Index rose more than expected for May. Markets in Australia were closed for a holiday.

The international economic docket for tomorrow will include manpower surveys from China and Japan, with the latter also set to release its industrial production and capacity utilization report. Across the pond, the U.K. will report CPI and PPI, Italy will deliver CPI and the Eurozone will give reports on industrial production and employment.

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