Charles Schwab; On the MarketPosted: 8/29/2016 :15 PM ET
U.S. Stocks Outdo Global Markets
U.S. equities bucked the global trend to finish solidly in the green, showing some resiliency in the face of the continued pressure on crude oil prices, as well as weakness overseas on increased Fed rate hike expectations. Favorable economic data likely lent some support, despite the global markets treading cautiously ahead of Friday's key August nonfarm payroll report. Treasuries and gold were higher, while the U.S. dollar was flat.
The Dow Jones Industrial Average (DJIA) rose 108 points (0.6%) to 18,504, the S&P 500 Index gained 11 points (0.5%) to 2,180, and the Nasdaq Composite increased 13 points (0.3%) to 5,232. In light volume, 647 million shares were traded on the NYSE and 1.4 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.66 to $46.98 per barrel, wholesale gasoline declined $0.03 to $1.40 per gallon and the Bloomberg gold spot price increased $2.35 to $1,323.53 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was unchanged at 95.58.
Mylan NV (MYL $43) announced that it will launch the first generic EpiPen Auto-Injector at a list price of $300 for a two-pack carton, representing a discount of more than 50% to its branded EpiPen. The drug maker came under scrutiny last week for its pricing of its branded EpiPen shots at $600, which it said today that it will continue to sell. Shares were higher.
Personal income and spending rise as expected
Personal income (chart) was 0.4% higher month-over-month (m/m) in July, matching the Bloomberg forecast and compared to June's upwardly revised 0.3% increase. Personal spending came in 0.3% higher m/m last month—the fourth-straight monthly gain—in line with expectations and versus June's favorably revised 0.5% rise. The July savings rate as a percentage of disposable income was 5.7%. The PCE Deflator came in flat, as expected. Compared to last year, the deflator was 0.8% higher, matching estimates. Excluding food and energy, the PCE Core Index ticked 0.1% higher m/m, in line with expectations, and the index was up 1.6% y/y, above estimates of a 1.5% rise.
The Dallas Fed Manufacturing Index fell to -6.2 for August from July's unrevised -1.3 level with economists forecasting a decrease to -3.9. A reading below zero denotes contraction in manufacturing activity.
Treasuries finished higher, as the yield on the 2-year note declined 4 basis points (bps) to 0.81%, while the yields on the 10-year note and the 30-year bond dropped 7 bps to 1.57% and 2.22%, respectively. For analysis on the fixed income markets see the video from Schwab's Managing Director of Trading and Derivatives, Randy Frederick and Fixed Income Director Collin Martin, CFA, titled Tempered Expectations for Bond Returns: Why Hold Bonds? at www.schwab.com/insights and follow Randy on Twitter: @randyafrederick.
On the heels of last week's comments from Federal Reserve Chairwoman Janet Yellen and Vice Chair Stanley Fischer that suggested a September rate hike remains a possibility, this Friday's August nonfarm payroll report is poised to be a key focus for the global markets. The report will also be preceded by key reads on Manufacturing Purchasing Managers Indexes (PMIs) from ISM and Markit, the trade balance, Consumer Confidence, and August vehicle sales. Tomorrow will bring the Consumer Confidence Index, which economists expect to fall slightly to a level of 97.0 for August from July's 97.3, and the S&P CoreLogic Case-Shiller Home Price Index, forecasted to show prices in the 20-city composite rose 5.12% y/y in June, but ticked 0.1% lower m/m on a seasonally-adjusted basis (economic calendar).
Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her article, What Does Strong Job Growth Mean for Bond Investors?, recent strong job growth has improved the odds the Fed will raise short-term interest rates in the coming months and this has potentially negative implications for the U.S. bond market, which has put in a strong performance so far this year. The risk of higher rates appears greater than the potential for lower rates. We suggest investors keep the average duration of their portfolios within the short- to intermediate-term bond range to help reduce volatility, and consider holding Treasury Inflation-Protected Securities. Read more at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.
Europe lower on oil and Fed rate hike uneasiness, Asia mixed
European equities traded to the downside, amid lighter-than-usual volume as the U.K. markets were closed for a holiday. Fed rate hike expectations got a boost from Friday's comments from Federal Reserve Chairwoman Janet Yellen, which was followed by Fed Vice Chair Stanley Fischer's remarks that suggested rate hikes next month and in December could be possibilities. The euro and British pound finished lower versus the U.S. dollar, while bond yields in the region mostly dipped. Amid the elevated Fed rate hike expectations, utilities led to the downside, along with oil & gas issues, which saw pressure as crude oil prices declined on supply concerns and a stronger U.S. dollar. Political uncertainty lingered in the region as Spain's Prime Minister Rajoy is set to face a confidence vote tomorrow, per Bloomberg. For more on the global political landscape, see Schwab's Director of International Research, Michelle Gibley's, CFA, article, Performing Reformers: How Political Change Can Affect Stocks at www.schwab.com/oninternational, and be sure to follow Schwab on Twitter: @schwabresearch. Also, with global uncertainty remaining elevated to open the door for some possible increased volatility, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification and why Your portfolio may be less diversified than you think. Read both articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop.
Stocks in Asia finished mixed on the heels of Friday's comments from the Fed's Yellen and Fischer that kept the possibility of a September rate hike in play. Mainland Chinese equities finished flat and those traded in Hong Kong declined, while the nation reported a year-over-year (y/y) acceleration in July industrial profits. Australian securities dropped amid weakness in basic materials and oil & gas stocks, while South Korean listings also declined. However, India's markets advanced, and stocks in Japan rallied as the yen weakened amid a rise in the U.S. dollar on the aforementioned Fed comments, as well as Bank of Japan Governor Kuroda's reiterated pledge to deploy further stimulus measures if needed. For more on Japan's potential increased stimulus measures see Jeffrey Kleintop's, CFA, article, What investors need to know about helicopter money at www.schwab.com/oninternational.
A host of economic reports from Japan will dominate tomorrow's international economic calendar, including labor data, personal income and consumption, retail sales and trade figures. From across the pond will come Germany's Import Price Index, housing prices from the U.K., CPI from Spain, retail sales from Italy, and confidence gauges from the Eurozone.