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Tuesday, September 27, 2016

Markets Achieve Gains on Favorable Data

Charles Schwab: On the Market
Posted: 9/27/2016 4:15 PM ET

Markets Achieve Gains on Favorable Data

U.S. equities, which got a slight lift following last night’s Presidential debate boost, finished higher, as some upbeat reports on Consumer Confidence and services sector growth energized investors. Meanwhile, the gains were muted somewhat as the energy sector was stalled by a tumble in crude oil prices, which gave back most of yesterday's gains. Treasuries finished higher, as did the U.S. dollar, while gold was lower.

The Dow Jones Industrial Average (DJIA) rose 133 points (0.7%) to 18,228, the S&P 500 Index gained 14 points (0.6%) to 2,160, and the Nasdaq Composite jumped 48 points (0.9%) to 5,206. In moderate volume, 832 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.26 to $44.67 per barrel, wholesale gasoline was $0.03 lower at $1.36 per gallon and the Bloomberg gold spot price declined $11.01 to $1,326.94 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 95.45.

IHS Markit Ltd. (INFO $36) reported fiscal 3Q earnings-per-share (EPS) ex-items of $0.45, one penny above the FactSet estimate, as revenues rose 30.0% year-over-year (y/y) to $725 million, versus the expected $728 million. The figures include results from IHS, which merged with Markit this year. The analytics company issued full-year guidance that was roughly in line with estimates. Shares were lower.

Kite Pharma Inc. (KITE $60) moved higher after the company reported favorable results from a trial of its treatment for non-Hodgkins lymphoma.

Amgen Inc. (AMGN $172) was lower after announcing disappointing results from a trial of its treatment for multiple myeloma.

Consumer Confidence Index jumps, services activity accelerates more than expected

The Consumer Confidence Index (chart) jumped to 104.1 in September—the highest since August 2007—from the upwardly revised 101.8 level in August, and compared to the Bloomberg estimate of 99.0. Sentiment toward the present situation and expectations of business conditions both improved. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 6.3 from the 4.0 posted in August.

The preliminary Markit U.S. Services PMI Index for September improved to 51.9 from August's reading of 51.0, compared to forecasts of a modest rise to 51.2, with a reading above 50 indicating expansion. The release is independent and differs from the Institute for Supply Management's (ISM) report, as it has less historic value and its index components are weighted differently.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.0% gain in home prices y/y in July, versus expectations of a 5.1% increase. Month/month (m/m), home prices were flat on a seasonally adjusted basis for July, matching forecasts.

The Richmond Fed Manufacturing Activity Index rose but remained in contraction territory (a reading below zero), increasing to -8 in September from the -11 posted in August, while economists had anticipated an improvement to -2. Tomorrow, the U.S. economic calendar will bring a read on manufacturing demand with the August durable goods orders report, projected to show a broad m/m decline across the different components. The nondefense capital goods orders excluding aircraft component of the report—a gauge of business spending—is projected to dip 0.1% after July's solid 1.5% gain and is likely to garner attention amid recently increased economic growth concerns.

As well, MBA Mortgage Applications will be reported, while most eyes will likely be on Federal Reserve Chairwoman Janet Yellen’s testimony before the House Financial Services Committee on monetary policy, and a slew of other Federal Open Market Committee members are scheduled to speak tonight and tomorrow at various events, likely garnering some attention as well.

Schwab's Chief Investment Strategist, Liz Ann Sonders offers her latest look at the economy in her article, Every Picture Tells a Story: Recession Risk Up, but Not High, noting that leading indicators weakened in August, but are not yet flashing a recession warning. Recession models show rising, but still low risk of a coming contraction in economic activity. Economic recoveries don’t tend to die of old age; they die of excess…of which there’s little in this recovery. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Treasuries finished higher, as the yield on the 2-year note ticked 2 basis points (bps) lower to 0.73%, the yield on the 10-year note decreased 3 bps to 1.56% and the 30-year bond rate dropped 4 bps to 2.28%. For a look at the interest rate environment, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, Negative Interest Rate Policy: What Is It and Could It Happen Here?, at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.

Europe hamstrung by exacerbated banking pressure, Asia recovers early losses

European equities pared losses on the upbeat U.S. services and consumer confidence data, which helped financials pare early losses. The sector continued to see pressure , including Deutsche Bank AG (DB $12), which has been at the center of the recent pressure on financials, and extended its sell-off. Capital concerns toward DB continued to fester as the German lender faces speculation that it may need to raise money in the wake of a record $14.0 billion fine being sought by the U.S. Department of Justice (DoJ) in relation to its practices leading up to the 2008 mortgage crisis. Automakers also came under some pressure.

Oil & gas issues weighed on stocks in the region with crude oil prices giving back some of yesterday's solid advance amid production agreement uncertainty as OPEC holds an informal meeting this week. The euro declined and the British pound ticked higher versus the U.S. dollar, with the global markets reacting to last night's first U.S. Presidential debate, while bond yields in the region finished mostly lower. With the volatility likely to remain and the global markets diverging, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, reminds investors, 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 these articles at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.

Asian equities finished mostly higher after overcoming early pressure as the markets reacted to the first Presidential debate in the U.S., though crude oil prices pulled back from yesterday's solid gain amid production agreement uncertainty amid this week's informal OPEC meeting. Stocks in Japan advanced, with a downside reversal in the yen late in the day helping the markets to break into positive territory. South Korean equities rose amid a late-session comeback, while those traded in China and Hong Kong gained solid ground with a read on the country's August industrial profits accelerating solidly y/y. Schwab's Jeffrey Kleintop, CFA, offers his latest analysis on the global economic front in his article, World Tour: An Around The World Look At the Economic Landscape at www.schwab.com/oninternational. However, Indian securities and markets in Australia were lower, with the latter seeing some weakness in the technology and oil & gas issues.

The economic calendar internationally will be fairly light tomorrow, with Germany slated to release consumer confidence, and sentiment data also coming from Italy.

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