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Tuesday, September 13, 2016

Markets Endure Another Nose Dive

Charles Schwab: On the Market
Posted: 9/13/2016 4:15 PM ET

Markets Endure Another Nose Dive

U.S. equities whipsawed to solid losses following yesterday's rally, as Fed rate hike uncertainty has grabbed hold of the markets, leading to increased volatility that has moved the Dow more than a combined 900 points over just the last three trading sessions. A tumble in crude oil prices pressured energy stocks following a bearish supply forecast from the IEA. Meanwhile, Dow member Apple rallied on upbeat iPhone 7 pre-order reports, while more M&A activity made the headlines. Treasuries and gold were lower on light economic news, while the U.S. dollar was higher.

The Dow Jones Industrial Average (DJIA) plunged 258 points (1.4%) to 18,067, the S&P 500 Index tumbled 32 points (1.5%) to 2,127, and the Nasdaq Composite plummeted 57 points (1.1%) to 5,155. In heavy volume, 1.0 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.39 to $44.90 per barrel, wholesale gasoline lost $0.01 to $1.38 per gallon and the Bloomberg gold spot was $9.44 lower at $1,318.38 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.6% to 95.64.

Japan's Renesas Electronics Corp. (RNECY $3) announced an agreement to acquire California-based chip company Intersil Corp. (ISIL $22) for $22.50 per share in cash, representing an aggregate equity value of about $3.2 billion. RNECY was higher, while ISIL rallied nearly 10%.

Anadarko Petroleum Corp. (APC $58) announced an agreement to acquire the Deepwater Gulf of Mexico assets from the oil & gas subsidiary of Freeport-McMoRan Inc. (FCX $10) for $2.0 billion and up to $150 million in contingent payments. Both APC and FCS fell.

Dow member Apple Inc. (AAPL $108) was higher after upbeat pre-order announcements from T-Mobile US Inc. (TMUS $45) and Sprint Corp. (S $7) regarding the company's new iPhone 7 device. TMUS noted that the pre-order period was the biggest in the company's history and S said orders were almost four times higher than a year earlier. However, TMUS and S traded lower. 

Small business optimism slips

The National Federation of Independent Business (NFIB) Small Business Optimism Index for August dipped to 94.4 from July's 94.6 level, and compared to the Bloomberg forecast of a modest rise to 94.8.

Treasuries finished lower, as the yield on the 2-year note rose 2 basis points (bps) to 0.79%, while the yields on the 10-year note and the 30-year bond are gained 6 bps to 1.72% and 2.45%, respectively. Schwab's Chief Fixed Income Strategist, Kathy Jones offers her latest analysis of the interest rate environment in her article, Negative Interest Rate Policy: What Is It and Could It Happen Here?, at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.

Also, with global market volatility picking up as of late, Schwab's Chief Investment Strategist, Liz Ann Sonders offers her latest articles, Is That All?, and All Summer Long: Will the Extreme Lull in Volatility Persist? at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders. Liz Ann notes that since the beginning of 2015, we have been in this loop—moving frequently between easy and tight financial conditions, which have triggered the moves between a dovish and hawkish Fed. "As I've been saying for some time, I don't see how we extricate ourselves from this loop; while it's likely to remain a source of more frequent bouts of volatility." For more on this topic, see our latest article, Fed Uncertainty Brings Volatility to Markets at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Tomorrow's economic calendar will be light, with the Import Price Index scheduled for release, forecasted to have declined 0.1% month-over-month (m/m) during August following the 0.1% m/m increase seen in July, as well as MBA Mortgage Applications.

Europe turns lower as global uncertainty persists, Asia mixed on China data

European equities turned lower in choppy action, falling for four-straight sessions, with the global markets remaining skittish in the face of monetary policy uncertainty, while crude oil prices saw solid pressure to weigh on the energy sector. Crude oil prices dropped after the International Energy Agency (IEA) said it sees the global oversupply in oil persisting into 2017, longer than initially expected. Stocks gave up early gains that came courtesy of yesterday's dovish Fed commentary in the U.S. that cooled imminent rate hike expectations, as well as some upbeat Chinese economic data. Economic data in the region was lackluster as German investor confidence for this month missed expectations and U.K. consumer price inflation came in cooler than expected in August. U.K. economic data remained in focus as the markets try to assess the impact of the late-June vote to leave the European Union, known as a Brexit, and Schwab's Director of International Research, Michelle Gibley, CFA, offers her latest article, Keep Calm and Carry On: The Brexit Shock That Wasn't. The euro ticked higher and the British pound fell—following the inflation data—versus the U.S. dollar, while bond yields in the region finished higher.

Moreover, with volatility picking up amid global monetary policy and Brexit uncertainty, 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 all these articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed following the solid rebound in the U.S. yesterday as some dovish commentary from the Fed countered recent hawkish remarks from Central Bank officials to tamp down September rate hike expectations. Also, Bank of Japan (BoJ) uncertainty continued ahead of its policy decision next week, which will come hours before the Fed delivers its decision. Japanese equities rebounded from yesterday's drop with the yen paring some of its recent rally, and South Korean stocks moved higher on the reduced Fed rate hike concerns for this month. However, Australia's markets declined, as strength in technology and basic materials issues were more than offset by weakness in financials and oil & gas issues as crude oil prices saw some pressure.

Mainland Chinese stocks ticked slightly higher and those traded in Hong Kong declined, as August Chinese economic data showed stronger-than-expected reports on retail sales, industrial production and fixed asset investment, continuing to suggest stabilization in the world's second-largest economy but dampening expectations of further stimulus measures. For more on China, see Schwab's Michelle Gibley's, CFA, article, 5 Reasons China Won't Crash the Global Economy in 2016 at www.schwab.com/oninternational. Markets in India were closed for a holiday.

Tomorrow, the international economic calendar will provide investors insight into industrial production in Japan, CPI from France and Italy, wage data from the U.K., and industrial production out of the Eurozone.

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