Markets Mixed Following Fed Report

On the Market

Posted: 9/7/2016 4:15 PM ET

Markets Mixed Following Fed Report

U.S. equities finished mixed and near the flat line, showing little reaction to the afternoon release of the Fed's Beige Book, while there was likely some additional caution ahead of tomorrow's monetary policy decision from the European Central Bank. News on the equity front was a mixed bag of earnings results. Elsewhere, Treasuries were nearly unchanged and gold lost ground, while the U.S. dollar and crude oil prices were higher.

The Dow Jones Industrial Average (DJIA) lost 12 points (0.1%) to 18,526, the S&P 500 Index was nearly unchanged at 2,186, and the Nasdaq Composite inched 8 points (0.2%) higher to 5,284. In moderate volume, 813 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose by $0.67 to $45.50 per barrel, wholesale gasoline gained $0.03 to $1.35 per gallon and the Bloomberg gold spot price fell $4.74 to $1,345.26 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 94.96.

Chipotle Mexican Grill Inc. (CMG $438) got a boost from the disclosure that activist investor Bill Ackman's Pershing Square Capital Management LP acquired a 9.9% stake in the burrito chain. Pershing Square said it intends to engage in discussions regarding the governance and board composition, strategic plans and the future of the company among other items.

Western Digital Corp. (WDC $53) raised its fiscal 1Q EPS and revenue outlooks, with the hard drive and flash storage products company citing its ability to reach a larger number of customers following the recent acquisition of SanDisk and the continued progress of its subsidiaries. WDC rallied over 12%.

Dave & Buster's Entertainment Inc. (PLAY $45) reported 2Q earnings-per-share (EPS) of $0.50, above the $0.44 FactSet estimate, as revenues increased 12.4% year-over-year (y/y) to $244 million, compared to the projected $243 million. 2Q same-store sales rose 1.0% y/y, versus the expected 2.0% gain. PLAY lowered its full-year same-store sales outlook, and shares were solidly lower.

Southwest Airlines Co. (LUV $39) and Delta Air Lines Inc. (DAL $39) both saw solid gains to boost the airline sector. LUV found support from its August report on results where it forecasted a less-than-expected expansion of capacity that appears to be alleviating concerns about pricing pressures in the sector, per Bloomberg. Also, DAL jumped despite lowering its 3Q guidance due to its August power outage, suggesting the outlook was better than the Street had feared.

Job openings rise to a record, Fed report shows continued modest growth

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, rose by the most in six months to a record level of 5.87 million jobs available to be filled in July, from June's 5.64 million level, and versus the Bloomberg forecast of 5.63 million. The hiring and separation rates remained at 3.6% and 3.4%, respectively.

The MBA Mortgage Application Index rose 0.9% last week, after gaining 2.8% in the previous week. The increase came as a 0.7% gain for the Refinance Index was accompanied by a 1.2% rise for the Purchase Index. The average 30-year mortgage rate ticked 1 basis point (bp) higher to 3.68%.

Finally, in afternoon action, the Federal Reserve released its Beige Book report—an anecdotal report on national economic activity used by the Central Bank to prepare for the next two-day monetary policy meeting ending on September 21. The report showed that U.S. economic activity continued to expand at a modest pace during July and August, and while employment continued to increase during the period and remained tight in most areas, wage pressures were seen as slight. Consumer spending, though positive, was little changed from the previous report, and most districts cited uncertainty surrounding the November elections to its expectations of moderate growth in sales and construction activity going forward.

As noted in the Schwab Market Perspective: Get Ready for the End of the Summer Slumber, U.S. economic data has perked up, but we need to see consistently better data to confirm a sustainable lift in growth beyond the third quarter. The Federal Reserve is indicating a desire to raise rates, but Friday’s slightly weaker-than-expected jobs report suggests a September hike is less likely. Read the whole perspective at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Treasuries finished nearly unchanged, as the yields on the 2-year and 10-year notes were flat at 0.73% and 1.53%, respectively, while the 30-year bond rate ticked 1 bp higher to 2.24%.

For analysis on the fixed income markets see the video from Schwab's Vice President of Trading and Derivatives, Randy Frederick and Chief Fixed Income Strategist, Kathy Jones, titled Rate Hikes on the Horizon—but When? at www.schwab.com/insights. Follow Randy and Kathy on Twitter: @randyafrederick and @kathyjones. Also, for the latest on the subdued market action in the "dog days" of summer, Schwab's Chief Investment Strategist, Liz Ann Sonders offers her latest article, All Summer Long: Will the Extreme Lull in Volatility Persist? at www.schwab.com/marketinsight. Follow Liz Ann on Twitter: @lizannsonders.

For tomorrow, investors will have little domestic news on the economic front, with the only reports on the docket being weekly initial jobless claims, forecasted to move slightly higher to a level of 265,000 from the prior week's 263,000, while in the final hour of trading, consumer credit is expected to show consumer borrowing was $16.0 billion in July, up from the $12.3 billion posted in June.

Europe higher as ECB decision looms, Asia mixed following U.S. data

European equities finished higher, though caution likely lingered ahead of tomorrow's monetary policy decision from the European Central Bank (ECB). The ECB is not expected to make any major changes to its highly accommodative stance but the markets will be looking to see if it extends the duration of its asset purchase program. The euro declined versus the U.S. dollar to support export-heavy stocks even as another softer-than-expected economic report in the U.S. yesterday, in the form of a disappointing services sector report, dampened imminent U.S. Fed rate hike expectations. Bond yields in the region mostly lost ground, following an unexpected drop in German industrial production for July. The British pound fell versus the greenback on the heels of a report that showed U.K. manufacturing fell much more than expected in July by the most in a year. The report was in contrast to recent upbeat data in the U.K. that has helped the pound rebound from a tumble in the wake of the late-June vote in favor of leaving the European Union, known as a Brexit. For more analysis of the Brexit fallout, Schwab's Director of International Research, Michelle Gibley, CFA, offers her latest article, Keep Calm and Carry On: The Brexit Shock That Wasn't, while Chief Global Investment Strategist, Jeffrey Kleintop, CFA, provides a look at the global earnings landscape in his latest article, Mind the Gap: Are Earnings Expectations too High?. Read both articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed amid dampened imminent U.S. rate hike expectations following a disappointing read on services sector activity in the world's largest economy. The report came on the heels of last week's slightly softer-than-expected U.S. employment report and unexpected drop to contraction in the manufacturing sector. Japanese equities declined, with the yen rising on the tamped down U.S. rate hike expectations and as uncertainty festered regarding the Bank of Japan's possible expansion of its stimulus measures. Mainland Chinese stocks were flat and those traded in Hong Kong dipped slightly, retreating from a one-year high amid continued low volatility. Australia's markets gain3d modest ground, despite a solid drop in oil & gas issues and the nation's 2Q GDP report that showed a 0.5% quarter-over-quarter pace of expansion, compared to the expected 0.6% growth, and versus the 1.0% gain posted in 1Q. Finally, stocks in both South Korea and India declined, though the MSCI Emerging Markets Index moved higher on the reduced rate hike expectations in the U.S. For more analysis on emerging markets, Schwab's Kathy Jones offers her latest article, Emerging Market Bonds: Curb Your Enthusiasm, at www.schwab.com/onbonds.

In addition to the aforementioned, highly-anticipated policy meeting of the ECB, reports slated for tomorrow's international economic calendar include GDP from Japan, trade data out of Australia, and trade and lending statistics from China.