Charles Schwab: On the MarketPosted: 9/26/2016 4:15 PM ET
Markets Tumble Ahead of Tonight’s Showdown
U.S. equities finished the first session of the week lower following a broad-based decline overseas, as investors await the Presidential debate and after capital concerns swirled around Deutsche Bank. Treasuries were higher, as new home sales decline and some regional manufacturing data improved, and the U.S. dollar was lower. Meanwhile, gold was little changed and crude oil prices gained solid ground despite uncertainty ahead of this week's OPEC meeting. M&A news dominated the equity front.
The Dow Jones Industrial Average (DJIA) declined 167 points (0.9%) to 18,095, the S&P 500 Index lost 19 points (0.9%) to 2,146, and the Nasdaq Composite fell 48 points (0.9%) to 5,258. In moderate volume, 781 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.45 to $45.93 per barrel, wholesale gasoline was $0.03 higher at $1.39 per gallon and the Bloomberg gold spot price inched $0.98 lower to $1,337.64 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.2% to 95.31.
CBOE Holdings Inc. (CBOE $67) announced an agreement to acquire BATS Global Markets Inc. (BATS $30) for $32.50 per share in cash and stock, in a transaction valued at about $3.2 billion. Under the terms of the deal, BATS shareholders will receive $10.00 per share in cash and 0.3201 shares of CBOE Holdings common stock for each share they own. CBOE said the deal is expected to strengthen its global position in innovative tradable products and services and achieve meaningful cost and operational efficiencies. Shares of both companies were lower.
Chemtura Corp. (CHMT $33) announced an agreement to be acquired by German specialty chemicals company Lanxess AG (LNXSF $59) for $33.50 per share in cash, valued at about $2.1 billion. CHMT rallied over 15%, while LNXSF also gain solid ground.
Dow member Pfizer Inc. (PFE $34) saw some pressure after the company announced that after an extensive evaluation, its board has determined to not pursue splitting into two companies at this time.
New home sales decline to kick off economic week
New home sales (chart) decreased 7.6% month-over-month (m/m) in August to an annual rate of 609,000, but above the Bloomberg forecast of 600,000 units. The median home price declined 5.4% year-over-year to $284,000. The supply of new home inventory rose to 4.6 months at the current sales pace as sales tumbled in the Northeast m/m, fell in the South and declined in the Midwest, while sales in the West grew. Compared to last year, sales in all regions were sharply higher, except in the Northeast. New home sales are based on contract signings instead of closings. For a look at investing in the real estate sector, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, article, Real Estate Sector: Marketperform, at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.
The Dallas Fed Manufacturing Index rose to -3.7 for September, from August's unrevised -6.2 level, with economists forecasting an increase to -3.0. A reading below zero denotes contraction in manufacturing activity.
Treasuries finished higher, as the yield on the 2-year note declined 2 basis points (bps) to 0.73%, while the yields on the 10-year note and the 30-year bond dropped 4 bps to 1.58% and 2.31%, respectively. 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.
Tomorrow’s economic calendar will include more manufacturing and housing data, in the form of the S&P CoreLogic Case-Shiller Home Price Index, expected to show housing prices in the 20-city composite were 5.1% higher year-over-year (y/y), but flat on a seasonally-adjusted basis month-over-month (m/m), and the Richmond Fed Manufacturing Index, forecasted to improve to -2 during September from the -11 the month prior, with a reading below zero denoting contraction in manufacturing activity. As well, Markit's preliminary Services PMI Index will be released, with economists forecasting a September reading of 51.2, up slightly from August’s 51.0, while Consumer Confidence will round out the busy day, expected to decline to 99.0 in September from the prior month’s 101.1.
As noted in the Schwab Market Perspective: Round and Round We Go…, volatility has picked up along with global central bank policy uncertainty and a back-up in U.S. and global bond yields. We believe the Fed is likely to hike rates one time this year, probably in December, but that central bank consternation will continue to elevate volatility. The long-running equity bull market should stay intact with modest economic growth continuing; and investors should remain globally diversified. Read more at www.schwab.com/marketinsight. Also, for timely analysis ahead of tonight’s Presidential debate between Clinton and Trump, see Schwab's Vice President, Legislative and Regulatory Affairs, Michael T. Townsend's latest article, What to Watch for When Clinton, Trump Debate, as part of our election 2016 commentary at www.schwab.com/insights/category/election-2016.
Europe and Asia mostly lower as oil and U.S. politics stymie conviction
European equities traded lower, with financials falling to lead a broad-based decline amid a drop in shares of Deutsche Bank AG (DB $12) as media reports saying the government will not offer any state aid for the German lender fueled capital concerns. The German lender is facing speculation that it may need to raise capital in the wake of a record $14.0 billion fine being sought by the U.S. Department of Justice in relation to DB's alleged practices leading up to the 2008 mortgage crisis. DB said that at no point did it ask the government for assistance and a German government spokesperson said there are no grounds for speculation over state funding for the bank. Also, oil & gas issues saw pressure amid uncertainty regarding if this week's informal OEPC meeting will yield a new production agreement. The negative movement for stocks came even as German business confidence rose solidly in September to the highest level since May 2014. The euro gained ground and the British pound was little changed versus the U.S. dollar, while bond yields in the region dipped. Also, the global markets awaited tonight's first Presidential debate in the U.S., while European Central Bank President Mario Draghi spoke today, reiterating the need for fiscal and structural policies to aid economic growth, per Bloomberg. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest analysis for global investors in his article, World Tour: An Around The World Look At the Economic Landscape at www.schwab.com/oninternational. Follow Jeff on Twitter: @jeffreykleintop.
Stocks in Asia finished mostly lower with the global markets pulling back amid focus on tonight's first Presidential debate in the U.S., along with festering uncertainty regarding the Bank of Japan's monetary policy. Moreover, volatility in the energy sector also hamstrung conviction as uncertainty ramped up ahead of this week's OPEC meeting. Japanese equities declined, with the yen showing some strength, while mainland Chinese stocks and those traded in Hong Kong dropped. Meanwhile, India's markets traded lower, as did those in South Korea, while Australian stocks finished flat. Amid the choppiness in the global markets, Schwab's 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.
Tomorrow’s international economic calendar will offer consumer inflation data from Japan, industrial orders and sales from Italy, and import prices from Germany.