Markets Post Gains to Begin the Week

Charles Schwab: On the Market

Posted: 10/10/2016 4:15 PM ET

Markets Post Gains to Begin the Week

U.S. stocks finished higher to start the week, with a rise in crude oil prices lending support to the energy sector, and as the markets digested last night's second U.S. Presidential debate. The U.S. bond markets were closed in observance of Columbus Day and the economic calendar was empty, while attention begins to shift toward the start of earnings season, set to unofficially kick off tomorrow. Elsewhere, the U.S. dollar and gold were higher. Equity news surrounded the healthcare space, with Dow member Merck & Co and Bristol-Myers Squibb reporting mixed lung cancer treatment results, while Mylan reached an EpiPen settlement.

The Dow Jones Industrial Average (DJIA) rose by 89 points (0.5%) to 18,329, the S&P 500 Index added 10 points (0.5%) to 2,164, and the Nasdaq Composite gained 36 points (0.7%) to 5,329. In light to-moderate volume, 669 million shares were traded on the NYSE and 1.4 billion shares changed hands on the Nasdaq. WTI crude oil jumped $1.54 to $51.35 per barrel, wholesale gasoline ticked $0.02 higher to $1.50 per gallon and the Bloomberg gold spot price rose $2.74 to $1,259.82 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 96.94.

Shares of Dow member Merck & Co. Inc. (MRK $64) finished higher after the company announced favorable results from a study of its treatment for lung cancer.

However, shares of Bristol-Myers Squibb Co. (BMY $50) came under pressure after the company reported unfavorable results from a study of its lung-cancer treatment.

Mylan NV (MYL $39) rallied after the company reported a $465 million settlement with the U.S. government regarding the amount charged to Medicaid for its EpiPen allergy shot.

Tesla Motors Inc. (TSLA $201) was higher following comments on Twitter over the weekend from the electric car maker's Chief Executive Officer Elon Musk that the company will not need to raise capital in 4Q for its planned takeover of SolarCity Corp. (SCTY $20).

Bond markets and economic front go quiet on Columbus Day

The Treasury markets were closed today in observance of the Columbus Day holiday, while the economic calendar was void of any major reports. The yield on the 2-year note sits at 0.83%, the yield on the 10-year note is at 1.72%, and the 30-year bond rate is at 2.45%. Bond yields have gained ground as of late, courtesy of some upbeat economic data and hawkish Fedspeak, and Schwab's Chief Fixed Income Strategist, Kathy Jones discuss the interest rate environment in her latest article,  Are Bond Yields About to Rise?, at www.schwab.com/onbonds and follow Kathy on Twitter: @kathyjones.

The U.S. economic calendar will get going tomorrow with the release of the National Federation of independent Business (NFIB) Small Business Optimism Index, forecasted to tick higher to a level of 95.0 for September from the 94.4 posted in August. Later in the week, investors will get a look at key reads on Fed's September meeting minutes, retail sales, the Producer Price Index (PPI), and the preliminary University of Michigan Consumer Sentiment Index. However, some of the attention will likely be diverted to the start of 3Q earnings season, unofficially kicking off with Alcoa Inc's (AA $32) results tomorrow.

As noted in the Schwab Market Perspective: Crunch Time, after five consecutive quarters of declining corporate earnings, the coming reporting season could prove to be important as earnings need to start to carry the weight if this bull market is to advance in our view. If the so-called "beat rate" (the percentage by which companies ultimately exceed consensus expectations) is consistent with the recent past, the quarter could see earnings move back in positive territory. If earnings disappoint, the market could be vulnerable. The collapse in the oil market is now in the rear-view mirror, which should help to solidify both the energy and basic materials sectors' earnings growth rates. And the stability in the dollar has also removed what had been a headwind for exporters and the industrials sector. For our outlooks for the major sectors see Schwab’s Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: Can Tech Gains Continue?. Read both articles at www.schwab.com/marketinsight.

Europe higher ahead of earnings season, Asia mostly higher in subdued action

European equities began the week on a positive note, in the wake of last night's second U.S. Presidential debate, while oil & gas issues gained solid ground as crude oil prices recovered from Friday's pullback. Stocks showed some resiliency as the start of earnings season on both sides of the pond looms, while concerns about a hard Brexit and tapering at the European Central Bank lingered. In economic news, German exports rose much more than expected in August, while eurozone investor confidence improved more than expected for October. The euro and British pound lost ground versus the U.S. dollar, while bond yields in the region finished mixed. With global market uncertainty/volatility elevated, 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.

Stocks in Asia finished mostly to the upside, with the global markets digesting the second U.S. Presidential debate, though volume was lighter than usual as markets in Japan and Hong Kong were closed for holidays. However, mainland Chinese equities advanced solidly in a return to action following an extended golden week holiday break, with the energy sector rallying on the heels of last week's solid advance in crude oil prices and the Caixin China Services PMI Index denoting continued expansion for September. Stocks in Australia and South Korea gained ground, while those traded in India ticked modestly higher, with Friday's slightly softer-than-expected U.S. employment report not moving the Fed rate hike needle any further. Schwab's Jeffrey Kleintop, CFA, offers timely analysis of the global economic picture in his article, World Tour: An Around The World Look At the Economic Landscape, at www.schwab.com/oninternational.

Tomorrow, the international economic calendar will be light as well, with reports scheduled for release to include CPI from Sweden and the Zew Economic Sentiment Survey from Germany.