Stocks Finish Mixed Following Minutes

Charles Schwab: On the Market

Posted: 10/12/2016 4:15 PM ET

Stocks Finish Mixed Following Minutes

U.S. equities lost some steam to finish mixed after the afternoon release of the Federal Reserve's September meeting minutes showed the decision of remaining steady was a close call. Disappointing reports on the earnings front to begin 3Q earnings season didn't help to foster any positive sentiment either, while energy stocks saw pressure on the extended drop in crude oil prices. Treasuries were lower, while the U.S. dollar and gold were higher

The Dow Jones Industrial Average (DJIA) rose 16 points (0.1%) to 18,144, the S&P 500 Index gained nearly 3 points (0.1%) to 2,139, while the Nasdaq Composite fell 8 points (0.2%) to 5,239. In moderate volume, 680 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.61 to $50.18 per barrel, wholesale gasoline ticked $0.02 lower to $1.46 per gallon and the Bloomberg gold spot price gained $2.53 to $1,255.33 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 97.93.

Stanley Black & Decker Inc. (SWK $120) announced an agreement to acquire the tools business of Newell Brands Inc. (NWL $51) for $1.95 billion in cash. Shares of both companies were higher.

Fortinet Inc. (FTNT $31) lowered its 3Q earnings and revenue guidance as the cyber security services company noted that results were impacted by the lengthening of deal cycles as enterprises are becoming more strategic with their purchasing decisions and buying with less urgency than last year. Also, FTNT cited sales execution challenges in North America, as well as macro issues in Latin America and the U.K. Separately, the company announced a $100 million addition to its share repurchase program. Shares were sharply lower. 

Humana Inc. (HUM $168) saw some pressure following a report published by the Centers for Medicare and Medicaid Services (CMS) for the 2018 plan year that showed the percentage of the company's membership in 4-Star plans or higher fell 37% year-over-year. HUM said it believes that the Star quality ratings do not accurately reflect the company's actual performance and it intends to file for reconsideration of some ratings, while raising its 2016 profit outlook.

Fed minutes indicate close call on rate hike

The minutes from the Federal Open Market Committee's (FOMC) September meeting were released in afternoon action, describing last month's decision to hold its monetary policy steady a close call, as several members indicated that a rate hike was needed "relatively soon." However, the Committee decided, for the time being, to wait for further evidence of continued progress toward its objectives, noting "that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation." As noted in the recent Schwab Market Perspective: Crunch Time, the September FOMC meeting boosted expectations that a rate hike is likely before the end of the year; contingent on economic data remaining decent in the coming months. More of the FOMC’s voting body is leaning toward raising rates, as there were three dissenting votes on the decision to hold rates steady—a relatively high number indicating growing discordance among members. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, declined to a level of 5.4 million jobs available to be filled in August, from July's downwardly revised 5.8 million level, where the Bloomberg forecast had called for it to remain. The hiring rate remained at 3.6% and the separation rate dipped to 3.4% from 3.5%.

The MBA Mortgage Application Index fell 6.0% last week, after rising 2.9% in the previous week. The decline came as an 8.0% drop for the Refinance Index was met with a 2.6% decrease for the Purchase Index. The average 30-year mortgage rate rose 6 basis points (bps) to 3.68%.

Treasuries finished lower, as the yields on the 2-year and the 10-year notes, as well as the 30-year bond, ticked 1bp higher 0.84%, 1.78% and 2.51%, respectively. Bond yields have gained ground as of late, courtesy of some upbeat economic data, hawkish Fedspeak, and the rise in crude oil prices. Schwab's Chief Fixed Income Strategist, Kathy Jones discusses 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 markets continued to discuss the uncertain U.S. political landscape as the November election looms, exacerbated by signs of dissention in the Republican party, and Schwab's Vice President, Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Where Do the Candidates Stand? Key Issues for Investors, as part of our election 2016 commentary at www.schwab.com/insights/category/election-2016. Also, Schwab's Chief Investment Strategist, Liz Ann Sonders discusses the dynamic of household deleveraging and still high federal government debt in her article, Your Time is Gonna Come: Households' Leverage Down, Government Leverage Up, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Tomorrow, the domestic economic calendar will offer investors a look at weekly initial jobless claims, forecasted to increase to a level of 253,000 from the prior week's 249,000, as well as the Import Price Index, expected to show a 0.1% month-over-month (m/m) increase during September following August's 0.2% decline.

Europe dips amid earnings, Fed, oil and Brexit concerns, Asia also sees losses

European equities dipped, with oil & gas issues giving up early gains as crude oil prices extended yesterday's decline. The global markets continued to grapple with heightened rate hike expectations in the U.S., ahead of today's release of the minutes from the Fed's September policy meeting. The British pound was in focus, rebounding solidly from a recent drop to a more than 30-year low versus the U.S. dollar that has come courtesy of "hard Brexit" concerns. The pound got a boost from Prime Minister Theresa May giving parliament an opportunity to weigh in on her Brexit plans. In economic news, eurozone industrial production rose more than expected in August. The euro lost ground on the greenback, while bond yields in the region moved to the upside.

With global market sentiment hamstrung and volatility potentially poised to gain steam, 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 lower on the heels of the weakness in the U.S. and Europe yesterday, as global conviction was stymied by lower oil prices, along with lackluster earnings results and elevated Fed rate hike expectations in the U.S. Japanese equities fell sharply, as the yen modestly recovered some of a recent drop, while a report showed the nation's machine orders—a gauge of capital investment—declined by a smaller amount than anticipated in August. Mainland Chinese securities and those traded in Hong Kong declined amid the soured global sentiment and festering property market concerns in the country, ahead of this week's plethora of September Chinese economic data. 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.

Meanwhile, Australia's markets dipped slightly, as modest strength in financials was met with weakness in oil & gas, technology and basic materials issues, but South Korean equities ticked higher. Indian markets remained closed for a holiday.

Tomorrow's international economic calendar will produce consumer sentiment from Australia, India's trade balance, the Tertiary industry Index from Japan, and CPI from Germany. In central bank action, the Bank of England and the Bank Korea will conduct monetary policy meetings, with no change to either of their respective stances expected.