Stocks Lower on Light Data Day

Charles Schwab: On the Market

Posted: 10/04/2016 4:15 PM ET

Stocks Lower on Light Data Day

U.S. stocks finished lower in choppy trading with sparse data, though the economic calendar will heat back up tomorrow. The U.S. dollar was solidly higher following another dose of hawkish Fedspeak, while European equities posted a broad-based advance as the euro and British pound fell versus the greenback. Treasuries and gold dropped and crude oil prices ticked slightly lower. In equity news, Darden Restaurants offered upbeat earnings and guidance and Sears Holdings reported of several potential suitors for its Craftsman tool business.

The Dow Jones Industrial Average (DJIA) lost 85 points (0.5%) to 18,169, the S&P 500 Index decreased 11 points (0.5%) to 2,151, and the Nasdaq Composite declined 11 points (0.2%) to 5,290. In moderate volume, 849 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.12 to $48.69 per barrel, wholesale gasoline increased $0.03 to $1.50 per gallon and the Bloomberg gold spot price declined $42.60 to $1,269.01 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 96.12.

Darden Restaurants Inc. (DRI $62) reported fiscal 1Q earnings-per-share (EPS) ex-items of $0.88, above the $0.82 FactSet estimate, as revenues increased 1.6% year-over-year (y/y) to $1.7 billion, roughly in line with forecasts. 1Q same-store sales grew 1.3% y/y, versus the projected 1.5% increase. The parent of Olive Garden raised its full-year EPS outlook, while announcing a new $500 million share repurchase program. Shares finished higher.

Sears Holdings Corp. (SHLD $12) rallied amid a Bloomberg report that several companies, including Stanley Black & Decker Inc. (SWK $123), are exploring a bid for SHLD's Craftsman tool business, which may be valued at about $2.0 billion. None of the companies mentioned commented on the report.

Economic calendar goes quiet today

Treasuries finished lower, while the economic calendar  was void of any major reports today. The yield on the 2-year note gained 2 basis points (bps) to 0.82%, the yield on the 10-year note increased 6 bps to 1.69% and the 30-year bond rate advanced 7 bps to 2.41%.  Schwab's Chief Fixed Income Strategist, Kathy Jones points out in her article, With a Whimper Instead of a Bang: Is the Great Bond Bull Market Over?, the end of the bull market doesn't mean a bear market is starting, as slow global growth, deflationary pressures abroad, a firm dollar and demographic trends are likely to keep yields low. Investors should focus less on short-term changes in the market and more on structuring a fixed income portfolio that can work for them over the long run. Read the whole article and other timely bond market commentary at www.schwab.com/onbonds. Follow Kathy on Twitter: @kathyjones.

Mixed economic data as of late has kept growth concerns alive and Schwab's Chief Investment Strategist, Liz Ann Sonders notes in her article, Every Picture Tells a Story: Recession Risk Up, but Not High, that recession models show rising, but still low risk of a coming contraction in economic activity. Economic recoveries don’t tend to die of old age; they die of excess…of which there's little in this recovery. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Tomorrow, the domestic economic calendar will heat back up with a plethora of key reports, headlined by reads on services sector activity for September, in the form of the Institute for Supply Management's (ISM) non-Manufacturing Index and the final Markit Services PMI Index. ISM's report is projected rise to 52.9 from 51.4 in August, while Markit's release is estimated to be unrevised at the preliminary level of 51.9, but up from August's 51.0. Readings above 50 for both indexes denote expansion.

As noted in the Schwab Market Perspective: Crunch Time, economic data has been mixed over the past month. It started with soft ISM readings at the beginning of September and continued with some weaker-than-expected housing data. At this point we believe this is temporary softness brought on by a very quiet August when more folks than usual seemed to be on the sidelines; and are looking for a comeback in the fourth quarter. Continuing historically-low initial jobless claims reading (a key leading economic indicator), the low unemployment rate, rising wages and consumer confidence, and ongoing accommodative monetary policy lead us to believe that the economy will continue to muddle through into 2017. Read the whole perspective at www.schwab.com/marketinsight.

Additional reports due out tomorrow include the ADP Employment Change report, forecasted to show private sector payrolls added 165,000 jobs during September and factory orders, expected to have declined 0.2% m/m in August. Weekly MBA mortgage applications will be released as well.

Europe and Asia gain ground 

European equities traded higher, courtesy of a broad-based advance among the sectors, while earnings and economic data were light. Deutsche Bank AG(DB $13) is gained ground, bolstered by an upgrade from Bank of America Merrill Lynch on the heels of last week's wild swings amid elevated capital concerns toward the lender and reports it may be close to settling with the U.S. Department of Justice (DoJ). The German markets returned to action following yesterday's holiday. The British pound fell versus the greenback, to aid the U.K. markets, amid resurfacing concerns about Brexit timing. The euro is also traded lower compared to the U.S. dollar, while bond yields in the region mostly dipped.

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 Diversificationand 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 higher, though volume remained light as mainland Chinese markets continued to break for the golden week holiday. Japanese equities increased, with the yen losing some ground on the U.S. dollar as the markets continued to grapple with monetary policy uncertainty of the Bank of Japan. For our latest analysis of Japan's monetary policy, see Schwab's Jeffrey Kleintop's, CFA, article, Going Godzilla: What has the Bank of Japan Unleashed?, at www.schwab.com/oninternational. Stocks trading in Hong Kong and South Korea gained ground, while Australian shares also ticked higher after the Reserve Bank of Australia (RBA) expectedly kept its benchmark interest rate unchanged at 1.5%, noting that the unchanged stance would be consistent with sustainable growth in the economy and achieving its inflation target over time after easing monetary policy in May and August. Finally, Indian stocks held onto modest gains after the Reserve Bank of India unexpectedly cut its benchmark repo rate by 25 bps to 6.25%.

Tomorrow, the international economic docket will deliver a plethora of services PMI reads from Japan, the U.K., the Eurozone, France and Italy, while Japan and the Eurozone will also report retail sales.