Stocks Attempting to Block-Out Morning Losses

Charles Schwab: On the Market

Posted: 8/21/2017 4:15 PM ET

Stocks Attempting to Block-Out Morning Losses

U.S. stocks have overcome most morning losses with the Dow and S&P 500 currently in positive territory despite uneasy global sentiment and a blank economic docket. Additionally, this week's Federal Reserve symposium in Jackson Hole, WY may have traders exercising further caution. Treasuries have turned slightly higher in the face of an eclipsed economic calendar, while crude oil prices and the U.S. dollar are lower and gold is advancing. In M&A action, Sempra Energy acquired Energy Future Holdings, which includes an 80% ownership stake in Oncor Electric Delivery. Overseas, European shares traded mostly lower.

At 12:54 p.m. ET, the Dow Jones Industrial Average and the S&P 500 Index are increasing 0.1%, while the Nasdaq Composite is decreasing 0.1%. WTI crude oil is declining $0.89 at $47.77 per barrel and Brent crude oil is dipping $0.98 to $51.74 per barrel, while wholesale gasoline is down $0.03 at $1.59 per gallon. The Bloomberg gold spot price is increasing $7.19 to $1,291.31 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is trading 0.4% lower to 93.10.

Sempra Energy (SRE $118) announced an agreement to acquire Energy Future Holdings Corp. and its 80% ownership in Oncor Electric Delivery Co. LLC, the operator of the largest electric transmission and distribution system in Texas, for $9.45 billion in cash. Shares of SRE gained ground.

Herbalife Ltd. (HLF $69) announced it has commenced a "modified Dutch auction" self-tender offer to purchase for cash up to an aggregate of $600 million of shares of its common stock at a per share price not less the $60.00 nor greater than $68.00. The company said it recently held discussions with an investor regarding a potential transaction that could have led to the company being taken private but these talks were formally terminated. As part of the tender offer, shareholders will also receive a non-transferable contractual contingent value right allowing participants in the tender offer to receive a contingent cash payment should Herbalife be acquired in a going-private transaction within two years of today's offer. HLF shares rallied.

Treasury yields mostly unchanged ahead of Fed's Jackson Hole symposium

Treasuries finished higher despite the economic calendar being void of any major releases today. The yields on the 2-year and 10-year notes and the 30-year bond increased 1 basis point (bp) to 1.30%, 2.18% and 2.76%, respectively.

Tomorrow, the docket will consist of the Richmond Fed Manufacturing Index, expected to have declined to 10 from 14, though a reading above zero denotes expansion in activity. The economic calendar will then heat up a bit on Wednesday with Markit's August business activity reports, which will join with some housing data in the form of new home sales and the weekly MBA mortgage applications report.

Volatility could remain this week as Federal Reserve Chairwoman Janet Yellen and European Central Bank (ECB) President Mario Draghi are set to speak Friday at the Fed's key symposium in Jackson Hole, Wyoming.

As noted in the latest  Schwab Market Perspective: Volatility Returns!, geopolitical, U.S. political and "bubble" concerns rose recently, putting a dent in the market's recent run. U.S. political turmoil is likely to keep market volatility elevated in the near term, along with the Fed's likely commencement of slowly unwinding its bloated balance sheet, but we believe the bull market still has legs. U.S. economic growth continues to be fairly healthy, and earnings season was positive for both bottom- and top-line growth; lending support to the bulls. But the storm in Washington is picking up velocity, especially as the upcoming debt ceiling fight looms large. Read more on the Markets & Economy page at www.schwab.com.

Europe mostly lower and Asia mixed as global caution

European equities closed mostly lower with declines accelerating a bit in late-afternoon action, as global sentiment remains skittish amid the exacerbated dysfunction in the White House and festering geopolitical concerns. Also, the markets are awaiting Friday's speeches by Fed Chair Yellen and ECB President Mario Draghi looking for clues to the direction of monetary policy, of which uncertainty has ramped up to hamstring conviction as of late. The euro and the British pound ticked higher versus the U.S. dollar, while bond yields in the region were mostly lower.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA points out in his article, What are fund flows telling us about trends and risks in the global stock market?, the trends in money flows this year show a change to a rising overall inflow of money as investors take note of better overall stock market performance and a preference for ETF that invest in non-U.S. markets. However, the rising inflow to ETFs does not appear to present the risk of a potentially destructive bubble. The underlying distribution of money flows appears to be driven by fundamentals or diversification, rather than purely by performance or geopolitical risk aversion, suggesting a trend that is more deeply rooted (although some markets may be vulnerable in the event of an escalation of geopolitical risk). Investors may want to consider these trends as they consider the global diversification in their own portfolio. Read more on the Markets & Economy page at www.schwab.com and follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed with the global markets remaining cautious amid the continued shakeup in the White House, festering geopolitical concerns and as this week's Fed Jackson Hole symposium looms. Japanese equities declined, with the yen holding onto its recent gains. Australian securities also decreased joined by markets in India. South Korean stocks dipped amid simmering tensions between the U.S. and North Korea as the former begins its annual joint military drills with South Korea. For more on the geopolitical front, see Schwab's Jeffrey Kleintop, CFA, offers his articles, Missiles and Markets: An investor guide to geopolitical risks on the International Investing page at www.schwab.com, as well as Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Twist and Shout: United States Takes on North Korea … Implications for Stocks on the Markets & Economy page. Follow Liz Ann on Twitter: @lizannsonders. However, shares trading in mainland China and Hong Kong gained ground.

Tomorrow the international economic docket will yield consumer confidence from Australia and leading indicators from China will be reported after the close of local trading. Releases from across the pond will include public sector borrowing from the U.K. and the ZEW Economic Sentiment Survey from Germany.