Stocks Decline as Political Uncertainty Fuels Volatility

Charles Schwab: On the Market

Posted: 12/1/2017 4:15 PM EST

Stocks Decline as Political Uncertainty Fuels Volatility

 

U.S. stocks finished the trading session lower, but well off the day's the worst levels as volatility ramped up on heightened uncertainty inside the beltway. Afternoon reports suggesting that the Senate has enough votes to pass its tax bill were overshadowed by some uncertainty regarding the possible ramifications that the developing situation surrounding former NSA advisor Mike Flynn may have for the Trump administration. Treasury yields and the U.S. dollar traded lower as some upbeat reads on the manufacturing sector were seemingly brushed aside. Energy shares outperformed amid a rise in crude oil prices and gold gained ground.

The Dow Jones Industrial Average (DJIA) declined 41 points (0.2%) to 24,232, the S&P 500 Index decreased 5 points (0.2%) to 2,642, and the Nasdaq Composite lost 26 points (0.4%) to 6,848. In heavy volume, 972 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.96 to $58.36 per barrel and wholesale gasoline ticked $0.01 higher to $1.74 per gallon. Elsewhere, the Bloomberg gold spot price increased $5.61 to $1,280.61 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.2% lower at 92.88. Markets were mixed for the week, as the DJIA rallied 2.9% and the S&P 500 Index advanced 1.5%, while the Nasdaq Composite declined 0.6%.

Ulta Beauty Inc. (ULTA $213) reported Q3 earnings-per-share (EPS) of $1.70, or $1.71 ex-items, versus the $1.66 FactSet estimate, as revenues rose 18.6% year-over-year (y/y) to $1.3 billion, roughly in line with forecasts. Q3 same-store sales rose 10.3% y/y, matching expectations. UTLA's gross margin came in south of expectations. The company issued Q4 EPS guidance that was below estimates, while its same-store sales outlook for the period had a midpoint that was just shy of forecasts. Shares closed solidly lower.

VMware Inc. (VMW $124) posted Q3 earnings of $1.07 per share, or $1.34 ex-items, compared to the projected $1.28, with revenues growing 11.0% y/y to $2.0 billion, roughly in line with forecasts. The cloud infrastructure and business mobility company issued Q4 guidance that exceeded expectations. Shares were nicely higher.

The major automakers reported November sales today, with General Motors Co's (GM $43) sales declining 2.9% y/y, compared to FactSet's projected 1.5% decrease. Ford Motor Co (F $13) reported a 6.7% rise in sales, versus the expected gain of 3.3%. Fiat Chrysler Automobiles NV's (FCAU $17) Chrysler sales fell 3.7%, compared to the expected 5.6% drop. GM and FCAU traded lower, while F finished higher.

Manufacturing activity continues to show solid expansion, tax reform uncertainty flares up

The Institute for Supply Management (ISM) Manufacturing Index (chart) for November declined to 58.2 from 58.7 in October, compared to the Bloomberg forecast calling for a dip to 58.3. New orders rose 0.6 points to 64.0 and production gained 2.9 points to 63.9, while employment dipped 0.1 points to 59.7 and prices declined 3.0 points to 65.5. Order backlog remained at 55.0 and new export orders decreased 0.5 points to 56.0. ISM said comments from respondents reflect expanding business conditions.

The final Markit U.S. Manufacturing PMI Index was revised to 53.9 for November from the preliminary reading of 53.8, versus expectations of 54.0, and below the 54.6 level posted in October. The release is independent and differs from ISM's manufacturing report, as it has less historic value and Markit weights its index components differently.

Although manufacturing slowed, these reports continue to suggest solid growth with readings above 50 denoting expansion for both indexes. Moreover, Schwab's Chief Investment Strategist Liz Ann Sonders notes that it’s time for optimism about a significant capex cycle unfolding as we look ahead to 2018, in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle, adding that tax reform—if we get it—would be an additional kicker.

Construction spending (chart) rose 1.4% month-over-month (m/m) in October, well above projections of a 0.5% increase, and following September's unrevised 0.3% increase. Residential spending was up 0.4% m/m, while non-residential spending jumped 2.1%.

Treasuries finished higher, with the yield on the 2-year note dipping 1 basis points (bp) to 1.77%, the yield on the 10-year note falling 5 bps to 2.36% and the 30-year bond rate dropping 7 bps to 2.76%.

The U.S. dollar reversed to the downside, along with Treasury yields following a two-day rally, after former National Security Advisor Flynn pleaded guilty for lying to the FBI and agreed to cooperate with the Special Counsel's Office. This caused a spike in volatility and fostered uncertainty about what this could mean for the Trump Presidency, with the Senate scrambling to find enough support to bring its tax bill to a final vote. The Senate delayed yesterday's final vote as a key area of compromise regarding deficit concerns hit a snag. The Senate spent much of the day in preliminary procedures to try to mend disagreements. Afternoon reports have suggested that the legislative body now has enough votes to pass its bill with a vote expected later in the day.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, if the bill passes the Senate, the House and Senate would need to convene a conference to negotiate and reconcile differences between the two bills to produce a single consensus bill. That bill would then need to be approved by both chambers before it could be sent to President Donald Trump for his signature.

Negotiations between the two chambers will likely be extremely challenging, given the differences between the two approaches. For investors, we still think it is too early to take any drastic action. If and when a tax bill passes, there will be time to review the details and amend your tax and financial plans accordingly. Regardless of the outcome of the tax bill, it’s always a good idea to meet with your tax and financial advisors before the end of the year to review your current financial situation and discuss your plans for the coming year.

Europe falls late in the day, Asia mixed

The European equity markets fell late in the session, with yesterday's delayed vote on tax reform in the U.S. stymieing recent optimism regarding progress being made to pass a bill and causing uncertainty to flare up. This was exacerbated former U.S. National Security Advisor Flynn pleading guilty for lying to the FBI and agreeing to cooperate with the Special Counsel's Office. Technology issues in the region extended the week's selloff, while auto-related issues saw some pressure. However, the energy sector was the lone group in positive territory amid a rally in crude oil prices on the heels of yesterday's OPEC agreement to extend its production cuts to the end of next year. An upbeat read on November eurozone manufacturing growth by Markit, which showed growth was revised to a higher acceleration from October's than initially estimated, was overshadowed.

The euro overcame early pressure as the U.S. dollar fell noticeably on the exacerbated U.S. political uncertainty, and the British pound came off the worst levels of the day but still modestly pared a recent rally. The pound found some strength this week amid signs that the deadlocked Brexit negotiations may be heading to the next stage. Bond yields in the region mostly saw solid pressure. Amid the flare-up in volatility, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Are Stocks too Expensive?, that although world stock market valuations are above average, similar valuations have produced double-digit gains over the following 12 months during the past 50 years. Jeff concludes that valuations support a globally diversified portfolio offering the best diversification benefits in 20 years.

Stocks in Asia finished mixed with the markets choppy following yesterday's delayed tax reform vote in the U.S. that appeared to cool some of the optimism that has led a sharp rally in the U.S. equity markets this week. Shares of Japanese companies advanced with the yen reversing a brief spike yesterday, while reports showed the nation's Q3 capital spending accelerated more than expected and household spending for October came in stronger than anticipated, while national October consumer price inflation rose in line with expectations. Mainland Chinese stocks finished flat and equities trading in Hong Kong declined on the heels of the flared-up U.S. tax reform uncertainty and a report from Caixin showing growth in the country's manufacturing output unexpectedly slowed, diverging from yesterday's government report that suggesting expansion surprisingly accelerated.

Australian securities gained ground with financials modestly paring yesterday's drop on the government's announcement that it will launch an inquiry into the sector, while energy issues rose following yesterday's OPEC production extension. Indian stocks fell on the heels of late-yesterday's report that showed Q3 GDP accelerated to a 6.3% y/y pace of growth, but slightly below the projected 6.4% expansion. South Korean equities finished flat in the wake of the recent selloff in the tech sector, yesterday's Bank of Korea rate hike, and today's stronger-than-expected Q3 GDP report. Even after this week's choppiness for the markets, they hold onto strong gains for the year fostered by the broadest economic growth in a decade, which is expected to continue in 2018 as discussed by Schwab's Jeffrey Kleintop, CFA, discusses in his article, 5 Reasons Investors Should Give Thanks.

Stocks higher on week as damage already done by the bulls

Despite the spike in volatility on Friday, most U.S. equity markets posted solid gains for the week, bolstered by signs the Senate's tax reform bill was finding enough support to gain momentum toward a final vote. Telecom and financial stocks led the way on the tax reform optimism, though a noticeable sector rotation came to the detriment of technology issues and the Nasdaq, which have led the markets' yearly rally and string of record highs. Economic optimism also helped boost the markets, with Consumer Confidence hitting a 17-year high, new home sales unexpectedly jumping to a decade high, Q3 GDP being revised higher to 3.3%, and culminating with the Fed's Beige Book showing business activity remained steady and noting a slight improvement in the outlook. Energy issues finished higher, while the highly-anticipated OPEC meeting delivered a production cut extension. Following Friday's volatility surge, the U.S. dollar finished little changed after showing mid-week signs of life and the Treasury yield curve gave back a brief bout of steepening.

This sets the stage for next week, in which the economic calendar will likely contend with continued scrutiny of tax reform, while delivering factory orders, the trade balance, the ISM non-Manufacturing Index, Q3 nonfarm productivity and unit labor costs, as well as the preliminary December University of Michigan Consumer Sentiment Index. However, the headlining report will likely be Friday's November nonfarm payroll report, with the Fed's December monetary policy meeting looming the following week and highly-expected to deliver a third rate hike of the year.

As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, the bull market continues to be undisturbed by a myriad of actual or potential negative events and momentum favors the bulls for the foreseeable future. However, elevated valuations and growing investor complacency pose risks that could lead to a long-awaited pullback and/or a pickup in volatility from today’s extremely low base.

International reports due out next week that deserve a mention include: Australia—Q3 GDP and the Reserve Bank of Australia's monetary policy decision. China—trade balance, Caixin's PMI Services Index and inflation statistics. India—the Reserve Bank of India's monetary policy decision. Japan—Q3 GDP. Eurozone—Markit's business activity reports, retail sales and Q3 GDP, along with German factory orders and trade balance. U.K.—industrial and manufacturing production, trade balance and the Bank of England's inflation target.

Financial Review

Everybody Wants to Go to Heaven

Sinclair Noe — November 1, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

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DOW + 46 = 23,424
SPX + 5 = 2580
NAS – 15 = 6712
RUT – 9 = 1492
10 Y – .01 = 2.36%
OIL – .04 = 54.34
GOLD + 3.90 = 1275.30

Cryptocurrency

• Number of Currencies: 888
• Total Market Cap: $189,077,138,499
• 24H Volume: $7,220,358,890

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	6,936.4	$117.35B	$3.59B	49.69%	1	+2.99%	+21.11%
	Ethereum	ETH	277.77	$26.95B	$741.45M	10.27%	0.040594	-3.76%	-5.34%
	Bitcoin Cash	BCH	549.00	$9.52B	$1.30B	17.96%	0.0817164	+3.03%	+68.43%
	Ripple	XRP	0.18122	$7.19B	$99.04M	1.37%	0.00002682	-5.19%	-9.05%
	Litecoin	LTC	51.450	$2.76B	$159.73M	2.21%	0.00739832	-3.07%	-8.47%
	Dash	DASH	253.83	$1.95B	$60.01M	0.83%	0.0366871	-6.71%	-11.45%
	BitConnect	BCC	260.114	$1.91B	$24.17M	0.33%	0.0373998	+7.57%	+21.97%
	NEO	NEO	24.340	$1.59B	$59.18M	0.82%	0.00351398	-9.18%	-14.85%
	NEM	XEM	0.16222	$1.42B	$7.67M	0.11%	0.00002275	-2.71%	-21.96%
	Monero	XMR	82.37	$1.28B	$46.76M	0.65%	0.0119949	-4.22%	-6.40%

The Dow and the S&P closed near records. The Nasdaq slipped from a record high close yesterday.

The ISM manufacturing index fell to 58.7% in October, a month after hitting a 13-year high of 60.8%. Sixteen of the 18 industries tracked by ISM reported growth. After a flurry of activity in the wake of the hurricanes, we seem to be returning to more normal, yet still strong manufacturing growth.

Construction spending rose in September, led by a surge in government spending. Spending ran at a seasonally adjusted annual $1.22 billion rate. Spending increased 0.3% during the month, and stood 2% higher than a year ago.

For the second month in a row, public works projects drove the spending increase. Public-sector outlays were 2.6% higher than in August, while private-sector spending was 0.4% lower. Compared to a year ago, however, the pace of total public construction spending is 1.6% lower, while overall private spending is 3.1% higher.

The Federal Reserve left a key interest rate unchanged in November but called the economy “solid,” which is Fedspeak to say policymakers remain on track to raise the cost of borrowing next month.

The central bank had previously projected it would raise its benchmark fed funds rate, now between 1% and 1.25%, at its final meeting on Dec. 12-13. In a statement, the Fed also acknowledged core inflation “remained soft” and is likely to remain so in the short run.

The Fed offered a lengthy explanation of what happened to inflation after Hurricanes Harvey and Irma. Higher gas prices boosted overall inflation in September and the after-effects will continue to impact inflation, though for items other than food and energy inflation remained soft.  The Fed still expects inflation to reach its 2% target in the “medium term.”

The more muted language on inflation might be a clue the bank will proceed more cautiously early in 2018. But really no surprises from the Fed today. Fed Chairwoman Janet Yellen has said the strength of the economy justified more gradual rate hikes despite low inflation readings. The modest changes to the Fed statement shows that remains the majority view.

More indications that Jerome Powell will be nominated to replace Janet Yellen when her term expires in February. The Wall Street Journal reports Powell is the choice. An announcement is expected tomorrow.

Powell has never dissented from any decision since becoming a Federal Reserve governor in May 2012. He’s agreed to lift interest rates four times in five years. Put another way – there is hope Powell will represent continuity at the Fed. Powell has made clear he’s a proponent of the “off ramp” the Fed has chosen as it’s begun to reduce the size of its $4.5 trillion balance sheet.

In a speech in June, Powell also imagined the Fed balance sheet probably wouldn’t get below $2.4 trillion, and possibly not even $2.9 trillion. Stylistically, Bernanke called Powell a “moderate”.

We were waiting for the rollout of the GOP tax plan but it has been delayed. Maybe tomorrow. The problem is basic math – how to cut tax rates without eliminating popular tax breaks. The answer likely lies in smoke and mirrors.

Even if the delay does not throw the Republican schedule off course, it signals potential difficulties ahead for a bill that Republicans are attempting to pass on a party-line basis, over what appear most likely to be loud objections from some business groups — and relentless criticism from Democrats.

As Republicans rushed to lock down support from their members and key interest groups earlier on Tuesday, some new details of the bill began to trickle out. The draft bill is expected to cut the top corporate tax rate to 20 percent immediately, and not phase it in over a period of years, as had been discussed.

The plan might give up on trying to cut the highest rate for the wealthiest earners, which would be above the 35 percent the Republicans identified as their top tax rate in the framework released in September; the idea is to keep that rate at 39.6% and then protest the idea that they are cutting taxes for the wealthy. Maybe a phased in repeal of the estate tax over several years.

Republican leaders also confirmed they would maintain a federal tax deduction for at least some state and local property taxes paid, while eliminating comparable deductions for income and sales taxes. This is going to be a big problem – first because it looks a lot like double taxation – next because states’ rights – next because nobody wants to be taxed on their taxes to give a big tax break to corporations and rich guys.

It is now clear that the original plan to fully eliminate the deduction for state and local taxes is not dead – the big problem for people who believe in math is that the tax plan doesn’t work without those cuts. On taxes, everyone wants to go to heaven, no one wants to die.

Then, this morning Trump tweeted that the tax plan should include a repeal of the individual mandate on Obamacare, which would turn a difficult math problem into a big hot mess. Nobody is quite sure what the tweets mean, if anything, but tying the tax plan to the already failed effort to repeal Obamacare just doesn’t make sense.

GOP leadership is scrambling to get a tax deal done on an extremely compressed schedule, not only because they want to have an accomplishment to tout, but also because the quicker they do it, the less chance there is that resistance will build. And right now, they seem genuinely spooked by the possibility that the public will conclude that their tax cut is little more than a gigantic giveaway to corporations and the wealthy.

This is a well-grounded fear: It is, in fact, a gigantic giveaway to corporations and the wealthy, and polls show the public doesn’t believe corporations and the wealthy desperately need relief from the oppressive burden of taxation. Morgan Stanley warned in a report this week that enacting aggressive tax cuts to businesses and individuals risks “overheating” the economy and causing stocks to “boom then bust.”

The concern is that slashing the corporate tax rate from 35% to 20% could backfire by forcing the Federal Reserve to accelerate interest rate hikes. That in turn would raise borrowing costs for consumers and businesses, potentially unnerving the stock market along the way. Morgan Stanley strategists wrote: “Adding stimulus to an already strong economy likely stirs the Fed… pulling forward the end of an aging cycle.”

Ironically, given all the excitement on Wall Street about tax cuts, Morgan Stanley argues that “failure of tax reform” would be the “best” outcome for extending the economic and market recovery from the Great Recession.

So, what’s a one-day delay in releasing details of the tax plan? Well, that means there are just 10 working days for Congress between tomorrow and the Thanksgiving holiday. And while many things can be done in 10 days, re-wiring the economic engine might be overly ambitious.

Facebook beat earnings and revenue expectations. The company reported third-quarter net income of $4.7 billion, or $1.59 a share, compared to $2.63 billion, or 90 cents a share, in the year-ago period. Revenue rose to $10.3 billion from $7 billion in the year-ago period. Analysts surveyed by FactSet had estimated $1.28 a share on revenue of $9.8 billion.

Daily active users, a metric closely watched by analysts and investors, rose 16% to 1.37 billion, compared with the year-earlier period. For the fourth quarter, analysts model earnings of $1.70 a share on revenue of $12 billion. The company’s shares, which hit a record earlier in the day, initially rose in after-hours trading, but later fell into negative territory. They have gained almost 60 percent this year.

Meanwhile, lawmakers released a batch of Russian-bought Facebook ads that showcased politically charged content allegedly spread on social media by Moscow ahead of the 2016 U.S. election. Lawyers from Facebook, Twitter and Google testified about Russian influence on their networks. After decades of relatively little regulatory scrutiny, the tech industry is now on the defensive on a range of policy issues.

Tesla reported third quarter earnings – or more accurately they reported their largest ever quarterly loss. Tesla also pushed back its target for volume production on its new Model 3 sedan by about three months, saying that while progress fixing bottlenecks was made, it was difficult to predict how long it would take for all production issues to be fixed.

Tesla’s long-term viability depends on the Model 3, its new sedan that starts at $35,000, about half the price of its flagship Model S. Tesla plans to produce 500,000 vehicles in 2018, mostly Model 3s, a six-fold increase over 2016 levels.

But the company made just 260 Model 3 sedans in the third quarter due to “production bottlenecks,” it said. It had planned to build more than 1,500. Tesla posted a net loss of $619 million, or $3.70 per share, even as revenue rose to 30% to $2.98 billion. Tesla shares dropped about 5% in after-hours trade.

Earlier this month, Wells Fargo fired four foreign exchange bankers. No big deal, right? In its statement, Wells Fargo said, “The departure of these employees was not related to issues involving market collusion, front-running or market manipulation.”

We’re pretty sure you can see where this is going. Federal prosecutors are looking into possible front-running of trades. If it’s not one thing, it’s another.

Stocks Finish Mixed as Fed Holds Steady

Charles Schwab: On the Market

Posted: 11/1/2017 4:15 PM EDT

Stocks Finish Mixed as Fed Holds Steady

 

U.S. stocks finished the regular trading session mixed after a solid morning advance, which developed on the heels of strong global equity gains, tapered in afternoon action as the Fed concluded its monetary policy meeting. Treasury yields diverged as the Central Bank held its target range steady, as widely expected, while the U.S. dollar and gold were modestly higher and crude oil prices reversed to the downside despite a bullish inventory report. In equity news, corporate earnings reports continued to roll out, with Estee Lauder rallying after topping consensus forecasts.

The Dow Jones Industrial Average (DJIA) rose 58 points (0.3%) to 23,435, and the S&P 500 Index ticked 4 points (0.2%) higher to 2,579, while the Nasdaq Composite decreased 11 points (0.2%) to 6,717. In moderate volume, 873 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.08 to $54.30 per barrel and wholesale gasoline gained $0.01 to $1.74 per gallon. Elsewhere, the Bloomberg gold spot price gained $3.81 to $1,275.26 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 94.78.

Clorox Co. (CLX $128) reported fiscal Q1 earnings per share (EPS) of $1.46, compared to the $1.42 FactSet estimate, as revenues rose 7.0% year-over-year (y/y) to $1.5 billion, ahead of the projected $1.4 billion. The consumer products company said it saw record shipments of its newest products and solid growth in its Lifestyle segment. CLX trimmed both its full-year revenue and EPS guidance, citing its divestiture from the Aplicare business and a forecasted $0.10 per share impact from the hurricanes. Shares were higher.

Estee Lauder Companies Inc. (EL $122) posted a profit of $1.21 per share, or $1.14 ex-items, well ahead of the FactSet estimate calling for $0.97, as revenues increased 14% y/y to $3.3 billion , beating the Street’s forecasts for $2.9 billion. The makeup company said it saw solid growth out of its largest segments, skin care and makeup, which topped its own forecasts. Shares of EL finished solidly higher.

Pitney Bowes Inc. (PBI $11) posted Q3 EPS of $0.31, or an adjusted $0.33, versus the forecasted $0.42, on revenues of $842.8 million, above the FactSet consensus of $832.0 million. The company, best known for its postage and mailing technology equipment, also said it is initiating a review of its strategic alternatives. Shares traded solidly lower.

Fed holds target range steady, manufacturing remains solid and private sector jobs beat

The Federal Open Market Committee (FOMC) concluded its monetary policy meeting, unanimously agreeing to keep the target range for its fed funds rate steady at 1.00%-1.25%. The FOMC, based on information received since it met in September, stated that "the labor market has continued to strengthen and that the economy has been rising at a solid rate despite hurricane-related disruptions." Separately, the Fed noted that the balance sheet normalization program initiated in October is proceeding. At its previous meeting in September, the Fed provided details of its plan to begin winding down its $4.5 trillion balance sheet. In a unanimous decision, the Central Bank said it will taper its balance sheet by $10 billion per month—$6 billion from Treasuries and $4 billion from mortgage-backed securities—increasing by $10 billion per month every quarter for the first year. No updated economic projections or post-meeting press conference by Chairwoman Janet Yellen were provided after the decision. For more insightful analysis of the Fed’s decision, see Schwab's Chief Investment Strategist Liz Ann Sonders' article, Fed Stands Pat in November; Gets Ready to Go in December.

The meeting concluded amid the backdrop of global economic optimism, Fed leadership speculation, subdued inflation, and optimism regarding U.S. tax reform. For analysis of the Fed and President Donald Trump's pick for the next Chairman—expected this week—check out our article, Fed Chairman: Why Trump's Choice Matters, as well Schwab's Chief Fixed Income Strategist Kathy Jones' and Vice President of Trading and Derivatives, Randy Frederick's video, Should a Change in Fed Leadership Matter to Investors?.

Also, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend and Randy Frederick, discuss tax reform in the video, Where Does Tax Reform Stand?. For analysis of the global markets and potential risks to the bull market, which we believe will continue, read our latest Schwab Market Perspective: Stocks Aren't so Spooky.

The Institute for Supply Management (ISM) Manufacturing Index (chart) for October unexpectedly declined to 58.7 from 60.8 in September, compared to the Bloomberg forecast calling for a dip to 59.7. A reading above 50 denotes expansion. ISM said comments from respondents continued to reflect strong incoming orders as a result of recovery efforts in the wake of the hurricanes. New orders remained solid at 63.4, while the employment and prices components shrunk slightly, but remained positive with readings of 59.8 and 68.5, respectively.

The final Markit U.S. Manufacturing PMI Index was revised to 54.6 for October from the preliminary reading of 54.5, where it was expected to remain, and above the 53.1 level posted in September. A reading above 50 denotes expansion. The release is independent and differs from ISM's manufacturing report, as it has less historic value and Markit weights its index components differently.

The ADP Employment Change Report showed private sector payrolls rose by 235,000 jobs in October, above the Bloomberg forecast of 196,000, while September's increase of 135,000 jobs was revised to a gain of 110,000. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday's broader October nonfarm payroll report, expected to show jobs grew by 325,000 and private sector payrolls rose by 320,000 (economic calendar). The unemployment rate is forecasted to remain at 4.2% and average hourly earnings are projected to rise 0.2% month-over-month (m/m).

The MBA Mortgage Application Index fell 2.6% last week, following the prior week's 4.6% decline. The drop came as a 5.0% decrease in the Refinance Index was met with a 1.0% fall in the Purchase Index. The average 30-year mortgage rate rose 4 basis points (bps) to 4.22%.

Construction spending (chart) rose 0.3% m/m in September, versus projections of a 0.2% decline, and following July's downwardly revised 0.1% increase. Residential spending was flat, while non-residential spending rose 0.5%.

Treasuries finished mixed, with the yield on the 2-year note rising 1 bp to 1.61%, while the yield on the 10-year note dipped 1 bp to 2.37%, and the 30-year bond rate was 3 bps lower at 2.85%.
Tomorrow's economic calendar will be fairly light and include weekly initial jobless claims, forecasted to tick higher to a level of 235,000 from the prior week's 233,000, as well as preliminary Q3 productivity and labor costs, with productivity expected to increase 2.6% and labor costs forecasted to have moved 0.4% higher.

European gains cool, while Asia sees solid advance ahead of Fed decision

Stocks in Europe finished only modestly higher after paring early gains, with the STOXX Europe 600 Index hitting a 2-year high early on strength in commodity shares, as caution ahead of today's Fed rate decision ensued. However, markets in Germany were solidly higher, playing catch-up after being closed yesterday for a holiday. The gains came despite some mixed manufacturing activity reports across the region, as well as central bank uncertainty, as the Bank of England is highly expected to raise rates for the first time in a decade when it meets tomorrow. Amid this backdrop, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in the article, How the Shift by Central Banks May Affect the Stock Market, and talks with Randy Frederick in the video about Is An Optimistic Outlook for Global Equities Warranted?. The euro and the British pound were lower versus the U.S. dollar, while bond yields in the region were mixed.

Stocks in Asia finished higher amid upbeat economic data and positive earnings results in the region, while focus was on today’s FOMC policy meeting, as well as lingering uncertainty regarding who will be the next Fed Chief. Manufacturing activity reports dominated the economic landscape with mixed results across the region, with Japan reporting a slight increase in activity, while those out of Australia and South Korea ticked slightly lower. The Caixin Manufacturing report in China was flat at a reading of 51.0, limiting gains for mainland Chinese shares amid increased concerns that the economy may be losing steam as the data followed yesterday’s official survey that showed an unexpected decline in activity. However, stocks trading in Hong Kong rallied, shrugging the report, with positive results out of the tech sector and a 17-year high in consumer confidence providing the lift. Japanese equities surged to a 21-year high, getting a boost from exporters on weakness in the yen. Indian stocks notched another record high, powered by gains in financials, and Australian securities also rose. South Korean equities also got into the action, rallying to a 4-month high, as eased tension in the Korean Peninsula increased investors’ appetites for riskier assets.

In addition to the aforementioned Bank of England decision, the international economic docket for tomorrow will yield consumer confidence from Japan and the trade balance from Australia and South Korea, while releases from across the pond will include Markit Manufacturing PMI reads from Germany, France, Italy and the Eurozone.

Financial Review

Inured

Sinclair Noe — October 2, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

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DOW + 152 = 22,557 (Record)
SPX + 9 = 2529 (Record)
NAS + 20 = 6516 (Record)
RUT + 18 = 1509
10 Y + .01 = 2.34%
OIL – 1.04 = 50.54
GOLD – 8.90 = 1271.50

Cryptocurrency

• Number of Currencies: 882
• Total Market Cap: $148,926,975,795
• 24H Volume: $2,818,429,648

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	4,420.3	$73.44B	$1.30B	46.18%	1	+0.46%	12.92%
	Ethereum	ETH	299.82	$28.42B	$308.15M	10.93%	0.0678232	+1.01%	2.73%
	Ripple	XRP	0.20349	$7.83B	$56.94M	2.02%	0.00004621	+0.49%	12.18%
	Bitcoin Cash	BCH	419.09	$6.96B	$197.03M	6.99%	0.0946516	-0.19%	-7.21%
	Litecoin	LTC	53.400	$2.84B	$85.00M	3.02%	0.012095	+0.06%	3.41%
	Dash	DASH	308.12	$2.34B	$28.38M	1.01%	0.0697576	+0.01%	-10.12%
	NEM	XEM	0.23515	$2.09B	$3.82M	0.14%	0.00005271	+1.37%	1.07%
	NEO	NEO	36.100	$1.80B	$108.07M	3.83%	0.0081623	-1.64%	38.31%
	IOTA	MIOTA	0.57980	$1.61B	$12.98M	0.46%	0.00013081	+0.31%	5.57%
	Monero	XMR	90.50	$1.37B	$27.57M	0.98%	0.0204906	-1.38%	-2.74%

Once again, we saw records on Wall Street for the Dow, S&P, and Nasdaq. There will be no celebration today. The flags are at half-staff. By now, you all have heard about the mass shooting in Las Vegas. Here is the latest information. Last night, shortly after 10 p.m., at an outdoor concert in Las Vegas, gunfire erupted.

The gunman was on the 32^nd floor of the Mandalay Bay, firing into a field of 22,000 concertgoers, across the Las Vegas Strip. At first, the people at the concert didn’t realize what was happening or where the gunfire was coming from. The gunfire sprayed down in rapid fire, likely from fully automatic guns – machine guns. 59 people are dead and over 527 injured, several in critical condition.

Some of the injured were wounded, others hit by shrapnel, others were trampled in the chaos as they tried to escape. It ranks as the worst mass shooting in the US so far. Approximately 15 minutes later, police broke through the gunman’s hotel door. Stephen Paddock, a 64-year old from Mesquite, Nevada was dead of a self-inflicted gunshot. He was surrounded by 19 guns and hundreds of rounds of ammo.

To a certain extent, we have all become inured to this carnage that happens with sickening regularity. The reality is that mass murder is more and more common – even as violent crime has been on the decline. Since 1970, more Americans died from guns (either murder, suicide or accident) than the total of all the people who died in all the wars in American history, going all the way back to the American Revolution.

And while the event in Las Vegas is jarring, each day 92 Americans die from guns; more than 33,000 last year. After various times, I half expected there would be some action to address this problem: after Columbine, after Newtown, after Tucson, after Aurora, after Charleston, after Orlando. Nope.

Today, the shares of gun stocks went higher. No surprise. More people will buy more guns because they are afraid. More people will buy more guns because they think gun control advocates might sway someone to do something. There were calls for legislation. It won’t happen.

Even before today there was legislation in Congress to ease firearms rules and make it easier to purchase silencers. Nothing will happen after Las Vegas. Lives were shattered today. Daughters and sons, Moms and Dads, sisters and brothers – gone, permanently. In a week, or a month, or a year it will happen again and then again. I would like to say something hopeful but I have no expectations anything will change.

Looking at today’s economic data: Construction outlays jumped in August, led by a surge in spending for public works projects. Spending increased 0.5% during the month, and stood 2.5% higher than a year ago. Outlays were at a seasonally adjusted annual $1.22 trillion rate in August.

Private construction spending rose 0.4% in August, while public outlays jumped 0.7%, driven by a 3.5% increase in educational construction projects. Public construction spending has stagnated for years.

Florida and Texas, the areas most impacted by Hurricanes Harvey and Irma, accounted for 22% of U.S. private nonresidential construction spending in 2016, and 15% of state-and-locally-owned construction spending. Meanwhile, residential construction spending was up only 0.5% for the month, but was 11.3% higher than its year-ago level.

The Institute for Supply Management said its manufacturing index jumped to 60.8 in September from 58.8%, hitting the highest level since 2004.

The Atlanta Federal Reserve’s GDP Now forecast model was revised to show third quarter GDP growth of 2.7%, up from an earlier estimate of 2.3% growth.

Treasury Secretary Steven Mnuchin on Sunday said one of the top goals of the Trump administration’s tax plan is to help the middle class, but he could not guarantee that every middle-class family would receive a tax cut.

President Donald Trump last week outlined his plan, which includes reducing the corporate income tax rate to 20 percent, establishing a new 25 percent tax rate for pass-through businesses and lowering the top income tax rate for individuals to 35 percent.

A report on Friday from the non-profit Washington-based Tax Policy Center found that taxpayers in the top 1 percent income bracket – above $730,000 – would receive about 50 percent of the total benefit from the overhaul, with their after-tax income forecast to increase an average of 8.5 percent.

The group said about 12 percent of taxpayers would face an average tax increase of roughly $1,800. This includes more than a third of taxpayers making between about $150,000 and $300,000, as most itemized deductions, including for state and local taxes, would be repealed.

The Spanish region of Catalonia attempted to hold a contested independence referendum on Sunday and Catalonia’s leadership has declared the region has “won the right” to independence. Catalan officials claimed that around 90% of votes cast were for independence with a turnout of around 43%. Spain’s central government does not recognize the referendum, with Prime Minister Mariano Rajoy saying it made a “mockery” of democracy and refusing to recognize that a vote happened.

Sunday’s referendum was marred by violent scenes as police were ordered to confiscate ballot boxes and prevent people from voting. Videos surfaced of officers forcibly dragging would-be voters from polling stations. Spain is the fourth largest eurozone economy. But what will happen if Catalonia does declare independence from Spain?

Declaring independence from Spain would automatically mean that Catalonia would have to leave the European Union, which would inevitably cause issues around its membership of the EU’s single market. The economic cost for Catalonia could proportionally exceed that of Brexit for the UK. Spain’s benchmark IBEX 35 stock index slid 1.8 percent, led by shares of banks. Spanish 10-year government bond yields climbed as much as 11 basis points.

The UK’s Civil Aviation Authority (CAA) is launching the biggest repatriation effort of Brits abroad since the Second World War after the bankruptcy of Monarch Airlines over the weekend. Monarch, which flies to the Mediterranean and other warm weather destinations, cancelled an estimated 300,000 bookings and an estimated 110,000 travelers were stranded.

Spectrem Group’s monthly confidence index of investors with at least $1 million to invest soared to 19 for September from 10 in August. The index, which is based on 250 interviews, has only been higher twice since the markets began recovering from the worst financial crisis since the Great Depression in 2009 — in April of this year and in September 2013.

General Motors is going all electric. GM will begin selling two new all-electric vehicles in the next 18 months, and will have at least 20 new zero-emission electric vehicles in its lineup by 2023. Chairman and CEO Mary Barra, making the announcement in Detroit, said the new cars are part of a sweeping plan to move toward an automotive world that includes zero emissions, zero congestion and zero crashes.

The two new cars will be based on technology derived from the company’s Bolt EV, the 238-mile-range electric sedan that Chevrolet introduced late last year. They will be plug-in electric vehicles or hydrogen fuel cell vehicles that have no internal combustion engines and do not burn gasoline or emit harmful vapors from their tailpipes.

GM, with its Bolt EV battery-powered car and its Volt plug-in hybrid, is pushing into an increasingly competitive space. Almost 50 new pure electric-car models will come to market globally between now and 2022, including vehicles from Daimler, Volkswagen, and Volvo. The car companies dragged their feet with electric. Now they are being dragged into it by Tesla and by regulations.

Though more than 350,000 people put down $1,000 deposits to get in line for the upcoming Tesla Model 3 BEV sedan, sales of the Bolt EV have not met analysts’ expectations. Tesla had record sales of its EVs last year — and still lost $675 million on $7 billion in sales. To date, in the United States, pure battery-electric vehicles account for fewer than 1% of all vehicles sold.

The massive data breach at Equifax may be even larger than originally thought, according to an independent investigation by a cybersecurity firm. Mandiant, a cybersecurity investigations firm retained by Equifax to look into the breach, found that 2.5 million more U.S. consumers were potentially affected than originally estimated, bringing the total to 145.5 million.

The recently former CEO of Equifax, Richard Smith is scheduled to appear before four Congressional panels this week, beginning with the House Energy and Commerce Committee on Tuesday. In prepared remarks, Smith said Equifax was alerted to the breach by the Homeland Security Department on March 9 but did not act to patch the vulnerability.

The Interior Department’s inspector general’s office has opened an investigation into Secretary Ryan Zinke’s use of taxpayer-funded charter planes. The watchdog has “received numerous complaints” and launched its investigation late last week. Interior secretary Zinke has flown on government-owned or -chartered aircraft several times this year, including one $12,000 trip from Las Vegas to an airport near his hometown in Montana and another trip in the Caribbean

At Oracle’s OpenWorld conference yesterday, Larry Ellison announced a new autonomous database that can patch itself from cybersecurity flaws without having to go offline. While the idea of a human-free database maintenance is compelling on its own, Ellison spent the second half of his presentation comparing Oracle 18c to Amazon Web Service’s database product, Redshift.

The automated database, called Oracle 18c, can instantly patch itself while still running, which Ellison says is a big advantage over the current system, in which humans must schedule downtime for a database.

Upbeat Manufacturing Reports Boost Stocks

Charles Schwab: On the Market

Posted: 10/2/2017 4:15 PM EDT

Upbeat Manufacturing Reports Boost Stocks

 

U.S. stocks were higher to start the week, as favorable reads on manufacturing activity out of China, Japan and the eurozone were followed by a thirteen-year high in the U.S report. However, gains were tempered a bit, as attention turned to the deadly shooting in Las Vegas. Treasury yields were modestly higher and the U.S. dollar extended a recent run, while gold and crude oil prices were lower.

The Dow Jones Industrial Average (DJIA) increased 153 points (0.7%) to 22,558, the S&P 500 Index was 10 points (0.4%) higher at 2,529, and the Nasdaq Composite advanced 21 points (0.3%) to 6,517. In moderate volume, 754 million million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil lost $1.09 to $50.58 per barrel and wholesale gasoline was $0.03 lower at $1.56 per gallon. Elsewhere, the Bloomberg gold spot price declined $6.54 to $1,276.21 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 93.60.

Cal-Maine Foods Inc. (CALM $42) reported a fiscal Q1 loss of $0.33 per share, versus the $0.18 shortfall that the FactSet estimate called for, with revenues rising 9.6% year-over-year (y/y) to $263 million, but below the projected $264 million. The egg producer said it was pleased with higher sales in the quarter despite ongoing challenges and price volatility in the egg markets. CALM noted that it will not pay a dividend for Q1. Shares were higher.

American International Group Inc. (AIG $62) announced that it welcomed the decision by the Financial Stability Oversight Council to rescind the company's designation as a Systemically Important Financial Institution (SIFI) as it reflects the substantial de-risking that it has achieved since 2008. AIG was higher.

Biohaven Pharmaceutical Holding Co. Ltd. (BHVN $36) fell sharply after announcing that a study of its treatment for spinocerebellar ataxia did not differentiate from placebo on the primary endpoint.

Manufacturing activity hits thirteen-year high, joining plethora of positive global data

The Institute for Supply Management (ISM) Manufacturing Index (chart) for September unexpectedly jumped to the highest level since May 2004, after rising to 60.8 from 58.8 in August, compared to the Bloomberg forecast calling for a dip to 58.0. A reading above 50 denotes expansion. ISM said comments from the survey reflect expanding business conditions, with news orders (64.6), production (62.2), employment (60.3), order backlogs (58.0), and export orders (57.0) all growing, while customer inventories remained at low levels (42.0). Prices surged 9.5 points to 71.5.

The final Markit U.S. Manufacturing PMI Index was revised to 53.1 for September from the preliminary reading of 53.0, where it was expected to remain, and above the 52.8 level posted in August. A reading above 50 denotes expansion. The release is independent and differs from ISM's manufacturing report, as it has less historic value and Markit weights its index components differently.

Construction spending (chart) rose 0.5% month-over-month (m/m) in August, versus projections of a 0.4% advance, and following July's downwardly revised 1.2% drop. Residential and non-residential spending both rose 0.5%.

The manufacturing data joined upbeat reads on the sector out of China, Japan and eurozone, while adding to the backdrop of heightened December Fed rate hike forecasts and cautious optimism regarding last week's tax reform framework, which has boosted Treasury yields and the U.S. dollar. The reports also kick off a week that will bring another speech by Fed Chairwoman Janet Yellen and culminate with Friday's September nonfarm payroll report (economic calendar).

As noted in the latest Schwab Market Perspective: Fourth Quarter Fun…or Folly?, there may be some Fed-induced volatility in the fourth quarter and we believe a December hike is firmly on the table in light of the uptick in inflation along with the Fed’s stated intentions. If inflation begins to kick in in earnest, it could push the Fed to be more aggressive than currently believed. While pullbacks are normal and can happen at any time, the fundamental trends that powered the steady rise in global stocks this year remain intact. The latest round of global leading economic indicators, including the September purchasing managers index for many countries around the world, point to continued economic strength that is lifting earnings and supporting the bull market. Read more on the Market Commentary page at www.schwab.com.

Treasuries were modestly lower, as the yields on the 2-year and 10-year notes, along with the 30-year bond, all ticked 1 basis point higher to 1.49%, 2.34% and 2.87%, respectively.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market, on the Market Commentary page at www.schwab.com. Also, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend discusses the tax reform details his latest article, Tax Reform Framework Released, But The Road Ahead Is Long, on the Insights & Ideas page. Follow Schwab and Jeff on Twitter: @schwabresearch and @jeffreykleintop.

The stock market's resiliency in the face of a plethora of things to worry about is discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her article, Comfortably Numb? An Update on Investor Sentiment, on the Market Commentary page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

Tomorrow's economic calendar will be void of any releases.

Europe and Asia mostly higher on data, but political concerns weigh on Spain
Most European equity markets gained ground, with some upbeat eurozone data joining favorable reports out of the U.S., Japan and China, while weakness in the euro and British pound supported the advance in the region. However, Spanish stocks fell amid political uneasiness as Catalonia said a large majority of people voted in favor of an independence referendum, but national authorities are calling the vote illegal. For analysis of the political front, see Schwab's Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond?, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick.

Markit's eurozone manufacturing activity report continued to suggest solid expansion and the region's unemployment rate held at a 2009 low. Switzerland's manufacturing growth unexpectedly accelerated last month, though U.K. output growth in the sector decelerated more than expected. The report put pressure on the British pound, which had spiked last month on signals from the Bank of England that it may begin to raise rates in the coming months. Bond yields in the region finished mixed. . For a look at the global markets, see Schwab's Jeffrey Kleintop's, CFA, article, U.S. vs International: What Do Earnings Tell Us About What May Be Ahead?, on the Market Commentary page at www.schwab.com.

Stocks in Asia finished mostly higher on the heels of some upbeat economic data, though volume was lighter than usual as markets in China, Hong Kong, India and South Korea were closed for holidays. Japanese equities advanced, with the yen losing some ground while the Q3 Tankan Large Manufacturing Index improved more than expected to 22 from 17 in Q2, above the expected tick up to 18, showing sentiment in the large manufacturing sector improved noticeably. However, the report did show that confidence in the sector is expected to decline to 19 in Q4. China reported over the weekend that growth in output from its key manufacturing and services sector accelerated in September, while South Korea also reported exports jumped more than expected last month. In the wake of the data, basic materials stocks gained ground, helping boost Australian stocks, along with strength in financials. Amid this backdrop, Schwab's Jeffrey Kleintop, CFA, and Randy Frederick note in the video, Is An Optimistic Outlook for Global Equities Warranted?, all of the world's top 20 economies are growing this year—a rare occurrence over the last decade. Read more on the Insights & Ideas page at www.schwab.com.

Tomorrow, the international economic calendar will offer the Reserve Bank of Australia's monetary policy decision, with no change to policy expected, consumer confidence from Japan, the unemployment rate from Spain, and PPI from the Eurozone.

Markets Notch Fourth-Straight Gain

Charles Schwab: On the Market

Posted: 9/1/2017 4:15 PM ET

Markets Notch Fourth-Straight Gain

U.S. equities finished the week out on a high note amid lighter volume ahead of the three-day Labor Day holiday weekend. The ISM Manufacturing Index jumped to a six-year high to aid the advance, while automakers posted relatively upbeat monthly sales reports, helping to overshadow a softer-than-expected August nonfarm payroll report. Treasury yields rose and the U.S. dollar continued to rebound, while crude oil prices were mixed and gold was higher.

The Dow Jones Industrial Average (DJIA) rose 39 points (0.2%) to 21,988, the S&P 500 Index added 4 points (0.2%) to 2,476, and the Nasdaq Composite gained 7 points (0.1%) to 6,435. In light-to-moderate volume, 651 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.06 higher to $47.29 per barrel and wholesale gasoline lost $0.03 to $1.75 per gallon. Elsewhere, the Bloomberg gold spot price gained $3.58 to $1,325.01 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 92.83. Markets were higher for the week, as the DJIA increased 0.8%, the S&P 500 Index jumped 1.3% and the Nasdaq Composite soared 2.7%.

Lululemon Athletica Inc. (LULU $62) reported Q2 earnings-per-share (EPS) of $0.36, or $0.39 ex-items, versus the $0.35 FactSet estimate, as revenues grew 13.0% year-over-year (y/y) to $581 million, north of the projected $567 million. Q2 same-store sales rose 7.0% y/y, topping the expected 4.2% gain. The yoga and athletic apparel company raised its full-year guidance. Shares rallied.

Palo Alto Networks Inc. (PANW $147) posted a fiscal Q4 loss of $0.42 per share, or EPS of $0.92 ex-items, compared to the projected $0.79, with revenues rising 27.0% y/y to $509 million, above the estimated $488 million. The cybersecurity company issued full-year guidance that was mostly above expectations. Shares jumped over 10%.

The major automakers reported August sales today, with General Motors Co's (GM $37) sales rising 7.5% y/y, compared to FactSet's projected 3.7% increase. Fiat Chrysler Automobiles NV's (FCAU $16) Chrysler sales dropped 11.0%, compared to the expected 5.3% decrease. Ford Motor Co. (F $11) reported a 2.1% decline in sales, versus the expected drop of 3.1%. Shares of all three automakers were nicely higher.

August job growth misses forecasts, but manufacturing growth jumps to six-year high

Nonfarm payrolls (chart) rose by 156,000 jobs month-over-month (m/m) in August, compared to the Bloomberg forecast of a 180,000 increase. The rise of 209,000 seen in July was revised to a gain of 189,000 jobs. The total downward revision to the job gains in July and June was 41,000. Excluding government hiring and firing, private sector payrolls increased by 165,000, versus the forecasted gain of 172,000, after increasing by 202,000 in July, revised from the 205,000 rise that was initially reported. Job gains occurred in manufacturing, construction, professional and technical services, healthcare and mining.

The unemployment rate ticked higher to 4.4% from 4.3%, where it was forecasted to remain, while average hourly earnings rose 0.1% m/m, below projections of a 0.2% increase and July's unrevised 0.3% increase. Y/Y, wage gains were 2.5%, versus estimates of a 2.6% rise, and matching July's pace. Finally, average weekly hours dipped to 34.4 from July's unrevised 34.5 rate, where it was expected to remain.

The Institute for Supply Management (ISM) Manufacturing Index (chart) for August jumped to the highest level since April 2011, after rising to 58.8 from 56.3 in July, compared to forecasts calling for an increase to 56.5. A reading above 50 denotes expansion. New orders and production were little changed, holding onto levels above 60, while employment jumped to the highest level since June 2011. New export orders declined 2.0 points to 55.5 and inventories rose 5.5 points to 55.5, while prices paid was flat at 62.0. ISM said comments from the survey reflect expanding business conditions.

The final Markit U.S. Manufacturing PMI Index was revised to 52.8 for August from the preliminary reading of 52.5, where it was expected to remain, but below the 53.3 level posted in July. A reading above 50 denotes expansion. The release is independent and differs from ISM's manufacturing report, as it has less historic value and Markit weights its index components differently.

The final August University of Michigan Consumer Sentiment Index (chart) was revised lower to 96.8 from the preliminary level of 97.6, versus forecasts of 97.5. But the index is up solidly versus July's level of 93.4. Compared to last month, the expectations component of the report was higher, though the current conditions portion declined. The 1-year and 5-10 year inflation outlooks held at July's 2.6% and 2.5% rates, respectively.

Construction spending (chart) fell 0.6% m/m in July, versus projections of a 0.5% advance, and following June's downwardly revised 1.4% drop. Residential spending rose 0.8%, while non-residential spending fell 1.7%.

Despite being below expectations on most levels, today's jobs report—which is being discounted by economists due to seasonal factors—still suggests that the labor market is poised to continue to support economic prosperity. Also, the standout ISM Manufacturing Index, led by the jump in employment, likely bodes well for the broader economy as discussed by Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, in our article, Why the Industrial Sector Matters, on the Insights & Ideas page at www.schwab.com. Brad also discusses our outlook on all the major market sectors in his latest, Schwab Sector Views: Real Estate Roundup, on the Markets & Economy page. Follow us on Twitter: @schwabresearch.

Treasuries were lower following the plethora of data, as the yield on the 2-year note ticked 1 basis point (bp) higher to 1.33%, while the yields on the 10-year note and the 30-year bond rose 5 bps to 2.16% and 2.77%, respectively. Bond yields showed some relative signs of life after being quiet as of late, while the U.S. Dollar Index reversed to the upside, continuing to show signs of stabilization after recently hitting multi-year lows.

For our latest analysis of the political front, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's newest article, Congress Returns to Face Debt Ceiling, Government Shutdown Deadlines, on the Insights & Ideas page at www.schwab.com.

Schwab's Chief Fixed Income Strategist Kathy Jones offers a look at the bond markets in her article, What's the Bigger Risk: Bond Market Bubble or Complacency?, on the Fixed Income page at www.schwab.com, and for analysis of investing styles, see Schwab's Chief Investment Strategist Liz Ann Sonders' latest article, Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?, on the Markets & Economy page. Follow Kathy and Liz Ann on Twitter: @kathyjones and @lizannsonders.

Please note: All U.S. markets will be closed on Monday in observance of the Labor Day holiday.

Europe and Asia higher amid upbeat global manufacturing reports

European equities traded higher, as early strength in the euro relinquished following the upbeat U.S. manufacturing and auto sales reports, which accompanied favorable manufacturing reads in China, eurozone and U.K. The British pound remained higher versus the U.S. dollar but came off the best levels of the day. Bond yields in the region traded higher. The markets shrugged off the conclusion of the latest round of Brexit negotiations, with the European Union lead noting that talks failed to progress enough to move into a new phase set in October.

For a look at Brexit, see our article, Brexit Begins: What's Next for the U.K.? on the Insights & Ideas page. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA offers a look at a potential milestone for global profits in his latest article, Earnings may be about to do something they've never done before, on the Markets & Economy page at www.schwab.com and his video with Vice President of Trading and Derivatives, Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Stocks in Asia finished out the week mostly to the upside, aided by an upbeat read on Chinese manufacturing output for August, while the markets treaded cautiously ahead of a plethora of U.S. data today, headlined by the key August nonfarm payroll report. Also, conviction may have been held in check as tensions with North Korea lingered and global monetary policy and U.S. political uncertainties remained. For analysis of this backdrop, see Schwab's Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks on the International Investing page at www.schwab.com, as well as his video with Randy Frederick, Political Risk: How Should Investors Respond?, on the Insights & Ideas page.

Stocks in Japan rose modestly, despite the yen regaining some recent losses yesterday and reports showing the nation's Q2 capital spending rose at a smaller pace than anticipated and growth in manufacturing output for August was revised lower. Mainland Chinese equities gained slight ground, but shares traded in Hong Kong gave up early gains and dipped, with the markets digesting recent earnings reports in the region and the aforementioned manufacturing report, which followed yesterday's data that showed growth in activity out of the key services sector decelerated last month. Securities in Australia and India advanced, with the latter showing some resiliency in the face of late-yesterday's softer-than-expected Q2 GDP report. Markets in South Korea finished lower.

Stocks show resiliency in the face of plethora of uncertainty

The U.S. stock markets followed a two-week losing streak with a back-to-back weekly gain to close out August, showing resiliency in the face of a plethora of volatility sources, led by healthcare and technology issues. U.S. political uncertainty remained though recently resurfaced optimism of tax reform helped ease some of the anxiety. Geopolitical concerns were exacerbated by North Korea's latest missile test—this time above Japan—and lingering global trade tensions. Global monetary policy uncertainty festered as last week's Jackson Hole speeches offered little in terms of policy signals, while stubbornly low inflation was countered by stronger-than-expected U.S. Q2 GDP growth and manufacturing activity in China, the U.S., the U.K. and eurozone showing accelerated output in August to lift industrial and materials stocks.

Consumer Confidence hit a five-month high and automakers rallied on Friday to help boost the consumer discretionary sector, and overshadow negative reactions to earnings reports from Best Buy Co. Inc. (BBY $54), Finish Line Inc. (FINL $9) and Dollar General Corp. (DG $72). Adding to the puzzle, the euro hit a more than two-year high against the U.S. dollar, making the European Central Bank a bit uncomfortable, but paused as the greenback rebounded modestly amid the market resiliency and data. Treasury yields were relatively quiet on the week. Even a spike in gas prices and volatile crude oil markets in the wake of Hurricane Harvey did not detour the markets.

Although a short week, next week's economic calendar will bring a flood of key reports for the markets to digest, courtesy of July factory orders, the July trade balance, August ISM non-Manufacturing and Markit Services PMI Indexes, the Fed's Beige Book, and final Q2 productivity and labor costs.

The international economic front will also be robust with reports including: Australia—Reserve Bank of Australia monetary policy decision, Q2 GDP, retail sales and trade balance. China—Caixin PMI Services Index, trade balance, CPI, and PPI. India—trade balance. Japan—trade balance, and Q2 GDP. Eurozone—European Central Bank monetary policy decision, retail sales, and Q2 GDP, along with German factory orders, industrial production, and trade balance. U.K.—industrial/manufacturing production, trade balance, and Bank of England inflation outlook.

As noted in the latest Schwab Market Perspective: A Preview of Coming Attractions?, Volatility has ramped up a bit in the traditionally-slow final weeks of summer, which could be a preview of a bumpy fall for investors. Solid economic data and strong corporate earnings should allow the bull market to continue, but fiscal and monetary uncertainties present risks. August narrowly avoided the first loss for global stocks this year; but underlying fundamentals still look generally positive. Read more on the Markets & Economy page at www.schwab.com.