Stocks Mixed as Harvey, Dollar and Oil the Focus

Charles Schwab: On the Market

Posted: 8/28/2017 4:15 PM ET

Stocks Mixed as Harvey, Dollar and Oil the Focus

U.S. equities were mixed with investors eyeing the impact of Hurricane Harvey, as well as the continued decline in the U.S. dollar following Friday's uneventful speeches from Fed Chair Yellen and ECB President Draghi in Jackson Hole, Wyoming. Energy stocks were lower as crude oil prices fell, despite a rise in gasoline prices as refineries in Houston are offline. Treasuries were nearly unchanged and gold was solidly higher.

The Dow Jones Industrial Average (DJIA) declined 8 points to 21,806, the S&P 500 Index inched a point higher to 2,444, and the Nasdaq Composite gained 17 points (0.3%) to 6,283. In moderate volume, 704 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.30 to $46.57 per barrel and wholesale gasoline rose $0.03 at $1.57 per gallon. Elsewhere, the Bloomberg gold spot price jumped $19.87 to $1,311.07 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 92.21.

Gilead Sciences Inc. (GILD $75) announced an agreement to acquire cell therapy company Kite Pharma Inc. (KITE $178) for $180.00 per share in cash, in a transaction valued at about $11.9 billion. GILD traded higher and KITE rallied over 25%.

CBS Corp. (CBS $64) announced an agreement to acquire Network Ten, one of three major commercial broadcast networks in Australia, and it will launch its digital subscription video on-demand service, CBS All Access, in the Australian market. Terms of the deal were not disclosed. Shares were lower.  

Expedia Inc. (EXPE $143) came under pressure amid reports that the travel booking site's Chief Executive Officer (CEO), Dara Khosrowshahi, is leaving the company to become the CEO of Uber. EXPE's Chairman Barry Diller acknowledged that Dara has been asked to lead Uber and said that talks with him indicate that he will accept, but pointed out that nothing has been finalized yet.

Preliminary reads on wholesale inventories and trade deficit mixed

The advance goods trade deficit widened more than expected to $65.1 billion in July, from the upwardly revised $64.0 billion in June, and compared to the Bloomberg expectation of $64.5 billion.

Preliminary wholesale inventories rose 0.4% month-over-month (m/m) in July, versus forecasts for a 0.3% increase, and following June's downwardly revised 0.6% rise.

The Dallas Fed Manufacturing Activity Index nudged further into a level depicting expansion (a reading above zero). The index improved to 17.0 in August, from 16.8 in July, matching forecasts.

Treasuries were nearly unchanged, as the yields on the 2-year note and the 30-yield were flat at 1.33% and 2.74%, respectively, while the yield on the 10-year note was 1 basis point (bp) higher at 2.16%. For our latest analysis of the bond markets, check out Schwab's Chief Fixed Income Strategist Kathy Jones' article, What's the Bigger Risk: Bond Market Bubble or Complacency? on the Fixed Income page at www.schwab.com, and follow Kathy on Twitter: @kathyjones.

Treasury yields and the U.S. Dollar Index saw some pressure on Friday, with the latter extending losses to more than a two-year low, as the markets digested speeches by Fed Chair Janet Yellen and European Central Bank (ECB) President Mario Draghi at the Fed's highly-anticipated annual symposium in Jackson Hole, Wyoming. Both central bank leaders held off on offering new insight to monetary policy changes. The Fed is expected to begin shrinking its behemoth $4.5 trillion balance sheet next month and uncertainty remains whether it raises rates one more time this year. The ECB is expected to begin discussing the possibility of tapering its stimulus efforts later this year.

This week, low volume, politics and the geopolitical front will likely remain sources of volatility, but a robust back-end loaded U.S. economic calendar is poised to garner attention, headlined by Friday's August nonfarm payroll report. A look at August Consumer Confidence will get the ball rolling tomorrow, with economists anticipating a level of 120.3, slightly lower than the 121.1 posted in July, followed by Wednesday’s second read (of three) on Q2 GDP and July personal income and spending data, while August releases of the ISM Manufacturing Index, final University of Michigan Consumer Sentiment Index and auto sales will join the labor report to close out the week.

Some housing data is also on tap for tomorrow, with the S&P Corelogic Case-Shiller Home Price Index slated for release, forecasted to show home prices in the 20-city composite rose 0.3% m/m on a seasonally-adjusted basis, and 5.8% y/y.

As noted in the latest Schwab Market Perspective: Volatility Returns!, the latest bout of volatility illustrates why investors should stay focused on the longer-term. Risks for a more substantial pullback in the near-term still exist, as valuations remain elevated. After a weak first quarter, U.S. economic growth has rebounded, with an improving employment picture, tightening labor market, rising median wage growth, and a relatively healthy consumer. Even though past performance is no indication of future results, a prolonged bear market has never occurred outside the context of a recessionary environment. Looking at the Index of Leading Economic Indicators (LEI) from the Conference Board, there are no signs of a coming recession and the U.S. economy is getting some support from the rest of the world. Read more on the Markets & Economy page at www.schwab.com.

Europe dips as euro extends rally, Asia mixed 

European equities dipped, with the markets reacting to late-Friday's speech from ECB President Mario Draghi that offered no new monetary policy clues and boosted the euro to a two-and-half year high versus the U.S. dollar. The euro extended gains and the markets also assessed the impact of the weekend's Hurricane Harvey in the U.S., which continues to damage parts of Texas. Volume was lighter than usual as markets in the U.K. were closed for a holiday, though Brexit negotiations resumed and the British pound gained ground on the greenback. In economic news in the region, Italian economic, manufacturing and consumer sentiment reports all improved for August. Bond yields in the region finished mostly lower. 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 for a look at Brexit talks, see our article, Brexit Begins: What's Next for the U.K.? on the Insights & Ideas page. Follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch.

Stocks in Asia finished mixed, with the markets digesting speeches from central bank leaders in the U.S. and Europe, which lacked details regarding changes to the path of monetary policy. Also, the impact of Hurricane Harvey in Texas was closely followed, with an eye on the oil and gas markets, while U.S. political and global trade uncertainty lingered. Recently flared-up tensions toward North Korea appeared to continue to recede. 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 Vice President of Trading and Derivatives, Randy Frederick, Political Risk: How Should Investors Respond? on the Insights & Ideas page. Follow Randy on Twitter: @randyafrederick. Japanese equities finished flat with the yen ticking slightly higher, while stocks in mainland China and Hong Kong gained modest ground, with earnings optimism bolstering brokerage stocks. Australia securities declined, with weakness seen in financials, and those traded in South Korea also fell, as technology issues weighed on the markets. Finally, stocks in India advanced.

Tomorrow’s international economic calendar will include personal income and wage data from Japan, consumer confidence from Germany, and GDP and consumer spending from France.