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Stocks Close Higher as Optimism Builds

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U.S. stocks finished the day in positive territory, building on last week’s late gains as financials and energy led the way. Several bullish catalysts provided the boost, as renewed hope that the fiscal relief stalemate could soon end, progress on the COVID-19 fight, and positive signs of economic recovery all helped buoy the markets. However, some of this optimism could be tempered as several key events remain on the near-term horizon, beginning with tomorrow’s first presidential debate in the highly-contentious election and followed by Friday's employment numbers, which will help paint a clearer picture of where the economic recovery stands. Treasury yields were little changed and the U.S. dollar trimmed a recent rebound, amid the advance in the equity markets after a stronger-than-expected read on regional manufacturing activity. Gold and crude oil prices were higher. Uber Technologies rose on a favorable court ruling in the U.K. and Devon Energy announced a merger with WPX Energy. Asia was mixed and Europe closed higher.

The Dow Jones Industrial Average rose 410 points (1.5%) to 27,584, the S&P 500 Index added 53 points (1.6%) to 3,352, and the Nasdaq Composite increased 204 points (1.9%) to 11,118. In moderate volume, 855 million shares were traded on the NYSE and 3.5 billion shares changed hands on the NASDAQ. WTI crude oil added $0.35 to $40.60 per barrel and wholesale gasoline was $0.02 higher at $1.21 per gallon. Elsewhere, the Bloomberg gold spot price gained $20.62 to $1,882.21 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—moved 0.4% lower to 94.26.

Uber Technologies Inc. (UBER $36) gained ground after receiving an 18-month London license after a judge overturned a ban on the ride-hailing company, ruling that, "Despite their historical failings, I find them, now, to be a fit and proper person."

Devon Energy Corporation (DVN $10) and WPX Energy Inc. (WPX $5) announced an agreement to combine in an all-stock merger of equals, creating "a leading unconventional oil producer in the U.S., with an asset base underpinned by a premium acreage position in the economic core of the Delaware Basin." Shares of both companies were higher.

Inovio Pharmaceuticals Inc. (INO $12) tumbled over 25% after announcing that the U.S. Food and Drug Administration (FDA) has notified the biotechnology company that is has additional questions about its planned Phase-2/3 trial of its COVID-19 vaccine candidate. As such, INO said until the FDA's questions have been satisfactorily addressed it has placed the trial on hold.       

The stock markets have been volatile, flirting with correction territory following a four-week losing streak amid ramped-up uncertainties on the political front and concerns about the economic implications of signs of a resurgence in new COVID-19 cases.

For analysis of the recent pullback from record highs, check out the Schwab Center for Financial Research's (SCFR) article, Market Correction: What Does It Mean?. Moreover, Schwab's Chief Investment Strategist Liz Ann Sonders offers analysis of the current environment in her article, Unwind: Simple Rotation or Something More Sinister?. She notes how a rotation could give way to broader-based selling if economic data fails to support recent leadership by more classically-cyclical sectors.

Also, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his article, 4 Reasons to Stay the Course as the Election Approaches, complemented by the SCFR's look at Election 2020: How Do the Candidates' Tax Plans Compare?.

Amid the wild swings in the markets, the SCFR also offers timely strategies on how to navigate the volatility on our Market Insights page, and you can follow us on Twitter at @SchwabResearch. Meanwhile, SCFR Senior Vice President Mark Riepe offers his commentary, New to Investing? How to Start Smart and Manage Your Risk, delivering key risk management principles and some tips on how to get started and to follow throughout your investing career.

Regional manufacturing growth accelerates, Treasuries little changed

The September Dallas Fed Manufacturing Index moved further into a level depicting expansion (a reading above zero) than expected. The index rose to 13.6 from 8.0 in August, and above the Bloomberg forecast of 9.5. The index hit the highest level since November 2018 as growth in new orders, production and employment all accelerated.

Treasuries were little changed, with the yields on the 2-year note and 10-year note flat at 0.13% and 0.66%, respectively, while the yield on the 30-year bond moved 1 basis point higher to 1.42%. Schwab's Fixed Income Strategist, Collin Martin, CFA, discusses in his article, Why Own Bonds When Yields Are So Low?how we believe fixed income investments still have a place in a well-diversified portfolio.

Tomorrow's economic calendar will heat up, beginning with the release of August’s wholesale inventories report, forecasted by economists to show a 0.1% decrease, an incremental improvement from the prior months 0.3% decrease. Consumer Confidence will also be released, anticipated to rise to 90.0 for September from the 84.8 posted in August, as well as the S&P CoreLogic Case-Shiller Housing Price Index, expected to show prices in the 20-city composite rose 3.6% year-over-year, and increased a seasonally-adjusted 0.1% month-over-month.

As noted in our latest Schwab Market Perspective: Rotation, the U.S. stock market hit pause in early September, as investors took a harder look at market overconcentration and frothy sentiment. Meanwhile, global economies may be entering a new phase, and the Federal Reserve’s newly announced inflation policy is likely to keep U.S. rates lower for longer. For a look at our analysis of the current stock market environment, check out our latest, Schwab Sector Views: Concentrate on Sector Overconcentration, in which we discuss how we think that the Financials sector stands to potentially benefit from a shift to value-oriented stocks and a continued rebalancing of the markets. We conclude by pointing out how using alternatives to market-cap weighted funds—such as fundamental or equal-weight index funds–can help disperse the concentrated risk in the growth-oriented sectors.

Asia mixed and Europe rallies broadly as financials lead the way

European equities traded broadly higher, as financials rebounded from a recent draw down and the markets eyed late-Friday's rally in the U.S. to trim the pullback seen in September. M&A news and commentary regarding improving business activity conditions appeared to be underpinning sentiment. Diageo PLC. (DEO $138) gained solid ground after saying it is seeing improvement in performance across all regions, while ArcelorMittal SA (MT $13) rallied after the steelmaker announced that it will sell its U.S. business to Cleveland-Cliffs Inc. (CLF $7) for $1.4 billion. Meanwhile the markets continued to focus on the resurgence of new COVID-19 cases in the region, the looming pivotal U.S. presidential election, and as U.K. Brexit talks enter a key week of negotiations. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, Confidence Is Everything: 3 Things May Shake It, how the virus progression, the ramifications of the U.S. election, and the outcome of post-Brexit trade talks are potential developments that could threaten confidence. Jeff also delivers his analysis of the U.K. Brexit concerns that have been a source of weakness as of late in his commentary, Brexit Is Back: The Endgame For Investors. The euro and British pound traded higher as the U.S. dollar is giving back some of a recent rebound, while bond yields in the region were mixed.

The U.K. FTSE 100 Index was up 1.5%, Germany's DAX Index rallied 3.2%, France’s CAC-40 Index rose 2.4%, Switzerland's Swiss Market Index gained 0.9%, while Italy's FTSE MIB Index and Spain's IBEX 35 Index increased 2.5%.

Stocks in Asia finished mixed on the heels of the late-day rally seen in the U.S. on Friday, kicking off a busy week that will include key U.S. economic data, a look at September business activity data out of China and a Q3 read on Japanese manufacturing sentiment, along with the monetary policy decision out of India. The surging of new cases in Europe, heightened political uncertainty in the U.S. and simmering U.S.-China tensions remained in focus. Japan's Nikkei 225 Index rose 1.3%, even as the yen gained ground late in the session, while China's Shanghai Composite Index dipped 0.1% despite another solid gain in Chinese industrial profits for August. India's S&P BSE Sensex 30 Index rallied 1.6%, South Korea's Kospi Index advanced 1.3% and the Hong Kong Hang Seng Index gained 1.0%. Australia's S&P/ASX 200 Index declined 0.2%. Schwab's Jeffrey Kleintop, CFA, discusses in his article, Stock Market "Inequality" Hides a Big Change, how the recent imbalances in the stock market can lead to vulnerability, while noting how rebalancing portfolios may be valuable to help balance exposure.

Tomorrow’s international economic calendar will be busy and bring CPI and leading index data from Japan, consumer confidence numbers from France, U.K. mortgage figures, Eurozone confidence reports and German CPI data.

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