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Markets Lacking Direction

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U.S. equities are near the flat line in choppy afternoon action, as investors appear to lack direction on a slow news day, and ahead of the mid-week Fed monetary policy meeting. Optimism on finalization of a U.S./China trade deal and hopes the Fed will remain dovish gave stocks an initial boost, but late-day developments surrounding Brexit added some additional uncertainty to the mix. News on the equity front is focused on some merger news and deal speculation, while scrutiny on Dow member Boeing’s plane approval process is pushing its shares lower. Treasury yields are nearly unchanged and the U.S. dollar is dipping, while gold and crude oil prices are higher. Stocks in Europe pared early gains to finish mixed amid the uncertainty surrounding a path forward on Brexit.

At 12:57 p.m. ET, the Dow Jones Industrial Average is nearly unchanged, while the S&P 500 Index is up 0.2% and the Nasdaq Composite is inching 0.1% higher. WTI crude oil is increasing $0.53 to $59.05 per barrel, Brent crude oil is ascending $0.22 to $67.38 per barrel, and wholesale gasoline is up $0.02 at $1.88 per gallon. The Bloomberg gold spot price is trading $0.31 higher to $1,302.71 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is dipping 0.1% to 96.54.

Fidelity National Information Services, Inc. (FIS $108) announced that it has agreed to acquire Worldpay, Inc. (WP $108) for about $43 billion in cash and stock. The deal could mark one of the biggest transactions in the payments sector as the industry looks to cut costs, develop new products and add customers. FIS is lower and WP is trading higher.

Deutsche Bank AG (DB $9) reported over the weekend that it is reviewing strategic options and confirmed merger discussions with Commerzbank AG (CRZBY $9). Shares of both banks are pushing higher.

Shares of Dow component Boeing Company (BA $369) are under pressure after the Wall Street Journal reported that the U.S. Department of Transportation is investigating the Federal Aviation Administration's approval of the company's planes involved in two recent crashes.

Housing data below forecasts to begin the week

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment in March was unchanged at 62 from February's unrevised level, compared to an expected rise to 63. A level of 50 separates good and poor conditions. The NAHB noted that affordability still remains a key concern for builders, mentioning the challenges of a skilled worker shortage, a lack of buildable lots and stiff zoning restrictions in many major metro markets.

Treasuries are nearly unchanged, with yield on the 2-year note up 1 basis point (bp) to 2.45%, while the yields on the 10-year note and the 30-year bond are flat at 2.59% and 3.01%, respectively.

The volatility in the markets may continue this week, with the economic calendar delivering the Federal Open Market Committee's (FOMC) monetary policy decision, expected to leave the target range for the fed funds rate unchanged, as well as a press conference by Fed Chairman Jerome Powell. However, the accompanying updated economic projections—particularly the glimpse at interest rate expectations, known as the "dot plot"—will likely garner scrutiny given the uncertainty regarding if the Fed will remain on hold through the end of the year. Other reports due out next week that deserve a mention include existing home sales, Markit's US Manufacturing PMI data, the Leading Index and final durable goods orders.

As noted in our latest Schwab Market Perspective: Sliding into Recession…or Another Q1 Quirk?, recession fears have increased but first quarter growth weakness could be short-lived, as has often been the case with first quarters. We don’t see a recession in the near term, but believe trade policy remains a key factor in the span between now and the next recession. Economic and earnings growth risks have risen and the short-lived volatility spike we saw earlier this month could reemerge. Given late-cycle tendencies, we continue to recommend investors remain at or near their longer-term U.S. and global equity allocations, remain diversified, and use volatility for rebalancing opportunities.

Europe turns mixed following U.K. Parliament ruling

European equities pared early gains to finish mixed, with positive sentiment surrounding easing U.S./China trade concerns and a continued dovish Fed ahead of its forthcoming monetary policy meeting being overshadowed by increased Brexit uncertainty. Late in the day, the speaker of the House of Commons in the U.K. ruled that Prime Minister Theresa May would not be able to ask for another vote on her Brexit deal, of which has been handily rejected on two previous votes, unless there are substantial changes. The U.K. is scheduled to leave the European Union (EU) on March 29, but no deal with EU officials in Brussels has come to fruition. With the U.K. Parliament rejecting a “no-deal” Brexit, the next expected step is an extension request of the deadline date. The British pound fell to session lows following the ruling, while the euro gained ground versus the U.S. dollar and bond yields in the region turned lower late in the day. Shares of Deutsche Bank AG and Commerzbank AG both rose after the banks confirmed over the weekend that they are in merger talks. On the data front, the Eurozone trade balance jumped higher, and housing prices in the U.K. fell for Q4.

The U.K. FTSE 100 Index was up 0.9%, Spain's IBEX 35 Index gained 0.5% and Italy's FTSE MIB Index rose 0.8%, while France's CAC-40 Index was flat, Germany's DAX Index fell 0.4% and Switzerland's Swiss Market Index ticked 0.1% lower.

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Next Steps

Schwab Market Perspective: Sliding into Recession…or Another Q1 Quirk?
Schwab Market Perspective

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