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Schwab Market Update

Stocks Advance to Begin the Week

U.S. stocks began the week on a positive note as shares continued the recent record run on the heels of an unexpected jump in regional manufacturing activity that coupled with some upbeat Chinese economic data to aid global economic optimism. The advance for stocks may have been limited as market participants await a host of earnings and economic reports expected later this week. Treasury yields and the U.S. dollar ticked higher, while gold was flat and crude oil added to last week's gains. In equity news, Nordstrom traded lower after suspending its search to go private. 

The Dow Jones Industrial Average (DJIA) increased 85 points (0.4%) to 22,957, the S&P 500 Index added 4 points (0.2%) to 2,558, and the Nasdaq Composite gained 18 points (0.3%) to 6,624. In moderate-to-light volume, 695 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.42 to $51.87 per barrel and wholesale gasoline was flat at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price lost $9.00 to $1,294.82 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 93.31.

Nordstrom Inc. (JWN $40) saw heavy pressure after the retailer announced, in light of the difficulty of obtaining debt financing in the current retail environment, it suspended active exploration, for the balance of the year, of the possibility of proposing a transaction to take the company private. The company said it intends to continue its efforts to explore the possibility of making a going private proposal after the conclusion of the holiday season.

Aramark (ARMK $42), a provider of uniforms and food to schools and stadiums, announced agreements to acquire competitors Avendra for about $1.35 billion, as well as AmeriPride Services Inc. for $1.0 billion. ARMK finished little changed.

Regional manufacturing activity jumps to three-year high

The Empire Manufacturing Index showed output from the New York region jumped further into a level depicting expansion (a reading above zero) for October. The index rose to 30.2—the highest since 2014—from September's unrevised 24.4 level, with the Bloomberg forecast calling for a decline to 20.2.

Treasuries dipped, with the yield on the 2-year note rising 4 basis points (bps) to 1.53%, the yield on the 10-year note advancing 3 bps to 2.30%, and the 30-year bond rate ticking 1 bp higher to 2.82%. Bond yields and the U.S. dollar nudged higher and have been choppy as inflation remains in focus and global economic growth remains steady, while global monetary policy uncertainty lingers and the markets continue to grapple with the potential for tax reform.

For more on this backdrop, see Schwab's Chief Investment Strategist Liz Ann Sonders' article, The Waiting: Wage Growth and Inflation Finally Getting in Gear?, and Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, commentary, Inflation May Be The Biggest Question For Investors In 2018.

Moreover, Jeff discusses, How the Shift by Central Banks May Affect the Stock Market, and talks in the video with Vice President of Trading and Derivatives, Randy Frederick, Should a Change in Fed Leadership Matter to Investors?, while Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend, delivers his article, Tax Reform Framework Released, But The Road Ahead Is Long.

Check out these articles and video on the Market Commentary page at www.schwab.com. Follow our Schwab experts on Twitter: @lizannsonders, @jeffreykleintop, @kathyjones and @randyafrederick.

Tomorrow, the U.S. economic calendar will offer the Import Price Index for September, expected to have increased 0.6% month-over-month (m/m), matching the increase seen in August. Additionally, we'll receive the Fed's September industrial production and capacity utilization report, forecasted to show production increased 0.3% m/m and utilization ticked higher to 76.2%. The housing market will also garner attention with tomorrow's release of the NAHB Housing Market Index, with economists anticipating October's reading to match the 64 posted in September, where the 50 mark represents the point of separation for good versus poor conditions.

Europe mixed, Asia mostly higher

European equity markets finished mixed amid persistent global economic optimism following some upbeat Chinese and U.S. economic data, while a report showed the eurozone trade surplus widened more than expected. Crude oil prices extended last week's gains to support the energy sector, bolstered by reports of turmoil in parts of Kirkuk, a Kurdish-controlled oil rich province, per Reuters. For more on the energy sector, check out Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest, Schwab Sector Views: Sustainable Energy? on the Market Commentary page at www.schwab.com. Political uncertainty remained elevated, with Catalonia calling for talks with the Spanish government, which is pressing it to clarify if it declared independence, while U.K. Prime Minister Theresa May headed to Brussels to talk with European officials as Brexit negotiations remain in a deadlock. For analysis, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Market Commentary page at www.schwab.com. The euro dipped and British pound was little changed versus the U.S. dollar, while bond yields in the region lost ground.

Stocks in Asia finished mostly higher on the heels of last week's gains in the U.S. to fresh record highs, culminating with a cooler-than-expected consumer price inflation reading that kept accelerated Fed monetary policy tightening concerns in check. Japanese stocks continued to rally, for their tenth-straight session of gains, rising to levels not seen in over two decades, despite some strength in the yen as the U.S. dollar slipped. Mainland Chinese stocks declined and shares trading in Hong Kong advanced following mixed reads on inflation in September, as well as late-Friday's reports that showed lending activity topped forecasts for last month. The markets are awaiting a flood of Chinese economic data this week, headlined by its Q3 GDP report, along with the beginning of the 19th National Congress of the Communist Party. South Korean equities moved higher, while Indian and Australian securities gained ground. Schwab's Jeffrey Kleintop, CFA, and Randy Frederick discuss in the video, Are Investors Underestimating the Stock Market Rally?, on the Market Commentary page at www.schwab.com

The international economic docket for tomorrow will yield new motor vehicle sales from Australia, CPI, PPI and house prices from the U.K., investor confidence from Germany and CPI for the Eurozone.

Schwab Center for Financial Research - Market Analysis Group

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