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Stocks Lose Steam Late to Close Mixed

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U.S. stocks limped to the finish line to close mixed after earlier session gains were wiped out. Choppiness persisted in the markets as investors continued to pour over contagion concerns out of China related to default uncertainty of the world's most indebted property developer, Evergrande. The cautious tone was further amplified as market participants closely eyed the Fed, which began its two-day monetary policy meeting, and as a decision on raising the debt ceiling in the U.S. remained at a stalemate. Economic news was relatively subdued, as August housing construction activity came in above expectations. Meanwhile, in equity news, ConocoPhillips agreed to acquire Royal Dutch Shell's Permian business for $9.5 billion, while Lennar Corporation posted mixed quarterly results, and Dow member Disney hinted that near-term subscription growth for its streaming service, Disney+, might be choppy. Treasuries were mixed but little changed after yesterday's rise amid the global skittishness, while the U.S. dollar inched lower. Gold and crude oil prices rose. Asia finished mixed, as Hong Kong rebounded and Japan fell after yesterday's holiday, while Europe recovered after yesterday's decisive drawdown. 

The Dow Jones Industrial Average fell 51 points (0.2%) to 33,920, the S&P 500 Index decreased 4 points (0.1%) to 4,354, and the Nasdaq Composite gained 33 points (0.2%) to 14,746. In moderate volume, 907 million shares were traded on the NYSE and 4.0 billion shares changed hands on the Nasdaq. WTI crude oil advanced $0.35 to $70.49 per barrel. Elsewhere, the gold spot price rose $14.40 to $1,778.80 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—nudged 0.1% lower at 93.17.

ConocoPhillips (COP $59) announced an agreement to acquire Royal Dutch Shell PLC's (RDS/A $41) Permian business for $9.5 billion. COP also announced a 7.0% increase of its quarterly dividend to $0.46 per share. COP traded higher and RDS/A gained solid ground.     

Lennar Corporation (LEN $98) reported Q3 earnings-per-share of $4.52, above the $3.26 FactSet estimate, as revenues rose 18.0% year-over-year (y/y) to $6.9 billion, below the Street's forecast of $7.1 billion. The homebuilder's deliveries came in below forecasts, while its new orders and backlog both came in above expectations. The company noted that its deliveries shortfall was due to the unprecedented supply chain challenges that it believes will continue into the foreseeable future. Moreover, LEN lowered its Q4 guidance for deliveries. Shares traded lower.    

Uber Technologies Inc. (UBER $44) rallied after the ride-sharing and delivery company pulled forward its outlook for operating profitability to Q3 from Q4. The company said it has grown its global leadership across both mobility and delivery "more profitably than ever before." 

Dow member Walt Disney Company (DIS $171) saw shares decline after comments from the entertainment company’s CEO, Bob Chapek, indicated that Disney+ subscription growth is likely to face headwinds in Q4, driven largely by COVID-19 induced production delays; however, also noted that longer term subscription growth remains positive. Moreover, the CEO intimated that while the company’s theme park business had been adversely impacted due to the delta variant of COVID-19, business has picked up since Labor Day.

September and October have historically been blustery months for stock market performance as discussed in the Schwab Center for Financial Research's Quarterly Market Outlook: Is Seasonal Volatility Ahead?.  The markets remained choppy after yesterday's global drawdown that came from contagion concerns out of China, as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, Director of International Research, Michelle Gibley, CFA, and Senior Investment Research Specialist, Kevin Gordon, in their latest commentary, China Woes Drive Stocks to Biggest Drop Since May.     

Amid this backdrop, Schwab's Chief Investment Strategist Liz Ann Sonders provides her latest article, Songs of Experience: Reminiscences of a Strategist, offering lessons she has learned in her 35 years on Wall Street, which are especially relevant given the recent market action.

Find all our market commentary on our Market Insights page at www.schwab.com and follow us on Twitter at @SchwabResearch.

Housing construction activity tops forecasts, Fed begins its monetary policy meeting

Housing starts (chart) for August rose 3.9% month-over-month (m/m) to an annual pace of 1,615,000 units, above the Bloomberg consensus forecast of 1,550,000 units, and compared to July's upwardly-revised pace of 1,554,000 units. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, gained 6.0% m/m at an annual rate of 1,728,000, north of expectations calling for 1,600,000 units, and compared to the downwardly-revised 1,630,000 unit pace in July. The stronger-than-expected read on housing construction activity came amid a noticeable m/m rise in permits and starts for multi-unit structures, while for single-unit homes, permits nudged higher and starts fell.

Treasuries were mixed following some demand yesterday amid the market skittishness, as the yield on the 2-year note was little changed at 0.21%, while the yields on the 10-year note and 30-year bond rose 1 basis point to 1.32% and 1.85%, respectively.

The markets focused on today's start of the two-day monetary policy meeting from the Federal Open Market Committee (FOMC), which will conclude by headlining tomorrow’s economic calendar in the U.S., with the afternoon monetary policy decision from the FOMC. Accompanying the decision will be updated FOMC economic projections, and shortly after the announcement Chairman Jerome Powell will deliver his customary press conference. The calendar tomorrow will also offer existing home sales for August, forecasted to have declined 1.8% m/m to an annual rate of 5.88 million units, and MBA Mortgage Applications for the week ended September 17th.

The markets continue to expect the Fed to begin trimming its monthly asset purchases sometime in Q4, despite August's much softer-than-expected nonfarm payroll report, but the first rate hike is not expected for some time. Schwab's Chief Fixed Income Strategist Kathy Jones and Senior Fixed Income Analyst, Christina Shaffer, note in their commentary, Fed Tapering: Will it Be Different This Time?, that although the prospect of the Federal Reserve tapering its bond purchases has unsettled markets in the past, we expect it to be more orderly this time around.

Asia mixed and Europe rebounds from yesterday's global drop 

European equities rebounded after the global markets fell broadly yesterday as investors took risk off the table amid debt contagion concerns as default concerns for China Evergrande Group (EGRNY $8), the world's most indebted property developer, ramped up. Most sectors recovered, led by Energy, Information Technology, and Real Estate. Economic data in the region was light, ahead of this week's monetary policy decisions out of the U.S., U.K., and Japan, but Switzerland reported a dip in August exports. The euro and British pound were little changed versus the U.S. dollar, and bond yields continued to retreat from recent gains as bonds have seen demand amid the global market skittishness.        

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Payback Time With a Potential Payoff. Jeff notes how a gradual slowing of stimulus heralds a potential drop for the world's stock markets, but the evidence suggests a possibility for a positive outcome. Jeff also discusses in his article, Can Investors Avoid Rising Supply Chain Risks?, how supply chain issues are worsening, increasing the risk to sales, production, and inflation. He points out how European stocks may offer an opportunity to avoid these risks.

The U.K. FTSE 100 Index was up 1.1%, France's CAC-40 Index gained 1.5%, Germany's DAX Index rose 1.4%, Spain's IBEX 35 Index and Italy's FTSE MIB Index increased 1.2%, and Switzerland's Swiss Market Index advanced 0.2%. 

Stocks in Asia finished mixed, with Hong Kong rebounding from a selloff that has come from debt problems at property developer China Evergrande that has fostered contagion concerns across the globe and led to yesterday's selloff. The Hong Kong Hang Seng Index rebounded 0.5%. Meanwhile, Japan returned to action following yesterday's holiday, playing catch-up to yesterday's global drawdown, with the Nikkei 225 Index dropping 2.2% and the yen holding onto yesterday's rise. Australia's S&P/ASX 200 Index rose 0.4% and India's S&P BSE Sensex 30 Index gained 0.9% after both saw noticeable pressure yesterday amid the contagion concerns and likely caution ahead of this week's monetary policy decisions out of the U.S., U.K., and Japan. For a look at the Chinese and Hong Kong markets amid the ramped-up volatility, check out Schwab's Jeffrey Kleintop's, CFA, article, Is China’s Bear Market an Opportunity. However, volume remained lighter than usual as markets in mainland China and South Korea continued to be closed for holidays.

Tomorrow’s international economic calendar will feature the policy rate decision from the Bank of Japan and consumer confidence from the Eurozone.

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