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U.S. stocks are lower in afternoon action, paring a three-week rally back to near record highs, as investors await today's speech from Federal Reserve Chairman Jerome Powell and this week's highly-expected meeting between President Donald Trump and Chinese President Xi at the G-20 Summit. The economic calendar is offering little support following another round of soft data to keep growth concerns elevated, as Consumer Confidence and new home sales both declined and another regional manufacturing read disappointed. Treasury yields are mixed and the U.S. dollar is higher, while crude oil prices are gaining slight ground, adding to last week's jump and gold continues to rally. News on the equity front is again focused on M&A headlines, with AbbVie agreeing to acquire botox-maker Allergan for about $63.0 billion. Europe finished mostly lower.
At 1:00 p.m. ET, the Dow Jones Industrial Average is down 0.4%, the S&P 500 Index is declining 0.6%, and the Nasdaq Composite is decreasing 1.0%. WTI crude oil is rising $0.17 to $58.06 per barrel, Brent crude oil is trading $0.27 higher at $64.45 per barrel, and wholesale gasoline is up $0.02 at $1.83 per gallon. The Bloomberg gold spot price is advancing $5.39 to $1,425.11 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is up 0.3% at 96.22.
AbbVie Inc. (ABBV $66) announced an agreement to acquire botox-maker Allergan PLC. (AGN $164) for $188.24 per share in cash and stock, in a transaction with an equity value of about $63.0 billion. Under the terms of the deal, AGN stockholders will receive 0.8660 ABBV shares and $120.30 in cash for each share owned. ABBV is falling sharply and AGN is jumping.
Read about our outperform rating on the health care sector in Schwab's Director of Market and Sector Analysis Brad Sorensen's, CFA, latest Schwab Sector Views: 9.5 Thoughts for the Second Half.
Lennar Corporation (LEN $48) reported fiscal Q2 earnings-per-share (EPS) of $1.30, above the $1.15 FactSet estimate, as revenues rose 2.0% year-over-year (y/y) to $5.6 billion, topping the expected $5.0 billion. The homebuilder said its results benefitted from both Q1 deliveries postponed by weather as well as a recovering housing market. However, shares have turned negative following a conference call with analysts where the company indicated continued headwinds on material costs as a result of the implemented tariffs.
Consumer Confidence and new home sales fall, Fed Chief speech eyed
The Consumer Confidence Index (chart) dropped to 121.5 in June, from May's downwardly-revised 131.3 level, below the Bloomberg estimate of 131.0. This was the lowest level since September 2017 as the Present Situation Index and the Expectations Index of business conditions for the next six months both fell month-over-month (m/m). On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—decreased to 27.6 from the 33.5 level posted in May.
New home sales (chart) fell 7.8% m/m in May to an annual rate of 626,000 units versus forecasts calling for 684,000 units and the upwardly-revised 679,000 unit pace in April. The median home price was down 2.7% y/y to $308,000. New home inventory rose to 6.4 months of supply at the current sales pace from 5.9 in April. Sales dropped sharply m/m in the Northeast and West, but rose in the Midwest and South. New home sales are based on contract signings instead of closings.
The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 2.5% y/y gain in home prices in April, matching expectations. M/M, home prices were flat on a seasonally adjusted basis, compared to forecasts of a 0.1% gain.
The Richmond Fed Manufacturing Activity Index for June dipped to 3, versus forecasts calling for the figure to decline to 2 from March's unrevised level of 5. A reading of zero is the demarcation point between expansion and contraction.
However, the main event for the day will likely be this afternoon's speech from Federal Reserve Chairman Jerome Powell on the economic outlook and monetary policy following last week's monetary policy decision that kept rates unchanged but put a rate cut for this year on the table.
As noted in our U.S. Stocks/Market Mid-Year Outlook: Battle Symphony, the June Federal Open Market Committee (FOMC) meeting gave markets what they were expecting; which was no change to rates, but the removal of the key word "patient" in the statement, and firmly putting a July rate cut on the table. Ultimately, if the Fed cuts rates in July or some other meeting(s) in the second half of the year, the action by the stock market in the subsequent period will likely rest on whether we are heading into an economic recession.
Treasuries are mixed, with the yield on the 2-year note 2 basis points (bps) higher at 1.75%, while yields on the 10-year note and the 30-year bond are decreasing 2 bps to 2.00% and 2.53%, respectively. For a look at the bond markets check out Schwab's Chief Fixed Income Strategist Kathy Jones' Fixed Income Mid-Year Outlook: "Lower for Longer" is Back, in which she notes that we feel fixed income returns should remain positive in the second half of the year, but probably won't repeat the first half's sharp gains.
The moves in the markets come ahead of the highly-anticipated G-20 meeting in Japan later this week, at which President Donald Trump and Chinese President Xi are expected to meet, and as global central banks have become more dovish amid softening economic data and festering trade uncertainty, while geopolitical tensions have ramped up.
Europe mostly lower on geopolitical tensions and G-20 focus
European equities were mostly lower in apparent caution ahead of this week's much-anticipated G-20 summit in Japan at which U.S. President Donald Trump and Chinese President Xi are expected to hold talks. Also, the markets continue to grapple with escalated geopolitical tensions as the U.S. imposed new sanctions on Iran. The euro and British pound dipped versus the U.S. dollar and bond yields in the region were mostly lower. Shares of Altran Technologies SA (ALTKY $2) surged after Capgemini SE (CGEMY $25) agreed to acquire the French engineering and digital services company. In economic news, French manufacturing confidence declined for June.
Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his Global Stocks Mid-Year Outlook, in which he points out that in the second half of 2019, stock markets around the world will likely have to contend with slowing global economic growth as leading indicators point to an increasingly vulnerable world economy that may be worsened by shocks from trade tariffs and other factors. Jeff adds that the potential for reversals in long-term market performance trends may catch unprepared investors by surprise, suggesting investors should ensure they have an appropriate amount of broad international exposure, including both emerging and developed markets, in their portfolios to potentially benefit from opportunities for performance and diversification.
The U.K. FTSE 100 Index inched 0.1% higher, while Switzerland's Swiss Market Index was little changed, France's CAC-40 Index ticked 0.1% lower, Germany's DAX Index declined 0.3%, Italy's FTSE MIB Index was down 0.7%, and Spain's IBEX 35 Index decreased 0.4%.
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