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Schwab Market Update

Investors Head Into Weekend Uncertain, Weary

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U.S. equities finished lower, tumbling midday, after reports of lower-level Chinese trade officials cutting their visit short ahead of early next month's high-level talks. The markets continued to digest the week's relatively upbeat domestic economic data and a host of monetary policy decisions that were headlined by the highly-expected Fed rate cut. Treasury yields fell amid a dormant economic calendar and the U.S. dollar gained modest ground, while the Fed continued to intervene in the overnight interest rate market for a fourth day. Meanwhile, gold finished higher and crude oil prices capped off a wild week with slight losses. On the equity front, Texas Instruments announced a dividend increase, and Xilinx announced that its CFO will step down.

The Dow Jones Industrial Average (DJIA) fell 160 points (0.6%) to 26,934, the S&P 500 Index lost 15 points (0.5%) to 2,992 and the Nasdaq Composite declined 65 points (0.8%) to 8,118. In heavy volume, as a result of quadruple witching day—the simultaneous expiration of stock and index futures and options contracts—2.4 billion shares were traded on the NYSE and 3.1 billion shares changed hands on the Nasdaq. WTI crude oil moved $0.10 lower to $58.09 per barrel and wholesale gasoline lost $0.02 to $1.68 per gallon. Elsewhere, the Bloomberg gold spot price rose $18.02 to $1,517.05 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.2% at 98.50. Markets were lower for the week, as the DJIA decreased 1.1%, the S&P 500 Index lost 0.5% and the Nasdaq Composite declined 0.7%.

Texas Instruments Incorporated (TXN $127) announced that it will raise its quarterly cash dividend by 17.0% to $0.90 per share, as part of its capital management strategy and reflecting its "continued strength in free cash flow generation." Shares dipped.

Xilinx Inc. (XLNX $97) announced that its Chief Financial Officer (CFO), Lorenzo Flores, is stepping down to pursue another executive opportunity. The chip company noted that it has initiated a formal search for a new CFO. Shares were solidly lower. 

Treasury yields lower and the U.S. dollar gaining ground with economic calendar quiet

Treasuries finished higher, as the yield on the 2-year note was down 6 basis points (bps) to 1.68%, while the yields on the 10-year note and 30-year bond fell 5 bps to 1.72% and 2.16%, respectively. With the economic calendar void of any key releases, the U.S. dollar gained ground, and crude oil prices declined to cap off a wild week that was highlighted by Monday's spike on the heels of flared-up geopolitical concerns after attacks on Saudi Arabian oil facilities. Also, the markets digested this week's slew of monetary policy decisions, headlined by Wednesday's highly-expected rate cut from the Fed, as well as continued relatively upbeat U.S. economic data. Schwab's Chief Fixed Income Strategist Kathy Jones offers her latest article, Could Negative Bond Yields Come to America?, discussing how central banks in Europe and Japan have pushed policy rates below zero, while offering five reasons why we think negative yields are unlikely here.

Europe and Asia mixed to close out the week

European equities finished mixed, with the global markets digesting the week's host of monetary policy decisions that saw unchanged stances out of Japan, the U.K. and Switzerland, but a highly-expected rate cut out of the U.S. The decisions followed last week's move from the European Central Bank to take interest rates deeper into negative territory and restart quantitative easing measures. Moreover, China announced a slight decrease in one of its lending rates and India spiked on the heels of an unexpected corporate tax cut. The euro declined versus the U.S. dollar and bond yields in the region were mostly lower. U.S.-China trade tensions regained some focus as talks resume ahead of next month's expected face-to-face high level discussions. The British pound was also lower versus the greenback, with Brexit uncertainty lingering as Ireland warned that a deal to exit the European Union was not imminent. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Q&A on Brexit: The Options and Implications for Investors, discussing how we see five main options for Brexit in the coming months; three result in a near-term resolution while two options result in a further delay or "no deal" Brexit.

Stocks in Asia finished mixed, on the heels of this week's flood of monetary policy decisions, which saw the Bank of Japan and Bank of England leave their stances unchanged, while the U.S. Federal Reserve delivered a highly-expected rate cut. The markets also digested a deceleration in Japanese consumer price inflation to a 2-year low, and a modest decrease in China's 1-year loan prime rate—the interest rate that banks charge their high creditworthy clients. U.S.-China trade concerns appeared to begin to resurface after a recent reprieve, with the two sides holding lower-level discussions ahead of the expected high-level talks early next month. Japanese equities ticked higher, even as the yen held onto yesterday's gains and stocks in mainland China also finished to the upside, while those traded in Hong Kong dipped. South Korean securities gained ground and Australian listings nudged higher, while shares in India surged on the heels of the country's surprise $20 billion corporate tax rate cut. With the currency and interest rate markets remaining in focus, check out Schwab's Director of International Research, Michelle Gibley's, CFA, article, Currency Wars: Is a Weaker Currency Good or Bad?, as well as Schwab's Jeffrey Kleintop's, CFA, article, Negative Interest Rates And The Future Of Investing, discussing how investors' increasing focus on income may lead to long-term shifts in portfolios that favor international stocks.

Stocks pause after recent string of rallies

U.S. stocks finished the week not far from the unchanged mark, pausing somewhat after three-straight weekly rallies, on the heels of the highly-expected 25 bp rate cut from the Federal Open Market Committee (FOMC), which showed three dissents—two calling for a pause and one calling for a deeper 50 bp cut. This was the first monetary policy decision with three dissents since 2016 and the accompanying projections showed the FOMC was split as to whether there will be need for additional easing. The FOMC appears to be grappling with the competing forces of the negative effects of the ongoing trade war and weak global growth, along with the relative strength of the consumer side of the U.S. economy, as discussed by Schwab’s Chief Investment Strategist Liz Ann Sonders' latest article, The Final Cut … or More to Come?.

Domestic economic data continued to be mostly upbeat, with housing starts and building permits jumping to the fastest pace since mid-2007, and existing home sales unexpectedly rising to highs not seen since March 2018, while jobless claims remained at low levels and the Leading Index came in flat compared to estimates of a dip. However, geopolitical concerns ramped-up after attacks on some key Saudi Arabian oil facilities, while a host of companies issued disappointing guidance, headlined by FedEx Corporation's (FDX $151) profit miss and drastic cut of its full-year outlook, citing increased trade tensions and weakening global economic conditions. As such, real estate stocks rallied, but industrials and consumer discretionary issues saw pressure. The U.S. dollar continued to grind higher and crude oil prices posted the biggest weekly gain since January, per Bloomberg, while Treasury yields trimmed some of the surge seen in the prior two weeks.  

Next week, along with a plethora of commentary from Fed officials, the economic calendar is poised to deliver some key reports that could have an impact on the markets. Markit will get the ball rolling, providing preliminary September reads on manufacturing and services sector activity, followed by Consumer Confidence, new home sales, the final revision to Q2 GDP, personal income and spending, preliminary durable goods orders, and the final September University of Michigan Consumer Sentiment Index.   

As noted in our latest Schwab Market Perspective: Confusion or Conviction?, U.S. equity indexes have emerged out of their recent tight range, but persistent economic and trade uncertainties have not dissipated. The economic picture is mixed, as manufacturing continues to weaken but the consumer/services segments remain strong.

The international economic calendar will be a bit lighter than usual, with manufacturing and services reports out of Australia, Japan and the Eurozone being joined by German business sentiment and Chinese industrial profits.   

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