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Stocks Higher on Earnings, Yield Rebound, and Fed Minutes

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U.S. stocks got back onto the positive side of the ledger after snapping a string of gains yesterday, as global bond rates, which have fallen and intensified market uneasiness, stabilized, while some upbeat earnings out of the retail sector, particularly Target and Lowe's, also added support. The moves came despite the afternoon release of the minutes from the Fed's July meeting that confirmed Committee members felt the rate cut following the meeting was a "recalibration", as opposed to the start of an easing cycle. Treasury yields turned upward and the U.S. dollar nudged higher following the minutes, and as existing home sales rose and topped forecasts. Meanwhile, crude oil prices were mixed and gold lost modest ground. 

The Dow Jones Industrial Average (DJIA) rose 240 points (0.9%) to 26,203, the S&P 500 Index increased 24 points (0.8%) to 2,924 and the Nasdaq Composite advanced 72 points (0.9%) to 8,020. In moderately-light volume, 669 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.45 to $55.68 per barrel and wholesale gasoline was $0.01 higher at $1.69 per gallon. Elsewhere, the Bloomberg gold spot price declined $4.59 to $1,502.61 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 98.29.

Target Corporation (TGT $103) reported Q2 earnings-per-share (EPS) of $1.82, versus the $1.62 FactSet estimate, as revenues increased 3.6% year-over-year (y/y) to $18.4 billion, topping the forecasted $18.3 billion. Q2 same-store sales rose 3.4% y/y, above the projected 3.0% gain. TGT raised its full-year EPS outlook. Shares surged over 20%.

Lowe's Companies Inc. (LOW $108) posted Q2 EPS of $2.14, or $2.15 ex-items, compared to the expected $2.00, with revenues rising 0.5% y/y to $21.0 billion, above the estimated $20.9 billion. Q2 same-store sales increased 2.3% y/y, north of the forecasted 1.7% gain. LOW reaffirmed its full-year guidance. Shares rallied.   

Toll Brothers Inc. (TOL $35) announced fiscal Q3 earnings of $1.00 per share, versus the expected $0.83, as revenues declined 7.7% y/y to $1.8 billion, north of the forecasted $1.7 billion. The luxury homebuilder raised the low end of its full-year outlook for deliveries. Shares finished lower.

Existing home sales top forecasts, mortgage apps dip, Fed minutes released

Existing-home sales rose 2.5% month-over-month (m/m) in July to an annual rate of 5.42 million units, compared to the Bloomberg expectation of a rise to 5.40 million units from June's upwardly-revised 5.29 million rate. Sales of single-family homes were up m/m and versus year-ago levels, but purchases of condominiums and co-ops were roughly flat m/m and down y/y. The median existing-home price rose 4.3% from a year ago to $280,800, marking the 89th straight month of y/y gains. Unsold inventory came in at a 4.2-months pace at the current sales rate, down from 4.4 months a year ago. Sales rose m/m in the Midwest, South and West, but were down in the Northeast. Sales were up slightly in the Midwest and South compared to last year, and were down in the Northeast and West. National Association of Realtors Chief Economist Lawrence Yun said, "Falling mortgage rates are improving housing affordability and nudging buyers into the market," but added that "supply of affordable housing is severely low."

In other housing news, the MBA Mortgage Application Index dipped 0.9% last week, following the prior week's 21.7% surge. The slight decline came as a 0.4% gain in the Refinance Index was more than offset by a 3.5% drop for the Purchase Index. The average 30-year mortgage rate decreased 3 basis points (bps) to 3.90%.

At 2:00 p.m. ET, the Fed released the minutes from its late-July monetary policy meeting, after which the central bank cut its benchmark interest rate but Fed Chairman Jerome Powell appeared to disappoint the markets by suggesting the move was a mid-cycle adjustment rather than the start of an easing campaign. The report indicated that most participants agreed that the quarter-point cut was “part of a recalibration of the stance of policy, or mid-cycle adjustment” in response to changing conditions, and shouldn't be viewed as an indication that there is a “pre-set course” for future cuts, an expression Chairman Jerome Powell used in a news conference following the July 30-31 meeting. The Street had been pricing in a series of rate cuts, therefore Powell’s comments upped concerns that the Fed might not be as accommodative with policy as anticipated, as global growth concerns have ramped-up since the decision, trade tensions between the U.S. and China have escalated, and geopolitical uneasiness has intensified, while a host of global central banks have moved to more accommodative stances to foster deeper dives into negative rates globally—notably in Europe. Amid this backdrop, check out our latest video, How Do Negative Yields in the Global Market Affect the U.S.?

The release precedes Friday's key speech from Chairman Jerome Powell at the Central Bank's annual gathering in Jackson Hole, Wyoming, which is poised to garner heightened scrutiny given the recent rise in global market volatility and rising expectations that the Fed will deliver more rate cuts this year.

Given the current backdrop, Schwab’s Chief Investment Strategist Liz Ann Sonders offers her latest article, Panic Is Not a Strategy—Nor Is Greed, noting that the development of a long-term strategic asset allocation plan isn't the hard part—it's sticking to it that often becomes the real challenge. Liz Ann adds that this can be especially difficult when markets are volatile, but if we learn from our mistakes, use our brains over our hearts and look to our portfolios as rebalancing guides, we can expect a more successful investing future and maybe even get a free lunch along the way.

Treasuries were lower, as the yield on the 2-year note increased 7 bps to 1.57%, the yield on the 10-year note gained 3 bps to 1.58%, while the 30-year bond rate nudged 2 bps higher to 2.07%.

Tomorrow's economic calendar will be a bit busier, with reports slated for release to include weekly initial jobless claims, forecasted to fall 4,000 to 216,000, as well as the preliminary August Markit Manufacturing and Services PMI reads, with economists projecting readings of 50.5 and 52.8, respectively, as well as the Index of Leading Economic Indicators (LEI), expected to have increased 0.3% m/m for July following the 0.3% decline registered in June. The Kansas City Fed Manufacturing Activity Index will round out the docket.

Europe higher as bond yield pressure stabilizes, Asia mixed amid trade and Fed focus

European equities finished broadly higher, with bond yields on both sides of the pond stabilizing after the recent plunge had unnerved the global markets and exacerbated economic growth concerns. The markets await Friday's key speech from U.S. Fed Chairman Jerome Powell, which will come amid elevated expectations of further rate cuts. Stocks shrugged off persisting U.K. Brexit concerns as a late-October deadline looms, as well as Italian political uncertainty after the country's prime minister resigned. The euro was little changed versus the U.S. dollar but the British pound was lower. Bond yields were mostly higher, but Italian rates saw some pressure. As noted in our latest Schwab Market Perspective: Mixed Picture Getting More Concerning, with cracks forming in equity markets and economic uncertainty mounting, we believe it could remain a bumpy ride over the next few months. U.S. economic data is mixed but there are signs that manufacturing weakness is bleeding into the service side of the economy; although the consumer remains a support. Pressure is building on the Fed to be more aggressive in cutting rates, but we have doubts additional cuts will be the elixir for what ails the U.S. or global economy. A global manufacturing recession appears to be underway; if not yet an overall global economic recession.

Stocks in Asia finished mixed, as the U.S. snapped a string of gains yesterday with pressure on global bond yields returning to cause global growth concerns to resurface, while U.S.-China trade uncertainty continued to fester. However, the markets were likely cautious ahead of Friday's speech from Fed Chairman Jerome Powell in the U.S., which comes amid heightened expectations of further rate cuts. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Is The Tariff War Turning Into A Currency War?, discussing that if rate cuts aren't seen as enough to address slowing growth and policymakers turn to direct currency intervention, the resulting currency war could be bad news for investors. Jeff adds that in a tariff war, the U.S. has a big advantage over China due to the trade balance, but in a currency war, China has way more ammunition than the United States. Stocks in Japan decreased, even as the yen softened a bit, while South Korean securities increased slightly, despite August trade data showing the nation's exports continued to fall. Mainland Chinese equities finished little changed and those traded in Hong Kong nudged higher, while shares in Australia and India dropped.

The preliminary Markit Manufacturing and Services Indexes from across the globe will likely be the highlight of tomorrow's international economic calendar, while other reports of note include Japan's All-Industry Activity Index, and industrial production from Switzerland.

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