U.S. stocks finished the trading session lower with technology issues leading decliners after the Fed decided to hold rates steady yesterday, while it bolstered rate hike expectations for later this year. Treasury yields were nearly unchanged and the U.S. dollar trimmed some its solid gains from the previous session. Gold declined and crude oil prices ticked lower. In other economic developments, weekly jobless claims fell, regional manufacturing activity surprisingly grew and leading indicators continued to climb.
The Dow Jones Industrial Average (DJIA) decreased 53 points (0.2%) to 22,359, the S&P 500 Index lost 8 points (0.3%) to 2,501, and the Nasdaq Composite declined 33 points (0.5%) to 6,423. In moderate volume, 726 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil shed $0.14 to $50.55 per barrel and wholesale gasoline was $0.02 lower at $1.64 per gallon. Elsewhere, the Bloomberg gold spot price decreased $10.28 to $1,290.82 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 92.24.
Anadarko Petroleum Corp. (APC $48) announced that its Board of Directors authorized a $2.5 billion share-repurchase program that extends through the end of 2018. Separately, the company reaffirmed its production guidance for the deepwater Gulf of Mexico, DJ and Delaware basin assets. Shares traded solidly higher.
Ash Grove Cement Company (ASHG $520) rallied over 80% after the company announced an agreement to be acquired by Irish building materials company, CRH PLC. (CRH $37), in a transaction with an enterprise value of $3.5 billion.
Calgon Carbon Corp. (CCC $21) surged over 60% after agreeing to be acquired by Japanese synthetic fiber and chemicals maker, Kuraray Co. Ltd. (KURRY $58) for $21.50 per share in cash, or about $1.1 billion excluding debt.
Leading indicators continue upward momentum, jobless claims fall
The Conference Board's Index of Leading Economic Indicators (LEI) (chart) for August rose 0.4% month-over-month (m/m), above the Bloomberg projection to match July's unrevised 0.3% gain. This was the twelfth-straight monthly gain for the index, bolstered by ISM new orders, building permits, the yield curve and consumer expectations, which more than offset the negative impact of jobless claims, which jumped briefly after Hurricane Harvey.
As noted in the latest Schwab Market Perspective: A Cat and Mouse Fall, the LEI suggests limited risk of an economic recession, keeping us in the bull market camp, as Bear markets have rarely occurred outside of economic recessions. However, there are some near-term risks, and we think any corrective phase will be limited in both time and magnitude. One of the strongest areas of the U.S. economy continues to be the labor market and the leading indicator of jobless claims continues to indicate a robust employment environment. Read more on the Market Commentary page at www.schwab.com and follow us on Twitter: @schwabresearch.
Weekly initial jobless claims (chart) dropped by 23,000 to 259,000 last week, below forecasts of 302,000, with the prior week’s figure being revised lower by 2,000 to 282,000. The four-week moving average rose by 6,000 to 268,750, while continuing claims increased 44,000 to 1,980,000, north of estimates of 1,975,000. Claims have been volatile in the wake of the Hurricanes Harvey and Irma and Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", looking at the three costliest hurricanes, you see a familiar pattern: a quick and sharp hit, followed by a recovery-to-trend in the out weeks. In those three cases, by eight weeks following the hurricane, claims had finished their "round trips." Read more on the Market Commentary page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.
The Philly Fed Manufacturing Index (chart) in September rose to 23.8 from 18.9 in August, with a reading above zero indicating expansionary activity, and compared to estimates of a decline to 17.1.
Treasuries were little changed, with the yields on the 2-year note and the 30-year bond nearly unchanged at 1.44% and 2.81%, respectively, while the yield on the 10-year note increased 1 basis point to 2.28%.
Bond yields continued a solid rebound and the U.S. dollar rallied yesterday following the Fed's unchanged monetary policy decision, which is discussed by Schwab's Liz Ann Sonders in her latest commentary, The Fed's on the QT, on the Market Commentary page at www.schwab.com. Liz Ann notes that the Fed, as expected, left rates unchanged but announced it would start to shrink its balance sheet in October. On balance, the statement was seen as more hawkish than expected, with the majority of FOMC participants expecting at least one more rate hike this year. We expect less impact on stocks and Treasuries, but more impact on the mortgage market.
Tomorrow, the economic calendar will yield the release of the September preliminary Markit Manufacturing and Services PMI Indexes, with economists anticipating readings of 53.0 and 55.7, respectively, with manufacturing ticking higher and services inching lower from the final August prints.
Europe mostly higher, Asia mostly lower
Most European equity markets traded higher, with the markets digesting the expected unchanged monetary policy decision in the U.S. and announcement that in October the Central Bank will begin to shrink its balance sheet. However, the Fed appeared to strike a more hawkish tone and expectations of another rate hike this year rose, boosting the U.S. dollar. This comes on the heels of recent hawkish signals from the European Central Bank and the Bank of England, and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses the potential changes in global monetary policy in his latest article, How the Shift by Central Banks May Affect the Stock Market, noting that despite the coming shift by central banks towards trimming/tapering their balance sheets, we don't believe the bull market is at risk. Read more on the Market Commentary page at www.schwab.com including Jeff's view that earnings, not easing, remain the key support for stock markets around the world.
Financials led to the upside, amid rising bond yields in the region and speculation of large M&A activity as Italy's largest bank was reported to have shown interest in merging with Germany's second-largest, state-backed, lender. None of the companies commented on the speculation, but Bloomberg reported that the German Finance Ministry told it there are no current negotiations. The euro trimmed yesterday's fall against the U.S. dollar that came on the heels of the Fed's decision, while the British pound also pared yesterday's drop. In economic news, Switzerland's exports rebounded in August, while eurozone consumer confidence fell by a smaller amount than expected for September.
Stocks in Asia finished mostly to the downside on the heels of yesterday's monetary policy decision by the Fed, which announced it would start to shrink its balance sheet in October, as expected, but appeared a bit more hawkish to preserve expectations of another rate hike this year. Also, the Bank of Japan left its monetary policy stance unchanged. The U.S. dollar rallied sharply following the Fed's decision, which weighed on the yen and helped Japanese equities rise. However, shares trading in mainland China and Hong Kong dipped. Stocks in Australia, South Korea and India finished lower. For analysis of the global markets, see Schwab's Jeffrey Kleintop's, CFA, article, What are fund flows telling us about trends and risks in the global stock market?, as well as his commentary, An important benefit to global investors is back after 20 years, on the Market Commentary page at www.schwab.com.
The international economic docket for tomorrow will be limited to preliminary Markit manufacturing and services PMIs from Germany, France and the Eurozone, while France is also expected to report Q2 GDP.
Schwab Center for Financial Research - Market Analysis Group
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