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Stocks Dipping Following Yesterday's Solid Advance

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U.S. stocks are dipping in early action, coming off yesterday's solid gain that extended Friday's rally. Global bond yields are back under pressure following a reprieve, while the markets are awaiting Friday's speech from Fed Chairman Jerome Powell in Jackson Hole, Wyoming. Yesterday's advance came amid optimism of China's loan reforms and reports of potential fiscal stimulus in Germany, which are being joined by talk that the U.S. may be mulling further tax cuts and dialing back some tariffs. Dow member Home Depot and Kohl's posted mixed quarterly results, while the economic calendar remains dormant. Treasury yields are lower and the U.S. dollar is little changed, while crude oil prices are dipping and gold is gaining ground. Asia finished mixed and Europe is diverging. 

As of 8:56 a.m. ET, the September S&P 500 Index future is 2 points below fair value, the DJIA future is 12 points below fair value, and the Nasdaq 100 Index future is 1 point south of fair value. WTI crude oil is decreasing $0.15 to $55.99 per barrel and Brent crude oil is dipping $0.05 to $59.69 per barrel. The Bloomberg gold spot price is rising $8.74 to $1,504.66 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is little changed at 98.36.

Dow member Home Depot Inc. (HD $208) reported Q2 earnings-per-share (EPS) of $3.17, versus the $3.09 FactSet estimate, as revenues rose 1.2% year-over-year (y/y) to $30.8 billion, below the projected $31.0 billion. Q2 same-store sales grew 3.0% y/y, compared to the estimated 3.3% gain. HD reaffirmed its full-year EPS outlook and lowered its sales guidance. The world's largest home-improvement retailer said the current health of the U.S. consumer and a stable housing environment continue to support its business, but lumber prices have declined significantly compared to last year, which impacts its sales growth, while it noted the potential impact to the U.S. consumer arising from recently announced tariffs.

Kohl's Corporation (KSS $48) posted Q2 EPS of $1.51, or $1.55 ex-items, compared to the expected $1.53, as revenues declined 3.1% y/y to $4.4 billion, topping the forecasted $4.3 billion. Q2 same-store sales decreased 2.9%, versus the estimated 2.4% decline. KSS reaffirmed its full-year EPS outlook. 

Treasury yields seeing some pressure as markets await Fed Chief's speech later this week

Treasuries are higher, with the yields on the 2-year note and the 30-year bond decreasing 4 basis points (bps) to 1.51% and 2.04%, respectively, while the yield on the 10-year note is declining 5 bps to 1.56%. Bond yields are back under pressure following a recent relative reprieve from a sharp drop that has come amid global growth concerns, U.S.-China trade uncertainty, and heightened geopolitical uneasiness, while global central banks are highly expected to deliver further accommodation. Amid ramped-up market volatility, last week a drop in bond rates fostered a brief inversion of the yields on the 2-year and 10-year U.S. Treasury notes and a fall in the 30-year bond rate below 2.0% for the first time in history, to unnerve the global markets and accompany 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.?

Given the current volatile global 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.

Moreover, Schwab's Director of Market and Sector Analysis Brad Sorensen, CFA, notes in his latest Schwab Sector Views: The Business Cycle: Is It Different This Time?, the "business cycle" describes the rise and fall of economic activity, and has historically been a good indicator for sector performance. However, Brad adds that there appear to be some changes within the sector universe and the economic environment that may be rendering some of those traditional relationships obsolete. He concludes that investors have to be willing to react to the situation as it is, not as it was or as we hope it to be, which requires patience and discipline.

With the economic calendar dormant again today, the markets are awaiting some reads on housing sales, business activity and Leading Indicators beginning tomorrow. However, the headlining event will likely be the late-week annual Fed symposium in Jackson Hole, Wyoming, that will culminate with Chairman Jerome Powell's speech on Friday. The gathering comes amid ratcheted-up expectations that the Central Bank will deliver more rate cuts amid the turmoil in the global markets.  

Europe mixed after yesterday's advance

European equities are mixed in afternoon action, following yesterday's solid gain, amid returning pressure on bond yields, along with festering Italian political and Brexit uncertainties, while the markets appear a bit cautious ahead of Friday's speech from Fed Chairman Jerome Powell in the U.S. However, the potential sources of uneasiness seem to be getting met with lingering optimism of further stimulus measures out of China, and reports of potential fiscal support out of Germany and the U.S. The euro is little changed versus the U.S. dollar and the British pound is declining, while bond yields in the region are mostly lower. In economic news, Eurozone construction output came in flat month-over-month in June after declining in May. 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.

The U.K. FTSE 100 Index is ticking 0.1% higher, France's CAC-40 Index is little changed, Germany's DAX Index is dipping 0.1%, Spain's IBEX 35 Index is trading 0.7% lower, Italy's FTSE MIB Index is dropping 0.8%, and Switzerland's Swiss Market Index is increasing 0.2%.

Asia mixed amid stimulus expectations and ahead of Fed speech

Stocks in Asia finished mixed after yesterday's global market advance that came amid China's loan reforms aimed at lowering borrowing costs and talk of potential fiscal stimulus measures out of Germany. However, trading may have been a bit cautious ahead of this week's speech in Wyoming from U.S. Fed Chairman Jerome Powell. Japan's Nikkei 225 Index gained 0.6%, with gains likely being limited by a late-day advance for the yen. Australia's S&P/ASX 200 Index gained 1.2% after the minutes from the Reserve Bank of Australia's (RBA) monetary policy meeting earlier this month suggested the central bank would consider further easing if conditions warrant. The report came as the RBA left its benchmark interest unchanged after cutting it to a record low in July. South Korea's Kospi Index advanced rose 1.1%, though India's S&P BSE Sensex 30 Index declined 0.2%. China's Shanghai Composite Index dipped 0.1% and the Hong Kong Hang Seng Index declined 0.2%, with trade uncertainty festering. 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.

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Is The Tariff War Turning Into A Currency War?
Is The Tariff War Turning Into A Currency War?

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