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Stocks Give Up Early Gains in the Wake of Yesterday's Selloff

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U.S. stocks have returned to negative territory following yesterday's sharp decline that came amid festering contagion concerns out of China on default uncertainty of the world's most indebted property developer Evergrande. Uncertainty remains regarding the global implications of the issues out of China, while caution persists as the Fed begins its two-day monetary policy meeting and as a decision on raising the debt ceiling to avoid a default in the world's largest economy of the U.S. remains stymied. In economic news, August housing construction activity came in above expectations as the lone economic report slated for today. In equity news, ConocoPhillips agreed to acquire Royal Dutch Shell's Permian business for $9.5 billion, while Lennar Corporation posted mixed quarterly results. Treasuries are little changed after yesterday's rise amid the global skittishness, along with the U.S. dollar. Crude oil prices have turned lower and gold is higher. Asia finished mixed, with Hong Kong rebounding and Japan falling after yesterday's holiday, while Europe is recovering after yesterday's decisive drawdown.  

At 10:50 a.m. ET, the Dow Jones Industrial Average is dipping 0.1% and the S&P 500 Index is declining 0.2%, while the Nasdaq Composite is little changed. WTI crude oil is decreasing $0.61 to $69.53 per barrel, Brent crude oil is $0.31 lower at $73.61 per barrel. The gold spot price is $13.10 higher to $1,776.90 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is little changed at 93.28.

ConocoPhillips (COP $58) announced an agreement to acquire Royal Dutch Shell PLC's (RDS/A $41) Permian business for $9.5 billion. COP also announced a 7.0% increase of its quarterly dividend to $0.46 per share. COP is trading higher and RDS/A is gaining solid ground.   

Lennar Corporation (LEN $97) reported Q3 earnings-per-share of $4.52, above the $3.26 FactSet estimate, as revenues rose 18.0% year-over-year (y/y) to $6.9 billion, below the Street's forecast of $7.1 billion. The homebuilder's deliveries came in below forecasts, while its new orders and backlog both came in above expectations. The company noted that its deliveries shortfall was due to the unprecedented supply chain challenges that it believes will continue into the foreseeable future. Moreover, LEN lowered its Q4 guidance for deliveries. Shares are trading lower.   

Uber Technologies Inc. (UBER $43) is rallying after the ride-sharing and delivery company pulled forward its outlook for operating profitability to Q3 from Q4. The company said it has grown its global leadership across both mobility and delivery "more profitably than ever before."  

September and October have historically been blustery months for stock market performance as discussed in the Schwab Center for Financial Research's Quarterly Market Outlook: Is Seasonal Volatility Ahead?.  The markets remain sluggish after yesterday's global drawdown that came from contagion concerns out of China, as discussed by Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, Director of International Research, Michelle Gibley, CFA, and Senior Investment Research Specialist, Kevin Gordon, in their latest commentary, China Woes Drive Stocks to Biggest Drop Since May.     

Amid this backdrop, Schwab's Chief Investment Strategist Liz Ann Sonders provides her latest article, Songs of Experience: Reminiscences of a Strategist, offering lessons she has learned in her 35 years on Wall Street, which are especially relevant given the recent market action.

Find all our market commentary on our Market Insights page at www.schwab.com and follow us on Twitter at @SchwabResearch.

Housing construction activity tops forecasts, Fed set to begin its monetary policy meeting

Housing starts (chart) for August rose 3.9% month-over-month (m/m) to an annual pace of 1,615,000 units, above the Bloomberg consensus forecast of 1,550,000 units, and compared to July's upwardly-revised pace of 1,554,000 units. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, gained 6.0% m/m at an annual rate of 1,728,000, north of expectations calling for 1,600,000 units, and compared to the downwardly-revised 1,630,000 unit pace in July. The stronger-than-expected read on housing construction activity came amid a noticeable m/m rise in permits and starts for multi-unit structures, while for single-unit homes, permits nudged higher and starts fell.

Treasuries are little changed after seeing some demand yesterday amid the market skittishness, with the yields on the 2-year and 10-year notes dipping 1 basis point (bp) to 0.21% and 1.31%, respectively, while the 30-year bond rate is flat at 1.85%.

The markets are focusing on today's start of the two-day monetary policy meeting from the Federal Open Market Committee (FOMC), which will conclude with tomorrow's decision and be accompanied by updated FOMC economic projections. Shortly after the announcement Chairman Jerome Powell will deliver his customary press conference.  

The markets continue to expect the Fed to begin trimming its monthly asset purchases sometime in Q4, despite August's much softer-than-expected nonfarm payroll report, but the first rate hike is not expected for some time. Schwab's Chief Fixed Income Strategist Kathy Jones and Senior Fixed Income Analyst, Christina Shaffer, note in their commentary, Fed Tapering: Will it Be Different This Time?, that although the prospect of the Federal Reserve tapering its bond purchases has unsettled markets in the past, we expect it to be more orderly this time around.

Europe rebounding from yesterday's global drop    

European equities are rebounding in late-day action after the global markets fell broadly as investors took risk off the table amid debt contagion concerns as default concerns for China Evergrande Group (EGRNY $7), the world's most indebted property developer, ramped up. Most sectors are recovering, led by Energy, Information Technology, and Financials. Economic data in the region is light, ahead of this week's monetary policy decisions out of the U.S., U.K., and Japan, but Switzerland reported a dip in August exports. The euro and British pound are little changed versus the U.S. dollar, and bond yields continue to retreat from recent gains as bonds have seen demand amid the global market skittishness.      

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Payback Time With a Potential Payoff. Jeff notes how a gradual slowing of stimulus heralds a potential drop for the world's stock markets, but the evidence suggests a possibility for a positive outcome. Jeff also discusses in his article, Can Investors Avoid Rising Supply Chain Risks?, how supply chain issues are worsening, increasing the risk to sales, production, and inflation. He points out how European stocks may offer an opportunity to avoid these risks.

The U.K. FTSE 100 Index is up 1.1%, France's CAC-40 Index is gaining 1.5%, Germany's DAX Index is rising 1.5%, Spain's IBEX 35 Index and Italy's FTSE MIB Index are increasing 1.3%, and Switzerland's Swiss Market Index is advancing 0.4%.

Asia falls in continued thin trading, with Hong Kong rebounding but Japan falling

Stocks in Asia finished mixed, with Hong Kong rebounding from a selloff that has come from debt problems at property developer China Evergrande that has fostered contagion concerns across the globe and led to yesterday's selloff. The Hong Kong Hang Seng Index rebounded 0.5%. Meanwhile, Japan returned to action following yesterday's holiday, playing catch-up to yesterday's global drawdown, with the Nikkei 225 Index dropping 2.2% and the yen holding onto yesterday's rise. Australia's S&P/ASX 200 Index rose 0.4% and India's S&P BSE Sensex 30 Index gained 0.9% after both saw noticeable pressure yesterday amid the contagion concerns and likely caution ahead of this week's monetary policy decisions out of the U.S., U.K., and Japan. For a look at the Chinese and Hong Kong markets amid the ramped-up volatility, check out Schwab's Jeffrey Kleintop's, CFA, article, Is China’s Bear Market an Opportunity. However, volume remained lighter than usual as markets in mainland China and South Korea continued to be closed for holidays.

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