U.S. stocks finished mixed after giving up early gains, while the Nasdaq underperformed as Treasuries came under pressure to boost yields. Focus was on President Biden's renomination of Jerome Powell as Fed Chairman, giving the markets some clarity on leadership as the Central Bank begins down the path toward tighter monetary policy. The mixed action began the shortened week, which will see the markets close on Thursday for Thanksgiving and trade in an abbreviated session on Black Friday. The markets remained choppy amid a host of uncertainties, notably COVID-19 spreads in Austria and Germany, along with continued festering supply-chain and inflation issues. The economic week began with an unexpected rise in existing home sales. The equity front was relatively light, though M&A news is in focus as Vonage Holdings agreed to be acquired by Ericsson in a total transaction valued at about $6.2 billion, while Telecom Italia received a near $12.0 billion takeover offer from KKR & Co. The U.S. dollar rallied, crude oil prices advanced, and gold tumbled. Europe finished mixed following the Fed news and amid the M&A activity, Asia also diverged to begin the week.
The Dow Jones Industrial Average rose 17 points (0.1%) to 35,619, while the S&P 500 Index decreased 15 points (0.3%) to 4,683, and the Nasdaq Composite dropped 203 points (1.3%) to 15,855. In moderately-heavy volume, 4.4 billion shares of NYSE-listed stocks were traded, and 5.4 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.81 to $76.75 per barrel. Elsewhere, the gold spot price fell $47.10 to $1,804.50 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 0.5% to 96.53.
Vonage Holdings Corp. (VG $21) announced an agreement to be acquired by Ericsson (ERIC $10) for $21.00 per share, representing a total acquisition price of about $6.2 billion. ERIC said the transaction builds upon its stated intent to expand globally in wireless enterprise, while VG said it believes joining ERIC is in the best interests of its shareholders and is a testament to its leadership position in business cloud communications. VG rallied over 25%, while ERIC traded solidly lower.
The markets have remained near record highs for the past couple weeks, though action has been choppy, and Schwab's Chief Investment Strategist Liz Ann Sonders provides her latest article, Mysterious Ways: Bullish Sentiment Grows, With Positive Offsets, discussing how both the market's churn and success have bred a resurgence in optimism which, for now, has been positively offset by strong breadth and firm profit margins.
Find all our market commentary on our Market Insights page and follow us on Twitter at @SchwabResearch.
October existing home sales unexpectedly rise to kick off holiday-shortened week
Existing home sales increased 0.8% month-over-month (m/m) in October to an annual rate of 6.34 million units, versus the Bloomberg expectation of 6.20 million units, after September's unrevised 6.29 million rate. Existing home sales were higher in two of the four major U.S. regions, one region dropped and the fourth held steady. Each region witnessed a sales decline year-over-year (y/y). Sales of single-family homes were up solidly m/m but down y/y, while purchases of condominiums and co-ops were down both m/m and y/y. The median existing home price was up 13.1% from a year ago to $353,900, marking the 116th straight month of y/y gains. Unsold inventory was unchanged at September's 2.4-months pace at the current sales rate, down from the from the 2.5-months pace a year earlier. Existing home sales reflect contract closings instead of signings and account for a large majority of the home sales market.
National Association of Realtors Chief Economist Lawrence Yun said, "Home sales remain resilient, despite low inventory and increasing affordability challenges." Yun added that inflationary pressures, such as fast-rising rents and increasing consumer prices, may have some prospective buyers seeking the protection of a fixed, consistent mortgage payment.
Treasuries were lower, with the yield on the 2-year note rising 7 basis points (bps) to 0.58%, the yield on the 10-year note gaining 8 bps to 1.62%, and the 30-year bond increasing 6 bps to 1.96%.
Bond yields have been choppy as of late and Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her latest 2022 Fixed Income Outlook: Rough Waters how we expect another wave up in bond yields in 2022 as central banks around the world shift away from the very easy policies of the past few years. Kathy points out that with the pandemic-era policies ending, investors should be prepared for shifting tides and the risks and opportunities they present.
The housing sales report began the week that will be shortened by the Thanksgiving holiday market closures on Thursday and an abbreviated session on Black Friday. Tomorrow the economic calendar will bring some timely preliminary reads on November manufacturing and services activity, with the releases of Markit's Manufacturing PMI, expected to improve slightly to 59.2 from October's 58.4 level, as well as Markit's Services PMI, forecasted to increase to 59.0 from the prior month's 58.7 figure. Readings above 50 for both indexes denote expansion. Also, we will get the release of the November Richmond Fed Manufacturing Index, expected to dip to 11 from October's 12 level, with a reading above zero denoting expansion.
Europe mixed following U.S. central bank development, and amid M&A news, Asia also diverges
European equities finished mixed as the markets continued to contend with the economic impact of last week's reinstated containment measures in Austria as COVID-19 spread in the region. The markets overcame early losses after getting some clarity on the Central Bank out of the world's largest economy in the U.S., where Jerome Powell was renominated as Fed Chairman by President Biden. Communications Services, Energy, Financials, and Materials sectors lifted the markets, while Information Technology issues saw some pressure. Communications Services stocks got a boost from a rally in shares of Telecom Italia SpA (TIIAY $5) after it received a near $12.0 billion takeover offer from U.S.-based firm KKR & Co. Inc. (KKR $78). Meanwhile, global supply chain issues and coinciding inflation pressures continued to be eyed and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his article, Will Shortages Lead to Gluts?, noting how the global economy may be closer to the end of supply chain problems than the beginning. He points out how markets tend to look six to twelve months into the future, and they may soon begin to consider the possibility that some shortages may start to ease, and gluts may have started to form by the second half of next year. If that happens, we may see some easing of inflation pressures. Bond yields in the Eurozone and the U.K. traded higher, while the euro and British pound moved to the downside versus the U.S. dollar.
The U.K. FTSE 100 Index was up 0.4%, Germany's DAX Index and Switzerland's Swiss Market Index declined 0.3%, France's CAC-40 Index dipped 0.1%, Italy's FTSE MIB Index rose 0.2%, and Spain's IBEX 35 Index traded 0.8% higher.
Stocks in Asia finished mixed as the markets continued to grapple with rising inflation pressures and global supply chain challenges, along with uncertainty regarding the path of global monetary policies. Schwab's Jeffrey Kleintop offers his article, Inflation: Persistently Transitory, noting how persistently going from one transitory source of inflation to the next may keep inflation elevated for longer than markets currently anticipate. He also points to how the lift to earnings from inflation may more than offset any compression on stock valuations from any tightening of financial conditions, given the more relaxed inflation mandates of central banks. In economic news, China left its 1-year and 5-year loan prime rates unchanged and South Korea's exports for November slowed but remained solidly higher year-over-year.
Japan's Nikkei 225 Index ticked 0.1% higher, with the yen holding onto Friday's gains, and China's Shanghai Composite Index moved 0.6% higher, though the Hong Kong Hang Seng Index declined 0.4%. South Korea's Kospi Index traded 1.4% to the upside, while India's S&P BSE Sensex 30 Index fell 2.0%, with the index continuing a recent slide, and Australia's S&P/ASX 200 Index decreased 0.6% in the face of softness in the Energy and Financials sectors.
Tomorrow's international economic calendar will begin to deliver a host of preliminary November Manufacturing and Services PMIs that are slated to pour in this week, beginning with reports out of Australia, the Eurozone, and the U.K., which will all precede tomorrow's PMIs out of the U.S.