Equities Mixed on the Day, Decline for the Week

U.S. equities closed the day mixed and, in the process, posted a loss for the week. Earlier today, the Federal Reserve announced that it would not extend a rule that relaxed the leverage ratio for banks during the pandemic, which expires at the end of the month. The announcement placed significant pressure on the Financials sector, while tech-oriented issues within the Communications Services sector outperformed. Treasury yields were mixed after the 10-year note hit a 14-month high yesterday, while the U.S. dollar was higher, following a dormant economic slate. Gold was slightly higher and crude oil prices rose following yesterday’s sharp decline. News on the equity front was primarily focused on earnings, with Nike missing revenue estimates and FedEx posting a solid quarter in the wake of a robust holiday shopping season, while Visa shares tumbled after a report that the U.S. Department of Justice is conducting a probe into the company. Asia finished lower and markets in Europe saw widespread losses amid the uneasiness over the spike in global interest rates and the Fed's comments.

The Dow Jones Industrial Average fell 234 points (0.7%) to 32,628, the S&P 500 Index decreased 2 points (0.1%) to 3,913, while the Nasdaq Composite was up 99 points (0.8%) at 13,215. In very heavy volume as a result of quadruple-witching, the simultaneous expiration of stock and index futures and options, 3.5 billion shares were traded on the NYSE and 7.4 billion shares changed hands on the Nasdaq. WTI crude oil gained $1.38 to $61.44 per barrel. Elsewhere, the Bloomberg gold spot price was $6.45 higher to $1,742.86 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.1% to 91.93. Markets were lower for the week, as the DJIA slipped 0.5%, as the S&P 500 and the Nasdaq Composite both lost 0.8%.

Dow member Nike Inc (NKE $137) posted fiscal Q3 earnings per share (EPS) of $0.90 versus the FactSet estimate of $0.76, as revenues rose 3% year-over-year (y/y) to $10.4 billion, missing the Street's $11.0 billion forecast. The athletic footwear and apparel maker noted global container shortages and congestion at U.S. ports during the pandemic which hindered its inventory flow for over three weeks during the quarter. NKE said it looks to restart its share repurchases under its existing program in Q4. Shares were lower.

FedEx Corporation (FDX $280) reported Q4 profits of $3.47 per share, excluding a tax benefit of $108 million from a tax rate increase in the Netherlands applied to deferred tax balances and associated with voluntary contributions to the company’s pension plans, as well as other items, versus the $3.30 per share FactSet estimate. Revenues grew 23% y/y to $21.5 billion, besting the Street's $19.9 billion expectation, in what Chief Financial Officer Michael Lenz described as an "unprecedented" peak holiday shipping season. However, severe weather in February affected operations at its hub in Memphis to the tune of roughly $350 million. In a statement, Chief Executive Officer Fred Smith said that the company sees "demand for our unmatched e-commerce and international express solutions to remain very high for the foreseeable future." FDX traded nicely higher.

Visa Inc. (V $207) shares fell, following a Wall Street Journal report indicating the U.S. Department of Justice (DoJ) is conducting a probe into the company’s debit-card practices. The DoJ’s antitrust division is evaluating whether the company has unlawfully maintained a dominant market share by limiting merchants’ ability to rout debit-card transactions over card networks. V has not commented on the report.

Treasury yields mixed, economic calendar empty

Treasuries were mixed, with the yields on the 2-year note and 30-year bond 1 basis point (bp) lower at 0.15% and 2.44%, respectively, while the yield on the 10-year note rose 2 bps to 1.73%.

Bond yields jumped yesterday despite Wednesday's monetary policy decision from the Federal Open Market Committee (FOMC) to keep its stance intact, while indicating that there will likely be no hikes to its benchmark interest rates through 2023, with the "dots plot" showing a greater concentration of members coalescing around that notion. The spike in rates was a major source of the volatility seen during the week, and amid the storm surrounding the sudden steepening of the Treasury yield curve, Schwab's Chief Fixed Income Strategist Kathy Jones provides her viewpoint on the bond market in her latest article Why Bonds Still Matter, noting that despite the blip last spring, Treasuries continue to demonstrate negative correlation with stocks over the short and medium terms, helping cement their status as a safe haven during times of market stress—and there’s no clear alternative to fill that role. And, while she doesn't expect inflation to be a significant problem over the next few years, she believes holding some inflation-linked bonds, such as Treasury Inflation-Protected Securities (TIPS), makes sense, to mitigate the risk of an unexpected spike in inflation.

Also, you can keep up with our latest views on the changing market landscape at our Market Insights page on www.schwab.com and you can follow us on Twitter @SchwabResearch.

The economic calendar is empty today to close out a rollercoaster of a week that saw a mix of reports. Retail sales for February fell more than expected, but the prior month's gains were adjusted noticeably higher, and a higher-than-anticipated Import Price Index put the finishing touches on the February inflation picture, adding to the heightened inflation worries. Meanwhile, industrial production and capacity utilizationunexpectedly dropped, however the Federal Reserve cited the severe winter weather in the south-central region of the country in mid-February for the bulk of the declines in output, and jobless claims remained uncomfortably high. Housing data also disappointed, as mortgage applications continued to decline amid the rise in rates, homebuilder sentiment cooled slightly, and housing starts and building permits for last month dropped sharply. However, there were some bright spots during the week, the Leading Index, while moderating, notched its tenth-consecutive monthly gain, and regional manufacturing continued to expand, with activity in the Philadelphia region soaring to its highest level since mid-1973.

This sets the stage for next week's docket that will offer a slew of reports that could generate market attention. Manufacturing activity will dominate the calendar, with more regional manufacturing reports from the Chicago, Richmond and Kansas City regions joining Markit's Manufacturing PMI and its Services read, as well as look at durable goods orders. The final look (of three) at Gross Domestic Product is on tap, as well as the latest weekly initial jobless claims numbers for the week ended March 20. Housing will remain in focus, with new and existing home sales hitting the tape, as well as the latest read on MBA Mortgage Applications.

A host of Markit Manufacturing and Services PMIs from around the globe also have the potential to move the markets, while other reports that may garner attention include: China—interest rate decisions from the People's Bank of China. India—trade figures. Japan—Leading Index and inflation statistics. Eurozone—consumer confidence, along with German business and consumer sentiment.

Asia and Europe fall amid rate jitters

European equities finished lower following the Federal Reserve's decision not to extend its leverage rule for banks during the pandemic. As well, the positive sentiment that came after the Federal Reserve said that it does not expect to hike rates through 2023 fell prey to the uneasiness over yesterday's jump in bond yields. A spike in interest rates globally has put central banks around the world in focus, with market participants questioning how long before the easy policies in place will be changed, adding a good amount of volatility to the markets as of late. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his latest article Bull? Bear? How about a "Bunny" Market?, that there are a variety of clashing factors affecting the stock market this year, including worries over rising interest rates countered by the confidence seen in booming business investment, and robust M&A activity. We expect the bunny market to continue hopping around in the weeks ahead, as it reacts to these factors. In light economic news in the region, consumer confidence in the U.K. hit a one-year high, with hopes growing for an economic recovery from the pandemic and as the nation looks to shed the nationwide lockdowns in the coming months. The euro and British pound traded lower versus the U.S. dollar. Bond yields in the Eurozone and the U.K. were lower.

The U.K. FTSE 100 Index fell 0.9%, Germany's DAX Index and France's CAC-40 Index moved 1.1% to the downside, Italy's FTSE MIB Index declined 0.7%, Spain's IBEX 35 decreased 1.3%, and Switzerland's Swiss Market Index was 0.1% lower.

Stocks in Asia finished out the week lower, as yesterday's selloff in the U.S. amid a spike in interest rates tempered some of the upbeat sentiment that came following the Federal Reserve's decision on Wednesday to maintain its monetary policy stance and indicated that rates would remain in place through 2023. Geopolitical tensions remained, with the first meeting of U.S. and Chinese officials under President Biden's administration getting off to a rocky start, as a planned 4-minute photo session extended to over an hour amid a terse exchange between the two sides. Expectations for the meeting in Alaska were already low, as the Wall Street Journal reported on the eve of the scheduled talks that the Asian nation was expected to ask the U.S. to roll back sanctions and restrictions implemented during the Trump administration. China's Shanghai Composite Index fell 1.7% and the Hong Kong Hang Seng Index declined 1.4%. Japan's Nikkei 225 Index lost 1.4% amid some strength in the yen, and following the conclusion of the Bank of Japan's monetary policy meeting where the central bank said it has widened the range to which its 10-year government bond yield can fluctuate to plus or minus 25 basis points. Meanwhile, South Korea's Kospi Index fell 0.9% and Australia's S&P/ASX 200 Index moved 0.6% lower, while India's S&P BSE Sensex 30 Index bucked the trend and finished 1.3% higher.

For a look at the moves in the region, Schwab's Jeffrey Kleintop offers his article, Have EM Stocks Lost Their Immunity to Rising Rates?, how Emerging Market (EM) stocks have taken the rise in yields the worst among major equity asset classes, and offering five reasons why EM stocks can likely still perform well as rates climb this year.

Important Disclosures

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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Equities Mixed on the Day, Decline for the Week

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