Markets Post Strongest Weekly Gain Since April

The U.S. equity markets were able to shed some of their early losses and finish mixed and near the unchanged mark to cap off a strong week. Investors appeared to take a bit of a breather on the heels of the sharp rally this week that recouped last week's steep drop. Uncertainty surrounding the presidential outcome remained, as votes in key battleground states continue to be tallied. However, a stronger-than-expected October nonfarm payroll report seemed to keep sentiment buoyed. In earnings news, T-Mobile gained ground in the wake of its report, while Peloton was lower in choppy trading after warning of some service issues, and guidance and a bookings miss weighed on shares of Electronic Arts. Treasury yields rebounded as bond prices declined and the U.S. dollar continued its recent soft patch, while crude oil prices fell and gold was slightly higher. Europe finished mixed, while markets in Asia were mostly higher.

The Dow Jones Industrial Average decreased 67 points (0.2%) to 28,323, the S&P 500 Index was down 1 point at 3,509, while the Nasdaq Composite gained 4 points to 11,895. In heavy volume, 926 million shares were traded on the NYSE and 4.1 billion shares changed hands on the Nasdaq. WTI crude oil was $1.65 lower at $37.14 per barrel and wholesale gasoline lost $0.04 to $1.08 per gallon. Elsewhere, the Bloomberg gold spot price rose $2.25 to $1,951.91 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 2.25. Markets were sharply higher for the week, as the DJIA rose 6.9%, the S&P 500 increased 7.3%, and the Nasdaq Composite rallied 9.0%.

T-Mobile US, Inc. (TMUS $124) reported Q3 earnings-per-share (EPS) of $1.00, compared to the $0.46 FactSet estimate, as revenues rose 74.2% year-over-year (y/y) to $19.3 billion, topping the projected $18.3 billion. Q3 revenues reflected results from the merger with Sprint, which occurred after Q3 of 2019. The company noted continued customer growth and raised its second-half 2020 guidance due to the Q3 results. Shares were nicely higher.

Peloton Interactive Inc. (PTON $125) posted fiscal Q1 earnings of $0.20 per share, versus the Street's forecast of $0.11, as revenues surged 232% y/y to $758 million, exceeding the expected $735 million. The company said its connected fitness subscriptions grew 137% and paid digital subscriptions rose 382%, benefitting from the social impact of the COVID-19 pandemic. PTON raised its full-year revenue outlook. However, the company warned of longer-than-expected wait times for customers to reach its sales and support teams and that it is taking measures to fix issues with shipping delays. Shares traded lower.

Electronic Arts Inc. (EA $119) announced fiscal Q2 EPS of $0.63, or $0.05 ex-items, versus the projected $0.03, as net bookings declined 30.7% y/y to $910 million, below the forecasted $959 million. EA issued full-year earnings guidance that missed expectations. The company announced a new $2.6 billion stock repurchase program and declared a quarterly cash dividend for the first time in history, with a payout of $0.17 per share. Shares finished solidly lower.

The markets continued to eye the latest developments on the political front as votes for the president and Senate continue to be counted in some key battleground states. For expansive coverage check out our election page at www.schwab.com/election2020, including the Schwab Center for Financial Research's (SCFR) Election Implication FAQs for our answers to investor questions about the 2020 election, as well as the latest commentary from Schwab's Vice President of Legislative and Regulatory Affairs Michael T. Townsend titled, What to Expect from the "Lame Duck" Congress.

The Health Care sector rallied yesterday as the markets digest the outcome, and Schwab's Managing Director and Senior Investment Strategist, David Kastner, CFA, discusses Health Care vs the 2020 Election, in his latest Schwab Sector Views.

For timely strategies amid the volatile market environment, check out our Market Insights page, and follow us on Twitter at @SchwabResearch.

October employment report show job growth above expectations

Nonfarm payrolls (chart) increased by 638,000 jobs month-over-month (m/m) in October, compared to the Bloomberg forecast of a 580,000 rise, and following September's upwardly-adjusted gain of 672,000. Excluding government hiring and firing, private sector payrolls grew by 906,000, versus the forecasted rise of 680,000 after advancing by a favorably-revised 892,000 in September. The labor force participation rate rose to 61.7% from September's 61.4% rate, versus an expected increase to 61.5%.

The unemployment rate fell to 6.9% from September's 7.9% rate, versus forecasts of a decline to 7.6%. Average hourly earnings ticked 0.1% higher m/m, versus projections of a 0.2% gain and compared to September's downwardly-revised flat reading. Y/Y, wages were 4.5% higher, matching estimates. Finally, average weekly hours remained at September's upwardly-revised 34.8 rate, versus forecasts of 34.7.

Job gains occurred in leisure and hospitality, professional and business services, retail trade, and construction, while employment in government declined. Although the number of permanent job losers changed little over the month, they are 2.4 million higher than in February, and the number of long-term unemployed—jobless for 27 weeks or more—jumped to 3.6 million, accounting for 32.5% of total unemployed. Moreover, employment remains roughly 10 million below pre-pandemic levels.

September wholesale inventories (chart) were unexpectedly revised higher to a 0.4% rise, versus expectations to be unrevised at the preliminary estimate of a 0.1% dip, and compared to August's positively-revised 0.5% gain. Sales rose 0.1% after August's downwardly-revised 1.2% gain.

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $16.2 billion during September, far more than the $8.0 billion forecast of economists polled by Bloomberg, while August's figure was adjusted to a decline of $6.9 billion from the originally reported $7.2 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $12.2 billion, a 4.6% increase y/y, while revolving debt, which includes credit cards, rose by $4.0 billion, a 4.8% y/y rise.

Treasuries were lower, continuing a choppy week as the markets grappled with the implications of the presidential election and the upbeat employment data. The yield on the 2-year note was little changed at 0.15%, the yield on the 10-year note rose 4 basis points (bps) to 0.81%, and the 30-year bond rate gained 5 bps to 1.59%.

Bond yields had edged higher before the election amid the backdrop of mostly positive economic data, solid earnings reports, and as inflation expectations have shown signs of warming up a bit. However, the host of uncertainties have remained. Amid this environment, Schwab's Chief Fixed Income Strategist Kathy Jones offers her latest article, Elections and the Bond Market and analysis of the question, Do Bonds Still Provide Diversification?

The markets showed little reaction to yesterday's monetary policy decision from the Fed. The Central Bank left its monetary policy unchanged as expected but reiterated that it will continue to do whatever for as long as it takes to foster the recovery, while Chairman Jerome Powell continued to stress the need for further fiscal support as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her latest article, Still the Same: Fed Keeps Monetary Policy Steady.

Europe mixed after week's rally, Asia mostly higher

European equities finished mixed following a sharp weekly rebound, as the markets continued to monitor the U.S. presidential election, and appeared to return focus on the resurgence of new COVID-19 cases in the region and in the U.S. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Risk of Second Wave of COVID-19 Lockdowns, how the biggest political risk facing investors may be the potential for politicians to implement national lockdowns in response to a rise in new COVID-19 cases that could lead to renewed recession and a new bear market for stocks. Some mixed global economic data was also examined, with the stronger-than-expected October nonfarm payroll report being met with a softer-than-forecasted read on September German industrial production. The data followed yesterday's Fed decision to maintain its extremely accommodative monetary policy, as well as a boost to the Bank of England's asset purchase program. The euro and the British pound traded higher versus the U.S. dollar, which has found some renewed pressure as of late, while bond yields in the Eurozone were mixed and U.K. rates gained ground.

The U.K. FTSE 100 Index ticked 0.1% higher and Switzerland's Swiss Market Index gained 0.2%, while Germany's DAX Index declined 0.7%, France's CAC-40 Index decreased 0.5%, Spain's IBEX 35 Index dropped 0.8%, and Italy's FTSE MIB Index fell 0.3%.

Stocks in Asia finished mostly higher, extending solid weekly gains, as the U.S. and European markets continued to rebound sharply from the prior week's tumble, while the weakness in the U.S. dollar likely provided support to some regions. The markets continued to focus on the still-undecided U.S. presidential election, the continued pledge by the Fed in the U.S. to maintain extremely easy monetary policy, and the Bank of England's boosted asset purchase program yesterday. Japan's Nikkei 225 Index rose 0.9%, with the yen holding onto a gain, while data showed declines in the nation's household spending and labor earnings were smaller than expected for September. South Korea's Kospi Index and the Hong Kong Hang Seng Index both ticked 0.1% higher, Australia's S&P/ASX 200 Index advanced 0.8%, and India's S&P BSE Sensex 30 Index rose 1.3%. However, China's Shanghai Composite Index declined 0.2%. Schwab's Jeffrey Kleintop offers a look at the global landscape in his latest article, "De-globalization" Already Happened And It Didn't Matter, how for investors, the stall in global trade since 2008 hasn't necessarily led to a stall in profits for multinational companies that make up the major stock market indexes or a decline in the international portion of those profits.

Stocks snapback from last week's tumble

U.S. stocks followed last week's largest plunge since March with the strongest weekly rally since April. Volatility remained palpable as the markets digested Election Day, where key battleground states remained too close to call to keep the presidential and senatorial outcomes uncertain. However, the markets appeared to shrug off the uncertainty and instead focus on the likelihood a new round of fiscal relief and the potential for a split Congress regardless of the presidential outcome. Adding fuel to the rally, the Fed remained steadfast in communicating that it will use every tool it has for as long as it takes to foster the economic recovery, while Q3 earnings season continued to easily top forecasts and economic data suggested the recovery remains intact. Of the 447 S&P 500 companies that have reported thus far, about 75% have exceeded revenue forecasts and roughly 83% have bested earnings expectations, with the aggregate rate upside profit surprises at nearly 18%, per data compiled by Bloomberg. However, earnings and revenue growth rates versus last year remained negative.

The economic week showed global manufacturingcontinued to recover, aided by another dose of solid demand for durable goods, while services sector output improved but lagged behind and in some regions remained in contraction territory. Friday's stronger-than-expected October Labor Report also garnered a positive reaction. The resurging new cases of COVID-19 in the U.S. and Europe, which was a main catalyst of last week's selloff, appeared to take a backseat to the aforementioned market tailwinds.

All the major S&P 500 sectors moved higher on the week, led by the Information Technology and Health Care sectors as the possibility of gridlock in Congress seemed to ease concerns about regulatory crackdowns toward the groups. Energy issues lagged behind as the markets grappled with the election uncertainty, though the sector did finish in the green. The U.S. dollar pulled back noticeably, hitting a two-month low, and the Treasury yield curve flattened, while crude oil prices rebounded from the prior week's drop and gold rallied.

Next week, the political front will likely remain in focus for the election results' implications on the timing, size and scope of the expected fiscal relief package and on what legislation will bring in the new term. However, with earnings season all but in the books, the economic calendar will offer some key data points that could move the markets. October inflation will be on display, with the releases of the Consumer Price Index (CPI) and Producer Price Index (PPI), while a timely read on the all-important consumer will come in the form of the preliminary November University of Michigan Consumer Sentiment Index. The employment front will also command some attention, as the September JOLTS Job Openings report will precede initial jobless claims data for the week ended November 7. The October NFIB Small Business Optimism Indexcould also garner some focus as we get a look at sentiment among businesses that have been severely impacted by the pandemic. Finally, Fed Chairman Jerome Powell will participate in a European Central Bank (ECB) forum, speaking with the heads of other key central banks, including the ECB and Bank of England.

Next week's international economic front is also poised to deliver some data that could foster market reactions, with global reports including: China—trade report, CPI and PPI, and potentially lending statistics. India—CPI, industrial production and trade balance. Japan—core machine orders. Eurozone—Q3 GDP, trade balance and industrial production, along with German trade figures and investor confidence. U.K.—employment change, Q3 GDP and industrial/manufacturing production.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article, Too Much: Market Succumbed Again to Trifecta of Virus, Fiscal Relief and Election Uncertainty, that some speculative excess has been wrung out, but we may not be out of the woods yet. She concludes that discipline, diversification and periodic rebalancing remain key in these uncertain times.

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Markets Post Strongest Weekly Gain Since April

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