Stocks Close Mixed, and Snap Weekly Run of Gains

U.S. stocks finished the day mixed and snapped a three week run of gains, as key earnings announcements yielded varied results. Political uncertainty remained in focus as the highly-contentious presidential election moved closer, while hopes for the much talked about fiscal relief deal continued to languish. However, October reads on domestic manufacturing and services activity offered support to recent data that suggests the economic recovery continues. Moreover, the FDA's approval of Gilead Sciences' COVID-19 treatment remdesivir offered some relief to the recent spike in new virus cases in the U.S. and Europe. Dow members Intel and American Express saw pressure after their earnings reports as Q3 earnings season rolled on, while Mattel rallied on its quarterly performance. Treasury yields dipped as bond prices pared weekly losses, and the U.S. dollar was modestly lower. Gold and crude oil prices were lower. Asia finished mixed and Europe closed broadly higher following a favorable manufacturing report on the Eurozone and continued growth in U.K. business activity.

The Dow Jones Industrial Average decreased 28 points (0.1%) to 28,336, the S&P 500 Index was up 12 points (0.3%) at 3,465, and the Nasdaq Composite gained 42 points (0.4%) to 11,548. In moderate volume, 722 million shares were traded on the NYSE and 3.1 billion shares changed hands on the Nasdaq. WTI crude oil was $0.79 lower at $39.85 per barrel and wholesale gasoline lost $0.02 to $1.13 per gallon. Elsewhere, the Bloomberg gold spot price ticked $1.01 lower to $1,903.10 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 92.74. Markets were lower for the week, as the DJIA lost 1.0%, the S&P 500 decreased 0.5%, and the Nasdaq Composite fell 1.1%.

Dow member Intel Corporation (INTC $48) reported Q3 earnings-per-share (EPS) of $1.02, or $1.11 ex-items, versus the FactSet estimate of $1.11, as revenues declined 4.7% year-over-year (y/y) to $18.3 billion, slightly above the Street's forecast of $18.2 billion. The chip company said its data-centric business was down y/y, while its PC-centric sales nudged higher. INTC issued Q4 EPS guidance that was above expectations and its revenue outlook came in mostly in line with estimates, though its operating margin forecast was south of projections. Shares fell sharply.

Mattel Inc. (MAT $14) posted Q3 EPS of $0.91, versus the Street's forecast of $0.39, with revenues growing 10.0% y/y to $1.6 billion, north of the projected $1.5 billion. The company said the toy industry, as a whole, grew significantly and continues to demonstrate its resilience in challenging economic times, adding that its growth outpaced the industry as it gained share in key markets around the world and achieved growth in each of its four regions. MAT rallied.

Gilead Sciences Inc. (GILD $61) rose after the U.S. Food and Drug Administration (FDA) approved the company's COVID-19 treatment, known as remdesivir, for patients requiring hospitalization.

Dow component American Express Co. (AXP $101) reported Q3 EPS of $1.30, below the expected $1.34, as revenues fell 20.0% y/y to $8.8 billion, above the projected $8.7 billion. The company noted that its business continues to be significantly affected by the impacts of the pandemic. The company concluded that, "While credit remains strong, with delinquencies and net write-offs at the lowest levels we have seen in a few years, we remain cautious about the direction of the pandemic and its impacts on the economy, which is reflected in our reserve levels." Shares saw pressure.

Q3 earnings season has commenced with results mostly positive but the reaction has been subdued due to the lack of guidance heading into the reporting period amid the uncertainty regarding the ultimate impact of the COVID-19 pandemic. Schwab's Chief Investment Strategist Liz Ann Sonders, Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Chief Fixed Income Strategist Kathy Jones, point out how actual earnings numbers this season may be less important than what corporate leaders say about their expectations in the latest, Schwab Market Perspective: Turning to Earnings Season.

With a highly-expected fiscal relief deal remaining tenuous as lawmakers continuing to fail to reach an agreement and the highly-contentious election looming, Schwab's Liz Ann Sonders offers guidance on the political showdown in her article, Election Blues: Looking at Election History for Market Guidance. Moreover, 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 on how to navigate the volatile market environment and in-depth analysis of the election, including our article, 3 Reasons to Expect Election Result Delays, check out our Market Insights page, and follow us on Twitter at @SchwabResearch.

October business activity continues to expand, services sector stronger than expected

The preliminary Markit U.S. Manufacturing PMI Index for October nudged higher to 53.3 from September's unrevised 53.2 figure, moving modestly further into expansion territory denoted by a reading above 50. The index did miss the Bloomberg consensus estimate of 53.5. The preliminary Markit U.S. Services PMI Index showed output for the key U.S. sector surprisingly accelerated to 56.0 from September's 54.6 figure, where it was forecasted to remain.

Markit said U.S. output growth regained momentum in October, as business activity rose at the fastest rate in 20 months and business optimism improved markedly. The research firm added that the upturn was largely driven by service providers, though manufacturing firms also reported a further solid increase in production.

Treasuries pared some of this week's declines, as the yield on the 2-year note was little changed at 0.15%, the yield on the 10-year note dipped 2 bps to 0.84%, and the 30-year bond moved 4 bps lower to 1.64%.

The recent rise in bond yields has garnered attention in the markets amid the backdrop of economic data suggesting the recovery continues, the Fed's pledge of extremely accommodative policy for the foreseeable future and the elusive agreement on a new round of fiscal relief measures.

However, bond yields have yet to break out of a narrow range near historic lows for the past six months and Schwab's Kathy Jones discusses in her article, Do Bonds Still Provide Diversification?, the lively debate going on about whether bonds can continue to provide diversification in a portfolio. She notes how many fear that if markets become volatile and stocks decline again, bond yields don’t have much room to fall—and therefore, won't provide the balance to a portfolio that they have in the past. Kathy points out that in our view, those fears appear overblown.

Asia mixed and Europe higher following manufacturing data and developments on the COVID-19 treatment front

European equities closed broadly higher, as the markets digested mostly positive economic data in the region, while Gilead's FDA approval of its COVID-19 treatment seemed to counter increased concerns regarding the rising cases of the virus in Europe and the U.S. Schwab's Jeffrey Kleintop 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. Markit's Eurozone Manufacturing PMI for October unexpectedly showed growth in the sector accelerated and U.K. output in the sector remained in expansion territory. However, similar reads on services sector activity for the Eurozone showed the contraction in the sector intensified and U.K. growth decelerated more than expected. In other economic news, U.K. September retail sales came in noticeably above forecasts. The euro traded higher versus the U.S. dollar, which has softened as of late, while the British pound declined. Bond yields in core Eurozone regions and the U.K. were mixed.

The U.K. FTSE 100 Index was up 1.3%, France’s CAC-40 Index rose 1.2%, Germany's DAX Index traded 0.8% higher, Switzerland's Swiss Market Index gained 0.3%, Spain's IBEX 35 Index advanced 1.4%, and Italy's FTSE MIB Index increased 1.1%.

Stocks in Asia finished mixed in the final session of the week, with the markets continuing to grapple with a remaining stalemate on a fiscal relief package in the U.S. as the key presidential election looms, as well as the uncertainty regarding the implications of the rising new COVID-19 cases in the U.S. and Europe. Schwab's Jeffrey Kleintop discusses in his latest article, Global Impact of a "Blue Wave" Election Outcome, how the U.S. election could impact five key economic and market areas of taxes, labor, the environment, oil and trade. Moreover, the semiconductor industry reacted to the earnings results from Intel, which appeared to hamper sentiment, but the recent drop in the U.S. dollar may be adding some support to emerging markets and the FDA approval of Gilead's COVID-19 treatment also seemed to offer some relief. Global reports on output from the manufacturing and services sector for this month poured in, with Japan reporting that its manufacturing activity improved but its services sector deteriorated slightly, with both remaining in contraction territory. Also, Australia's manufacturing growth decelerated though its services sector output expanded at an accelerated rate. Japan's Nikkei 225 Index gained 0.2%, with the yen nudging higher late in the day, and Australia's S&P/ASX 200 Index dipped 0.1%. China's Shanghai Composite Index fell 1.0% and the Hong Kong Hang Seng Index advanced 0.5%. South Korea's Kospi Index increased 0.2% and India's S&P BSE Sensex 30 Index moved 0.3% higher.

Stocks dip after recent string of weekly gains

After posting three-straight weekly gains, U.S. stocks nudged lower this week as the markets digested mostly positive earnings results that came up against dubious expectations. Also, common ground on a highly-expected fiscal relief bill among U.S. lawmakers remained hard to pin down as the key presidential election drew near. However, losses were contained by further progress on the COVID-19 vaccine/treatment front and as economic data, headlined by a surging housing market, continued to paint the recovery picture. The steepening of the Treasury yield curve garnered attention to support Financials, and the U.S. dollar continued to give back a September rally. Energy issues shrugged off some softness in crude oil prices and the defensively-natured Utilities sector outperformed. The high-flying Technology sector was the leading underperformer, along with Consumer Discretionary stocks. Of the 135 S&P 500 companies that have reported thus far, about 73% have topped revenue forecasts and approximately 84% have bested earnings estimates, per data compiled by Bloomberg. However, sales and earnings growth are tracking to be below year ago levels.

Next week, the economic calendar will continue to compete with heightened political uncertainties and the focus on the persistent rise in new COVID-19 cases. However, reports on the docket that could move the markets include; new home sales, preliminary durable goods orders, Consumer Confidence, the first look (of three) at Q3 GDP, initial jobless claims for the week ended October 24th, personal income and spending, and the University of Michigan Consumer Sentiment Index.

International reports that are due out next week that could also garner attention include: China—industrial profits and Manufacturing and Non-manufacturing PMIs. Japan—the Bank of Japan's monetary policy decision, along with retail sales and preliminary industrial production. Eurozone—the European Central Bank monetary policy decision, Q3 GDP and consumer price inflation figures, as well as German business confidence and retail sales.

Schwab's Liz Ann Sonders notes in her latest article, Mixed Emotions: Sentiment Telling Divergent Stories, how she is keeping a close eye on sentiment indicators still showing skepticism. She adds that those could soon give way to the stock market's ascent and start to show extreme bullishness; which when connected to the euphoria already on display by shorter-term traders, could mean a sentiment extreme that suggests some contrarian downside risk for stocks. In the meantime, she reiterates our advice: remain disciplined around diversification and periodic (and perhaps volatility-based) rebalancing.

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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Stocks Close Mixed, and Snap Weekly Run of Gains

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