Stocks Close Mixed but Post Another Week of Gains

U.S. equities finished mixed, but were still able to string together a third consecutive week of gains despite an up and down week of trading. Optimism surrounding the potential for a fiscal relief package reemerged, while a surprising jump in retail sales and a rise in consumer sentiment also helped the markets climb higher. The renewed optimism on additional stimulus was jumpstarted by yesterday’s comments from Treasury Secretary Mnuchin who indicated that he may cede some ground in the negotiations, as well as President Trump’s comments that he would raise his offer. On the virus front, Pfizer announced that its vaccine candidate being developed in conjunction with BioNTech may soon be ready for application for Emergency Use Authorization. In other equity news, Bank of Mellon New York bested estimates and Boeing was back in the headlines. Treasury yields were higher as bond prices dipped following the data and the U.S. dollar lost ground, while crude oil prices fell and gold turned lower. Asia finished lower to close out the week, while markets in Europe rebounded from yesterday's widespread losses.

The Dow Jones Industrial Average increased 112 points (0.4%) to 28,606, the S&P 500 Index was unchanged at 3,484, and the Nasdaq Composite lost 42 points (0.4%) to 11,672. In moderate volume, 888 million shares were traded on the NYSE and 3.1 billion shares changed hands on the Nasdaq. WTI crude oil was $0.12 lower at $41.12 per barrel and wholesale gasoline lost $0.01 to $1.17 per gallon. Elsewhere, the Bloomberg gold spot price lost $8.74 to $1,899.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 93.70. Markets were higher for the week, as the DJIA gained 0.1%, the S&P 500 increased 0.2%, and the Nasdaq Composite rose 0.8%.

Pfizer Inc. (PFE $38) announced that its COVID-19 vaccine candidate that it is developing with Germany-based BioNTech SE (BNTX $94) could soon be ready for an Emergency Use Authorization application as early as late-November. Separately, the companies said they are increasing manufacturing capability for the vaccine, and will be able to deliver the doses already promised to governments across the globe. The announcement comes following some discouraging news on the fight against the virus after Johnson & Johnson (JNJ $148) said it halted its vaccine candidate study, and Eli Lilly and Company (LLY $146) paused the trial of its therapy treatment, both as a result of safety concerns. Shares of PFE, BNTX and JNJ traded higher, while LLY saw modest losses.

Bank of New York Mellon Corporation (BK $38) posted a Q3 profit of $0.98 per share, above the $0.94 per share expected by analysts, on a 0.5% year-over-year (y/y) decline in revenues to $3.9 billion, mostly matching estimates. Net interest margin were in line with forecasts and the company said it hopes to restart share buybacks as soon as possible. Shares were higher.

Boeing Company (BA $167) was in the headlines after the European Union Aviation Safety Agency declared that the aircraft maker's troubled 737 Max airplane is safe to fly. The plane was grounded in 2019 following two crashes where 346 people perished. The announcement comes ahead of BA's implementation of new software for the aircraft that the agency demanded, which could take up to two years to complete. BA traded higher.

Any progress in an agreement among lawmakers on a new fiscal relief package continued to be in focus after Treasury Secretary Mnuchin suggested late yesterday that he may be able to relinquish some ground in the negotiations, and President Trump indicated that he would raise his offer. However, any talks may be affected by the looming presidential election. The Schwab Center for Financial Research (SCFR) also offers a look at the current environment in the articles, Stimulus in Limbo: Politics, Congress, and the Fed, along with our Quarterly Market Outlook: Walking the Fine Line.

Schwab's Chief Investment Strategist Liz Ann Sonders offers guidance in her latest article, Election Blues: Looking at Election History for Market Guidance, for investors wondering what to do now. Liz Ann notes that we would caution against trying to make short-term bets on the lead-in to the election, especially with regard to its possible outcome. She concludes that history supports the view that betting on election outcomes is a risky strategy. As well, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA offers his take on the upcoming election in his latest commentary, Global Impact of a “Blue Wave” Election Outcome, noting that there are five key areas targeted for change: taxes, labor, the environment, oil and trade.

For timely strategies on how to navigate the volatile market environment and in-depth analysis of the election, check out our Market Insights page, and you can follow us on Twitter at @SchwabResearch.

Retail sales trounce estimates, industrial production falls and sentiment improves

Advance retail sales (chart)

for September jumped 1.9% month-over-month (m/m), well above the Bloomberg forecast of a 0.8% increase following August's unadjusted 0.6% gain, and at the fastest pace in three months. Last month's sales ex-autos increased 1.5% m/m, compared to expectations of a 0.4% rise and August's downwardly-revised 0.5% gain. Sales ex-autos and gas were also up 1.5% m/m, compared to estimates of a 0.5% increase, and August's reading was adjusted downward to a 0.5% rise. The control group, a figure used to calculate GDP, gained 1.4% m/m, above projections of a 0.3% increase and versus August's negatively adjusted 0.3% decline.

Sales for clothing and accessories led the gains, with sporting goods, music and books also higher, as well as building materials and garden equipment and supplies. Sales at food and beverage stores moderated amid a decline at grocery stores, and sales at nonstore retailers—which includes online activity—came in slightly lower. The surprising jump in the overall figure comes despite the expiration of emergency relief measures and the continued stalemate in Washington on a fiscal relief deal.

The September preliminary University of Michigan Consumer Sentiment Index (chart) increased to 81.2 versus expectations of a slight improvement to 80.5 from September's 80.4 reading. The index hit the highest level since March as a decline in the current conditions portion of the index was offset by an increase in the expectations part of the survey. The 1-year inflation forecast increased to 2.7% from September's 2.6% rate, and the 5-10 year inflation forecast dipped to 2.4% from the prior month's 2.7% level.

The Federal Reserve's industrial production (chart) fell 0.6% month-over-month (m/m) in September, well short of estimates for a 0.5% gain, and versus August's unadjusted 0.4% increase. Manufacturing output fell 0.3%, somewhat paring the solid rebound from April's record drop, and utilities lost ground, while mining production rose 1.7%. Capacity utilization declined to 71.5% from the prior month's upwardly-revised 72.0% rate, compared to forecasts of 71.8%. Capacity utilization is 8.3 percentage points below its long-run average, but 7.3 percentage points north of the low set in April.

Business inventories (chart) moved 0.3% higher m/m in August, versus forecasts calling for a 0.4% increase, and versus July's unadjusted 0.1% gain.

Treasuries were lower, with the yield on the 2-year little changed at 0.14%, and the yields on the 10-year note and 30-year bond up 1 basis point (bp) at 0.74%, and 1.52%, respectively. Bond yields have been trading in a narrow range as of late and remain low, and for investors looking for higher yields, Schwab's Fixed Income Strategist, Collin Martin, CFA, offers some insight in his latest article, High-Yield Bonds: Higher Income Potential, But Default Risk is Elevated.

Asia mostly lower, and Europe rebounds off of yesterday's skid

European equities closed higher, as they pared yesterday's losses that came amid concerns over what the impact of a second wave of COVID-19 cases could have on the economic recovery following new restrictions implemented in the region. France announced a new curfew in Paris and other major cities within the county, and the U.K. government imposed tougher measures in London in an effort to curb the spread of the virus. 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.

As well, some glimmers of hope on some traction on a fiscal relief deal out of the U.S. appeared to also lend support. Economic news in the region was again light to close out the week, with consumer price inflation in the Eurozone rising in line with forecasts, while prices in Italy were cooler than expected. On the Brexit front, European Union (EU) and U.K. negotiators were again unable to come to an agreement on a trade deal ahead of yesterday's deadline. British Prime Minister Boris Johnson said, "Unless there’s a fundamental change of approach, we’re going to go to the 'Australia solution'," language for a "no-deal" exit. Schwab's Jeffrey Kleintop, CFA, offers his commentary on the matter in his article, Brexit Is Back: The Endgame For Investors. The euro and the British pound traded higher versus the U.S. dollar, while bond yields in the Eurozone lost ground and bond yields in the U.K. were little changed.

The U.K. FTSE 100 Index was up 1.5%, France’s CAC-40 Index advanced 2.0%, Germany's DAX Index was 1.6% higher, Switzerland's Swiss Market Index jumped 1.4%, Italy's FTSE MIB Index increased 1.7%, and Spain's IBEX 35 Index rose 0.5%.

Stocks in Asia finished mostly lower in the footsteps of the declines seen in the U.S. markets yesterday, amid increased worries on the coronavirus front, as well as mixed signals out of the U.S. on a fiscal stimulus package that continued to hamper sentiment. However, China's Shanghai Composite Index and the Hong Kong Hang Seng Index were able to buck the trend to finish with respective increases of 0.1% and 0.9%, with the latter rebounding off of yesterday's sharp loss. Australia's S&P/ASX 200 Index fell 0.5% amid weakness in materials stocks, as Rio Tinto PLC (RIO $60), the largest iron ore producer in the world, reported a 5.0% drop in shipments for Q3 and warned of slower rates of economic recovery in other countries. Japan's Nikkei 225 Index lost 0.4% amid some weakness in the yen, while South Korea's Kospi Index led in the region's losses, declining 0.8%, after the nation's unemployment rate increased at a faster-than-expected pace. Elsewhere, India's S&P BSE Sensex 30 Index finished 0.6% higher, paring a recent tumble. Schwab's Jeffrey Kleintop, CFA, discusses in his article, Stock Market "Inequality" Hides a Big Change, how the recent imbalances in the stock market can lead to vulnerability, while noting how rebalancing portfolios may be valuable to help balance exposure.

U.S. markets notch third-straight week of gains

The U.S equity markets were able to post weekly gains for the third-consecutive week, despite a midweek hiccup that came amid fleeting hopes of any deal of a fiscal relief package any time soon. However, in the latter part of the week some glimmers of optimism surfaced after Treasury Secretary Steven Mnuchin indicated that he could cede some ground in negotiations with lawmakers, and President Trump said he was willing to up his offer on a plan. The gains were held in check following some discouraging news on the health care front in its fight against the coronavirus after Johnson & Johnsonhalted its vaccine candidate study, and Eli Lilly and Company paused the trial of its therapy treatment, citing safety concerns. Economic news was also a bright spot, with small business optimism and consumer sentiment moving higher, while a surprising jump in retail sales for September and a surge in manufacturing activity out of Philadelphia kept the economic recovery theme alive. Additionally, the September inflation picture showed continued improvement, and while initial jobless claims overall ticked higher, continuing claims continued to decline.

The Financials sector unofficially kicked off Q3 earnings season, with Morgan Stanley (MS $52) and Goldman Sachs Group Inc. (GS $206) far exceeding forecasts, while Wells Fargo & Company (WFC $23) fell short of the Street's estimates. The major S&P 500 sectors' performance was mixed for the week, with a noticeable decline in the Energy sector, amid choppy trading in crude oil prices, coming up against strength out of the Communications Services, Industrials and Information Technology sectors. Treasury yields continued to be rangebound and the U.S. dollar saw a modest increase.

Next week, political headlines, particularly with the presidential election fast approaching, and a heat-up in Q3 earnings season are likely to dominate market attention, as well any new developments on a deal among lawmakers on a fiscal relief package. The economic calendar may take a back seat, as it will be less robust, but there are some reports slated for release that could move the markets. Housing data will be prominent, courtesy of the NAHB Housing Market Index, housing starts and building permits, and existing home sales. Weekly initial jobless claims for the week ended October 17 will also be released, as well as the Leading Index for September, while the first look at manufacturing and services sector data will come from Markit later in the week.

The international economic front will also command some attention, with manufacturing and services sector reads from across the globe set to hit the tape, while China will deliver GDP and industrial production, as well as the People's Bank of China's decision on interest rates. Moreover, Japan will offer CPI and trade data, and the U.K. will report retail sales and inflation statistics. Finally, the Eurozone and Germany will announce consumer confidence figures.

As noted in our latest Schwab Market Perspective: Turning to Earnings Season, with economic momentum having slowed, investors likely will shift their focus to third-quarter earnings for clues about future market direction. Business leaders are more confident in their outlook than when they reported second-quarter results, according to global business surveys, and bond markets also have moved from cautious to optimistic over the past few months, as reflected in rising longer-term Treasury yields.

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Stocks Close Mixed but Post Another Week of Gains

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