Stocks Finish Higher, Posting a Second Consecutive Week of Gains

U.S. stocks closed higher, helping the markets reach back-to-back weekly gains after a tumultuous September. The on-again, off-again fiscal stimulus negotiations were again in focus, as fresh headlines suggested that the White House is prepared to make a larger relief offer, spurring some optimism. However, uncertainty surrounding the timing and likelihood of any potential deal is still giving investors pause. Further progress on the COVID-19 treatment/vaccine front continued to provide markets with a boost, as Gilead Sciences announced constructive data on its investigational antiviral treatment known as remdesivir. Semiconductors also aided the positive backdrop, with the Wall Street Journal reporting that Advanced Micro Devices is in advanced talks to acquire rival Xilinx for potentially more than $30 billion, while NXP Semiconductor boosted its Q3 guidance. Treasury yields dipped as bond prices moved higher, and the U.S. dollar continued to give back its late-September run. Gold rallied and crude oil prices fell. Asia finished mixed, but China rallied on data and a return from the extended Golden Week holiday break, and Europe closed mostly higher amid a plethora of data.

The Dow Jones Industrial Average increased 161 points (0.6%) to 28,587, the S&P 500 Index rose 30 points (0.9%) to 3,477, and the Nasdaq Composite gained 159 points (1.4%) to 11,580. In moderate volume, 851 million shares were traded on the NYSE and 3.4 billion shares changed hands on the Nasdaq. WTI crude oil was $0.59 lower at $40.60 per barrel and wholesale gasoline lost $0.03 to $1.20 per gallon. Elsewhere, the Bloomberg gold spot price added $34.94 to $1,928.76 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% lower at 93.06. Markets were higher for the week, as the DJIA gained 3.3%, the S&P 500 increased 3.8%, and the Nasdaq Composite rose 4.6%.

Gilead Sciences Inc. (GILD $64) gained ground after announcing positive trial data regarding its investigational antiviral treatment for COVID-19 in hospitalized patients, known as remdesivir. The company said the data showed that hospitalized patients receiving the treatment recovered five days faster on average, and in patients with severe disease, seven days faster. GILD added that the robust evidence on the clinical benefits of remdesivir, coupled with significantly expanded global supply, puts an important treatment option in the hands of healthcare providers around the world. Remdesivir is authorized for use under an Emergency Use Authorization (EUA), which is temporary and may be revoked, while it has not been approved by the U.S. Food and Drug Administration for any use and the safety and efficacy for the treatment of COVID-19 have not been established.

Xilinx Inc. (XLNX $121) jumped after the Wall Street Journal (WSJ) reported that Advanced Micro Devices Inc. (AMD $83) is in advanced talks to acquire the chip company in a deal to possibly be valued at more than $30.0 billion. The WSJ's story said sources told it that talks had stalled before recently restarting and therefore there is no guarantee that a deal will be agreed. Neither company commented on the report. AMD traded lower.

In other chip-related news, NXP Semiconductor NV (NXPI $142) raised its Q3 guidance, noting that the business environment has improved at a faster rate than anticipated. The company added that it has seen material improvement in demand across all end markets, but particularly in the automotive and mobile end markets, while demand improved in both its direct and distribution channels. Shares traded nicely higher.

The stock markets added to strong weekly gains as the continued news suggesting progress on the COVID-19 treatment/vaccine front was accompanied by cautious optimism regarding an agreement among lawmakers on a new fiscal relief package. Hopes of a next wave of fiscal relief have been whipsawed as of late amid conflicting headlines regarding progress of negotiations on Capitol Hill, likely complicated by the looming highly-contentious November presidential election.

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.

For timely strategies on how to navigate the volatile market environment and in-depth analysis of the election, check out our MarketInsights page, where the Schwab Center for Financial Research (SCFR) offers 3 Reasons to Expect Election Result Delays. Finally, follow us on Twitter at @SchwabResearch.

Treasury yields dipped as stocks post solid weekly gains, wholesale inventories miss

August wholesale inventories (chart) were unexpectedly revised lower to a 0.4% month-over-month (m/m) rise, versus expectations to be unrevised at the preliminary estimate of a 0.5% gain, and compared to July's negatively-revised 0.2% dip. Sales rose 1.4% after July's upwardly-revised 4.8% gain.

Treasuries were higher, with the yield on the 2-year note little changed at 0.15%, the yield on the 10-year note ticked 1 basis point (bp) lower to 0.77%, and the 30-year bond lost 2 bps to 1.57%. The Treasury yield curve has steepened a bit amid heightened volatility induced by increased political and fiscal relief uncertainties. Moreover, economic data has mostly painted a recovery picture and the Fed continues to pledge to do whatever it can to bolster the economic recovery, which continues to be threatened by the severely elevated level of unemployment.

Asia mixed and Europe mostly higher on global economic data, mixed virus-related news and U.S. fiscal focus

European equities finished the day mostly higher, as the markets digested mixed global economic data, while faint hopes of a U.S. fiscal relief agreement, despite conflicting headlines, remained. Also, the continued risk of rising COVID-19 cases in the region appeared to be countered by further signs of progress on the treatment/vaccine front, headlined by Gilead Sciences’ data released today on its antiviral treatment. After China posted another dose of stronger-than-expected economic data, the U.K. reported that its August m/m GDP growth came in well below expectations, with manufacturing, industrial, and construction output for the month all coming in lower than anticipated. In other economic news, French industrial and manufacturing production statistics for August missed forecasts, though Italy's industrial production grew much more than expected. The euro and British pound traded higher as the U.S. dollar continued to trim its late-September rally. Bond yields in the Eurozone and U.K. were lower. The U.K. data likely adds some urgency ahead of next week's Brexit deadline for a trade deal with the European Union, which remains elusive. Amid the backdrop in Europe, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his commentary, Brexit Is Back: The Endgame For Investors, and his latest article, Risk of Second Wave of COVID-19 Lockdowns. Jeff notes 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.

The U.K. FTSE 100 Index and France’s CAC-40 Index were up 0.7%, Germany's DAX Index and Italy's FTSE MIB Index increased 0.1%, and Switzerland's Swiss Market Index was 0.5% higher, while Spain's IBEX 35 Index declined 0.6%.

Stocks in Asia finished mixed as the global markets continued to grapple with the festering political uncertainty in the world's largest economy of the U.S., while a flood of data was digested and China's markets returned to action following the extended Golden Week holiday break. The Caixin China PMI Services Index showed growth in the key sector accelerated more than expected for September. Moreover, Japan's August household spending and real cash earnings figures declined year-over-year, with the former falling more than expected. Additionally, the Reserve Bank of India (RBI) held its benchmark interest rates steady, but offered liquidity support and an improved outlook for inflation, while signaling that more policy easing could be in the offing. China's Shanghai Composite Index rallied 1.7%, though Japan's Nikkei 225 Index dipped 0.1%, with the yen gaining noticeable ground late in the session. India's S&P BSE Sensex 30 Index advanced 0.8% and the Hong Kong Hang Seng Index declined 0.3%, while Australia's S&P/ASX 200 Index finished little changed. South Korean markets were closed for a holiday. Amid the wild swings in the global markets, Schwab's Jeffrey Kleintop, 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.

S&P 500 rallies for second-straight week

Last week's upside momentum in the stock markets carried over and accelerated this week as the bulls found sustenance from three sources. The main catalyst came in the form of cautious optimism that a deal on a new round of fiscal relief will come to fruition even as contention in Washington continued to swirl around the size, scope and timing that suggested an agreement would be hard to find before the key November presidential election. Resiliency in the markets was also fostered by further progress on the COVID-19 treatment/vaccine front as President Trump was released from his COVID-related hospitalization, and shortly after Regeneron Pharmaceuticals Inc. (REGN $602) and Eli Lilly & Co. (LLY $157) approached the FDA for EUAs of their investigational virus antibody therapies. The developments were complemented by Friday's news from Gilead Sciences. Stocks were able to claw back a noticeable amount of the September plunge amid the backdrop of another string of global economic data suggesting the recovery persists and as M&A announcements continued to pour in to send a strong signal that corporate confidence may be holding up in the wake of the pandemic's severe disruption. However, one of the glaring sore spots remains the persistently painfully elevated unemployment levels, which continues to worry the Fed and illustrate the market's sense of urgency regarding a fiscal deal getting accomplished.

All the major S&P 500 sectors posted solid gains, with Energy a standout as crude oil prices rallied sharply on the aforementioned economic implications of the mostly upbeat global data and preserved hopes of fiscal relief, amplified by Hurricane Delta's threat off the Gulf Coast. Financials were also standout winners as the Treasury yield curve continued to steepen, while cyclically-natured Materials and Industrials also were among the best performers, along with the high-flying Information Technology group. The U.S. dollar gave back most of its late-September charge amid the faded uneasiness and gold continued to rebound for a second week in a row.

Next week, while political and virus headlines are poised to continue to dominate market attention, a new catalyst may emerge in the form of the unofficial start of Q3 earnings season, with the deep dive into the health of the Financials sector. The economic calendar will also be robust to accompany the busy week, with a host of inflation data, courtesy of the Consumer Price Index(CPI), Producer Price Index (PPI), and Import Price Index. Timely reads on October business activity will also be on display, as regional manufacturing reports out of New York and Philadelphia will precede the University of Michigan's preliminary read on consumer sentiment, while initial jobless claims data for this week will hit the tape. However the headlining release could be the September retail sales report as the markets scrutinize the impact of the expiring emergency relief measures and high unemployment on the critical consumer spending.

Please note: the U.S. bond markets will be closed on Monday in observance of the Columbus Day holiday.

The international economic front will also be heavy, with China delivering key lending statistics, trade data, and inflation figures for September. Moreover, Japan will provide a look at capital investment with the releases of core machine orders and industrial production for August, and the U.K. will report its three-month employment change for the period ending in August. Finally, the Eurozone will announce its revision to September consumer price inflation and the EU will release its September new car registrations report, while Germany will produce a look at October investor confidence.

With the markets likely to remain choppy amid the uncertain times, the SCFR offers a look at the current environment in the article, Stimulus in Limbo: Politics, Congress, and the Fed, along with our Quarterly Market Outlook: Walking the Fine Line.

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Stocks Finish Higher, Posting a Second Consecutive Week of Gains

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