Schwab Market Update

U.S. Stocks Participate in Global Rally

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U.S. equities rallied for a second day amid a host of events and data, including a smaller-than-expected rate hike from the Reserve Bank of Australia (RBA). On the equity front, South Korean internet giant Naver Corporation announced that it will acquire Poshmark for $1.2 billion, electric vehicle company Rivian posted a noticeable jump in its Q3 production, and Elon Musk said he will move forward with his original proposal to purchase Twitter. In economic news, factory orders were unchanged, the final reads on durable goods orders matched expectations, capital spending data was upwardly adjusted, and the Job Opening and Labor Turnover Survey fell more than forecasted. Treasury yields declined, and the U.S. dollar tumbled, while crude oil prices rose ahead of tomorrow's OPEC meeting, with reports suggesting production cuts may be in the offing, and gold traded solidly higher. Asian stocks finished broadly higher following the RBA's dovish monetary policy decision, while markets in mainland China and Hong Kong were closed for holidays. European stocks saw broad gains amid the RBA’s rate increase, and following yesterday’s announcement from the U.K. government that it will reverse its decision to cut taxes on high income earners.

The Dow Jones Industrial Average jumped 825 points (2.8%) to 30,316, the S&P 500 Index climbed 113 points (3.1%) to 3,791, and the Nasdaq Composite soared 361 points (3.3%) to 11,176. In moderately-heavy volume, 5.1 billion shares of NYSE-listed stocks were traded, and 5.0 billion shares changed hands on the Nasdaq. WTI crude oil gained $2.89 to $86.52 per barrel. Elsewhere, the gold spot price increased $31.90 to $1,733.90 per ounce, and the Dollar Index fell 1.4% to 110.14.

Rivian Automotive Inc. (RIVN $36) announced that its Q3 production jumped 67% versus the prior quarter. The electric vehicle automotive technology company produced over 7,000 vehicles in Q3, its highest quarterly amount, and confirmed that it remains on track to achieve its production goal for FY22. Shares RIVN traded noticeably higher.

In M&A news, South Korean internet giant Naver Corporation announced that it will acquire Poshmark Inc. (POSH $18), an e-commerce marketplace platform, for $1.2 billion. Naver, which operates a search engine, e-commerce platform, and other services in South Korea, said that the deal will deepen its reach in online retail. POSH rallied over 10%.

After being halted for most of the day, shares of Twitter Inc. (TWTR $52) resumed trading and jumped on reports that Elon Musk sent a letter to the social media's Board stating that he plans to go forth with his original proposal to purchase the company at $54.20 per share, a deal that could happen as soon as Friday, according to sources familiar with the matter. The move comes just days before the two sides were set to appear in court after TWTR sued Musk to force him to complete the purchase after he informed the company of his intentions to terminate the agreement in July.

The S&P 500 Index continued to rebound after dropping six out of the last seven weeks to levels not seen since 2020 as inflation pressures persist, which has forced the Fed to aggressively tighten monetary policy as discussed in the article, Stock Market Volatility: Recession Worries Flare. Meanwhile, as the markets gear up for the start of Q3 earnings season next week, Schwab's Chief Investment Strategist Liz Ann Sonders discusses in her article, Earnings: Trampled Under Foot? how the bear market has been driven by multiple compression, making valuations look relatively compelling, but expected weakness in earnings may limit the upside potential for stocks. You can follow Liz Ann on Twitter: @LizAnnSonders.

Read all our market commentary on our Insights & Education page, and you can follow us on Twitter at @SchwabResearch.

Factory orders and durable goods orders matched expectations, JOLTS rose more than forecasts

Factory orders (chart) for August was unchanged as expected, and versus the prior month's unrevised 1.0% decline. Durable goods orders—preliminarily reported last week—remained at the previously reported 0.2% month-over-month (m/m) decrease for August, and excluding transportation, orders were unexpectedly adjusted slightly upward to a 0.3% gain. As well, August’s final read on nondefense capital goods orders excluding aircraft—considered a proxy for capital spending—was upwardly adjusted to a 1.4% m/m increase from a 1.3% rise in the preliminary reading.

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, showed a noticeable decline to 10.1 million jobs available to be filled in August, well below estimates of 11.1 million, and versus July's downwardly revised level of 11.2 million. The report showed the hiring rate was unchanged from July's 4.1% level, and total separations—includes quits, layoffs, discharges, and other separations—ticked slightly higher to 3.9% from July's 3.8% rate. The quit rate for August remained at the prior month's 2.7% pace.

Treasury yields were lower, with the yield on the 2-year note declining 3 basis points (bps) to 4.08%, the yield on the 10-year note down 4 bps to 3.61%, and the 30-year bond rate decreasing 2 bps to 3.69%.

Bond yields and the U.S. dollar have been bolstered as of late by the Fed's aggressive monetary policy actions as discussed by Schwab's Chief Fixed Income Strategist Kathy Jones in her article, With Inflation Offsides, the Fed Keeps Hiking. The Fed has hiked rates by 75 bps for three-straight meetings, downgraded economic growth forecasts, and increased the unemployment rate outlook, as inflation remains the Central Bank's primary concern. You can follow Kathy on Twitter: @KathyJones.

Schwab’s Liz Ann Sonders discusses the impact of the greenback’s recent rise in her latest article, Ripple(s) From Surging Dollar, discussing how while a spike in global market volatility has prompted some investors to think a Fed response is imminent, we caution against thinking that intervention is a bullish development.

Items slated for release on tomorrow's economic calendar include the ADP Employment Change report, forecasted to show the addition of 200,000 private sector jobs during September, as well as the August trade balance, with economists projecting the deficit narrowed to $67.7 billion. A look at the services side of the economy is also on tap, with the ISM Services Index expected to nudge lower to a level of 56.0 for September from August's 56.9 level, and the S&P Global U.S. Services Index to remain at the preliminary reading of 49.2 for September, but above the prior month's 43.7 reading. Rounding out the docket is the MBA Mortgage Applications Index for the week ended September 30.

Europe higher amid yesterday’s U.K. tax cut reversal and Australia’s dovish rate hike

Stocks in Europe posted widespread gains amid the Reserve Bank of Australia’s monetary policy decision, and as the markets continued to digest yesterday’s announcement that the U.K. government will reverse its decision to cut taxes for the highest income tax bracket. The original announcement of the tax cuts caused U.K. bond yields to spike last week, and the British pound to fall to an all-time low versus the U.S. dollar, forcing the Bank of England to announce plans to buy long-term bonds. Today, the British pound and the euro traded higher versus the U.S. dollar. Bond yields in the Eurozone and the U.K. were noticeably lower.

In economic news, the Eurozone’s Producer Price Index (PPI) hit a fresh record high of a 43.3% y/y rise in August, slightly above the 43.2% estimate, and noticeably higher than the prior month’s upwardly revised 38.0% growth rate. On a m/m basis, PPI rose 5.0% as expected, above July’s 4.0% gain. The inflation picture remains worrisome, and is being exacerbated by an ensuing energy crisis in the region due to the ongoing war in Ukraine. Further complicating the energy crisis, last week the Nord Stream pipeline system—which transports Russian gas throughout the region—suffered damage that has led to several gas leaks in the Baltic Sea. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his latest article, What's Next: Good, Bad, & Ugly, that the persistence of global inflation could determine which of the three paths central banks may follow and which market qualities investors might consider for their portfolios. You can follow Jeff on Twitter: @JeffreyKleintop.

The U.K. FTSE 100 Index was up 2.6%, France's CAC-40 Index soared 4.2%, Germany's DAX Index climbed 3.8%, Italy's FTSE MIB Index rallied 3.4%, Spain's IBEX 35 Index are increased 3.1%, and Switzerland's Swiss Market Index gained 2.9%.

Asia noticeably higher after a smaller-than expected rate increase from Australia’s central bank

Stocks in Asia finished sharply higher following a surprisingly dovish rate hike from the Reserve Bank of Australia (RBA). Rather than hiking its cash rate target by 50 bps as expected, the RBA increased it by 25 bps to 2.60%. In a statement after the October policy meeting, RBA Governor Philip Lowe said, “Today’s further increase in interest rates will help achieve a more sustainable balance of demand and supply in the Australian economy.” He reiterated that the board expects to hike rates more over the period ahead, and discussed how the size and timing of future rate increases will continue to be determined by incoming data and the outlook for inflation and the labor market.

Despite the dovish rate hike, global monetary policy concerns regarding further aggressive rate hikes remain, and has led to the sharp rise in the U.S. dollar recently, which has weighed on the Japanese yen and China's currency. Moreover, bond yields around the globe have moved solidly higher to exacerbate sentiment and concerns about a global recession. The tightening world financial conditions have come as central banks in North America, the Eurozone, and the U.K. have moved to make monetary policies restrictive to fight persisting inflation pressures. Adding further downside pressure on currencies in Japan and China, the Bank of Japan and China's central bank have bucked the trend, as China even loosened policy to try to boost the world's second-largest economy that has also been hampered by the impact of COVID-related lockdowns, regulatory crackdowns, real estate issues, and elevated geopolitical tensions with the U.S.

Schwab's Jeffrey Kleintop provides commentary on China's situation in his article, China Q&A: Top 5 Questions, discussing various topics including inflationary concerns, currency movements, government policies, and more. In other economic news out of Japan, Tokyo CPI declined in-line with expectations from the previous month, but rose more than forecasted when excluding food and energy. Additionally, South Korean and Japanese defense stocks led the rally after North Korea test-fired a missile over Japan for the first time in five years.

Japan's Nikkei 225 Index climbed 3.0%, with the yen softening versus the U.S. dollar. The yen remains near multi-decade lows versus the greenback given the divergence of monetary policies. Australia's S&P/ASX 200 Index soared 3.8% following the RBA’s monetary policy decision, and South Korea’s Kospi Index gained 2.5%, while India's S&P BSE Sensex 30 traded 2.3% higher. Volume was lighter than usual as markets in mainland China and Hong Kong were closed for holidays.

The international economic calendar for tomorrow will hold a number of Services PMIs from across the globe, as well as CPI from South Korea, trade figures from Germany, and industrial production from Spain.

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