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Markets Slip In Wake of Disappointing Data

U.S. stocks are lower in midday trading, with some upbeat earnings results in the infancy of Q3 earnings season being overshadowed by a surprising decline in the Leading Index and soft economic data out of China to flare global growth concerns. As well, some caution may be setting in ahead of tomorrow's Brexit vote in the U.K. Parliament, with uncertainty of support for the measure making it too close to call. On the equity front, Dow members Coca-Cola and American Express posted positive results. Treasury yields are lower, the U.S. dollar is losing ground, crude oil prices have turned mixed and gold is little changed. Asia finished mostly lower following Chinese output slowing to a pace not seen in 27-and-a-half years, while Europe is mixed amid caution ahead of tomorrow's Brexit vote.

At 10:55 a.m. ET, the Dow Jones Industrial Average is declining 0.3%, the S&P 500 Index is losing 0.2%, and the Nasdaq Composite is decreasing 0.5%. WTI crude oil is nudging $0.08 higher to $54.02 per barrel and Brent crude oil is $0.14 lower at $59.77 per barrel, while wholesale gasoline is up $0.01 at $1.63 per gallon. The Bloomberg gold spot price is inching $0.02 lower at $1,491.85 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is down 0.2% to 97.44.

Dow member American Express Company(AXP $117) reported Q3 earnings-per-share (EPS) of $2.08, compared to the $2.03 FactSet estimate. Revenues rose 8% year-over-year (y/y) to $11.0 billion, above the consensus estimate of $10.9 billion. The credit card issuer said more people are using cards to pay their bills and purchase larger-ticket items. AXP also said it sees current-quarter revenue growth of 8%-10%, compared to a consensus estimate of 8.9%. Shares are falling.

Fellow Dow component Coca-Cola Company(KO $55) posted a Q3 profit of $0.56 per share, in line with the FactSet estimate, as revenues grew 8.3% y/y to $9.5 billion, above the average analyst estimate of $9.4 billion. The company's Chief Executive Officer James Quincey said in a statement, “Our performance gives us confidence that our strategies are taking hold with our consumers, customers and system.” Looking ahead, the soft drink maker said it now expects full-year organic revenue growth—excluding currency fluctuations, acquisitions and divestitures—to be at least 5%, from its previous forecast of up to 5% growth. The company also raised its full-year guidance for operating income. KO is higher.

Leading indicators dip

The Conference Board's Index of Leading Economic Indicators (LEI) (chart) for September dipped 0.1% month-over-month (m/m) versus the Bloomberg projection of a flat reading and compared to August's negatively revised reading of a 0.2% m/m decline. Weakness in the manufacturing sector and the yield curve were offset by positive contributions from the credit, stock prices and jobless claims components of the index.

The report completes the week's docket that has been fairly light. As such, Q3 earnings season has grabbed the lion's share of attention, while global events have also acquired increased focus, particularly on the U.S.-China trade front and any Brexit developments. Investors may eye this weekend's vote in Parliament to accept the deal cobbled together by U.K. and European Union (EU) negotiators.

Treasuries are higher, with the yields on the 2-year and 10-year notes, along with the 30-year bond, down 2 basis points (bps) to 1.58%, 1.74% and 2.23%, respectively. Despite the increases last week, yields remain historically low and overseas there is a massive amount of negative yielding debt. As such, Schwab's Chief Fixed Income Strategist Kathy Jones offers her commentary, Could Negative Bond Yields Come to America?, while the Schwab Center for Financial Research discusses, Market Volatility: What Investors Should Know.

As noted in our latest Schwab Market Perspective: Déjà vu, stocks continue to face pressure and volatility has resurfaced; as trade tensions have heated up yet again, and mixed economic data has fueled investor hesitation. Although September's jobs report posted a new low in the unemployment rate, some weaknesses are appearing in key leading indicators in the labor market. Global equities have failed to make gains in the past 20 months, but positive earnings growth in the coming quarters may provide a boost for prices.

Europe lower amid Brexit deal caution and data from China

European equities are lower in late-day trading, with investors cautious ahead of tomorrow's vote in Parliament on the tentative Brexit deal agreed to by negotiators for the U.K. and the European Union (EU) yesterday as the October 31 deadline quickly approaches. U.K. Prime Minister Boris Johnson has called on lawmakers to ratify the agreement when it is presented on Saturday, calling it "a great new Brexit deal." However there are some doubts that the accord will be approved by U.K. lawmakers in Parliament, as a key government ally, the Northern Irish Democratic Unionist Party, has said it still cannot support the measure. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his commentary Q&A on Brexit: The Options and Implications for Investors, how we see five main options for Brexit in the coming months; three result in a near-term resolution while two options result in a further delay or "no deal" Brexit. Automobile manufacturers are underwater and providing additional pressure following a warning of lower revenues and operating margins from French carmaker Renault SA (RNLSY $11), which is down 12% in afternoon trading. As well, global growth worries have flared back up following the disappointing read on output from China. Economic news in the region was virtually nonexistent. The euro and the British pound are gaining ground versus the U.S. dollar, while bond yields in the region are higher.

The U.K. FTSE 100 Index, Switzerland's Swiss Market Index and Italy's FTSE MIB Index are down 0.3%, Germany's DAX Index is falling 0.2%, France's CAC-40 Index is declining 0.6%, and Spain's IBEX 35 Index is 0.1% lower.

Asia mostly lower amid soft Chinese data, growth concerns

Stocks in Asia finished lower following disappointing economic data out of China to bring global growth concerns back to the forefront. Q3 GDP in the Asian nation slowed to 6.0% y/y from the 6.2% in Q2, marking is slowest pace of growth since the early 1990s. Year-to-date, output grew at a 6.2% rate, placing it at the lower end of the government's target of a range of 6.0%-6.5%. On the other hand, industrial production in China rebounded to 5.8% y/y from August's 4.4% rate and ahead of forecasts, and retail sales came in line with expectations, tempering increased notions of additional easing from the nation's central bank following the disappointing GDP report. China's Shanghai Composite Index fell 1.3% and the Hong Kong Hang Seng Index declined 0.5%. Japan's Nikkei 225 Index was able to muster a slight gain, up 0.2%, amid some weakness in the yen, and as core consumer price inflation slowed to its weakest read since April 2017. India's S&P BSE Sensex 30 Index was also able to buck the trend, rising 0.6%, with some cautious optimism as corporate earnings season gets underway. Elsewhere, South Korea's Kospi Index declined 0.8% and Australia's S&P/ASX 200 Index fell 0.5%. With volatility continuing in the global stock markets and as recession concerns persist, Schwab's Jeffrey Kleintop, CFA, discusses in his latest commentary, Are Stocks Priced for Perfection or Recession, examining price-to-earnings ratios and why they offer some reasons for concern.

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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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