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Stocks Rebounding on Trade Headlines and Data

U.S. stocks are trading higher in early action, rebounding from a recent retreat after President Donald Trump said negotiations with China were going well, countering recently flared-up trade tensions as the U.S. said it will restore steel tariffs on Brazil and Argentina and that it was mulling further levies on France. Also, President Trump's remarks contrast his comments yesterday that it may be better to wait until after the 2020 election to strike a deal with China. The markets are awaiting some key reads on services sector activity, while reports out of China, India, Japan and Europe on the sector were relatively favorable. Treasury yields are rising after yesterday's drop and the U.S. dollar remains under pressure, while ADP's private sector employment report noticeably missed expectations. Crude oil prices are higher and gold is dipping. posted adjusted earnings above estimates but its guidance appears to be disappointing the Street. Asia finished mostly lower and Europe is higher.

As of 9:09 a.m. ET, the December S&P 500 Index future is 13 points above fair value, the DJIA future is 137 points above fair value, and the Nasdaq 100 Index future is 50 points north of fair value. WTI crude oil is increasing $1.48 to $57.58 per barrel and Brent crude oil is rising $1.30 to $62.12 per barrel. The Bloomberg gold spot price is trading $0.99 lower to $1,476.6204 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is declining 0.3% to 97.48. Inc. (CRM $162) reported a Q3 loss of $0.12 per share, or earnings-per-share (EPS) of $0.75 ex-items, versus the FactSet estimate of a $0.67 per share profit, as revenues rose 33.0% year-over-year (y/y) to $4.5 billion, roughly in line with forecasts. The customer relationship management (CRM) company's Q4 earnings and Q1 revenue guidance came in below the Street's expectation, while it raised its 2020 EPS and revenue outlooks.

Microchip Technology Incorporated (MCHP $92) is gaining ground after the semiconductor company raised the midpoint of its Q3 earnings and revenue guidance, citing strong quarter-to-date bookings.

ADP employment report misses, mortgage apps drop, ahead of key services sector reports

The ADP Employment Change Report showed private sector payrolls rose by 67,000 jobs in November, below the Bloomberg forecast of a 135,000 gain, while October's increase of 125,000 jobs was revised to a 121,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday's broader November nonfarm payrollreport, expected to show jobs grew by 190,000 and private sector payrolls rose by 178,000 (economic calendar). The unemployment rate is forecasted to remain at 3.6% and average hourly earnings are projected to rise 0.3% month-over-month (m/m), and be up 3.0% y/y.

The MBA Mortgage Application Index fell 9.2% last week, following the prior week's 1.5% rise. The decrease came as a 15.6% fall in the Refinance Index more than offset a 0.9% rise for the Purchase Index. The average 30-year mortgage rate remained at 3.97%.

Treasuries are declining amid recent choppy action as the markets grapple with mixed global manufacturing data and flared-up trade uncertainty. The yield on the 2-year note is ticking 1 basis point (bp) higher to 1.55%, the yield on the 10-year note is gaining 2 bps to 1.74%, and the 30-year bond rate is increasing 3 bps to 2.20%. For a look at fixed income investing, check out Schwab's Chief Fixed Income Strategist Kathy Jones' commentary, The Bond Investors' Dilemma, and her latest video, Investing in Bonds with a Flat to Inverted Yield Curve.

The stock markets have retreated a bit after posting a string of all-time highs as the Street wrestles with stock valuations amid the aforementioned trade and economic uncertainties. Schwab’s Chief Investment Strategist Liz Ann Sonders discusses in her latest article, Any Weather: Valuations Say Stocks are Cheap and Expensive, how market valuation is always a factor; but often misunderstood is the vastness of the spectrum of metrics, and the sentiment nature of valuation.

Later this morning, the economic calendar will bring some key November services sector reports after Monday's unexpected acceleration in the contraction for the manufacturing sector as reported by the ISM. The ISM non-Manufacturing Index is expected to dip to 54.5 from 54.7 in October, and Markit's Services PMI Index is projected to be unrevised at 51.6, slightly above the 50.6 level posted in October. Readings north of 50 depict expansion for both indexes. Schwab's Liz Ann Sonders provides analysis of the divergence between the manufacturing and services sectors in her article, Split Personality: U.S. Economy's Bifurcation Persists, noting that for now, the cracks are sufficiently small to keep economic weakness contained to the smaller manufacturing and business investment segments of the economy.

Europe mostly higher as trade headlines dampen ramped up concerns

European equities are mostly higher in afternoon action, with President Donald Trump noting at the NATO summit that talks with China were going well, countering his remarks yesterday that it might be better to wait until after the 2020 election to make a deal with China. Trade tensions have flared up recently to put pressure on the global markets as the U.S. said it will restore steel tariffs on Brazil and Argentina and that it was mulling hiking levies on French goods. As noted in our latest Schwab Market Perspective: Slowing Down While Speeding Up, absent a trade deal that covers the major structural issues surrounding intellectual property (IP) theft, technology transfers, and supply chains, we find it difficult to envision a resurgence in corporate animal spirits and business investment—stabilization is more likely. Conversely, a positive shift in global growth may be in its infancy stages, as a more widespread adoption of fiscal stimulus may bode well for economies that have leaned too much on easier monetary policy. Economic data in the region was mostly positive, as Markit's Eurozone Services PMI for November was revised to a higher pace of growth than previously reported, and Markit's U.K. Services PMI showed the contraction decelerated last month. The euro is ticking higher versus the U.S. dollar and bond yields in the region are mixed. The British pound is rallying as expectations of a win for the Conservative Party in next week's general election are rising. A win by the Conservative Party would likely deliver the best case Brexit scenario of the U.K. leaving the European Union with a deal in place.

The U.K. FTSE 100 Index is ticking 0.1% higher, France's CAC-40 Index is gaining 1.1%, Germany's DAX Index is advancing 1.0%, Spain's IBEX 35 Index is rising 1.2%, Switzerland's Swiss Market Index is trading 0.8% to the upside, and Italy's FTSE MIB Index is increasing 0.9%.

Asia mostly lower as trade uncertainty outduels data

Stocks in Asia finished mostly to the downside, amid the recently flared-up global trade uncertainty as U.S. President Donald Trump said it might be better to wait until after the 2020 election to strike a deal with China and the U.S. said it will restore steel tariffs on Brazil and Argentina and threatened further levies on French goods. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his commentary, Tied to Trade: What's Next for Emerging Market Stocks?, how a wide range of outcomes from -10% to +40% may lie ahead of emerging market stocks depending on the timing and details of a trade deal. The revived trade uneasiness countered some relatively favorable economic data in the region as China's services sector growth accelerated more than expected for November, a read on Japanese services sector activity remained in expansion territory, and India's services sector output returned to growth last month. However, Australia's quarter-over-quarter Q3 GDP growth came in slightly below forecasts. Japan's Nikkei 225 Index fell 1.1%, with the yen holding onto a recent gain, and Australia's S&P/ASX 200 Index dropped 1.6%. China's Shanghai Composite Index declined 0.2% and the Hong Kong Hang Seng Index traded 1.3% to the downside. South Korea's Kospi Index declined 0.7%, though India's S&P BSE Sensex 30 Index advanced 0.4%.

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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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