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Investors Head Into the Weekend on a Positive Note

U.S. equities finished out a rough week on a positive note with solid gains, but the Dow and S&P 500 Index suffered a fourth-straight week of losses. Technology stocks led the way after being at the head of the pack in the pullback to near correction territory since early September. Hopes of progress on the stalemate for fiscal relief surfaced with the House reportedly set to unveil its new relief bill, and another dose of relatively favorable economic data in the form of the business investment component of durable goods orders, appeared to lend support. However, heightened political uncertainty remained and uneasiness regarding the economic implications of the resurgence of new COVID-19 cases in Europe to keep investors wary. In equity news, Costco Wholesale saw some pressure despite delivering another solid quarterly performance and Novavax rallied after initiating a late-stage study in the U.K. of its vaccine candidate. Treasury yields were nearly unchanged and the U.S. dollar continued to bounce off a recent near two-year low. Gold and crude oil prices were lower. Markets in Europe and Asia finished the week mixed.

   The Dow Jones Industrial Average rose 359 points (1.3%) to 27,174, the S&P 500 Index gained 52 points (1.6%) to 3,298, and the Nasdaq Composite increased 241 points (2.3%) to 10,914. In moderate volume, 800 million shares were traded on the NYSE and 3.7 billion shares changed hands on the Nasdaq. WTI crude oil inched $0.06 lower to $40.25 per barrel and wholesale gasoline gained $0.02 to $1.19 per gallon. Elsewhere, the Bloomberg gold spot price fell $5.40 to $1,862.67 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 94.59. Markets were mixed for the week, as the DJIA lost 1.8% and the S&P 500 declined 0.6%, while the Nasdaq Composite gained 1.1%.

Costco Wholesale Corporation (COST $343) reported fiscal Q4 earnings-per-share (EPS) of $3.13, including a host of extraordinary items as charges relating to COVID-19-related expenses were partially offset by a benefit pertaining to the partial reversal of a tax-assessment reserve taken last year. The items make it unclear if the figure compares to the Q4 FactSet estimate of $2.85 in EPS. Revenues grew 12.4% year-over-year (y/y) to $53.4 billion, north of the Street's projection of $52.1 billion. Adjusted Q4 same-store sales increased 11.4% y/y, above the forecasted 10.4% gain. Shares were lower.  Bristol-Myers Squibb Company (BMY $59) traded higher after the company announced positive interim results from a late-stage trial of its immunotherapy treatment Opdivo for bladder cancer patients.

Vail Resorts Inc. (MTN $225) announced a Q4 loss of $3.82 per share, versus the Street's forecast of a $2.22 per share shortfall, as revenues fell 68.4% y/y to $77.2 million, south of the projected $138.3 million. The company said its Q4 results continued to be negatively impacted by COVID-19, with the majority of its North American summer and Australian ski season operations not opening until late June and early July. The company said its season pass sales through September 18th increased 18.0% y/y. Shares pared an early loss and finished modestly higher.

Novavax Inc. (NVAX $114) rallied over 10% after the company announced that it has initiated its first Phase-3 trial of its COVID-19 vaccine candidate in the United Kingdom. The company said it has begun planning for a larger U.S. study that would begin enrolling volunteers in mid-October.

The stock markets have been volatile and are flirting with correction territory and a four-week losing streak amid ramped-up uncertainties on the political front and concerns about the economic implications of signs of a resurgence in new COVID-19 cases.

For analysis of the recent pullback from record highs, check out the Schwab Center for Financial Research's (SCFR) article, Market Correction: What Does It Mean?. Moreover, Schwab's Chief Investment Strategist Liz Ann Sonders offers analysis of the current environment in her latest article, Unwind: Simple Rotation or Something More Sinister?. She notes how a rotation could give way to broader-based selling if economic data fails to support recent leadership by more classically-cyclical sectors. Also, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his article, 4 Reasons to Stay the Course as the Election Approaches.

Amid the wild swings in the markets, the SCFR also offers timely strategies on how to navigate the volatility on our Market Insights page, and you can follow us on Twitter at @SchwabResearch. Meanwhile, SCFR Senior Vice President Mark Riepe offers his commentary, New to Investing? How to Start Smart and Manage Your Risk, delivering key risk management principles and some tips on how to get started and to follow throughout your investing career.

Durable goods orders report mixed to close out the busy week

August preliminary durable goods orders(chart) rose 0.4% month-over-month (m/m), versus the Bloomberg estimate of a 1.5% rise and compared to July's upwardly-revised 11.7% increase. Ex-transportation, orders also grew 0.4% m/m, versus forecasts of a 1.0% increase and compared to July's favorably-adjusted 3.2% gain. Moreover, orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, gained 1.8%, compared to projections of a 1.0% rise, while the prior month's figure was upwardly-revised to a 2.5% increase.

Orders for computers and related products, communications equipment and machinery all rose solidly, while demand for motor vehicles and parts and electrical equipment, appliances and components declined noticeably after solid gains in the prior months.  The data concludes the week that saw a heavy dose of Fedspeak, with Federal Reserve Chairman Jerome Powell delivering three-days of Congressional testimony. Powell's remarks this week continued to stress that the Central Bank will hold its unprecedented accommodative policy intact for years to ensure the economic recovery from the severe COVID-19 pandemic disruption. Although a little vague on its recent shift in monetary policy framework, the Fed continues to prioritize combating the stubbornly elevated unemployment levels over inflation and Powell noted that additional fiscal support likely will be needed as uncertainty remains. Powell added that, "We remain committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy."

For a look at the recent shift in the Fed's policy framework, check out Schwab's Chief Fixed Income Strategist Kathy Jones' article, Federal Reserve Raises the Inflation Hurdle, as well as Schwab's Liz Ann Sonders' commentary, Inflation Blues: Fed Keeps Rates Near-Zero, Officially Adopts Average Inflation Targeting.

Treasuries were little changed, as the yields on the 2-year note and 30-year bond were flat at 0.13% and 1.40%, respectively, while the yield on the 10-year note dipped 1 basis point to 0.65%. Schwab's Fixed Income Strategist, Collin Martin, CFA, discusses in his article, Why Own Bonds When Yields Are So Low?, how we believe fixed income investments still have a place in a well-diversified portfolio.

Europe and Asia mixed to end a volatile week

European equities finished the last trading session of the week mixed amid a sharp weekly pullback that has come from elevated U.S. political uncertainty and the economic implications of the resurgence of new COVID-19 cases in the region. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, Confidence Is Everything: 3 Things May Shake It, how the virus progression, the ramifications of the U.S. election, and the outcome of post-Brexit trade talks are potential developments that could threaten confidence. Jeff also delivers his analysis of the U.K. Brexit concerns that have been a source of weakness as of late in his commentary, Brexit Is Back: The Endgame For Investors. The euro and British pound were lower versus the U.S. dollar, which has regained some momentum amid the global market uneasiness, while bond yields in the region and in the U.K. were mostly lower. Economic data on this side of the pond was relatively light, though Italian economic and consumer sentiment improved for this month.

The U.K. FTSE 100 Index was up 0.3% and Switzerland's Swiss Market Index ticked 0.1% higher, while Germany's DAX Index and Italy's FTSE MIB Index fell 1.1%, France’s CAC-40 Index declined 0.7%, and Spain's IBEX 35 Index shed 0.2%.

Stocks in Asia finished mixed to close out a choppy week, with glimmers of hope of renewed U.S. fiscal relief negotiations appearing to provide modest support, along with some signs of improvement in economic data in the region. However, Chinese stocks moved lower amid simmering U.S.-China tensions heading into the weekend. Japan's Nikkei 225 Index advanced 0.5%, with the yen gaining some ground late in the session, while data showed supermarket sales continued to rise in August. China's Shanghai Composite Index dipped 0.1% and the Hong Kong Hang Seng Index declined 0.3%. A report showed the decline in Hong Kong exports for August was less severe as expected. South Korea's Kospi Index rose 0.3% and Australia's S&P/ASX 200 Index gained 1.5%, while India's S&P BSE Sensex 30 Index trimmed a decisive weekly decline, rallying 2.3%. 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.

Stocks remain volatile for fourth-straight week

U.S. stocks posted another choppy week, with the Dow and S&P 500 registering four weeks of losses. However, the Information Technology sector, which has led the pullback to near correction territory, rebounded somewhat to buoy the Nasdaq. Resurging new COVID-19 cases in Europe resuscitated economic concerns, while the heightened U.S. political uncertainty ahead of the election and the elusive fiscal relief package continued to feed the bears. Fed Chairman Powell pounded the table for three days on Capitol Hill regarding the risks of a failure to end the stalemate. As such, the Energy, Materials, Industrials and Financials sectors were standout laggards, the Treasury yield curve flattened and the U.S. dollar bounced off of a recent near two-year low. Gold registered a decisive pullback and crude oil prices saw pressure. The U.S. economic front remained mostly upbeat, as existing home sales continued to climb and new home salesbreached the 1 million annualized unit mark for the first time since late 2006. Global economic data points also continued to paint a recovery picture with September Manufacturing PMIsout of the U.S., U.K. and Eurozone all depicting solid continued growth.

    Next week, the economic calendar will be fully-loaded and is poised to command the heaviest market attention, competing with lingering political uncertainties and spiking European COVID-19 cases. We will get a deep dive into the psyches of the all-important U.S. consumer, courtesy of September Consumer Confidence and University of Michigan Consumer Sentiment Index reports, complemented by August personal consumption and spending figures. September manufacturing activity will also be on display, in the form of the ISM Manufacturing Index and Markit's final Manufacturing PMI, along with the Chicago PMI. A timely read on the unemployment picture will be further developed in the form of the initial jobless claims for the week ended September 26th. However, the headlining report will likely be Friday's September nonfarm payroll report, expected to show 900,000 jobs were created after August's near 1.4 million increase and the unemployment rate is projected to dip further to 8.2% from 8.4%.

The international economic front could also command some focus, headlined by China's September Manufacturing and Non-manufacturing PMIs and Japan's Q3 Tankan Large Manufacturing Index. The Reserve Bank of India will announce its monetary policy decision, September consumer price inflation data will be reported for the Eurozone and Germany will post its retail salesfigures for August.

As noted in our latest Schwab Market Perspective: Rotation, the U.S. stock market hit pause in early September, as investors took a harder look at market overconcentration and frothy sentiment. Meanwhile, global economies may be entering a new phase, and the Federal Reserve’s newly announced inflation policy is likely to keep U.S. rates lower for longer. For a look at our analysis of the current stock market environment, check out our latest, Schwab Sector Views: Concentrate on Sector Overconcentration, in which we discuss how we think that the Financials sector stands to potentially benefit from a shift to value-oriented stocks and a continued rebalancing of the markets. We conclude by pointing out how using alternatives to market-cap weighted funds—such as fundamental or equal-weight index funds–can help disperse the concentrated risk in the growth-oriented sectors.

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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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