U.S. stocks closed sharply lower with tech listings under scrutiny and leading the decline after results from Dow member Cisco Systems disappointed on its profit margin outlook. The pressure on equities developed early and accelerated toward the end of the trading session as the dysfunction in DC continues and monetary policy uncertainty remains. Treasuries, gold and crude oil prices were higher and the U.S. dollar ticked to the upside after paring its initial advance. In other economic developments, reads on weekly jobless claims, manufacturing and Leading Indicators were upbeat, but had seemingly little impact.

The Dow Jones Industrial Average (DJIA) fell 274 points (1.2%) to 21,750, the S&P 500 Index dropped 38 points (1.5%) to 2,430, and the Nasdaq Composite tumbled 123 points (1.9%) to 6,222. In moderate volume, 739 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.31 to $47.09 per barrel and wholesale gasoline was $0.03 higher at $1.59 per gallon. Elsewhere, the Bloomberg gold spot price gained $5.66 to $1,288.77 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 93.67. Weekly initial jobless claims declined by 12,000 to 232,000 last week, below the Bloomberg forecast of 240,000, with the prior week’s figure being unrevised at 244,000. The four-week moving average dipped by 500 to 240,500, while continuing claims decreased 3,000 to 1,953,000, south of estimates of 1,955,000.

The Conference Board’s Index of Leading Economic Indicators (LEI) for July rose 0.3% month-over-month (m/m), matching projections, and compared to last month’s unadjusted 0.6% increase. This was the eleventh-straight monthly gain for the index, bolstered by ISM new orders, the yield curve, and consumer expectations, which more than offset the negative impact of building permits.

Industrial production was up 0.2% m/m in July, below estimates calling for a 0.3% gain, and compared to June’s unrevised 0.4% increase. Manufacturing production dipped as output in the auto sector fell substantially and excluding the sector, manufacturing activity expanded. Mining and utilities production rose solidly. Capacity utilization remained at June’s upwardly revised 76.7% rate, in line with forecasts. Capacity utilization is 3.2 percentage points below its long-run average.

The Philly Fed Manufacturing Index in August dipped to 18.9 from 19.5 in July, though a reading above zero indicates expansionary activity, compared to estimates of a decline to 18.0.

Treasuries ticked higher, with the yields on the 2-year note and the 30-year bond dipping 3 basis point (bps) to 1.30% and 2.78%, respectively, while the yield on the 10-year note declined 4 bps to 2.19%. Treasury yields and the U.S. dollar have been choppy as of late as some upbeat economic data has countered persistent subdued inflation reports, and yesterday’s Fed meeting minutes showed the Central Bank is grappling with the divergence between the tightening labor market and low inflation. Also, the markets appeared to showing a dovish takeaway from the European Central Bank’s July meeting minutes, while global sentiment continues to recover as concerns about the heightened tensions between North Korea and the U.S. recede.

Schwab Center for Financial Research – Market Analysis Group

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