September 5, 2017

U.S. equities began the holiday-shortened week solidly lower, as risk appetites were severely limited following this weekend’s claim that North Korea detonated a hydrogen bomb and reports that it may be preparing another ICBM launch. Treasury yields fell sharply on the uneasiness and the U.S. dollar lost ground, while gold rose and crude oil prices were mixed.

The Dow Jones Industrial Average (DJIA) tumbled 234 points (1.1%) to 21,753, the S&P 500 Index lost 19 points (0.8%) to 2,457, and the NASDAQ Composite declined 60 points (0.9%) to 6,376 In moderately heavy volume, 909 million shares were traded on the NYSE and 1.9 billion shares changed hands on the NASDAQ. WTI crude oil rose $1.37 to $48.66 per barrel and wholesale gasoline lost $0.05 to $1.70 per gallon. Elsewhere, the Bloomberg gold spot price was $8.10 higher at $1,341.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.5% to 92.21.

Factory orders fell 3.3% month-over-month (m/m) in July, matching the Bloomberg expectation, while June’s figure was positively revised to a 3.2% increase. However, stripping out the volatile transportation component, orders rose 0.5% and June’s 0.2% decline was upwardly revised to a 0.1% gain. July durable goods orders—preliminarily reported two weeks ago—were unrevised at a 6.8% drop versus forecasts of an adjustment to a 2.9% decrease. Nondefense aircraft and parts fell sharply after June’s surge, while electrical equipment, along with computers and electronic products, rose solidly.

Today’s report kicked off the holiday shortened week that will bring a flood of key reports for the markets to digest, including the July trade balance, August ISM non-Manufacturing and Market Services PMI Indexes, the Fed’s Beige Book, and final Q2 productivity and labor costs. Also, the international calendar will bring a plethora of trade reports, and monetary policy decision from the European Central Bank (ECB).

Treasuries rallied, as the yield on the 2-year note decreased 6 basis points to 1.29%, the yield on the 10-year note fell 10 bps to 2.07%, and the 30-year bond rate was 9 bps lower at 2.69%. Risk aversion flared back up in the wake of claims that North Korea detonated a hydrogen bomb over the weekend, weighing on Treasury yields and the U.S. dollar. This continues to accompany lingering global monetary policy, trade and U.S. political uncertainties.

Schwab Center for Financial Research – Market Analysis Group

©2017 Charles Schwab & Co., Inc., Member SIPC. All rights reserved.

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.