U.S. stocks traded mixed as the markets paid attention to developments pertaining to Hurricane Irma, while financials advanced as Treasury yields mostly rebounded from a recent drop. The U.S. dollar was again under pressure and a dip in crude oil prices pressured energy shares though tech listings led decliners. In other equity news, Equifax traded lower in the wake of its announced massive cybersecurity breach. Gold was lower.

The Dow Jones Industrial Average (DJIA) increased 13 points (0.1%) to 21,799, the S&P 500 Index was 4 points (0.1%) lower at 2,462, and the NASDAQ Composite decreased 38 points (0.6%) to 6,360. In moderate volume, 801 million shares were traded on the NYSE and 1.8 billion shares changed hands on the NASDAQ. WTI crude oil fell $1.61 to $47.48 per barrel and wholesale gasoline lost $0.01 to $1.65 per gallon. Elsewhere, the Bloomberg gold spot price was $2.49 lower at $1,346.74 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.4% lower at 91.33. Markets were lower for the holiday-shortened week, as the DJIA decreased 0.9%, the S&P 500 Index lost 0.6% and the NASDAQ Composite fell 1.2%.

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $18.5 billion during July, above the $15.0 billion forecast of economists polled by Bloomberg, while June’s figure was adjusted slightly lower to an increase of $11.8 billion from the originally reported $12.4 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $15.9 billion y/y, while revolving debt, which includes credit cards, increased by $2.6 billion.

Wholesale inventories were revised higher to a 0.6% month-over-month (m/m) gain for July, versus the Bloomberg forecast of an unrevised preliminary 0.4% increase. This was the third-straight month posting a 0.6% increase. However, sales dipped 0.1% m/m, after June’s downwardly revised 0.6% gain, and compared to the expected 0.5% rise. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—ticked higher to a 1.30 months pace from June’s 1.29 rate.

Treasuries finished mostly lower, with the yield on the 2-year note nearly unchanged at 1.27%, while the yields on the 10-year note and the 30-year bond gained 2 bps to 2.06% and 2.67%, respectively.

Treasury yields rebounded from a recent bout of pressure that had taken them to levels not seen since November, while the U.S. dollar continued to drop to lows not seen in over two years. Fed rate hike expectations for this year have slipped and the European Central Bank signaled that it is likely to unveil plans to dial back its stimulus measures at its meeting next month. Moreover, geopolitical and U.S. political uncertainties remain, while last week’s Hurricane Harvey is being followed by a plethora of storms in the Atlantic, with Hurricane Irma continuing to track toward Florida.

U.S. stocks failed to extend a weekly winning streak to three as a plethora of sources of market anxiety stymied conviction. Financials came under pressure as Treasury yields fell to November lows, while the U.S. dollar tumbled to levels not seen since early 2015. Global monetary policy uncertainty lingered, as Fed rate hike expectations for this year continued to fade, the ECB hinted that detailed discussions regarding tapering are set to commence, and the Bank of Canada unexpectedly hiked rates. Just as the markets were recovering from Hurricane Harvey’s impact, Irma crushed the Caribbean and tracked toward Florida.

Geopolitical concerns remained as North Korea detonated a hydrogen bomb and was reportedly preparing another ICBM test, while U.S. President Trump continued to push for global trade renegotiations. Dysfunction on the domestic political front persisted as President Trump backed a Democratic bill lumping a short-term debt limit extension to avoid a government shutdown with Hurricane relief, which passed through Congress but appeared to make some Republican Congressional members uneasy. Upbeat global economic data was overshadowed, with upbeat services sector reports out of China, the eurozone, U.K. and the U.S. having little impact. Healthcare issues led to the upside, bolstered by a plethora of upbeat experimental drug trial results, and energy stocks moved higher as crude oil prices paused from a recent tumble.

Next week, while assessing the impact of Irma and grappling with the aforementioned uncertainties, the economic calendar will likely regain some focus. Stubbornly low inflation, which has kept Fed rate expectations hamstrung, will be on display courtesy of the releases of the Consumer Price Index (CPI) and Producer Price Index (PPI) for August. The all-important U.S. consumer will also garner attention as the markets digest the August retail sales report and the preliminary September University of Michigan Consumer Sentiment Index. The docket will also bring the NFIB Small Business Optimism Index, JOLTS Job Openings, and industrial production and capacity utilization.

International reports due out next week that deserve a mention include: Australia—consumer confidence and employment change. China—CPI, PPI, lending statistics, retail sales and industrial production. India—trade balance, CPI, PPI and industrial production. Japan—machine orders and industrial production. Eurozone—industrial production, new car registrations and trade balance, along with German CPI. U.K.—CPI, PPI, employment change and Bank of England monetary policy decision.

Schwab Center for Financial Research – Market Analysis Group

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