Geopolitics Pressure Stocks

U.S. equities finished lower, as a fresh threat from North Korea exacerbated already-downtrodden sentiment that followed results from Germany’s national election over the weekend that looks to complicate government coalition negotiations. Treasury yields were lower, despite a surprising jump in a regional manufacturing report, and the U.S. dollar was higher after the euro saw pressure following the election results, while gold and crude oil prices rallied.

The Dow Jones Industrial Average (DJIA) declined 54 points (0.2%) to 22,296, the S&P 500 Index lost 6 points (0.2%) to 2,497, and the Nasdaq Composite tumbled 56 points (0.9%) to 6,371. In moderate volume, 842 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.56 to $52.22 per barrel and wholesale gasoline was $0.04 higher at $1.67 per gallon. Elsewhere, the Bloomberg gold spot price increased $13.80 to $1,311.10 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 92.67.Treasuries were higher, as the yield on the 2-year note dipped 1 basis point (bp) to 1.42%, the yield on the 10-year note declined 3 bps to 2.22%, and the 30-year bond rate decreased 2 bps to 2.77%.

Treasury yields have dipped after a recent rally and the U.S. dollar extended its bounce from multi-year lows hit earlier this month amid lingering global monetary policy uncertainty, while the euro saw pressure after a national election in Germany. Geopolitical concerns flared-up in late-morning action to exacerbate sentiment following reports that North Korea’s foreign minister said President Trump’s latest comments amount to a declaration of war. The markets continue to digest last week’s monetary policy decision from the Fed, which expectedly signaled an October start for the reduction of the Central Bank’s massive $4.5 trillion balance sheet, but resuscitated expectations for another rate hike in December.

The Dallas Fed Manufacturing Activity Index surprisingly jumped further into a level depicting expansion (a reading above zero). The index rose to 21.3 in September—the highest since February—from 17.0 in August, and versus the Bloomberg forecast of a decline 11.5.

The week’s economic calendar will begin to heat up tomorrow with some housing data in the form of the S&P CoreLogic Case-Shiller Home Price Index, expected to show the 20-city composite increased 5.7% year-over-year for the month of July, matching that seen the month prior, as well as new home sales, with economists forecasting a 2.5% month-over-month rise in August to a level of 585,000 units following July’s decline. Rounding out the day will be the Conference Board’s Consumer Confidence Index, anticipated to indicate a slight downtick to a level of 120.0 for September, from the 122.9 posted in August. Other notable reports this week include: preliminary durable goods orders, personal income and spending, the final look at Q2 GDP, the Chicago PMI Index and the final September University of Michigan Consumer Sentiment Index. A host of Fedspeak is poised to garner attention, culminating with Fed Chairwoman Janet Yellen’s speech on inflation, uncertainty and monetary policy.

Schwab Center for Financial Research – Market Analysis Group

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