Stocks Notch Solid Losses After Recent Record Highs…..

U.S. equities were solidly lower after hitting a string of record highs earlier in the week, with the recent surge in Treasury yield eliciting some caution domestically, as well as abroad. Treasury yields extended a run and the U.S. dollar was nearly unchanged, amid reports that jobless claims unexpectedly declined and factory orders data was mixed. Meanwhile, crude oil prices fell sharply and gold was higher.

The Dow Jones Industrial Average (DJIA) fell 201 points (0.8%) to 26,627, the S&P 500 Index was 24 points (0.8%) lower at 2,902, and the NASDAQ Composite plunged 146 points (1.8%) to 7,880. In moderately-heavy volume, 796 million shares were traded on the NYSE and 3.2 billion shares changed hands on the NASDAQ. WTI crude oil tumbled $2.08 to $74.33 per barrel and wholesale gasoline was down $0.04 at $2.10 per gallon. Elsewhere, the Bloomberg gold spot price rose $2.46 to $1,199.81 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 95.75.

Weekly initial jobless claims declined by 8,000 to 207,000, versus the Bloomberg estimate calling for a match of the prior week’s upwardly-revised 215,000 figure. The four-week moving average nudged higher by 500 to 207,000, while continuing claims fell by 13,000 to 1,650,000, south of estimates of 1,665,000.

Factory orders(chart) grew 2.3% month-over-month (m/m) in August, versus expectations of a 2.1% gain, and compared to July’s favorably-revised 0.5% decrease. Stripping out the volatile transportation component, orders ticked 0.1% higher, matching July’s downwardly-revised gain. August durable goods orders—preliminarily reported last week—were adjusted lower to a 4.4% increase. Finally, nondefense capital goods orders excluding aircraft, a gauge of business spending, were revised to a 0.9% decline from a previously-reported 0.5% decrease.

Treasuries were slightly lower, with the yield on the 2-year note up 2 basis points to 2.87%, while the yields on the 10-year note and the 30-year bond gained 3 basis points to 3.19% and 3.34%, respectively.

The U.S. dollar was little changed, with global trade concerns remaining relatively calm, though relations between the U.S. and China remain a major source of uncertainty. Treasury yields have jumped as of late—the 10-year note rate sits at levels not seen since 2011—and stocks have moved back to record highs, bolstered by some upbeat economic commentary from Federal Reserve Chairman Jerome Powell in multiple appearances over the past week, including a reiteration of the outlook for continued gradual rate increases. Also, ahead of tomorrow’s September nonfarm payroll report, the ISM non-Manufacturing Index showed growth in the key services sector unexpectedly rose to the second-highest pace of all-time and the ADP private sector employment report easily topped forecasts.

Tomorrow’s labor report is projected to show job growth of 185,000 and private sector employment rose by 180,000.  The unemployment rate is forecasted to dip to 3.8% from 3.9% and average hourly earnings are projected to rise 0.3% m/m, and are projected to be up 2.8% y/y, after rising 2.9% in the prior month.

©2018 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.