Stocks Up Big in Another Volatile Day,,,,,,
Stock markets posted big gains today after falling sharply yesterday when Fed surprised the markets with an emergency 50 basis point rate cut. Today offered a more favorable reaction with the major indexes all rising close to 4%. The Treasury curve steepened as markets turn their attention to the prospect of further cuts from the Fed’s March meeting. Despite the lower yields on the front of the curve, the U.S. dollar was able to rebound a bit. The markets also digested implications of Super Tuesday results that bolstered Democratic candidate Joe Biden’s presidential campaign. The results compelled former New York mayor Michael Bloomberg to bow out of the race and offer his endorsement to Vice President Biden. In economic news, a report on services sector output from ISM touched a one year high. ADP’s employment report topped forecasts ahead of Friday’s key nonfarm payroll report. Mortgage applications jumped as refinancing activity surged amid the plunge in interest rates. Dollar Tree and Hewlett Packard Enterprise posted disappointing earnings results. Shares of GE got a boost after the company reaffirmed its 2020 guidance. Campbell Soup was able post a top line beat. Gold was little changed and crude oil prices were lower. Europe and Asian equities traded to the upside.
The Dow Jones Industrial Average was up 1173 points (4.5%) to 27,091, the S&P 500 added 127 points (4.2%) to 3,130 and the NASDAQ added 334 points (3.8%) to 9,018. 1.2 billion shares were traded on the NYSE and 3.6 billion shares changed hands on the NASDAQ. WTI oil dropped $0.40 to $46.78 per barrel and wholesale gasoline rose $0.02 to $1.56 per gallon. Elsewhere, the Bloomberg gold spot price shed $1.40 to $1,643.00 per ounce. The Dollar Index—a comparison of the U.S. dollar to six major world currencies—added 0.2% to 97.36.
The February Institute for Supply Management (ISM) non-Manufacturing Index rose to 57.3 from January’s 55.5, and versus the Bloomberg forecast of a dip to 54.8, with a reading above 50 denoting expansion. The index hit the highest level in one year, as new orders jumped to 63.1 from January’s 56.2 level, employment improved to 55.6 from 53.1, and order backlogs moved back into expansion territory. The ISM said most respondents are concerned about the coronavirus and its supply chain impact and continue to have difficulty with labor resources. However, they do remain positive about business conditions and the overall economy.
The final Markit U.S. Services PMI Index for February was unrevised at the preliminary estimate of 49.4, as expected, below January’s 53.4 level. A reading below 50 denotes contraction. Markit said this was the fastest contraction since October 2013 as output fell amid weakened demand conditions, employment rose at a slower pace, and despite strengthening, business confidence remains relatively muted. The release is independent and differs from the Institute for Supply Management’s (ISM) report, as it has less historic value and Markit weights its index components differently, while its survey respondents include those that vary more in company size.
The ADP Employment Change Report showed private sector payrolls rose by 183,000 jobs in February, above forecasts of a 170,000 gain, while January’s increase of 291,000 jobs was revised to a 209,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader February nonfarm payroll report, expected to show jobs grew by 175,000 and private sector payrolls rose by 160,000 economic calendar. The unemployment rate is forecasted to remain at 3.6% and average hourly earnings are projected to rise 0.3% month-over-month (m/m), and be up 3.0% y/y.
The MBA Mortgage Application Index jumped by 15.1% last week, following the prior week’s 1.5% gain. The noticeable increase came as a 26.0% surge in the Refinance Index more than offset a 2.7% decline for the Purchase Index. The average 30-year mortgage rate tumbled 16 basis points (bps) to 3.57%.
Treasuries were mixed and the curve steepened, with the yield on the 2-year note dropping 4 bps to 0.66%, the yield on the 10-year note increasing 3 bps to 1.03% and the 30-year bond rate rising 6 bps to 1.68%. Bond yields have touched record lows recently as the coronavirus concerns have fostered a decisive flight to safety. As bond yields continued to fall on the short end of the curve, the U.S. dollar gained ground. Markets continued to digest yesterday’s surprising 50 bp rate cut from the Fed due to the coronavirus posing “evolving risks to economic activity,” which came ahead of the Central Bank’s scheduled meeting later this month,
©2020 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.