Early Gains Lose Steam, but Markets End Higher…..

U.S. equities began the Q4 in the green, but off the highs of the day, as the early gains that came amid economic data that suggested the global recovery remains intact were tempered by a softer-than-expected ISM report on domestic manufacturing activity, and as a new fiscal relief package continues to remain elusive. Meanwhile in other economic news, U.S. jobless claims, construction spending and personal spending figures came in better than expected. Treasury yields were little changed and the U.S. dollar dipped, while gold rose and crude oil prices came under pressure. On the equity front, PepsiCo was higher after reporting solid earnings results, Bed Bath & Beyond rallied after posting an unexpected profit, and Starbucks raised its dividend. Europe and Asia traded mostly to the upside but the push was held in check by rising COVID-19 cases in the region and Brexit focus.

The Dow Jones Industrial Average rose 35 points (0.1%) to 27,817, the S&P 500 Index gained 18 points (0.5%) to 3,381, and the Nasdaq Composite increased 159 points (1.4%) to 11,327. In heavy volume, 859 million shares were traded on the NYSE and 3.9 billion shares changed hands on the NASDAQ. WTI crude oil lost $1.50 to $38.72 per barrel and wholesale gasoline was $0.03 lower at $1.15 per gallon. Elsewhere, the Bloomberg gold spot price rose $18.64 to $1,904.46 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.2% at 93.73.

Jobless claims lower than expected, but manufacturing report misses…..

Weekly initial jobless claims came in at a level of 837,000 for the week ended September 26th, below the Bloomberg estimate of 850,000 and the prior week’s upwardly-revised 873,000 level. The four-week moving average declined by 11,750 to 867,250, while continuing claims for the week ended September 19th fell by 980,000 to 11,767,000, south of estimates of 12,200,000. The four-week moving average of continuing claims dropped by 381,250 to 12,701,250.

The September Institute for Supply Management (ISM) Manufacturing Index showed manufacturing output unexpectedly slowed but remained in expansion territory (a reading above 50). The index declined to 55.4 from August’s unrevised 56.0 level, and versus forecasts of 56.5. The softer-than-expected read came as new orders fell sharply but remained north of 60, production growth decelerated and although employment improved it remained just shy of the key 50 mark. Prices continued to heat up, rising 3.3 points to 62.8.

The ISM said, “Manufacturing performed well in the month with demand, consumption and inputs registering growth indicative of a normal expansion cycle. While certain industry sectors are experiencing difficulties that will continue in the near term, the manufacturing community as a whole has learned to conduct business effectively and deal with the variables imposed by the COVID-19 pandemic.”

The final September Markit U.S. Manufacturing PMI Index was revised slightly lower to 53.2 from the preliminary level of 53.5, where it was forecasted to remain, but modestly above August’s 53.1 level. A reading above 50 denotes expansion. The release is independent and differs from ISM’s report, as it has less historic value and Markit weights its index components differently, while it surveys a wider range of companies.

Personal income fell 2.7% month-over-month (m/m) in August, versus forecasts of a 2.5% drop, following July’s upwardly-revised 0.5% gain. However, personal spending rose 1.0%, above the forecasted 0.8% rise and versus the prior month’s downwardly-adjusted 1.5% gain. The August savings rate as a percentage of disposable income was 14.1%.

The PCE Deflator increased 0.3% m/m, matching expectations and compared to July’s upwardly-adjusted 0.4% rise. Compared to last year, the deflator was 1.4% higher, above estimates of a 1.2% rise and compared to July’s upwardly-adjusted 1.1% gain. Excluding food and energy, the PCE Core Index rose 0.3% m/m, in line with expectations and versus July’s upwardly-revised 0.4% rise. The index was 1.6% higher y/y, versus estimates to match July’s upwardly-adjusted 1.4% gain.

Construction spending rose 1.4% m/m in August, versus projections of a 0.7% gain, and following July’s upwardly-revised 0.7% increase. Residential spending grew 3.7% m/m but non-residential spending dipped 0.1%.

Treasuries were little changed, with the yield on the 2-year note flat at 0.13%, the yield on the 10-year note down 1 basis point (bp) at 0.67%, while the 30-year bond rate was also unchanged a

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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.

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