Stocks Modestly Higher as Busy Week Begins…..

U.S. stocks ticked modestly higher as the new week and month commenced following the sharp rally in October. Q3 earnings season continued to provide a positive backdrop though the markets continued to grapple with rising expectations that global monetary policies could soon tighten. Investors will get some more clarity on that front later this week as the Fed will deliver its monetary policy decision on Wednesday, which will be preceded by tonight’s decision in Australia and succeeded by Thursday’s announcement out of the U.K. October U.S. manufacturing output slowed but continued to depict solid expansion, while construction spending unexpectedly dropped, kicking off a heavy economic week that will culminate with Friday’s key non-farm payroll report. Harley-Davidson rallied after the U.S. and EU agreed to ease tariffs on steel and aluminum over the weekend, while Dow member Coca-Cola announced that it will acquire the remaining 85% stake in BODYARMOR for $5.6 billion in cash. Treasuries dipped to lift yields after last week’s noticeable yield curve flattening, and the U.S. dollar ticked lower. Crude oil prices were higher and gold gained ground. Europe was higher as Financials and Energy issues led the way ahead of data and the monetary policy decisions. Asia finished mixed following some divergent Chinese manufacturing and services data and as better-than-feared election results boosted Japanese equities.

The Dow Jones Industrial Average rose 94 points (0.3%) to 35,914, the S&P 500 Index increased 8 points (0.2%) to 4,614, and the Nasdaq Composite gained 98 points (0.6%) at 15,596. In moderate volume, 828 million shares were traded on the NYSE and 5.2 billion shares changed hands on the Nasdaq. WTI crude oil was up $0.48 at $84.05 per barrel. Elsewhere, the gold spot price advanced $9.30 to $1,793.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—edged 0.2% lower to 93.90.

Manufacturing growth tops forecasts but report mixed under the surface…..

The October Institute for Supply Management (ISM) Manufacturing Index showed manufacturing growth (a reading above 50) decelerated at a slower rate than expected. The index declined to 60.8 from September’s unrevised 61.1 level, and versus the Bloomberg consensus estimate of a decrease to 60.5. The stronger-than-expected report came as growth in employment and inventories both accelerated, while production growth held steady just below the 60 mark. However, new orders continued to grow but fell below the 60 mark for the first time since June 2020, supplier delivery times accelerated to 75.6 from 73.4 and inflation pressure remained palpable, rising 4.5 points to 85.7, but remaining well off the 92.1 mark in June that was the highest reading since July 1979.

The ISM said, “Manufacturing performed well for the 17th straight month, with demand and consumption registering month-over-month growth, in spite of continuing unprecedented obstacles (including the Imports Index moving into contraction territory) and ever-increasing demand. Meeting demand remains a challenge, due to hiring difficulties and a clear cycle of labor turnover: As workers opt for more attractive job opportunities, panelists’ companies and their suppliers struggle to maintain employment levels. Disruptions from COVID-19, primarily in Southeast Asia, continue to have an impact on many industry sectors. Congestion at ports in China and the U.S. continues to be a headwind, as transportation networks remain stressed. Demand remains at strong levels, despite increasing prices.”

The final October Markit U.S. Manufacturing PMI Index was unexpectedly revised lower to 58.4 from the preliminary 59.2 level, where it was forecasted to remain, and below September’s reading of 60.7. A reading above 50 denotes expansion. Markit’s report differs from the ISM’s release as it polls a larger swath of companies varying in size and it weights its components differently.

Treasuries were lower, with the yields on the 2-year and 10-year notes ticking 1 basis point (bp) higher to 0.51% and 1.56% respectively, and the 30-year bond rate gaining 2 bps to 1.96%.

©2021 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

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.