Modest Gains In A Lackluster Session

U.S. equities modestly added to record highs after a read on the key services sector activity hit a level not seen in 12 years and a report on private sector jobs met expectations. Treasuries were nearly unchanged and the U.S. dollar trimmed a run as of late, while crude oil prices were mixed and gold ticked higher. On the equity front, PepsiCo posted mixed results and Mylan rallied on an FDA approval.

The Dow Jones Industrial Average (DJIA) increased 20 points (0.1%) to 22,662, the S&P 500 Index was 3 points (0.1%) higher at 2,538, and the Nasdaq Composite added 3 points to 6,535. In moderate volume, 736 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.44 to $49.98 per barrel and wholesale gasoline was $0.01 higher at $1.58 per gallon. Elsewhere, the Bloomberg gold spot price rose $4.45 to $1,276.11 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 93.47.

PepsiCo Inc. (PEP $109) reported Q3 earnings-per-share (EPS) of $1.49, or $1.48 ex-items, versus the $1.43 FactSet estimate, as revenues rose 1.3% year-over-year (y/y) to $16.2 billion, compared to the projected $16.3 billion. The company said each of its operating sectors delivered results in line with or ahead of its expectations in what continues to be a challenging market, with the exception of its North America Beverages segment where revenues declined following two consecutive years of very strong Q3 growth. PEP raised its full-year earnings outlook but slightly lowered its revenue forecast. Shares overcame early losses to finish modestly higher.

Ford Motor Co. (F $12) was in focus after it reaffirmed its full-year guidance late yesterday and announced its strategic update with initiatives including cost cutting and expanding electric vehicle revenue opportunities. Shares of F were nearly unchanged.

Monsanto Co. (MON $120) reported fiscal Q4 EPS of $0.05 per share, or $0.20 ex-items, but it is unclear if this is comparable to the projected loss of $0.41 per share, with revenues growing 4.8% y/y to $2.7 billion, north of the forecasted $2.5 billion. Shares ticked higher.

Share of Mylan NV (MYL $38) rallied after the U.S. Food and Drug Administration approved its generic copy of Teva Pharmaceuticals Industries Ltd's (TEVA $16) best-selling drug for multiple-sclerosis. Shares of TEVA fell sharply.

Services sector activity hits 12-year high, ADP employment report matches expectations

The September Institute for Supply Management (ISM) non-Manufacturing Index (chart) jumped to the highest reading since August 2005's 61.3 level, rising to 59.8 from August's unrevised 55.3 level, and compared to the Bloomberg forecast of a gain to 55.5. A reading above 50 denotes expansion. New orders jumped 5.9 points month-over-month (m/m) to 63.0, business activity rose 3.8 points to 61.3, and employment ticked 0.6 points higher to 56.8. Prices spiked 8.4 points to 66.3. The ISM said respondents' comments indicate a good outlook for business conditions.

The report complements Monday's ISM Manufacturing Index, which hit a 13-year high, as well as a host of upbeat global economic data as of late, bolstering our view discussed in the latest, Schwab Market Perspective: Fourth Quarter Fun…or Folly?, that it is lifting earnings and supporting the bull market. However, the inflation components of both reports jumped and added to recent signs of an uptick in pricing pressures. We believe if inflation begins to kick in in earnest, it could push the Fed to be more aggressive than currently believed and foster bouts of volatility and/or pullbacks. Read more on the Market Commentary page at www.schwab.com, where you can also find Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, Inflation May Be The Biggest Question For Investors In 2018

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