Stocks Continue Recent Record Run

Adding to recent record highs, U.S. stocks showed resiliency amid lingering geopolitical and monetary policy uncertainty, buoyed by upbeat reads on domestic business spending and jobless claims, while the trade balance narrowed more than expected. Tomorrow, the key nonfarm payroll report for September will be in focus. Treasury yields, crude oil prices and the U.S. dollar were higher and gold experienced a minor decline. In equity news, Constellation Brands topped Q2 earnings expectations, Bloomberg reported that Amazon is testing its own delivery service and Netflix announced it will raise prices for its popular services.

The Dow Jones Industrial Average (DJIA) increased 114 points (0.5%) to 22,775, the S&P 500 Index advanced 14 points (0.6%) to 2,552, and the Nasdaq Composite rallied 51 points (0.8%) to 6,585. In moderate volume, 746 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.81 to $50.79 per barrel and wholesale gasoline was $0.03 higher at $1.61 per gallon. Elsewhere, the Bloomberg gold spot price dipped $6.37 to $1,268.48 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 93.96.

Constellation Brands Inc. (STZ $209) reported fiscal Q2 earnings-per-share (EPS) of $2.48, or $2.47 ex-items, versus the $2.17 FactSet estimate, as revenues rose 3.1% year-over-year (y/y) to $2.1 billion, roughly in line with expectations. The company's beer shipments rose solidly y/y, while its wine and spirits shipments declined. STZ raised its full-year EPS outlook. Shares traded nicely higher.

United Parcel Service Inc. (UPS $118) saw pressure and FedEx Corp. (FDX $222) dipped in early action before finishing flat, on a Bloomberg report that Amazon.com Inc. (AMZN $981) is testing its own delivery service to rival these companies, according to people familiar with the matter. AMZN and FDX did not comment on the report. A spokesman from UPS told Bloomberg that Amazon is a valued customer and it supports all its customers with industry-leading e-commerce solutions and expect to expand these relationships further in the future.

Netflix Inc. (NFLX $194) rallied after announcing that it will raise prices for its most popular service by 10% as it adds more exclusive TV shows and movies.

Jobless claims decline, trade balance shrinks, factory orders rise

Weekly initial jobless claims (chart) decreased by 12,000 to 260,000 last week, below the Bloomberg forecast of a decline to 265,000, with the prior week’s figure being unrevised at 272,000. The four-week moving average fell by 9,500 to 268,250, while continuing claims rose 2,000 to 1,938,000, south of estimates of 1,950,000.

The trade balance (chart) showed that the deficit came in at $42.4 billion in August, compared to estimates of $42.7 billion. July's deficit was downwardly revised to $43.6 billion. Exports gained 0.4% month-over-month (m/m) to $195.3 billion, while imports dipped by 0.1% to $237.7 billion.

Factory orders (chart) rose 1.2% m/m in August, above expectations of a 1.0% gain, while July's figure was unrevised at a 3.3% drop. Stripping out the volatile transportation component, orders advanced 0.4% and July's 0.5% rise was unrevised. August durable goods orders—preliminarily reported last week—were positively revised to a 2.0% increase versus forecasts of an unadjusted 1.7% rise. Also, nondefense capital goods orders excluding aircraft, a gauge of business spending, were revised higher to a 1.1% gain from the initially-reported 0.9% increase, posting the second-straight monthly gain of over 1.0%.

Treasuries were lower, with the yields on the 2-year and 10-year notes, as well as the 30-year bond rising 2 basis points (bps) to 1.49%, 2.35% and 2.89%, respectively.

Treasury yields and the U.S. dollar have rebounded noticeably in the past month, with the 10-year rate off of levels not seen since November 2016 and the greenback from multi-year lows. Expectations have jumped that the Fed will announce another rate hike in December as signs of an uptick in inflation joined a positive global economic background, while the Central Bank is set begin to shrink its behemoth balance sheet this month. Also, the recently released tax reform framework appeared to foster some fiscal policy optimism but faces a long road that began with today's House approval of its budget resolution.

However, the stock markets continue to grind out record highs and amid this backdrop, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's article, Tax Reform Framework Released, But The Road Ahead Is Long. Also, Schwab's Chief Investment Strategist Liz Ann Sonders offers her article on the stock market resiliency in the face of a plethora of things to worry about titled, Comfortably Numb? An Update on Investor Sentiment. Read these articles and other timely commentary from our Schwab experts on the Market Commentarypage at www.schwab.com

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