U.S. stocks are higher, paring weekly losses though the markets remain choppy following this week's hawkish Congressional testimony from Fed Chairman Jerome Powell. A larger-than-expected increase in weekly initial jobless claims seems to be offering a modest reprieve from the concerns about how aggressive the Fed may be. Treasury yields are mixed with short-term rates giving back recent gains and the yield curve steepening somewhat after inverting further on Powell's testimony. The U.S. dollar is relinquishing some of this week's rally, while crude oil and gold prices are trading to the upside. Equity news remains light, but Dow member American Express increased its share buyback plan and raised its dividend, while GE is rallying as the Street is cheering its long-term outlook. Asia finished mixed following some cooler-than-expected Chinese inflation reports, and Europe has turned mixed, with the global markets continuing to react to Fed Chair Powell's comments.
At 10:53 a.m. ET, the Dow Jones Industrial Average is 0.4% higher, the S&P 500 Index is gaining 0.5%, and the Nasdaq Composite is up 0.6%. WTI crude oil is rising $0.61 to $77.27 per barrel, and Brent crude oil is gaining $0.75 at $83.41 per barrel. The gold spot price is advancing $16.40 to $1,835.00 per ounce, and the Dollar Index is dropping 0.4% to 105.23.
Dow member American Express Company (AXP $178) announced that its board has approved the repurchase of up to 120 million common shares, replacing the current buyback plan that had 36 million common shares remaining. Additionally, AXP increased its quarterly dividend by 15.0% to $0.08 per share. AXP is trading higher.
General Electric Company (GE $95) is rallying after the company offered an update on its long-term targets, highlighting expected profit margin expansion and mid-to-high single-digit revenue growth at its soon-to-be separated aviation unit. GE also said it expects its combined power-equipment and energy unit, to be named GE Vernova after next year's split, to deliver sales growth in the mid-single-digits and a high single-digit profit margin. The company also reaffirmed its 2023 guidance.
Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, Caveat Emptor: Important Market Shifts Underway, how given the topsy-turvy nature of the market thus far in 2023, it remains crucial for investors to know what they are buying—especially as it relates to growth, value, and quality.
Jobless claims rise more than expected
Weekly initial jobless claims (chart) came in at a level of 211,000 for the week ended March 4, above the Bloomberg consensus estimate of 195,000 and the prior week's unrevised 190,000 level. The four-week moving average grew by 4,000 to 197,000, and continuing claims for the week ended February 25 increased by 69,000 to 1,718,000, north of estimates calling for 1,660,000. The four-week moving average of continuing claims rose by 9,500 to 1,679,500.
Treasury rates are mixed, as the yield on the 2-year note is down 8 basis points (bps) at 4.98%, and the yield on the 10-year note is dipping 1 bp to 3.97%, while the 30-year bond rate is gaining 3 bps to 3.90%.
The Treasury yield curve is steepening slightly after inverting further this week on the heels of Fed Chairman Jerome Powell's two-day semi-annual Congressional testimony where he offered a hawkish tone, suggesting rates may need to go higher for longer and the Fed could accelerate in order to curb inflation. His testimony appeared to fuel uncertainty regarding a potentially larger-than-expected rate hike at the next policy meeting slated for later this month.
Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest article, How to Prepare for Landing, how a "soft landing," with declining inflation but positive growth, would be ideal. However, she points out that turbulence appears likely.
Europe turns mixed as markets continue to focus on monetary policy implications
Stocks in Europe have turned mixed in late-day action, as investors continue to react to this week's Congressional testimony from Fed Chairman Jerome Powell where he signaled that the Central Bank could get more aggressive with rate hikes and could leave rates higher for longer than initially anticipated. The Fed, along with the European Central Bank and Bank of England, have aggressively tightened monetary policy as they work to cool persistent inflation. The markets have been volatile amid this backdrop. However, U.S. employment data released today, which came in worse than expected, seemed to ease some of recently flared-up worries about how much more aggressive the Fed will be.
However, despite the recent choppiness in the markets, equities in the region have had a strong start for 2023, buoyed by signs that warmer-than-expected winter weather may help the region avoid an energy crisis, as well as China’s reopening. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, The Everything Everywhere All at Once Rally, how despite market volatility, inflationary pressures, and a potential earnings recession, a rally involving stocks, bonds, and some commodities started in November still persists.
The euro and the British pound are rising versus the U.S. dollar, which jumped earlier in the week following Fed Chair Powell's comments. Bond yields in the Eurozone are mostly ticking higher, and rates in the U.K. are dipping.
The U.K. FTSE 100 Index is down 0.6%, Germany's DAX Index is rising 0.2%, France's CAC-40 Index is ticking 0.1% higher, Italy's FTSE MIB Index is declining 0.4%, Spain's IBEX 35 Index is decreasing 0.3%, and Switzerland's Swiss Market Index is falling 0.7%.
Asia mixed as markets digest data and day two of Fed Chair commentary
Stocks in Asia ended mixed as the markets digested the second day of U.S. Fed Chair Powell’s Congressional testimony, which he continued to suggest the Central Bank may remain more aggressive and leave rates higher for longer. This followed this week's decision from the Reserve Bank of Australia to hike its benchmark interest rate by 25 bps, adding to the myriad global monetary policy tightening that has fueled volatility in the currency and bond markets. Meanwhile, the Bank of Japan began its two-day monetary policy meeting today and the Bloomberg consensus is calling for it to keep its policy stance unchanged.
Investors continue to wrestle with uncertainty on the ultimate impact of the monetary policy tightening on global financial conditions and the economy. However, Schwab's Jeffrey Kleintop discusses in his latest article, Are You Focused on the Wrong Central Bank?, how while investor attention is on the Fed, changes at the Bank of Japan might bring shifts to the economic environment, impacting the global markets.
Meanwhile, China reported February inflation figures showing wholesale price pressures declined more than expected year-over-year, while its consumer price inflation decelerated more than anticipated and hit the slowest pace since February 2022. Elsewhere, Japan's Q4 GDP growth was revised lower and the country's preliminary February machine tool orders showed a continued drop.
Japan's Nikkei 225 Index rose 0.6%, with the yen rebounding somewhat from this week's drop that came as the U.S. dollar rallied on Fed Chair Powell's commentary. China's Shanghai Composite Index declined 0.2%, and the Hong Kong Hang Seng Index traded 0.6% lower. Australia's S&P/ASX 200 Index ticked 0.1% higher, South Korea's Kospi Index decreased 0.5%, and India's BSE Sensex 30 Index fell 0.9%.
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