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In the week's final trading session ahead of the long holiday weekend, U.S. equities finished higher, further extending a sharp rally, boosted by a second-straight month of stronger-than-expected nonfarm payroll data that appeared to bolster optimism of the economic recovery. Progress out of the Health Care sector to find an answer to the COVID-19 pandemic also aided in the updraft, but the omnipresent uncertainty regarding the recent surge in new cases tempered the enthusiasm, bringing stocks well off their highs of the day. Treasury yields were little changed in a shortened session, while the U.S. dollar, gold and crude oil prices traded higher. In other economic news, initial jobless claims continued to moderate but remain starkly elevated, the trade deficit widened more than anticipated, and factory orders missed estimates. On the equity front, Nu Skin Enterprises rallied after raising its revenue outlook, Tesla extended a recent surge, after posting stronger-than-expected Q2 deliveries, to become the world's most valuable automaker, and American Airlines headlined a list of air carriers that reached an agreement on loan terms under the CARES Act. Markets in Europe and Asia also saw widespread gains.

The Dow Jones Industrial Average rose 92 points (0.4%) to 25,827, the S&P 500 Index increased 14 points (0.5%) to 3,130 and the Nasdaq Composite gained 53 points (0.5%) to 10,208. In moderately heavy volume, 888 million shares were traded on the NYSE and 4.0 billion shares changed hands on the NASDAQ. WTI crude oil gained $0.83 to $40.65 per barrel and wholesale gasoline added $0.04 to $1.26 per gallon. Elsewhere, the Bloomberg gold spot price advanced $5.27 to $1,775.36 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.1% higher to 97.28. Markets finished higher for the week, as the DJIA advanced 3.2%, the S&P 500 jumped 4.0%, and the Nasdaq Composite rallied 4.6%.

Nu Skin Enterprises Inc. (NUS $48) rallied over 20% after the beauty and wellness solutions company raised its fiscal Q2 revenue guidance, citing strong global customer growth with particular strength in the Americas and Europe. NUS added that its investments in technology and its commitment to enhancing its digital capabilities have been a critical driver of performance and business continuity in Q2, with online transactions accounting for more than 80% of volume. 

Tesla Inc. (TSLA $1,209) extended its sharp rally that has resulted in the electric vehicle company overtaking Toyota Motor Corp. (TM $126) as the world's most valuable automaker by market capitalization. Also, TSLA reported Q2 deliveries of 90,650, well above the FactSet estimate of 68,380.

American Airlines Group Inc. (AAL $13) was in focus after the U.S. Department of Treasury announced that the air carrier, along with Frontier Airlines, Hawaiian Holdings Inc. (HA $14), SkyWest Inc. (SKYW $31), and Spirit Airlines Inc. (SAVE $18), have reached an agreement on loan terms under the CARES Act. AAL has turned lower, though HA, SKYW, and SAVE are moSAVE $17), have reached an agreement on loan terms under the CARES Act. Shares of AAL, HA, SKYW and SAVE were all lower.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her latest article, Pause: Stocks' June Consolidation Continues, that she has been highlighting the warp speed nature of this crisis—with a "full" market cycle having been condensed into a few months. She adds that the wild swings have emboldened some investors and traders; while leaving others in a state of confusion. Liz Ann adds that we've been recommending that investors remain at their long-term strategic equity allocations; but "react" to the larger swings by considering rebalancing more frequently. This allows portfolios to "stay in gear" by trimming into strength and adding into weakness; vs. trying to time short-term peaks and troughs (which is always extremely difficult).

Stay on top of the markets during this unprecedented time by following experts from the Schwab Center for Financial Research (SCFR) on Twitter at @SchwabResearch, and by visiting www.schwab.com/volatility to see all the content Schwab offers on the unparalleled market action.

June Labor Report paints recovery picture, and jobless claims continue to moderate but….

Nonfarm payrolls (chart) jumped by 4,800,000 jobs month-over-month (m/m) in June, compared to the Bloomberg forecast of a 3,230,000 rise, and following May's upwardly-adjusted gain of 2,699,000. Excluding government hiring and firing, private sector payrolls grew by 4,767,000, versus the forecasted rise of 3,000,000 after advancing by an upwardly-revised 3,232,000 in May. The labor force participation rate rose to 61.5% from May's 60.8% rate, versus an expected increase to 61.2%.

The report noted that employment within the leisure and hospitality sectors rose sharply, while notable gains were also seen within the retail trade, education and health services, other services, manufacturing, and professional and business services sectors. Additionally, the report pointed out the mining sector continued to decline.

The unemployment rate fell to 11.1% from May's 13.3% rate, versus forecasts of a decline to 12.5%. Average hourly earnings fell 1.2% m/m, versus projections of a 0.8% decline and compared to May's unrevised 1.0% drop. Y/Y, wages were 5.0% higher, below estimates of a 5.3% increase. Finally, average weekly hours dipped to 34.5 from May's unrevised 34.7, matching forecasts.

In a more-timely look at the employment picture, weekly initial jobless claims (chart) came in at a level of 1,427,000 for the week ended June 27^th, north of estimates of 1,350,000, and compared to the prior week's upwardly-revised 1,482,000 level. The four-week moving average fell by 117,500 to 1,503,750, while continuing claims rose by 59,000 to 19,290,000, above of estimates of 19,000,000. The four-week moving average of continuing claims for the week ended June 20^th dropped by 494,500 to 19,854,000.

The trade balance (chart) showed that the May deficit widened more than expected, coming in at $54.6 billion versus April's upwardly-revised deficit of $49.8 billion from the originally-reported $49.4 billion, and compared to expectations of $53.2 billion. Exports dropped 4.4% m/m and imports declined 0.9%.

Factory orders (chart) rose 8.0% m/m in May, versus expectations of an 8.6% gain, and compared to April's negatively-revised 13.5% tumble. Stripping out the volatile transportation component, orders grew 2.6%, below estimates of a 6.5% increase, and compared to April's unfavorably-adjusted 8.9% drop. Final durable goods orders (chart), preliminarily reported last week, were revised lower to a 15.7% m/m gain for May, and orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, were adjusted down to a 1.6% increase.

Treasuries finished little changed, as the yields on the 2-year and 10-year notes, as well as the 30-year bond were flat at 0.16%, 0.67% and 1.42%, respectively.

The Federal Reserve continues to pledge to maintain, or potentially expand, its unprecedented liquidity measures for as long as it takes to get the economy back to its objectives of full employment and price stability. As such, Schwab's Chief Fixed Income Strategist Kathy Jones offers her 2020 Mid-Year Outlook: Fixed Income, noting how interest rates are likely to stay low as markets try to bridge the economic gap to the new normal. Also, Kathy discusses the impact of the flood of monetary and fiscal support in her commentary, Stimulus = Inflation? Why It May Be Different This Time, while Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, addresses in the article, What's the Future Payback for the Stimulus?.  

Please note: All U.S. markets will be shuttered tomorrow in observance of the Independence Day holiday.

Europe and Asia higher on data and vaccine hopes

European equities traded higher on the day, with today's stronger-than-expected U.S. June nonfarm payroll report adding to this week's flurry of positive global manufacturing data for last month to buoy optimism of economic recoveries around the globe. Also, another dose of optimism regarding the Health Care sector's fight to find a COVID-19 answer appeared to continue to support the stock market rally, courtesy of yesterday's results from Dow component Pfizer Inc's (PFE $35) and its partner BioNTech SE's (BNTX $67) candidates. Financials led to the upside, along with consumer discretionary, industrials and materials issues, amid the positive sentiment. The euro and the British pound were lower versus the U.S. dollar. Bond yields in the region were mostly lower. In economic news on this side of the pond, the Eurozone unemployment rate for May came in at a smaller-than-expected rate of 7.4%. Schwab's Jeffrey Kleintop offers his latest commentary, What A COVID-19 Second Wave Means For Investors, noting that a second wave of global COVID-19 is getting a lot of media attention, but the appearance of a global second wave of cases is primarily driven by the different timing of first waves across countries—rather than second waves within countries. Jeff adds that the falling trend in deaths may be the more important factor to watch since the trend in stocks and earnings expectations are more closely aligned with deaths than cases. He concludes that a second wave of deaths could lead to a second wave of declines for the economy, corporate earnings and the stock market.

The U.K. FTSE 100 Index was up 1.3%, France's CAC-40 Index advanced 2.5%, Germany's DAX Index rose 2.8%, Spain's IBEX 35 Index jumped 3.8%, Italy's FTSE MIB Index rallied 2.9%, and Switzerland's Swiss Market Index increased 1.0%.

Stocks in Asia finished broadly higher with yesterday's return to expansion in U.S. manufacturing output for June joining a host of upbeat global reports on activity in the sector to bolster optimism of the progress on the economic recovery. Schwab's Jeffrey Kleintop offers his 2020 Mid-Year Outlook: Global Stocks and Economy, noting that in our 2020 Global Market Outlook, we cited many indicators pointing to heightened risk of a recession; now we highlight increasing signs of a recovery from one. However, Jeff adds that investor caution may still be warranted as stocks have priced in a recovery during the second quarter, leaving the potential for the pace or success of the recovery to disappoint. He concludes that new cycles usually come with new market leadership, and new market leadership by sector, style and geography could emerge in the second half of the year, catching some investors by surprise. Moreover, another positive study of a potential COVID-19 vaccine, buoyed conviction to continue the recent rally and combating rising uncertainties of the implications of the surge in new COVID cases as of late.

Japan's Nikkei 225 Index ticked 0.1% higher, with the advance likely being held in check by this week's softer-than-expected read on the nation's large manufacturing sentiment and as the yen held onto yesterday's rise. The Hong Kong Hang Seng Index led the way in a return to action following yesterday's holiday break, rallying 2.9%, despite the recently instated national security law on the nation by mainland China. The resiliency in the face of the new law may have been aided by the passage of a bill to support protestors in Hong Kong from the U.S. Congress. China's Shanghai Composite Index advanced 2.1%, South Korea's Kospi Index rose 1.4%, and India's S&P BSE Sensex 30 Index traded 1.2% to the upside. Australia's S&P/ASX 200 Index increased 1.7%, despite data showing the country's trade surplus in came in narrower than expected for May.

Data, policy relief and another dose of positive COVID study results fuel shortened-week rally

U.S. stocks posted another strong weekly rally ahead of the long holiday weekend, putting a positive finishing touch to Q2 and continuing the momentum to kick off Q3, with the Nasdaq back to record territory. The markets continued to find conviction from the massive amounts of monetary and fiscal policy relief measures that Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin told Congress this week will continue for as long as it takes to solidify the economic recovery. Although uncertainty continued to ramp up amid the surging new COVID-19 cases, it was countered by further progress on a potential vaccine. Moreover, global economic data continued to foster optimism of recovery, courtesy of positive June manufacturing data out of China, the Euorzone and U.K., and headlined by the return to expansion for the U.S. All the major stock market sectors registered strong gains, led by rallies for communication services and consumer discretionary issues, while financials underperformed but still finished comfortably in positive territory as the Treasury yield curve steepened. The U.S. dollar slipped slightly, though crude oil prices gained ground and gold briefly touched a multi-year high.    

Next week will return to normal trading hours, but the economic calendar will be a bit lighter than usual, with the headlining reports likely being ISM's and Markit's reads on June services sector activity, JOLTS May Job Openings report, initial jobless claims for the week ended July 4^th, and the Producer Price Index for last month. The international economic calendar will also deliver some data points that could garner attention, with the bulk of the focus being on June services sector reports out of China and the Eurozone, while Japan will report its core machine orders figures—a gauge of capital investment—for May. Eurozone retail sales, coupled with German reads on factory orders, industrial production and trade balance, could also compete for attention, while the Reserve Bank of Australia will deliver its monetary policy decision.     

As noted in our latest Schwab Market Perspective: Mixed Signals, ongoing volatility underscores the precariousness of the recent rally. Even as the S&P 500 index rallied to recoup much of the losses made since its March 23rd low, we have cautioned that a second wave of coronavirus cases could upend investor confidence, raising the prospect of a fresh round of social-distancing restrictions or layoffs. We suggest investors resist the urge to react to daily market movements, make sure your portfolio is appropriately diversified, and make sure your portfolio is consistent with your goals, risk tolerance, and preferences.

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