 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Tuesday's Headlines 1. U.S. Markets Sell Off on Weak Manufacturing Report 2. Purchasing Managers Index Registers 2nd Monthly Decline in a Row 3. Schwab Cuts Commissions to Zero 4. China Celebrates its 70th Anniversary and Looks to the Future
Markets Closed
 Markets Today
Welcome the the fourth quarter of 2019.
U.S. markets posted their weakest day in since August 23rd as investors had a hard time swallowing results of a manufacturing survey which showed signs of extreme contraction. The DJIA and S&P 500 both fell more than 1.2% as volatility came rushing in with the Autumn wind.
The U.S. manufacturing Purchasing Managers' Index from the Institute for Supply Management came in at 47.8% in September, the lowest since June 2009, marking the second consecutive month of contraction. Any figure below 50% signals a contraction.
Nearly every category in the ISM's survey pointed to a slowing or contracting of manufacturing activity across the nation's biggest producers. (Click or hold to zoom in)  The new export orders index of the survey was only 41%, the lowest level since March 2009, down from the August reading of 43.3%. That's problematic because it shows that end demand is weak. That weakness could be partially attributed to the trade war, which causes uncertainty, but it's more likely a reflection of a broader economic slowdown that is causing the United States' trading partners to tighten their belts, or their wallets, when it comes to importing good from abroad.
President Trump blamed the Federal Reserve.  He's right that the Dollar remains very strong, compared to other major currencies, and that the Federal Funds Rate influences the strength of the Dollar. But it's not the Fed's job to adjust monetary policy to influence the value of the U.S. currency with respect to other countries. Trade policy is the arena for those battles, and the U.S. has a particular agenda when it comes to trade.
Here's the U.S. Dollar Index (The Greenback against other major global currencies) over the past 5 years. It's at a 2 year high.  What may be annoying the Trump Administration is that China's manufacturing sector seems to be strengthening, just as the U.S. is weakening. Since China can adjust its currency at will given the government's control over the People's Bank of China, it can theoretically influence its trade balance, to a degree.
On Sunday, China released its Purchasing Managers Index, which showed the strongest reading in two years. The U.S. PMI survey today is at its lowest levels since June of 2009.  (credits: Bloomberg/Schwab_Kleintop)
Schwab Cuts U.S. Trading Commissions to Zero If you follow the online brokerage industry like we do, today will live on in infamy.
Charles Schwab, one of the biggest brokers in the world with $3.7 trillion in assets under management and 18 million customers around the world, announced that it is cutting U.S. trading commissions on equities and options to zero.
Read more: Schwab Cuts Base Commissions to Zero
For those not familiar with this industry, it's akin to a movie theater not charging you for the tickets to watch the film but hoping you spend a lot of money on concessions while you are there.
For historical perspective, it's important to note that Charles Schwab, the founder of his eponymous firm, was one of the pioneers of low cost trading. In 1975, Chuck, as he is called, saw that the The Securities Acts Amendments of 1975 put an end to fixed trade commissions, which were the bread and butter of the old Wall Street.
He, and a few other entrepreneurs, realized that this opened the door for individual investors to really participate in the stock market and build their wealth.
"We probably didn't know it at the time, but May 1st 1975 was a watershed moment for individual investors and for the markets," said Schwab in 2005. "With the sudden arrival of negotiated stock trades that were less than half the cost they had been, a major barrier to investing went away for the average American."  photo courtesy Schwab.com
Schwab was right, and since 1975, commissions have been on a slow march to zero. Some platforms, like Robinhood, launched with free trades as their pitch, and have been able to grab a small, but meaningful market share among younger investors. Younger investors - and even not so young investors like me - feel like they shouldn't have to pay trading commissions if we are giving our bank or broker the privilege of holding our money. Schwab knows this, and is trying to give its customers reasons to stay when there are cheaper, even free, alternatives out there.
In eliminating commissions, Schwab is also eliminating about $100 million in revenue it generates from executing trades for its customers. It doesn't sound like a lot, given that Schwab earned over $10 billion in revenue last year, but that didn't stop investors from selling shares of Schwab (SCHW) today, down 10%, and its rivals, TDA (AMTD) down 26%, and E*TRADE (EFTC) down 16%.
The concern may be that if Schwab and its rivals are willing to give up $100 million in revenue to not lose customers, what else are they willing to give up, and what will that mean to their businesses, long term?  China Celebrates 70 Years as a Communist Republic It is a big day and week in China as the country celebrates its 70th anniversary as the People's Republic of China. For a country that was hidden from the developing world for centuries under authoritarian rule, it has come a very long way since 1949, and is now the second largest economy in the world.
Many people predict it will be the number one economy in the world in short order, and its leaders are absolutely sure of it. They have devised a plan called Made in China 2025 that details how their technological prowess and industrial power will lead the country to its rightful position as the most powerful on the planet.
James Early, our guest writer, has spent the last 7 years traveling throughout the country and writing about it. I highly recommend you read James' column on China's past, present and future, to get your mind around just how big this transformation will be.
chart courtesy www.koyfin.com  Shares of McCormick & Company rose by nearly 7% after the company reported strong Q3 performance and raised its earnings per share outlook. Ulta Beauty's stock price increased by over 6% today, following the purchase of $87 million worth of company shares by one of its directors.  TD Ameritrade and E*TRADE, fell over 25% and 16% respectively after news that competitor Charles Schwab was going to offer zero-commission on trading of US Equities, ETFs, and options starting October 7th. Charles Schwab itself dropped nearly 10% on the news. Diamondback Energy's stock price fell by over 5% following the sudden resignation of its president/COO.  Word of the Day Brokerage Fee  Today in Market History October 1, 1908 The Ford Model T, the first car for millions of Americans, hits the market. Over 15 million Model Ts are eventually sold, all of them black. Ford sold 15 million Model Ts before ceasing production in May of 1927, making it one of the best-selling vehicles of all time.
https://corporate.ford.com/history.html
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Tuesday, October 1, 2019
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