 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Thursday's Headlines 1. Markets Little Changed on Steady Earnings 2. The U.K. and the EU agree on Brexit Deal 3. Traders Bet Big On Negative Interest Rates in the U.S. 4. Charles Schwab's Words of Wisdom Markets Closed
 Image: Getty Images
Markets Today
Equity markets closed modestly higher on Thursday after major companies beat earnings expectations and news hit earlier in the day that the U.K. and European Union have tentatively agreed to a Brexit deal. While stocks indeed ended in the green after a flat-to-negative Wednesday, gains were muted as investor enthusiasm was tempered by key risks remaining on the horizon. Most prominent of these risks include the ongoing U.S.-China trade negotiations, which continue to hang in the balance.
The benchmark large-cap indexes—the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite—all climbed less than half a percent, while the small-cap Russell 2000 performed significantly better, gaining more than 1%. Despite this overall market rise, though, the Volatility Index (VIX) actually rose on the day, which further hints that investors remain somewhat skittish.
Helping to boost stocks early in the day were earnings beats by major S&P 500 components, Netflix (NFLX) and Morgan Stanley (MS). Initially, shares of Netflix rose as much as 7% on Thursday morning after the earnings release. But this was short-lived, as investors showed increased concerns about the inevitable slowing of Netflix's subscriber growth. The stock ended the day up only around 2.5%. Brexit... Really! Boris Johnson might just be able to pull this off. Today, the U.K. and the EU agreed in principle on a deal to allow the U.K. to leave the EU by October 31st. Johnson still needs to convince the British Parliament to approve the deal, and that may be the more difficult challenge. Parliament rejected a very similar looking deal under former PM Theresa May, which ultimately cost her the job.
Here are the key components of the agreement, per the BBC:
What is Different?
Johnson has his work cut out for him, especially because he lost several allies in British Parliament within just a few weeks of becoming Prime Minister. But, foreign exchange investors seem to believe this will happen, judging by the price action in the British Pound over the past month.  Bets Rise on Negative Interest Rates in the U.S. What seemed unthinkable now seems possible, according to some derivative traders who are making big bets that the U.S. might have zero or negative interest rates in the future.
The WSJ reports that the number of bullish contracts outstanding on Eurodollar futures that pay out if interest rates hit zero or fall below has increased to about 1.2 million, according to CME Group data through September.
That is the highest level since at least 2011 and up from about 132,000 contracts last September. Some of these bets are longer-dated, expiring in 2021 or 2022.
What does this even mean?
First things first...
So... some derivatives traders are making a very low odds bet that the U.S. interest rates will go to zero or lower, joining 16 other major economies that have already done so. Here's the WSJ's charts on the rise in these derivative bets.  The Federal Reserve has now cut interest rates twice this year, and may do so again at its meeting at the end of October, and/or again in December. A 0.25% rate cut would bring the Federal Funds rate down to the 1.50%-1.75%, range. While that's not zero or negative, it's getting close. According to the CME Fed Watch Tool, traders are betting on a 90% probability of a 0.25% cut at both of those meetings, although there has been a lot of dissension among members of the FOMC as to whether more rate cuts are needed. The U.S economy is still growing, unemployment is at multi-decade lows and inflation is under control.
To be sure, those traders betting on zero or negative rates are making a highly speculative bet which could cost them a lot of money if it doesn't come to pass. But if they are correct, it could be the trade of the century.  Charles Schwab Speaks Charles "Chuck" Schwab essentially created the discount brokerage model in 1975, opening the door for millions of individual investors to access the stock market outside of Wall Street.
Charles Schwab, the firm, is one of the biggest financial service companies in the world, with nearly $5 trillion in assets under management and tens of millions of customers.
As we reported a couple of weeks ago, Schwab eliminated stock and ETF trading commissions, and changed the landscape for online brokers and the entire brokerage industry, for that matter.
I had the opportunity to interview Chuck today in New York, and we'll be releasing clips of that interview soon.
He did share a few words of wisdom with a handful of journalists today that I will pass on to you. There is nothing earth-shattering here, but it's always good to hear from a legend in the investing game.
Q: Why did Schwab decide to eliminate commissions now? Chuck: All things being equal, price matters to customers. I wanted to take commissions out of the formula. It gets in the way of good investment performance. It's the right thing to do for clients. Yes – there are other ways we can make money, but I wanted to make it easier.
Q: What has changed for the individual investor? What challenges do they face now? Chuck: We are living longer, and outliving our paychecks. Many of us will retire with several decades of life to live. You have to prepare yourself to pay your own paycheck because we won't be able to work forever.
Q: There is a lot of fear in the market right now despite it being near record highs. Are you fearful of an economic downturn? Chuck: Underneath the headlines, the real economy is growing. The recent tax bill was an important step in exciting the business community and got them to spend more. Low interest rates have also been helpful. The Brexit issue might get solved. The relationship with China might improve. The underpinnings are strong, so I am confident.
Q: What's your best advice for new investors today? Chuck: Investing is an act of optimism, but you need to diversify. The key is diversification with reasonably low cost products. It's fun to buy one or two stocks, but then you are at risk. We don't know what tomorrow will bring, so you have to be diversified.
(chart courtesy YCHARTS)  Industrial conglomerate Dover Corp gained 5.9% today after an earnings beat. Equipment rental firm United Rentals also rose 5% on an earnings beat. Pharmaceutical companies Cardinal Health, AmerisourceBergen, and McKesson racked up a third straight day of gains, climbing 4.4%, 4.0%, and 3.9% respectively. This comes after news of a settlement with state and local governments over the companies' role in the opioid crisis.  IT firm IBM dropped 5.6% on a poor earnings report. Other stocks suffering after earnings announcements include industrial firm Textron, which fell 5.4%, and M&T Bank, which fell 4.3%. Word of the Day Brexit is an abbreviation for "British exit," referring to the U.K.'s decision in a June 23, 2016 referendum to leave the European Union (EU). The vote's result defied expectations and roiled global markets, causing the British pound to fall to its lowest level against the dollar in 30 years. Former Prime Minister David Cameron, who called the referendum and campaigned for Britain to remain in the EU, announced his resignation the following day.
 Today in History October 17, 1973
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Thursday, October 17, 2019
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