U.S. equities were able to come off the lows of the day to finish mixed, as investors assessed a number of ongoing headwinds that remained in place, including concerns surrounding the Fed, inflation, and potential for slowing economic growth. Treasuries experienced a bit of a reprieve and were higher, with yields declining, after expectations of an aggressive Fed tightening campaign helped contribute to the general market uneasiness and saw yields creep higher. The U.S. dollar moved to the upside, continuing a rally as of late to multi-year highs, while crude oil prices were solidly lower, and gold also lost ground. In M&A news, Pfizer agreed to acquire migraine therapy maker Biohaven Pharmaceutical Holding Company for about $11.6 billion. Shares of Peloton Interactive suffered after posting a larger-than-expected loss and warning that it is thinly capitalized. Meanwhile, the economic calendar was relatively quiet but did show that small business optimism remains near a two-year low. Asia was mostly lower though China moved higher, while most markets in Europe finished with slight gains.

The Dow Jones Industrial Average fell 85 points (0.3%) to 32,161, while the S&P 500 Index increased 10 points (0.3%) to 4,001, and the Nasdaq Composite gained 114 points (1.0%) to 11,738. In heavy volume, 5.8 billion shares of NYSE-listed stocks were traded, and 6.1 billion shares changed hands on the Nasdaq. WTI crude oil tumbled $3.33 to $99.76 per barrel. Elsewhere, the gold spot price traded $19.00 lower to $1,839.60 per ounce, and the Dollar Index was 0.3% higher at 103.94.

Pfizer Inc. (PFE $49) announced an agreement to acquire migraine therapy maker Biohaven Pharmaceutical Holding Company Ltd. (BHVN $140) for $148.50 per share in cash, in a transaction valued at about $11.6 billion. PFE is modestly higher, while BHVN rallied nearly 70%.

Peloton Interactive Inc. (PTON $13) reported a fiscal Q3 loss of $2.27 per share, much wider than the FactSet estimate of a shortfall of $0.83 per share. Revenues fell 24.0% year-over-year (y/y) to $964 million, south of the Street's forecast of $970 million. The fitness company issued Q4 guidance that was below estimates, reflecting softer demand versus its February forecast, which has been partially offset by accelerated sales as a result of its recent hardware price reductions. The company also noted continued headwinds in freight, storage, and logistics, and warned that it is "thinly capitalized," and it has taken steps to strengthen its balance sheet. Shares traded lower.  

Q1 earnings season remained in full force and of the 446 S&P 500 companies that have reported thus far, roughly 67% have topped sales expectations and about 77% have bested profit projections, per data compiled by Bloomberg. So far, y/y sales growth is up 14.0%, and earnings growth is 9.3% higher. 

Schwab's Chief Investment Strategist Liz Ann Sonders discusses the volatile market action in her latest article, When the Levee Breaks, Panic Is Not a Strategy. She notes that April was the worst month for the S&P 500 since March 2020, and that it's been a mixed-to-weaker bag in terms of macro drivers and we expect significant bouts of volatility to persist. She concludes that this is not a time for investors to take on risk outside the parameters of their strategic asset allocations. It is a time for investors to employ traditional disciplines around diversification (across and within asset classes), to focus on quality in terms of stocks' fundamentals, and to stay in gear via periodic rebalancing. You can follow Liz Ann on Twitter: @LizAnnSonders.

Read all our market commentary on our Market Insights page, and you can follow us on Twitter at @SchwabResearch.

Small business optimism holds at a two-year low

The National Federation of Independent Business (NFIB) Small Business Optimism Index for April remained at March's 93.2 level, versus the Bloomberg consensus estimate of a decrease to 92.9. The index held at the lowest level since April 2020 and posted the fourth consecutive month below the 48-year average of 98, with small businesses expecting better business conditions over the next six months decreasing to a net negative 50%, the lowest level recorded in the survey's history. 

The NFIB said, "Small business owners are struggling to deal with inflation pressures, and the labor supply is not responding strongly to small businesses' high wage offers and the impact of inflation has significantly disrupted business operations."

Treasuries rose after losing ground as of late to boost yields as the markets continue to brace for tighter Fed monetary policy following last week's 50 basis point (bp) rate hike, which Schwab's Liz Ann Sonders discusses in her latest article, 50 Ways to Leave Your Mark.

Amid this backdrop, check out the latest offering from Schwab's Director of Fixed Income Collin Martin and Director of Fixed Income Strategy Cooper Howard titled 8 Questions on the Bond Market and Rate Hikes, where they provide their insight into some of the most frequently asked questions they have received this year.

The yield on the 2-year Treasury note was down 1 bp at 2.60%, while the yields on the 10-year note and 30-year bond dropped 9 bps to 2.99% and 3.12%, respectively.

The first look at the April inflation landscape will come tomorrow, courtesy of the Consumer Price Index (CPI), forecasted to have increased 0.2% month-over-month (m/m) and 8.1% y/y, while the core rate, which excludes food and energy, is estimated to have gained 0.4% m/m and be up 6.0% y/y. The MBA Mortgage Applications Index for the week ended May 6 is also slated for release (economic calendar).

Europe mostly higher amid lingering headwinds

European equities finished mostly higher, rebounding somewhat from recent weakness that has come from uncertainty and uneasiness regarding monetary policy tightening implications after last week's rate increases from the Fed and the Bank of England. The markets were able to show some resiliency in the face of rising inflation pressures, along with increasing interest rates and the recent rally in the U.S. dollar. Stocks have seen pressure as global economic growth uncertainty remains palpable, exacerbated by the COVID-related lockdowns in China, as well as the ongoing war in Ukraine, which has fostered concerns about food and energy supplies and amplified inflation worries. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest commentary, Hedging Stocks Against Rising Rates. Jeff notes how investors should consider hedging the possible risk of higher interest rates with the addition of short duration stocks, a potential way to manage risk while remaining invested in the markets. You can follow Jeff on Twitter: @JeffreyKleintop. In economic news, German investor confidence for May showed expectations improved but remained solidly negative, while the current situation deteriorated more than expected. The euro and the British Pound were lower versus the greenback, while bond yields in the Eurozone and the U.K. saw noticeable pressure.

The U.K. FTSE 100 Index was up 0.4%, France's CAC-40 Index rose 0.5%, Germany's DAX Index advanced 1.2%, Italy's FTSE MIB Index was 1.0% higher, Switzerland's Swiss Market Index traded 0.9% to the upside, while Spain's IBEX 35 Index was nearly unchanged.

Asia mostly lower though China rebounds on stimulus hopes

Stocks in Asia were mostly lower, with the markets remaining skittish regarding the aggressive monetary policy tightening in the U.S. to combat persistent inflation pressures. Moreover, the markets continued to grapple with concerns regarding the global economic impact of the COVID-induced lockdowns in the world's second largest economy of China. However, recent pledges from the Chinese government regarding stimulus measures seemed to provide support for the market in mainland China. The rise in the U.S. dollar as of late likely also weighed on sentiment, notably the greenback's strong gains versus Japanese yen. In our latest Schwab Market Perspective: Inflation's Shadow, Schwab's Liz Ann Sonders, Jeffrey Kleintop, and Kathy Jones note how rising prices and slowing demand have cast shadows on this year's economic outlook, especially as the Federal Reserve begins tightening monetary policy. Whether the situation will lead to a recession remains to be seen. Globally, there are signs that stretched supply chains are beginning to ease, potentially slowing the pace of inflation—which would be welcome news for investors and central bankers. In economic news, Japan's March household spending fell by a smaller amount than expected, while Australian business confidence for April dropped and Australia's retail sales declined but came in stronger than anticipated for Q1.

Japan's Nikkei 225 Index decreased 0.6%, with the yen rebounding somewhat versus the U.S. dollar, though China's Shanghai Composite Index rose 1.1%. The Hong Kong Hang Seng Index fell 1.8%, and Australia's S&P/ASX 200 Index declined 1.0%. South Korea's Kospi Index traded 0.6% lower, and India's S&P BSE Sensex 30 Index dipped 0.2%.

Tomorrow, investors will get a look at Chinese CPI and PPI, South Korea's unemployment rate, the Leading Index from Japan, as well as German CPI.