After Solid Week, July CPI and Trade Deadline Loom

0:05Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Monday, August 11th. Monday's light schedule belies a pivotal week. Two events tomorrow, the possible expiration of President Trump's trade deadline for China, and the release of July consumer prices could help determine if the broader market can convincingly move past recent all-time highs amid hopes for a series of Federal Reserve rate cuts. Tuesday brings key inflation data with the July Consumer Price Index, or CPI.

0:49Analysts expect 0.2 % monthly growth in headline CPI and 0.3 % for core CPI, which excludes volatile food and energy. That compares with 0.3 % and 0.2 % respectively in June. However, annual core CPI is seen ticking up to 3 % from 2.9 % in June, well above the Fed's 2 % target. This may not make much of a difference if the Fed is more focused on a slowing economy. In one sign that perhaps the Fed doesn't need to worry as much about inflation, second quarter productivity rose 2.4 percent following a 1.8 percent first quarter drop. This suggests companies are getting more done with lower costs, which over time could help tame inflation.

1:34Another possibility is that inflation could ease if the economy is truly slowing, giving the Fed a chance to focus more on protecting the labor market after jobs growth slowed over the spring and into summer. The week ahead doesn't provide much in terms of fresh job market statistics, though Thursday's continuing jobless claims could get a close look after reaching nearly four-year highs last timeout. Initial jobless claims have stayed relatively low, possibly reflecting fewer layoffs. But jobs have apparently become harder to find, judging from continuing claims. Chances for a September rate cut reached 89 % late Friday, according to the CME FedWatch tool.

2:17We expect the Fed to cut rates two times this year, with the first cut occurring in September, said Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research. Stephen Moran will likely be a dove and will advocate for additional cuts this year. Moran is President Trump's nominee to fill the seat of Fed Governor Adrian Kugler, who is stepping down. If CPI surprises to the upside, however, Howard wouldn't be surprised to see Treasury yields move higher. They spent much of last week on the climb, with the underlying Treasury market hurt to some degree by poor auction demand.

2:52The Treasury will drop the hammer on more debt this week, but not as much as a week ago. Earnings are more than 90 % complete, and this week represents a bit of a breather between the main part of the season and the approaching freight train of big-box retail earnings later this month. Those will be critical this time around to get a sense of consumer spending in back-to-school season as tariffs kick in. Though the full effect of tariffs isn't likely to come through, companies may be asked to explain how they're handling these price increases, which are paid for by importers. U.S. consumers face an overall average effective tariff rate of 18.6%, up 16.2 basis points from 2024, and the highest since 1933, according to the Budget Lab at Yale.

3:42If China doesn't get its Tuesday tariff deadline extended, U.S. tariffs on its imports would rise another 34%. China would likely retaliate with higher tariffs on U.S. products. It might also dim some of the glow the semiconductor sector got last week when Trump's chip tariffs ended up looking less frightening than expected. Second quarter S &P 500 earnings are on track to climb 11.8%, facts said Friday in its latest tally. So far, 81 % of firms have reported a positive earnings per share surprise. Though overall earnings growth has impressed versus preseason estimates, the main source of strength is just two sectors, Infotech and Communications Services.

4:25Many sectors not dominated by the Magnificent Seven are flat or even in the red on their collective bottom lines. That's not to detract from the strong earnings seen last week. Notably, several AI and AI-adjacent tech companies delivered strong results, which suggests more room for growth in the AI secular growth story, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. Palantir, Arista Networks, and Estera Labs all gapped up to fresh all-time highs following their results. Technically, the 20-day moving average for the S &P 500 index held on several tests last and may remain a support point.

5:06It currently sits at 6 ,318. The all-time high close of 6 ,389 appears to be a resistance point. The Momentum Tracking Relative Strength Index, or RSI, was just below 60 late last week for the S &P 500 index, well below the 70 level, often seen as overbought. But RSI for the tech-heavy Nasdaq 100 reached 63 on Friday, up sharply from late last month. The RSI is an under-the-radar signal that could be worth monitoring this week for further momentum signals as earnings season slows and focus potentially shifts more to monetary policy and the impact of tariffs. The quarter is shifting into a period where there won't be earnings excitement each day to put a charge into various sectors or the overall market, though NVIDIA, Salesforce, and Broadcom are exceptions in late August and early September.

6:02On Friday, Apple shares continued their upswing and topped$230 intraday for the first time since March. The rally tapped into Apple's recent solid earnings and its announcement last Wednesday of a$100 billion investment in U.S. production. There also may have been a technical element as shares pushed above the 200-day moving average of$221. Apple hadn't traded above that in five months. It finished the week with gains of around 10 % for its best weekly performance since late 2021, but remains well below its all-time intraday high of$260 posted last December. In other news, Barron's reported Friday that President Trump could hold a public offering for mortgage giants Fannie Mae and Freddie Mac as soon as this year.

6:51Trump has met with banking industry leaders over the last few weeks to discuss this idea. Homebuilder stocks mostly rose Friday. Tech stocks scrambled back to second place on the sector scoreboard Friday after a more cautious Thursday, led by Apple, but also thanks to strength in several names that frequently show up on the leader list this year, including Palantir, NVIDIA, Microsoft, and Dell. It's the leading sector over the last week, followed by consumer discretionary and communication services. For the second day in a row Friday, shares of many retailers and travel firms fell, possibly hurt by worries about demand following implementation of Trump's tariffs last week.

7:31Firms like Foot Locker, Wynn Resorts, MGM Resorts, Lululemon, and various cruise lines struggled. From a wide-angle lens, the S &P 500 index just missed a new record closing high on Friday, and the Nasdaq delivered its second straight. The Russell 2000 small cap index also had a strong week. The Dow Jones Industrial Average climbed 206.97 points Friday or 0.47 % to 44 ,175.61. The S &P 500 Index gained 49.45 points or 0.78%, 6 ,389.45. And the NASDAQ Composite added 207.32 points or 0.98 % to 21 ,450.02. For the week, the Dow Jones Industrial Average climbed 1.35%. The S &P 500 Index added 2.43%.

8:27And the NASDAQ gained 3.87%. This has been the Schwab Market Update Podcast. To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow.

9:00For important disclosures, see the show notes and schwab.com slash market update podcast.