Auctions, Fed Speakers, and Earnings Dominate Week

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, October 6th. Focus remains on Washington after the shutdown kept Friday's jobs report under lock and key. The market hasn't reacted much to the government outage that began last Wednesday, with stocks setting several new record highs since then. But there was no sign of the impasse breaking at the time of this recording, and the longer it lasts, the more it might threaten sentiment on Wall Street.

0:47Investors seem convinced they'll see the September jobs data sometime soon, at least judging from a relative lack of volatility and high-rate-cut odds that persisted into the weekend. The report is critical for the Federal Reserve as it approaches its October 28th and 29th rate meeting. A stalemate that lasts through mid-month would likely put October data collection in jeopardy, meaning investors could face November with no jobs report as well. Typically, jobs data gets collected by mid-month. The lights stay on at the Fed, so its meeting will occur as scheduled, even if the government remains shut.

1:25If the shutdown ends this week, all could function normally in terms of data. A longer stalemate that threatens the September inflation data due in mid-October could make things trickier for the Fed. It already faces a tough decision based on stubborn inflation and falling job numbers. No truly major government reports besides weekly jobless claims would be affected this week if the shutdown doesn't end. A host of Fed speakers take the podium in coming days, along with minutes Wednesday afternoon from the last Federal Open Market Committee meeting, when the Fed cut rates for the first time since December.

2:03Over the weeks since then, many policymakers have sounded reluctant to cut again. For now, investors and the Fed will rely on private jobs data, like last week's ADP employment report, which traditionally hasn't correlated well with the official government numbers. ADP showed a net decline in jobs and a downward revision to the previous month. Lack of data poses a risk to the Fed, said Colin Martin, Director of Fixed Income Strategy at the Schwab Center for Financial Research. Without the jobs report, the Fed is missing a key piece of data to inform their views, but the ADP report should help build the case for the committee members who favor rate cuts now.

2:45The market remains under the impression that the Fed will cut rates this month. As of late Friday, odds of a 25 basis point cut were nearly 97 percent, according to the CME FedWatch tool. Odds of two cuts between now and year end were 85 percent up for the week. The longer the D.C. impasse lasts, the more investors might want to focus on the FedWatch tool for any change. A drop in odds of a rate cut would potentially underpin treasury yields and push down rate cut hopes, which might threaten the stock market rally.

3:20In data that did come out Friday, ISM Services PMI for September landed right at 50%, the dividing line between contraction and expansion. That was down from 52 % in August and below consensus. On another auspicious note, prices paid rose again, keeping fears of stagflation alive. That's when the economy slows even as prices increase, a tough scenario for the Fed to manage with the tools it has. Despite that gloomy report, Treasury yields added a few basis points Friday. The benchmark 10-year yield climbed three basis points to 4.12%, but still fell seven basis points for the week and remains in the middle of its short-term range between roughly 4 % and 4.25%.

4:07This week features several key Treasury auctions that may provide direction after a lull and aren't affected by the shutdown. A three-year note auction is on tomorrow's calendar, followed by a 10-year note auction on Wednesday. Though full-fledged earnings season doesn't start until next week, PepsiCo and Delta Airlines line up on Thursday. Both could provide more hints on consumer and business demand, with airlines expected to report a solid summer travel season based on heavy passenger numbers tracked by the government. Another key report comes Thursday afternoon when Applied Digital delivers results.

4:44As Briefing.com points out, the firm's earnings could provide an update on whether fundamentals are keeping pace with the euphoria that's driven up AI-related shares. Speaking of AI, last week saw major indexes plow ahead to new all-time highs powered by AI optimism. The strength in AI and of AI-dominated sectors like tech raised concentration concerns. The top handful of S &P 500 stocks account for a historically high share of total market capitalization and index returns. This dynamic can distort perceptions of market health as index gains may mask underlying weakness among the majority of its constituents, said Kevin Gordon, senior investment strategist at Schwab.

5:29Even so, the S &P 500 Equal Weight Index, which weighs all members the same rather than by market capitalization, closed at an all-time high Thursday, suggesting that the rally continues to lift boats outside of AI waters. Friday featured mixed action, highlighted by a slight downturn in tech stocks. That was especially evident in the chip space, where media speculation focused on how soon AI spending might slow. Some analysts say the data center build-out is in the seventh inning, to use a baseball term. Others say it's as early as the second inning. Whatever the case, investors appeared inclined to pull back after the PHLX Semiconductor Index hit an all-time high early Friday.

6:16If we get a pullback in the tech trade, how deep will it go, or how long will it last before dip buyers step back in, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. The uptrend has been resilient and the intermediate-term technicals remain bullish, but near-term there are some indications that we're overbought. Some AI-related stocks taking a breather Friday included advanced microdevices falling nearly 3 % and NVIDIA about 0.6%. Separately, Palantir fell 7%, hurt by a Reuters report that the company's battlefield field communication systems was flawed.

6:55Palantir said that claim was outdated and already addressed, Bloomberg reported. Apple rose despite Jeffries downgrading the iPhone maker to underperform from hold. The analyst thinks expectations for the foldable iPhone are too high, Barron's reported. Still, Apple is near all-time highs. Rumble soared nearly 16 percent Friday on news that the video sharing platform and cloud services provider was entering a partnership with Perplexity, an AI-powered answer tool. USA Rare Earth rose 14 % Friday, as CNBC reported that the miner is in close talks with the White House. Several automaker stocks rose late Friday after Reuters reported that the Trump administration is considering significant tariff relief for companies that assemble their vehicles in the U.S.

7:47Shares of Ford rose more than 3%, while General Motors shares added 1.3%. Stellantis rose 3%.

7:58The Dow Jones Industrial Average climbed 238.56 points Friday, or 0.51%, to 46 ,758.28. The S &P 500 Index added 0.44 points, or 0.01%, to 6 ,715.79, and the Nasdaq Composite backtracked 63.54 points, or 0.28%, to 22 ,780.56. For the week, the Dow Jones Industrial Average and the S &P 500 each rose 1.1%, while the Nasdaq Composite climbed 1.3%. 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.

8:57Join us for another update tomorrow.

9:04For important disclosures, see the show notes and schwab.com slash market update podcast.