Big Bank Earnings Up Next Along with Powell Speech

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 Colette O 'Claire, and here is Schwab's Early Look at the Markets for Tuesday, October 14th. Banks stepped to the earnings line this morning, and investors will look for upgrades on trading trends, net interest income, loan demand, and the economy. JPMorgan Chase, Goldman Sachs, Wells Fargo, BlackRock, and Citigroup are the big ones to watch, followed by Bank of America and Morgan Stanley tomorrow. The steeper Treasury yield curve and a heavy dose of summer investment banking activity suggest major U.S.

0:52banks remain on solid footing, but they still face challenges. Among them are how to follow up a second quarter when sweeping market volatility send Wall Street trading demands soaring, much to the big banks' benefit. After a strong rally through the summer, performance has stalled, said Alex Coffey, senior trading and derivatives strategist at Schwab, referring to the S &P financial sector. While this could be tied to uncertainty around macroeconomic trajectory and monetary policy, it's more likely due to many big banks seeing a short-term peak in earnings growth last quarter and a notable deceleration expected in coming quarters.

1:33Stocks rebounded Monday with tech shares on the mend after conciliatory words from President Trump on China after his threat of massive tariffs that caused the market to buckle last Friday. Trump was responding to new export controls China put in place on valuable rare earth materials. Friday wiped out$2 trillion in market capitalization, and the market clawed back about half of that Monday. A conciliatory weekend post by President Trump dialed down the temperature, but he did threaten Friday to impose 100 percent tariffs on China if it doesn't back down by November 1st. China accused the U.S.

2:12of having double standards and wrong practices. The two countries plan another round of talks before the November 10th expiration date of their current tariff trade truce, Bloomberg reported. Treasury Secretary Scott Besant told Fox Business that the U.S. and China communicated over the weekend, and Trump and Chinese President Xi still plan to meet. An escalation in U.S.-China trade tensions was surprising, as it looked like relations were warming, said Michelle Gibley, director of international research at the Schwab Center for Financial Research. The moves by both China and the U.S. may be posturing ahead of a meeting between President Xi and President Trump October 31st to November 1st.

2:55Both sides have incentive to come to a trade deal, but there could be more volatility until we see agreements signed or another extension of the trade truce on 145 % tariffs beyond the November 10th deadline. Monday's comeback didn't recover all of Friday's losses or come even close, and much of the strength came in the mega-cap-dominated tech, communication services, and discretionary sectors. Materials, a laggard year to date, soared again as investors contemplated potential shortages and rising prices of rare earth materials exports from China threatened by the tariff battle. But some of the defensive sectors that led on Friday, like staples and healthcare, lost ground, possibly a sign of risk-on re-emerging from Friday's move underground.

3:46The SIBO Volatility Index, or VIX, plunged about 12 percent on Monday after topping 21, its highest level since early August. It had been 16 or below for months. Though the pullback could indicate rebounding confidence, it seems from the still elevated level near 19 that investors don't think the all-clear has sounded on China. The historic average is near 20. With the government shutdown nearing two weeks, tomorrow's September Consumer Price Index, or CPI, has been postponed until Friday, October 24th, the Bureau of Labor Statistics, or BLS, said. It still has the Producer Price Index, or PPI, on its Thursday schedule, but unless the shutdown ends, that's unlikely.

4:33The CPI is being released to allow the Social Security Administration to meet statutory deadlines necessary to ensure accurate and timely payment of benefits, the BLF said. Key non-government reports to monitor this week are today's Small Business Sentiment Report, tomorrow's Empire State Manufacturing Data, and Weekly Mortgage Applications Index, and Thursday's Philadelphia Fed Index. Normally, these wouldn't get much attention, but they take on added importance in the current climate when government data is missing or delayed. Mortgage applications have been falling recently despite lower mortgage rates, perhaps more evidence that housing continues to struggle.

5:16Investors still expect a rate cut at the Fed's meeting later this month and another one in December, according to the CME FedWatch tool. Futures trading builds in nearly 99 percent chances of one rate cut and 96 % chances of two before year-end as of late Monday. Philadelphia Fed President Anna Paulson signaled Monday she favors two more quarter-point rate cuts this year, Bloomberg reported. She doesn't think tariffs will cause sustained inflation, considering soft conditions in the labor market and elsewhere. Checking individual stocks, semiconductor giant Broadcom jumped 9 % and was up double digits at Times Monday after announcing a collaboration with OpenAI.

6:03Micron, NVIDIA, GE Vernova, Advanced Micro Devices, Qualcomm, Oracle, Taiwan Semiconductor, and Super Micro Computer, all dented by Friday's sell-off, ascended Monday. Oracle got some additional assistance Monday from positive notes by two Wall Street analysts and an upbeat interview on CNBC by its co-CEOs, in which they touted the benefits of AI. Domestic rare earth stocks, including MP Materials, USA Rare Earth, and Critical Metals, resumed their sizzling rallies Monday on renewed trade war fears. MP and USA Rare Earth added more than 20 percent, and Critical Metals rose more than 50 percent.

6:47Rare earth materials are needed for EV batteries and semiconductor chips, among other key products. Tesla, which has a large market in China for its EVs, bounced back around five percent after Trump's Sunday post eased trade worries. Retailers with supply chains that could be threatened by a trade war also bounced back, including Best Buy, Nike, and Target. Bloom Energy soared nearly 30 percent Monday as CNBC reported that Bloom had made a deal with Brookfield Asset Management to deploy fuel cells for AI centers. This is another example of an AI ancillary play on the energy side. AI, chips, and data continue to lead the way upward, and it's notable that a big part of Friday's sell-off reflected China fighting back on chip purchases.

7:36Though volatility eased slightly Monday, it could remain elevated as trade tensions simmer. Under the hood, Friday's sell-off likely led to heavy unwinding of short positions in volatility in a very short time, possibly causing a more dramatic sell-off than might have been the case had volatility not been so low going in. Technically, the S &P 500 index may have disappointed some traders yesterday by testing the 20-day moving average near 6 ,669 early, but finishing the day short of that level. The 20-day moving average has long been a support point, and Monday was the second consecutive close below it.

8:18Two in a row below support doesn't necessarily change the overall positive tone, but a few more might. This is the first pair of consecutive closes below the 20-day moving average since late April, reinforcing just how solid the rally has been. Treasury markets were closed Monday for Columbus Day. The Dow Jones Industrial Average climbed 587.98 points Monday, or 1.29 percent, to 46 ,067.58. The S &P 500 Index rallied 102.21 points, or 1.56 percent, to 6 ,654.72. And the Nasdaq Composite gained 490.18 points or 2.21 % to 22 ,694.61. This has been the Schwab Market Update podcast. To stay informed, visit schwab.com slash market update or follow for free in your favorite podcasting app.

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