Data Diet to Pause: CPI Next Amid Trade Optimism

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.

0:18I'm Colette O 'Claire, and here is Schwab's early look at the markets for Friday, October 24th. Earnings season rolls on as investors brace for mega caps next week, but attention turns today to data. For the first time since the government shutdown began, investors hungry for stats will have some to peruse when the September Consumer Price Index, or CPI, posts at 8.30 a.m. ET. Estimates indicate slim chance of any relief from stubborn inflation. Analysts see year-over-year core CPI growth of 3.1 percent, well above the Fed's 2 percent target. Core excludes food and energy. Monthly headline and core inflation growth are seen at 0.4 percent and 0.3 percent, respectively, briefing.com said.

1:08Those are both the same as in August. The government is publishing CPI because it needs data to adjust Social Security payments, but no other data are expected so long as the shutdown lasts. CPI comes at an important juncture for investors, with the Federal Reserve meeting next week. Lack of data, including September jobs and retail sales, makes the Fed's job harder. The isolated CPI reading won't help much, but at least it's an official number in a data desert. Futures trading builds in around 99 % chance of at least a 25 basis point rate cut next Wednesday, according to the CME FedWatch tool.

1:49Investors expect another cut in December, but that's less certain, especially if inflation remains elevated. There's also growing expectation that the Fed will cut rates again at its January 2026 gathering. Federal workers missed another paycheck this week, and many federal agencies have stopped functioning, raising concerns about a possible slowdown. Fed Chairman Jerome Powell might be asked at his press conference next Wednesday to address the potential impact on economic growth. There will be plenty of discussion about what's missing, economic data, said Michael Townsend, Managing Director, Legislative and Regulatory Affairs at Schwab, with the Bureau of Labor statistics shuttered during the shutdown, we did not get the September jobs report.

2:37No weekly initial jobless claims data, no information on housing starts, retail sales, or manufacturing. Townsend, who added there is little sign of the shutdown ending soon, has his eye on November 1st as a possible catalyst for change in shutdown dynamics. That's when the money for the food stamps program is projected to run out and the start of the enrollment period for the affordable Care Act health insurance program. Today also brings the latest look at October consumer sentiment from the University of Michigan at 10 a.m. Eastern Time. Sentiment has been near the bottom of historic charts for several months, and no improvement is expected from the preliminary October figure of 55 percent released two weeks ago.

3:24That was down from 70.5 percent at the same time last year, and even that was low versus average readings in the past. Year ahead and long-run inflation expectations are likely to get a close look from the Fed in the sentiment report. Last time out, they were 4.6 % and 3.7 % respectively. Powell has said it's important to keep inflation expectations in check. Earnings slow a little today and Monday ahead of next Wednesday and Thursday's heavy round of mega cap results. However, eyes are on semiconductor firm Intel following its report late Thursday. Shares initially soared more than 7 percent in post-market trading as the company beat Wall Street's earnings and revenue estimates, but guidance of below-consensus fourth-quarter earnings per share might limit gains.

4:16Revenue in the third quarter rose 3 percent year over year, and the company's foundry revenue fell 2%. Speaking of NVIDIA, its shares and Ubers got a lift late Thursday when the two announced a partnership to help improve autonomous driving. And along that same road, Tesla shares charged back late Thursday from earlier losses despite an earnings miss. The comeback from Tesla, NVIDIA, and other stocks that had been dented earlier this week, appeared to reflect a return in risk-on trading. Support for that came partly from a White House announcement that President Trump and China's President Xi will meet early next Thursday U.S.

4:59time to discuss trade. The administration hinted a number of trade deals with various countries could be coming down the pike, CNBC reported, including with China on soybeans and rare earth metals. Gold, often a place that investors turn to for perceived safety, though no market asset is truly safe, had gotten caught up in a speculative rally that stalled earlier this week. Silver found itself in the same boat. Both recovered slightly Thursday. A rally in crude oil, which climbed 5 percent Thursday on new U.S. tariffs against Russian oil, may have raised red flags about possible inflation, which often helps commodity prices as well as gold.

5:44Treasuries fell Thursday, partly on the headwind from trade talks. Any deals might loosen economic shackles and push growth, possibly raising demand for competing assets beyond fixed income. Still, the 10-year yield remained just below 4 percent by late Thursday, still near six-month lows. At the same time, major U.S. stock indexes are back to just below all-time highs after Thursday's broad gains. The historic correlation between lower yields and higher stocks appears to be back in working order lately. The rise in bond yields has been arrested across Europe, much of Asia and the U.S., said Kevin Gordon, head of macro research and strategy at Schwab, speaking on CNBC Thursday.

6:29Bond pressure has alleviated and the correlation between bond yields and stock prices is positive again. Hopes for rate cuts have also helped rate-sensitive stocks, including U.S. small caps and biotechs recently, though today's CPI report might put pressure on those and other rate-sensitive areas if it's above expectations. And recent speculative froth in isolated parts of the market like rare-earth companies, quantum computing firms, and meme names like Beyond Meat dissipated late this week, but isn't necessarily over. This sort of froth is similar to what investors dealt with coming out of the first wave of COVID back in late 2020 and early 2021, in some respects, but seems confined to isolated pockets, Gordon said.

7:16He added that overall market breadth is holding up well, with the percentage of S &P 500 stocks trading above their 200-day moving average now at 64 percent, up from lows near 53 percent a week ago. We have endurably breached 60 percent in the number of stocks under the 200-day, Gordon said. The churn could continue in a positive way. It looks like we've seen some consolidation over the last month, not a corrective move. Seven of 11 S &P 500 sectors climbed yesterday, led by energy, but also with contributions from industrials, materials, infotech, and consumer discretionary, all on the growth side of the equation.

8:00That means there are sectors that tend to do better when the economy is growing. Defensive utilities, real estate, and staples finished at the bottom yesterday, though arguably utilities has shed its defensive skin this year due to its tie-in with the AI sector power demand. Tesla stormed back from early struggles to post 2 percent gains despite profit falling 37 percent in the third quarter. Rising costs undermined record EV sales last quarter, Bloomberg reported. IBM also plowed back and posted only small losses after reporting that it beat earnings expectations, but its software revenue was in line with Wall Street estimates.

8:42The company reported slowing growth in its core cloud software services. Ford shares popped in post-market trading after the company reported a rise in profit on strong sales, though the company lowered its outlook due to headwinds related to the recent fire at a supplier's aluminum plant. Near-term technicals remain relatively bullish for the S &P 500 as long as the index stays above the 50-day simple moving average, now near 6 ,588, said Nathan Peterson, Director of Derivatives Analysis at the Schwab Center for Financial Research. The Dow Jones Industrial Average climbed 144.20 points Thursday, or 0.31%, to 46 ,734.61.

9:31The S &P 500 Index gained 39.04 points, or 0.58%, to 6 ,738.44. And the Nasdaq composite rose 201.40 points, or 0.89%, to 22 ,941.80. 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. And if you like what you've heard, please consider leaving us a rating or review. It really helps new listeners find the show. Join us for another update Monday.

10:20For important disclosures, see the show notes and schwab.com slash market update podcast.