Fed in focus after volatile week for stocks

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 Monday, June 15th. After stocks rebounded to end last week, this holiday-shortened week will bring key central bank meetings, including the first Federal Reserve meeting helmed by new chairman Kevin Warsh. In a quiet week for earnings, industrial production data due out today and retail sales due Wednesday will be the highlights on the economic front. The main event before U.S. markets close this Friday, in observance of the Juneteenth holiday, is the Fed meeting, which starts tomorrow and wraps up Wednesday afternoon.

0:56No change in interest rates is expected, but the meeting, particularly the Fed's statement and Warsh's press conference Wednesday afternoon, will draw plenty of interest. Heading into the week, odds of the Fed's standing pat on rates stood at 98 percent, according to the CME FedWatch tool. From a market angle, the real intrigue will come when the Fed releases its projections for rates and economic growth. The quarterly dot plot, issued in March, baked in a single rate cut this year. That's likely to change in the new dot plot, but the question is whether enough policymakers pencil in a possible rate hike to make that the likeliest outcome at some point in 2026.

1:41Warsh reportedly isn't a fan of the dot plot, which plots policymakers' estimates of where rates will head in coming years, and it will be interesting to see whether he makes that clear in some way. The same goes for his apparent preference for trimmed inflation gauges over the Fed's current preferred gauge, the Personal Consumption Expenditures Price Index. Last time the Fed met, three policymakers went on the record opposing what they called an easing bias in the central bank statement. Investors might want to carefully read the updated statement to see if it changed to a more neutral perspective or even slightly hawkish one.

2:22Any move toward hawkishness might buttress yields and weigh on stocks. As of late Friday, the CME FedWatch tool put the odds of the Fed raising rates by the end of the year stood at 59%. That's down from more than 70 % on Tuesday last week before inflation data was released. Last week's inflation data might indeed have given the Fed some breathing room. Inflation is elevated, but most gauges came in below expectations. Another helpful development was that hopes for a peace deal with Iran send crude oil prices lower at the end of the week. Still, oil prices remain elevated, and even if the Strait of Hormuz opened immediately, it would likely take months for supplies to return to normal.

3:10This might play into the Fed's thinking, and recent resilient U.S. jobs and manufacturing data could make it easier for the Fed to focus more on the stable prices part of its dual mandate. That said, Warsh sounded dovish at his confirmation hearings and appears to favor rate cuts at some point. The Bank of Japan, or BOJ, makes a rate decision of its own early Tuesday and appears likely to hike, according to a Reuters poll of analysts. Earnings action remains light this week, with few companies of consequence on the calendar. Often, an earnings pause can intensify market focus on outside events, particularly geopolitics.

3:53A handful of firms worth watching this week include Kroger, Accenture, and CarMax. May industrial production data kicks off the week. Manufacturing has been a bright spot in the U.S. economy the last few months, with outputs surging 0.7 % in April from the previous month. May housing starts and building permits are due tomorrow. Housing hasn't been much of a bright spot, though data released last week showed that sales of existing homes in May topped expectations, thanks partly to slightly lower mortgage rates compared to a year earlier. Last time out, housing starts fell 2.8 % month over month in April and building permits rose 5.8%.

4:37Both figures topped analysts' expectations. Retail sales for May follow on Wednesday morning, offering clues to whether higher gas prices are cutting into spending in other areas. CPI data last week showed that after accounting for inflation, hourly wages fell on an annual basis for a second straight month. A decline in consumer spending would be a drag on economic growth. Consumers have been in a bad mood for months, but Friday's Consumer Sentiment Report from the University of Michigan pointed to a slightly brighter outlook. Overall sentiment rebounded more than expected, as did consumers' view of current conditions.

5:21Inflation expectations, a key concern at the Fed, also eased up slightly. Consumers expect inflation of 4.6 % a year from now, down from 4.8 % a month ago. A less talked about but still important report to watch on Thursday is Treasury International Capital Data for April. It provides a look at domestic and foreign investor demand for U.S. Treasuries. So far, flows have in turn negative, but if they do, it could mean pressure on the Treasury market and associated rising yields and pain for stocks. Stocks wrapped up a volatile week with gains on Friday with the IPO and trading debut of SpaceX and renewed hopes for an imminent deal to end the war in Iran, bolstering sentiment.

6:12In Friday's market action, major indexes all closed higher, while SpaceX shares soared in their debut. Nine of 11 S &P 500 sectors closed higher, led by materials and financials. Treasury yields mostly rose. The U.S. Treasury auctions off some short-term notes today, but no major offerings are due this week after last week's 10-year auction showed decent demand. The Philadelphia Semiconductor Index rose 1.5 percent and has now recovered all the losses suffered over the previous week, starting when it fell 10 percent on Friday, June 5. Among individual movers Friday, SpaceX popped as much as 30 percent higher after its record-breaking IPO before closing up 19 percent.

7:02This made Elon Musk the world's first trillionaire and three times richer than the next richest man, Google co-founder Larry Page, according to Bloomberg. Adobe fell more than 6 percent Friday. Earnings released after the close Thursday topped consensus estimates and guidance from the software firm also exceeded the facts at average estimate. But investors may have been disappointed at news the company's chief financial officer is leaving for a chip company. Two analysts downgraded Adobe, one of them citing what they said was continued growth deceleration and limited medium-term catalysts. Homebuilder Lenar fell nearly 5 % after reporting mixed quarterly results late Thursday.

7:49Earnings surpassed estimates, but revenue came in a bit short, down 5.2 percent year-over-year. New orders fell 4 percent year-over-year, but deliveries rose 2 percent from a year earlier. Advanced micro-devices rose nearly 5 percent after Citigroup upgraded it to buy from neutral. Citigroup said the upside for AMD's graphics processing unit wasn't fully priced into shares. Rocket Lab fell more than 10 percent, despite news that its shares will be added to the NASDAQ 100. The drop may reflect reallocations in the space sector due to the SpaceX IPO. Astaire Labs is also being added to the NASDAQ 100.

8:31It closed slightly lower. CoreWeave, another NASDAQ 100 edition, rose 5 percent. Gold climbed almost 3 percent, and silver surged about 6 percent higher on ideas that an end to the war with Iran would ignite industrial demand. The S &P's materials sector gained 1.6 percent, with Albemarle gaining more than 7 percent, Freeport-McMoran about 3 percent, and Newport Mining more than 2 percent. The Dow Jones Industrial Average rose 353.51 points or 0.70 % Friday to 51 ,202.26. The S &P 500 Index gained 37.16 points or 0.50 % to 7 ,431.46. and the Nasdaq Composite rose 79.18 points or 0.31 % to 25 ,888.84.

9:33For the week, the Dow Jones Industrial Average gained 0.66%, the S &P 500 rose 0.65%, and the Nasdaq gained 0.70%. 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 tomorrow.

10:14For important disclosures, see the show notes and schwab.com slash market update podcast.