Fed Meeting, Job Openings, Oracle Pack a Busy 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 Colette O 'Claire, and here is Schwab's early look at the markets for Monday, December 8th. A Federal Reserve decision, job openings data, and earnings from two AI giants arrive this week before the holidays, though whether they'll leave Wall Street gifts or coal remains to be seen. Treasuries point to concern as yields rose again Friday despite benign inflation data. The Fed delivers its decision at 2 p.m. Wednesday. Historically, markets have been sluggish ahead of meetings.

0:51As of late Friday, futures trading put odds of a rate cut at 87%, according to the CME FedWatch tool. Delayed September personal consumption expenditures, or PCE, prices data, the Fed's favored inflation indicator, finally arrived Friday and didn't deliver any major surprises. Annual core PCE, which the Fed watches closely, rose 2.8%, down from 2.9 % in August, and in line with what Fed Chairman Jerome Powell outlined in his last press conference. Consensus was 2.9%, so the number was slightly bullish. Investors seem to welcome the data, with stocks reversing early losses Friday after the report.

1:36However, it's old, and the Fed really needs to know how inflation is trending now, not three months ago. PCE didn't raise red flags. Still, the Fed might deliver a more hawkish cut, where policymakers vote to ease, but Powell warns of a pause ahead. Chances of a follow-up cut in January are only 1 in 4, and odds for a follow-up don't hit 50 % until the April meeting. The Fed doesn't tend to go against market odds when they're that extreme in one direction or another, said Lizanne Saunders, Chief Investment Strategist, Schwab Center for Financial Research, or SCIFR, referring to odds of a cut this week.

2:18But it wouldn't surprise me if the commentary around a cut was somewhat similar to what happened at the October FOMC meeting when Powell was pretty quick to shoot down the notion that we could just continue to anticipate cuts at every meeting. Though rates could fall to three-year lows, Treasury yields rallied fiercely last week in a sign that participants aren't convinced the central bank can ease policy without triggering more inflation. Spiking yields in Japan and rising U.S. corporate and government debt also play into the yield gains, which put the 10-year yield near the top of its recent range near 4.15%.

2:59If long-term Treasury yields continue to rise, will that thwart a Santa Claus rally for stocks? asked Nathan Peterson, Director of Derivatives Research and Strategy at Skiffer. In my view, it will depend on the velocity of the rise, should it occur. I feel like the trajectory of stocks this week will likely be tied at least in part to the trajectory of long-term treasury yields. A rate cut, ironically, might push yields higher. If the Fed is seen cutting interest rates when the inflation issue is still prevalent simply because the administration advocates that, then what probably will happen is long-term rates will go up as short-term rates go down, said Kathy Jones, chief fixed-income strategist at Skiffer.

3:48That's called a steeper yield curve, and that is counter to what the administration really wants to accomplish. The Treasury auctions off a batch of three-year notes today and 10-year notes tomorrow. Demand at recent auctions dipped, a concern as foreign yields turn more competitive. Japanese yields hit their highest level since 2008 this month. The Bank of Japan could hike this month, despite concerns about the government meddling in monetary policy, said Michelle Ghibli, Director of International Equity Research and Strategy at Skiffer. Prime Minister Takeichi has made comments in the past that were not supportive of hiking rates, and in the announcement of the largest fiscal stimulus since pandemic restrictions eased, and the yen reversed nearly all of its strength this year in November.

4:41By delaying hikes and allowing the yen to weaken, this could increase inflation and intensify the need to hike rates. Other data Friday were mostly solid. Preliminary December University of Michigan consumer sentiment, which can be a canary in the coal mine for jobs and economic data, delivered an upside surprise at 53.3 Friday. Consensus from briefing.com had been for a headline of 52.0, but still near historic lows. And long-term inflation expectations of 3.2 % were down from the prior 3.4 % and equaled the lowest number of the year. The Fed closely watches this indicator. Earnings season is long over.

5:27Still, major reports loom this week from Oracle and Broadcom, two of the most visible companies in AI. Broadcom shares have catapulted as investors grew enthused over Alphabet's new Gemini 3 platform. Many of Alphabet's chips are designed by Broadcom. When Oracle reports, focus will likely be on spending. Concerns over Oracle's heavy investment in I likely contributed to a 38 % decline in shares since September, though Oracle is still up substantially year-to-date. Earnings are light today, except for the homebuilder Toll Brothers this afternoon. Friday featured an update on third-quarter earnings progress from FactSet, along with estimates for fourth-quarter results.

6:15For the third quarter, S &P 500 earnings per share grew 13.5 percent. That slows appreciably to 7.7 percent in the fourth quarter, according to analysts tracked by FactSet. The caveat is analysts have consistently been too conservative with pre-quarter estimates. They expected 7.9 % growth in the third quarter, for instance, just over half the actual rate. Another item is the September Job Openings and Labor Turnover, or JOLTS, report, due at 10 a.m. ET tomorrow. Consensus is for 7.2 million. a high number historically, that would be little changed from August. Any big dip, however, might heighten suspicions that the labor market is weak.

7:08On Friday, stocks burst out to energetic early gains, spent much of the day backtracking, then managed to fend off sellers to close slightly higher for a fourth straight day. Tech stocks generally did best, while small caps lost ground after big, rate-driven gains earlier this week. The S &P 500 index finished just 20 points below its all-time high close of 6 ,890 posted in late October. Five of 11 S &P 500 sectors finished higher Friday, the second straight day with more sectors falling than rising. Consumer discretionary and infotech led, while so-called cyclical sectors that often rise in strong economic times fell.

7:51These included energy, materials, and industrials. Utilities had the worst week of any sector, followed by healthcare, hinting that the previous rotation into those two has slowed. Looking at Friday's individual performance, Netflix fell 3 % after emerging as the apparent winner in a bidding war to buy the film and studio business of Warner Bros. Discovery. The deal faces regulatory scrutiny, and CNBC reported that the Trump administration views it with heavy skepticism. Alta Beauty climbed nearly 13 % after the beauty supply retailer raised its sales outlook for the year and posted better-than-expected earnings.

8:35Salesforce rose another 5%, still getting traction from Wednesday's solid earnings and outlook. The Philadelphia Semiconductor Index climbed 1%, helped by strength in Intel, Broadcom, Micron, Supermicrocomputer, Applovin, and Oracle. Bitcoin plunged nearly 4 % Friday, possibly indicating less risk appetite ahead of the inflation data and Fed meeting. Crypto-related shares tumbled. The Dow Jones Industrial Average gained 104.05 points Friday, or 0.22%, to 47 ,954.99. The S &P 500 index added 13.28 points, or 0.19%, to 6 ,870.40. And the Nasdaq composite rose 72.99 points, or 0.31%, to 23 ,5078.13.

9:37For the week, the Dow Jones Industrial Average climbed 0.5%, The S &P 500 rose 0.31%, and the NASDAQ added 0.91%. 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.

10:18For important disclosures, see the show notes and schwab.com slash marketupdatepodcast.