Fed Meets, Retail Sales Loom with Geopolitics Eyed

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 Tuesday, June 16th. The main event this holiday-shortened week could occur Friday, when U.S. markets are closed for Juneteenth. That's the day the Trump administration says a deal will be signed reopening the Strait of Hormuz, possibly allowing ships to safely carry oil and other commodities through that narrow passage for the first time in almost four months. Nothing is certain, however, and a lot can happen in the Middle East over any three-day period. Even if the deal gets signed Friday, it's unclear how quickly crude supplies and prices can return to normal.

0:58Still, U.S. investors greeted the news positively Monday, sending major indexes up sharply and U.S. crude down 5 percent to the lowest point in almost two months at just above$81 per barrel. That's still up about 20 % from prices before the war. Futures trading projects crude to fall about 10 % from current levels to near$72 per barrel by next winter. Turning away from geopolitics, the Federal Reserve meeting starts today and wraps up tomorrow with what's expected to be Fed Chairman Kevin Warsh's first press conference. It's unclear if he'll hold one because he hasn't made it official and he's expressed concern about a Fed he thinks communicates too much.

1:44We expect no change to Fed policy, with the Fed funds rate staying in the 3.5 % to 3.75 % range, said Colin Martin, head of Fixed Income Research and Strategy at the Schwab Center for Financial Research or SCIFR. We expect the easing bias to be removed from the statement, but we don't necessarily expect it to be replaced with a tightening bias. A bias toward easing is what led to three dissents the last time the Fed met, with those policymakers saying they want the bias removed. While there's no change likely in interest rates tomorrow, Warsh's words will be examined closely for clues on how he'll oversee the dual mandate of stable prices and maximum employment.

2:32Heading into the week, odds of the Fed's standing pat on rates tomorrow stood at 99%, according to the CME FedWatch tool. Looking farther out, future trading puts chances of a hike by the end of the year near 60%. That's down slightly from last week before news of the possible peace deal. Overnight, the Bank of Japan, or BOJ, announced its rate decision. Amid a weak yen and rising inflationary pressures, analysts broadly projected an increase to 1.00%. This would be the highest reading since 1995. Very few companies of consequence are on this week's earnings calendar, and the start of second quarter earnings season is still a month away.

3:17Often, an earnings pause can intensify market focus on outside events, particularly geopolitics. A handful of firms worth watching this week include Kroger, Accenture, and CarMax. S &P 500 earnings growth is seen at 21.9 % year-over-year in the second quarter, facts that set. That's down from 28.8 % in the first quarter, which in turn was double the estimate going into that quarter's earnings season. For the calendar year, analysts expect 23.2 % earnings growth. May housing starts and building permits are due ahead of the open today. Analysts are expecting a slight decline from the previous month's results.

4:03However, last week's report on existing home sales topped estimates. Retail sales for May are due tomorrow morning and should provide insight into whether higher gas prices are cutting into spending in other areas. A decline in consumer spending would be a drag on economic growth. However, analysts expect a 0.5 % monthly rise in headline retail sales, helped partly by rising inflation, which isn't adjusted for in this report. That means even if the rise is robust, it might reflect inflation as much or more than it reflects thicker consumer wallets. In data Monday, May industrial production etched up less than expected at just 0.1%.

4:51Consensus was for a 0.3 % gain. However, this might reflect a natural pullback after April's sharp 0.9 % rise, and no single month is a trend. Industrial production is a key metric for assessing recession risk. In Monday's market action, the Dow Jones Industrial Average rang up new record highs, while chip strength drove the Nasdaq composite to 3 % gains. Small caps trailed, but still rose. The rally was relatively broad, with 7 of 11 S &P 500 sectors rising, including solid gains for discretionary, industrials, and materials. Those are sectors that tend to do well in a growing economy. Tech led with a 3 % increase, while defensive sectors including staples, real estate, and the health care lagged.

5:42Market breadth continued to improve Monday, suggesting strength across sectors beyond Infotech. About 63 percent of S &P 500 stocks now trade above their 50-day moving averages, up from about 45 percent a month ago. Some sectors seeing improved breadth include financials and discretionary. Technically, the outlook looks moderately bullish for the Nasdaq composite, though it's possible there could be a larger June swoon in store for tech stocks in coming weeks, said Nathan Peterson, director of derivatives research and strategy at Skiffer. The recent pullback brought the index right down to its 50-day simple moving average, a point where buyers stepped in multiple times last week.

6:29The 50-day SMA is now at 25 ,211. Things could get more volatile ahead of Friday's holiday trade enclosure, due in part to concerns over how the Middle East deal shapes up and because Thursday marks options expiration. As options roll off, there could be some choppiness, especially Thursday, considering the recent pickup in options trading among retail investors. Treasury yields initially fell moderately Monday on peace hopes that sent oil down, but spent much of the day clawing back. The 30-year yield ended unchanged and remains just under the pivotal 5 % level. The benchmark 10-year yield trades at 4.47%, down from peaks above 4.55 % last week, but not by much.

7:19Yields remain near the high end of this year's range, despite growing hopes that a peace deal can calm the oil market. Boer oil prices are good for the inflation outlook, but many of the factors that have been holding up long-term treasuries are still present, including budget concerns, inflation uncertainty, and its impact on the term premium and the level of global bond yields, Martin said. Among individual movers Monday, SpaceX climbed almost 20 percent in its second day trading publicly. Elon Musk said over the weekend that the rocket company could post$1 trillion in revenue by 2030, Reuters reported.

8:04The market capitalization of SpaceX stands at more than $2 trillion, but it's not a member of the S &P 500 index. Chip and chip infrastructure stocks resumed their ascent Monday, led by Western Digital and Micron, which reports next week. Arm Holdings, Marvell Technology, and Apply Digital also posted large gains. Magnificent Seven stocks climbed across the board amid improved Sentiment Monday, led by Meta Platforms posting gains of nearly 5%. There was no major news for Meta driving the rally, but there may be some bargain hunting as the stock is down sharply from its 2026 peak. Defense-related stocks, including Lockheed Martin and Northrop Grumman, stepped back Monday amid ideas that the Middle East conflict might calm.

8:53However, Boeing and Honeywell, two other large industrial stocks, rose moderately Monday, with Boeing lifted by news that it delivered 60 aircraft in May, up from 45 a year earlier, according to Reuters. Crypto-related shares rose sharply as Bitcoin jumped 4.6 percent to its highest level since June 3 amid what appears to be improving risk-on sentiment across the markets. Energy stocks were among the worst performers Monday as crude oil sank. Paramount Skydance zoomed higher after Friday's decision by the U.S. Justice Department that will enable the media giant to acquire Warner Brothers Discovery.

9:37United Airlines climbed 4 percent, boosted by news of the peace deal. Other travel-related shares rose on hopes that fuel costs will begin to taper off. Delta, Southwest, and Carnival all enjoyed solid gains, and other consumer-oriented firms like restaurants, resorts, clothing, and entertainment firms did well Monday. NVIDIA moved up 3 % after announcing a sale of$20 billion in debt, the company's first bond sale since 2021. Material sector stocks, including mining firms, rose Monday as metal prices climbed on hopes for stronger demand in a post-war economy. Silver added 3 percent, and copper also edged up.

10:22Gold prices, which were hurt by the war, which helped push central banks into more hawkish positions, posted 2 percent gains. The Dow Jones Industrial Average gained 468.77 points or 0.92 % Monday to 51 ,671.03. The S &P 500 index rose 122.83 points or 1.65 % to 7 ,554.29. And the NASDAQ composite added 795.09 points or 3.07 % to 26 ,683.94. 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.

11:27Join us for another update tomorrow.

11:35For important disclosures, see the show notes and schwab.com slash market update podcast.