Fed Minutes Today Before Powell, Earnings Tomorrow

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.

0:17I'm Keith Lansford, and here is Schwab's early look at the markets for Wednesday, October 8th. Minutes from last month's Fed meeting due at 2 p.m. Eastern time today could shed light on the central bank's decision to cut rates then, and what might drive it to repeat that later this month. Investors still expect a rate cut at the October 28th and 29th rate meeting, according to the CME FedWatch tool, but if the D.C. shutdown stretches into mid-month, it might raise questions, especially if next week's inflation data gets delayed. The Fed can still check last week's ADP private sector jobs report and surveys and summaries its banks put out, as well as what Fed policymakers are hearing in their districts, but it would be missing key jobs and prices data.

1:05There's a wide range of views at the Fed, and unless there is a significant weakening in the labor market, there's likely won't be a support for a large amount of cutting over the short run, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research. We still expect one rate cut this year, but sticky inflation and the resilient economy should make it harder for there to be wide support for a second cut. Several Fed policymakers spoke Tuesday, including Stephen Myron, known for his dovish views. He said he's willing to get more hawkish if he sees shelter rental costs rise, Bloomberg reported.

1:42But he thinks slower population growth and lower-than-expected inflation from tariffs could keep price increases less forceful than fellow Fed officials believe. The Fed schedule today includes a couple of speeches from Governor Michael Barr, but neither appears to touch on policy issues. Fed Chairman Jerome Powell delivers opening remarks at a banking conference at 8.30 a.m. Eastern time tomorrow, though it's unclear if he'll discuss policy. Jobless claims tomorrow morning looks like they'll be the next victim of the shutdown, barring any last-minute progress. Though AI-related optimism still has stocks near record highs, the shutdown and lack of data might finally be taking a toll.

2:28Yesterday's Wall Street pullback came as progress on reopening appeared to stall in Washington. The longer the stalemate lasts, the more sentiment could be damaged as confidence erodes in the federal government's ability to get things done. Also, the AI story lost some luster Tuesday when trade publication The Information reported on Oracle's challenges renting out Nvidia chips. Shares of Oracle fell more than 2%, though Nvidia stood its ground. Inflation expectations didn't help either. Consumers now expect 3.4 % inflation over the next year, up from the previous 3.2%, according to the Federal Reserve Bank of New York.

3:08For five years, it's 3%, up from 2.9 % for the long-term reading the Fed watches most closely. While it's one month of data, it raises concerns that the Fed may be losing control of the narrative in which it targets long-term price growth of 2%. Yesterday's three-year Treasury note auction found solid demand, Briefing.com reported, taking some of the pressure off Treasuries. The 10-year yield fell four basis points to 4.13%, and that was about the average drop across the entire curve. A set of 10-year notes goes on the block later today, with results likely out by the time the market closes. Demand could be closely watched, with rates down from summer peaks.

3:51That said, the 10-year note yield is up several basis points since the September rate cut, a sign that investors aren't necessarily certain the Fed is taking the right path considering fiscal issues and price pressure. Sticky inflation, the resilient economy, and the direction of global bond yields should keep long-term yields elevated, Schwab-Martin said. With that outlook, mortgage rates might not fall much further, disappointing many potential homebuyers. Today brings weekly MBA mortgage applications before the open after they fell 12.7 % a week ago. The 30-year fixed-rate mortgage fell to 6.34 % this week, down from 7 % at the start of the year.

4:34Gold keeps hitting record highs as the Washington impasse continues and investors anticipate another Fed rate cut. Copper, an important industrial metal, has also been climbing steadily over the last month since bottoming below$4.50 a pound. It topped$5 this week, a historically high level that could add to tariff-related troubles for companies dependent on the commodity. The reporting season doesn't begin in earnest until next week when the big banks deliver results Tuesday. PepsiCo and Delta Airlines await investors tomorrow morning. Both could provide more hints on consumer and business demand, with airlines expected to report a solid summer travel season based on heavy passenger numbers tracked by the government.

5:21Another stock to watch tomorrow is Applied Digital, which could provide more details on AI-related demand when it reports after Thursday's close. Analysts expect S &P 500 earnings growth of 8 % in the third quarter, Faxet said. Solid historically, but down from 12 % in the second quarter. Comparisons to year-ago growth could get tougher for many firms in coming quarters, especially tech. Stocks fell Tuesday, breaking a seven-session win streak for the S &P 500 index. The broader market lost nearly 0.4%, but finished off intraday lows as the 6 ,700 level for the S &P 500 index seemed to drum up some buying interest.

6:03Defensive sectors generally outpaced growth areas led by staples and utilities as Treasury yields fell. The tech-heavy Nasdaq flopped worse than the S &P 500 index as AI momentum took a breather, and small caps fell despite a slight yield pullback. Consumer discretionary suffered most Tuesday as Tesla shares dove more than 4%. The drop came after the company announced a new lower-priced EV, 11 % cheaper than its base Model Y, according to Bloomberg. The model introduction follows the expiration of federal EV tax credits, and Bloomberg reported that its analysts expect U.S. sales of battery, electric, and plug-in hybrid vehicles to drop sharply in the fourth quarter.

6:48Tesla is still up sharply over the last month. Elsewhere Tuesday, Dell Technologies rose 3.5 % after the company raised its long-term annual revenue and profit forecasts on strong AI server demand, Reuters reported. Ford fell more than 6 % Tuesday, apparently hurt by a fire several weeks ago at the plant of an outside firm that supplies aluminum sheet to the company, according to the Wall Street Journal. The implications weren't understood until recently, but could represent a supply challenge for the automaker through early 2026. General Motors fell 1.6%. Home Builder shares, including DR Horton, KB Home, and Toll Brothers, fell 5 % to 6%, as Evercore ISI downgraded all of them to in-line from outperform, saying meaningful demand hasn't yet materialized in the sector, despite modestly improved affordability.

7:46Several major chip and AI-related names managed to swim against the lower tide Tuesday, with advanced microdevices, AppLovin, Intel, and Palantir all making firm gains. Some of the overall market's recent strength may reflect the potential for performance chasing for underperforming fund managers as the fourth quarter gets underway, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

8:14The Dow Jones Industrial Average slid 91.99 points Tuesday, or 0.20%, to 46 ,602.98. The S &P 500 Index slipped 25.69 points, or 0.38%, to 6 ,714.59. and the Nasdaq Composite dropped 153.30 points, or 0.67%, to 22 ,788.36.

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9:36For important disclosures, see the show notes and schwab.com slash market update podcast.