Fed Takes Center Stage Following Jobs, GDP Data

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, July 30th. The coming days could help set the tone for weeks to come. The Federal Reserve meets this afternoon, followed by mega-cap earnings later today and tomorrow, and topped with the July non-farm payrolls report Friday. In between, investors get a key inflation reading, economic growth data, and sentiment news. Earnings this afternoon from Microsoft and MetaPlatforms could provide insight on data-centered chip spending, internet advertising trends, cloud performance, and the AI market in general. Both stocks are members of the so-called Magnificent Seven, which achieved its first new collective high since December early this week.

1:04As the Fed prepares for its decision and press conference at 2 p.m. Eastern Time, the futures market projects virtually no chance of a rate cut, according to the CME FedWatch tool. For the first time in a while, though, the meeting might see a dissent or two after some Fed policymakers recently called for a July cut. This Fed meeting won't include new economic or rate projections, but many participants expect Fed Chairman Jerome Powell at his post-meeting press conference to indicate a September cut is possible if data allow. A futures market puts chances at 64 percent. One question is whether Powell addresses the impact of tariffs now that the policy has become clearer.

1:45The Fed has been waiting for more clarity around trade policy, said Kathy Jones, chief fixed income strategist at Schwab. Now that a lot of that policy is known, will Powell offer an estimate about the impact on inflation and growth? That analysis would potentially open the door to a rate cut. Before all the afternoon excitement, investors get the government's first look at second quarter gross domestic product or GDP growth with consensus at 2.5%. That's up from negative 0.5 % in the first quarter, but that earlier number was pulled down by high imports before tariffs took effect. There's no rest after the Fed meeting and two mega caps.

2:28Tomorrow morning, investors brace for the Personal Consumption Expenditures, or PCE, price index for June, which is expected to reinforce ideas that prices are rising, possibly due to tariffs. Analysts expect a 0.3 % increase in both PCE and core PCE, which excludes volatile food and energy prices. The May increases were 0.1 % and 0.2%. Spending is under a microscope, too, after falling slightly in May. Personal spending for June due early tomorrow is expected to rise 0.4%. Later tomorrow come earnings from Apple and Amazon. July consumer confidence from the conference board surpassed estimates at 97.2, up from a revised 95.2 in June.

3:18Improved confidence could signal improvements on the inflation and labor front, but it's just a snapshot. Another big data point today is the ADP employment change for July due before the open. This indicator of private sector job growth fell by 33 ,000 in June, but analysts expect a rebound to 78 ,000 according to Briefing.com. Weakness in private sector hiring, if seen in the report, could affect estimates for Friday's July nonfarm payrolls report. June nonfarm payrolls got a lift from public sector hiring and education, a surge not likely repeated in July. That could put more pressure on private sector hiring to get the jobs growth number to the expected 102 ,000.

4:02That would be well below 147 ,000 in June, but estimates are wide-ranging from zero to 170 ,000. This huge range could reflect analysts and companies having trouble reading the economic roadmap amid so much geopolitical and tariff uncertainty. This week's trade talks between the U.S. and China ended with no fresh progress reported, but a 90-day extension of the August 12th deadline appeared possible, judging from comments made in the media by Trump administration officials. If the deadline is extended, the sky-high tariffs initially imposed on China would return. The extension decision is up to President Trump, Politico reported.

4:46Tuesday's job openings and labor turnover survey, or JOLTS, came in at 7.44 million, down from 7.77 million in May and below the 7.55 million consensus estimate. The pace of hiring slowed, along with job openings, indicating weakness in labor demand, Jones said. However, layoffs and firings remained low as well, leaving the labor market stagnant. It's not falling apart or deteriorating rapidly, but it seems to have lost its dynamism. It could portend a weak unemployment report on Friday. Though past is unprecedented, a few signals suggest challenges ahead, including low volatility, an elevated price-to-earnings or P-E ratio for the S &P 500 index, and a high relative strength index or RSI for the S &P 500 and NASDAQ 100.

5:36One result of stocks being priced historically high is showing up in earnings. On average, S &P 500 companies that miss analysts' consensus on earnings per share this season are underperforming the index by nearly 5 % the day they report. Investors in companies like UnitedHealth, UPS, and Whirlpool learned that lesson Tuesday as shares of all three tumbled following disappointing results. The price action has been tentative so far this week, and it may be providing early indications that a counter-trend consolidation move is approaching, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

6:16Signs of that include stocks selling off on good news, stocks closing near the lows of the day rather than the highs, and dip-buying shifts to selling into strength. One thing to monitor is whether reflexive selling develops at prior all-time highs in the Dow Jones Industrial Average and the S &P 500 Equal Weight Index. If it does, it could suggest a near-term pullback afoot. As it is, stocks slipped Tuesday for the first time in more than a week, and the percentage of S &P 500 stocks trading above their 50-day moving average, a sentiment indicator, fell to 66 % by late Tuesday from above 75 % a week ago.

6:58Headlines cited tech weakness, but the infotech sector didn't lose much ground. Some major tech stocks, like Advanced Microdevices, which reports next week, rose as the PHLX Semiconductor Index kept its head above water despite a dip in NVIDIA. Defensive sectors generally led yesterday, with real estate, utilities, and staples near the top. Union Pacific and Norfolk Southern shares both lost ground Tuesday after the two railroads announced a deal in which Union Pacific will acquire Norfolk Southern for$320 per share. As Bloomberg noted, the deal will marry Union Pacific's network in the western U.S.

7:39with Norfolk's east coast routes. The U.S. dollar index is up about 2 % from last week's three-year lows as investors eyed U.S. trade deals with Japan and Europe. The deals could bring more revenue in tariffs and appear to avoid repercussions against U.S. products. For now, the dollar's bounce appears to reflect a mean reversion trade after the recent weakness, said Michelle Gibley, director of international research at the Schwab Center for Financial Research. A stronger dollar often goes along with lower treasury yields, and that was the case Tuesday. Firm demand for a seven-year treasury auction combined with the soft jobs data to give treasuries a lift and send yields, which move inversely to Treasuries below 4.34 % for the 10-year note and the lowest since July 2nd.

8:28If yields fall because investors fear inflation less, that can be positive. If it reflects concerns about a slowing economy that the Fed might have to address through rate cuts, that isn't the most bullish scenario. The Dow Jones Industrial Average dropped 204.57 points Tuesday, or 0.46%, to 44 ,632.99. The S &P 500 Index shed 18.91 points, or 0.30%, to 6 ,370.86. And the Nasdaq Composite slipped 80.29 points, or 0.38%, to 21 ,098.29. This has been the Schwab Market Update podcast. To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app.

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9:39For important disclosures, see the show notes and schwab.com slash market update podcast.