Fed's Jackson Hole Meeting Ahead as Data Slows

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 Keith Lansford, and here is Schwab's early look at the markets for Monday, August 18th. Data mostly takes a summer holiday this week, while the Federal Reserve departs on a working vacation to Wyoming, and big-box stores flock to the aisles to deliver their latest results. All this after major indexes delivered another positive week and finished near record highs despite a lackluster Friday. A smattering of housing data follows last week's excitement over a producer price index well above expectations.

0:51The PPI data raised concerns about inflation just as the Fed appeared ready to lower rates in response to a slowing jobs market. Retail sales Friday met Wall Street's expectations, up 0.5 % in July and ticking higher for June. But the 0.9 % PPI increase was the highest since 2022 and appeared to indicate tariffs having an effect at the wholesale level. This raises concerns that the impact might eventually trickle through to consumer prices. Tariff policy is still evolving and the full economic impact has yet to be felt, said Michelle Gibley, Director of International Research at the Schwab Center for Financial Research.

1:33President Trump suggested 200 % or 300 % tariffs on Semiconductors Friday, but in recent weeks he noted there could be exemptions if companies either manufacture or announce plans to manufacture in the U.S. The inconsistency between announcements and implementation makes it difficult for companies and investors to measure the impact of tariffs. Uncertainty may also be showing up at the consumer level, despite Friday's reassuring retail sales data. Preliminary August consumer sentiment from the University of Michigan released Friday dropped 5 % month-over-month on Friday to 58.6. The briefing.com consensus had been 61.3, down from the prior figure of 61.7, and still relatively low historically.

2:21Preliminary expectations for inflation increased to 4.9 % from 4.5 % in July, suggesting consumers are growing more wary about the potential for rising prices.

2:35As the old week ended, the CME FedWatch tool calculated odds of a September rate cut at 85%, down from 100 % before Thursday's bearish PPI surprise. Ideas that the Fed might deliver a double cut of 50 basis points in September basically went out the window with PPI, and now there's talk that Fed Chairman Jerome Powell might give a hawkish cut of 25 basis points next month that includes cautionary language about prices. The market also shows a 15 % chance of rates staying at the Fed's current target range between 4.25 % and 4.5%, and the benchmark 10-year Treasury yield climbed back above 4.3 % Friday.

3:17The yield pop reflected strong retail sales and rising July import prices, along with an increased one-year inflation outlook in the consumer sentiment data. The 10-year yield rose four basis points overall last week, while the dollar index continued slipping. The Atlanta Fed's GDP Now forecast for third-quarter gross domestic product, or GDP growth, remained at 2.5 % Friday. The Fed is arguably in decent position to cut rates 25 basis points even with the PPI data surprise, considering the surprise before that was a huge$258 ,000 downward revision to May and June jobs growth. And the current Fed target range hasn't moved since last December and remains above short-term Treasury yields.

4:04Investors may get enlightened on all this starting Thursday when Powell and other global central bank leaders retreat to the Fed's annual Jackson Hole Economic Policy Symposium in Wyoming. Powell delivers his economic outlook and framework review speech at 10 a.m. Eastern Time Friday. Powell's speech follows Tuesday's July housing starts and building permits and Thursday's July existing home sales. Between those, investors get Fed minutes from the July meeting Wednesday afternoon, which could be a tasty appetizer for the Jackson Hole meeting since the July rate decision was the first in decades to feature two policymakers' dissent by voting to lower rates.

4:46The other main thing this week is earnings from key retailers, including Home Depot tomorrow, Lowe's and Target on Wednesday, and Walmart on Thursday. Earnings season is more than 90 % complete, and average earnings growth so far has easily surpassed analysts' pre-quarter estimates. As retailers step up to report, tariffs are likely to be a big issue. One key question is whether and how much retailers are passing along tariff costs to customers. Judging by recent media reports, these price pass-throughs are relatively widespread. It may take time for it all to come through in Consumer Price Index or CPI reports, however, since tariffs didn't all hit at once and because many companies were able to continue selling products they stocked up on ahead of tariffs.

5:34Looking ahead to retail earnings this week, it's worth looking back at Amazon's latest results for clues. It kicked off retail earnings in late July with 10 % Eurovier sales growth at its online stores on a constant currency basis. That was a dramatic improvement from 6 % in that category a year earlier. Amazon emphasized the biggest Prime Day event ever, though it didn't mention that Prime Day now takes place over several days. On Friday, stocks moved modestly lower as traders engaged in some profit-taking after a strong week. The Dow Jones Industrial Average outperformed its sector peers, touching an all-time high in intraday trading before closing marginally higher.

6:19As the closing bell approached, eyes turned to Alaska, where President Trump met with Russian President Vladimir Putin to discuss a potential end to the war in Ukraine. Notably, Ukrainian President Vladimir Zelensky was not invited. Initial reports from the summit showed the U.S. and Russian leaders shaking hands in Anchorage before Trump told reporters on the way that he wants to see a ceasefire rapidly, Barron's reported. Crude oil fell sharply Friday on hopes of progress. Helping boost the Dow Jones Industrial Average, Friday was UnitedHealth, which jumped 12 percent its best day since 2008.

6:57The embattled insurance provider rallied after Berkshire Hathaway disclosed a five million share stake worth roughly$1.6 billion. Also, several solar power stocks were shining Friday after the Treasury Department issued guidance on how renewable projects could qualify for tax credits under Trump's budget bill, CNBC reported. On the lagging side, Applied Materials gave back double digits after a disappointing quarterly outlook. Cisco also saw red, losing ground after an earnings and ratings downgrade at HSBC. On the sector scorecard, Friday featured the third losing day in a row for Infotech, which is still up more than 15 % year-to-date.

7:40Healthcare has been ascendant lately and was again Friday, thanks partly to UnitedHealth. Technically, last week ended on a sour note, with selling accelerating during the final hour of Friday's session, but the broader market is still up nearly 4 % since the end of June, and summer is often a seasonally soft time of year. If there's more selling this week, one level to watch is the 20-day moving average for the S &P 500 index, a level near 6 ,366. That moving average held on a support test earlier this month.

8:15The Dow Jones Industrial Average climbed 34.86 points Friday, or 0.08%, to 44 ,946.12. The S &P 500 index fell 18.74 points, or 0.29%, to 6 ,449.80, and the Nasdaq Composite lost 87.69 points, or 0.40%, to 21 ,622.98. For the week, the Dow Jones Industrial Average rose 1.74%, the S &P 500 index added 0.94%, and the Nasdaq climbed 0.81%. 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. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show.

9:13Join us for another update tomorrow.

9:20For important disclosures, see the show notes and schwab.com slash market update podcast.