Geopolitics Wrestle with Jobs Data for Attention

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 Monday, September 28th. The week begins with geopolitics, but might end with more focus on U.S. data. A host of jobs, inflation, and industrial reports await, leading up to Friday's non-farm payrolls. At the same time, investors eye Middle East developments after signs of hope surfaced late last week, sending crude oil lower Friday along with Treasury yields. A media report Friday said talks between the U.S. and Iran about reopening the strait were in a technical stage. Hopes have bloomed in the past, though June's memorandum of understanding quickly dissipated.

1:02Even if these talks don't pan out, more oil is flowing, helping send crude prices down about 8 % last week. Oil exports from the Gulf neared 70 % of pre-war daily levels, CNBC reported. Falling oil prices led to hopes that yields might slow their fierce pace. Yields hit fresh cycle highs Friday, but perhaps Wall Street is hoping that the velocity of the rate rise will slow, or potentially even reverse if progress is made in the Middle East, said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research. As the geopolitical mood improved, the broader market drifted higher following an extended stretch of narrow leadership.

1:46Small caps, burdened by 19-year highs in the 10-year treasury yield, emerged from hibernation. Many cyclical sectors that slumped earlier in the week showed Life Friday as well. Robust U.S. data helped spark the yield rally. It also arguably raised the profile of several key data points on this week's calendar, notably Wednesday's August Personal Consumption Expenditures, or PCE, Price Index, and Thursday's September ISM Manufacturing PMI. It's arguably back to a good-is-bad scenario, as each robust data point could send yields up while raising chances of a Fed rate hike next month. By the end of last week, odds of an October rate increase were 64 percent, according to the CME FedWatch tool.

2:34Tomorrow's Job Openings and Labor Turnover Survey, or JOLTS report, and Friday's Nonfarm Payrolls report also have rate implications. If the labor market remains stable, it just takes pressure away from that side of the mandate and allows the Fed to focus more on inflation and raise if necessary, said Colin Martin, head of fixed incomes research and strategy at the Schwab Center for Financial Research. Plenty of Fed speak marks the calendar, including four policymakers tomorrow. Talk from Fed speakers turned hawkish last week after the rate hike, though data ahead could help cement the central bank's decision a month from today.

3:13PCE on Wednesday isn't likely to offer surprises because the Consumer Price Index and producer price index already came out and feed into PCE. However, the importance of PCE is unarguable as it's the Fed's preferred inflation gauge. In checking inflation, it's important to keep more than the headlines in mind. While 2 % is still the Fed's target, additional context could influence the Fed as well. This includes the share of components in PCE that rose 3 % or more year-over-year, which gives insight into price breadth below the surface and is a metric Fed Chair Kevin Warsh cited at his press conference earlier this month.

3:57Turning back to jobs, analysts don't expect much change in the Jolts report from July's 7.27 million. That's relatively low compared with last spring's peaks. Keep in mind that Jolts lags a month behind most of the other jobs data this week. Thursday's Challenger layoffs report for September could be more notable, as it's a leading indicator.

4:22Treasury yields finished mixed Friday, but are up about 40 basis points for the 10-year note since the end of August, a dramatic gain. The rise has been relatively orderly, and the term premium, or the extra compensation investors demand for buying longer-term debt, hasn't moved too much. That suggests fiscal concerns, which often drive term premium higher, aren't necessarily the main factor. Instead, the rally appears driven by changing perspective about Fed policy, which affects short-term rates. Robust U.S. manufacturing and services data last week offered more evidence of U.S. economic resilience despite high oil prices.

5:03It also helps send yields higher and likely means intense focus on Thursday's ISM manufacturing PMI. A surprisingly hot result could reinforce other recent robust manufacturing data, giving yields another boost. Earnings were on pause most of last week, but stir in coming days. The highlight is memory chip maker Micron after Wednesday's close. Micron shares soared last spring when it grew clear that the AI infrastructure build-out had vastly raised demand for chips. Today's earnings calendar isn't heavy but does include Jeffrey's Financial Group this morning. Nike reports Thursday and has been struggling.

5:46There's other corporate news this week, too, notably on Friday when Tesla is expected to announce third-quarter deliveries. Consensus is for between$454 ,000 and$461 ,000 down from a year ago. In Data Friday, the University of Michigan final consumer sentiment report showed a slight improvement from the preliminary but remained historically soft at 48.1%. Briefing.com consensus was for no change to the preliminary 47.8%. Inflation expectations for the long-term stayed at 3.4%. On Friday, major indexes rose as oil fell and yields dipped from early peaks. Volume was light, while new lows outpaced new highs, and advancers outpaced decliners through midday.

6:36Eight of 11 S &P 500 sectors gained Friday, the broadest rally since Monday. Though tech led the way, several sectors under pressure earlier in the week rebounded, including financials and consumer discretionary. The yield surge didn't have much impact on the SIBO Volatility Index, or VIX, which finished under 15 on Friday. That low level suggests investors may be comfortable with indexes trading near all-time highs, looking past the yield rally and focusing on strong earnings growth. However, bond market volatility ticked up last week. Checking individual performers Friday, Akamai Technologies popped 3%, lifted by a seven-year,$12 billion deal assigned with Anthropic for its cloud infrastructure services, Barron's said.

7:26Bloom Energy climbed nearly 9%, lifted by AI data center demand hopes. Moderna continued its breathless ascent, up another 2 % Friday. It's up almost 40 % over the last month amid excitement about progress on a cancer vaccine. A regulatory filing may come soon, media reports said last week. Microsoft surged 3.75 % after saying it's updating its co-pilot app for corporate workers in what CNBC said appeared to be a challenge to Anthropics' Claude. Chip and AI infrastructure stocks moved mostly higher. The PHLX Semiconductor Index, or SOX, rose 1.5 % to stay above its 50-day moving average, a constructive sign.

8:13Financial sector stocks performed better, helped by a steepening yield curve. People Incorporated climbed 11 % on a Wall Street Journal report that MGM Resorts might buy the magazine company. Meta Platforms, which rose sharply earlier last week on excitement over its Muse AI assistant, saw profit-taking that took shares down more than 3%. The stock was up 36 % in September coming into Friday, Briefing.com noted. And Dow rose 5%, supported by positive news from Morgan Stanley.

8:50The Dow Jones Industrial Average surged 478.64 points, or 0.93%, Friday, to 51 ,828.62. The S &P 500 Index climbed 39.28 points, or 0.51%, to 7 ,743.41. And the NASDAQ Composite gained 129.34 points, or 0.48%, to 27 ,068.71. For the week, the Dow Jones Industrial Average rose 0.28 % to break a three-week losing streak. The S &P 500 rose 1.21%, and the NASDAQ climbed 2.06%. 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.

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