Home Depot Kicks off Big Box Earnings, Fed Ahead

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 Tuesday, August 19th. Home Depot, housing data, and the latest updates from Ukraine talks await investors today, with more retail earnings on deck and the Federal Reserve's Wyoming Summit looming. The big box showdown gets started today when Home Depot reports before the opening bell. Housing stocks are up lately on hopes for lower interest rates, boosting Home Depot's shares as well over the last two months after an icy spring for its shares and housing stocks in general. Recent purchases of home builder shares by Warren Buffett helped put a buzz into these stocks last week.

0:58Last time I reported in late May, Home Depot missed Wall Street's earnings expectations but kept its guidance unchanged and said it didn't plan to raise prices due to tariffs. Now that tariffs are firmly in place, investors likely want to see if that's still the case, and if so, how it might affect margins for the home improvement retailer. The company has been trying to diversify its product sources and not depend on any single country outside the U.S. Home Depot might affectionately be called Home D Pro because it gets about half its business from home professionals more than competitor loans.

1:34This could be an advantage, with housing still in the doldrums due to high mortgage rates and people staying in their homes longer. Less moving might mean more demand for renovation of older homes. Target and Lowe's report on Wednesday, and Walmart steps to the plate early Thursday. Investors may have similar questions for these companies about the impact of tariffs as well, as wanting updates on back-to-school shopping trends now that many kids are in classrooms again. It's also not too early to start looking at holiday demand, especially if retailers think some of it got pulled forward to earlier this year amid consumer worries about higher prices related to tariffs.

2:14Inflation readings, especially within PPI, suggest cost pressures increasing on consumers, said Lizanne Saunders, chief investment strategist at Schwab, referring to last week's surprisingly firm producer price index, or PPI, for July.

2:32Data this week veers towards housing, perhaps appropriate considering the two big home improvement retailers about to report. Today's release is July housing starts and building permits data due at 8.30 a.m. Eastern Time. Analysts expect only small changes from June and pegged starts at a seasonally adjusted annual rate of 1.311 million and permits at 1.39 million, according to Briefing.com. The other big event this week starts Thursday when Federal Reserve Chairman Jerome Powell and other central bank leaders arrive in Jackson Hole, Wyoming for the Fed's annual symposium. A lot could hinge on Powell's speech Friday morning as investors continue building in rate-cut hopes despite recent bearish inflation data.

3:17The CME FedWatch tool puts odds of a September rate cut at 83 percent, down from 100 percent before last Thursday's bearish 0.9 percent rise in July producer prices that gave inflation hawks more fuel. We still see a rate cut in September and another in December as likely, said Kathy Jones, chief fixed income strategist at Schwab. However, inflation readings have been moving in the wrong direction, which limits the Fed's scope for easing policy. PPI and CPI readings both show that price pressures continue, especially in the service sector. That's particularly ominous since the full impact of tariffs on goods prices hasn't shown up in the numbers yet.

3:59It suggests that the inflation side of the Fed's dual mandate is likely to get worse over the next few months, at least. Before the summit, stay tuned tomorrow afternoon for minutes from the Fed's last meeting when two policymakers dissented from the decision to keep rates unchanged, voting to cut by 25 basis points. But some Fed speakers said last week they're still not sure if September is the right time to change the target range. Whatever the minutes and Powell say later this week, the Treasury yield curve is likely to keep getting steeper. That could keep borrowing costs high for consumers and businesses, not the best outlook for an economy that appears by some measures to be slowing.

4:40Long-term Treasury yields likely won't fall as much as short-term yields in the face of Fed rate cuts, given fiscal concerns and sticky inflation, Martin said. There hasn't been much of a relationship between budget deficits and long-term Treasury yields throughout history, but that could change over time, given that there doesn't appear to be any real progress being made on the trajectory of our nation's debt levels. On Monday, stocks treaded water in a mostly featureless session, as caution won out with retail earnings and the Fed meeting ahead. Few major names rose or fell more than 3 percent, though one that did was Intel.

5:20Shares of the semiconductor firm fell 3.4 percent after Bloomberg reported that the Trump administration might convert grants from the CHIPS Act into an equity stake in the company. Such a move might raise the share count and reduce earnings, Barron said. In sector action, Monday saw about a 50-50 split between green and red, with cyclical areas leading. Industrials, consumer discretionary, and financials finished 1-2-3, while Infotech managed to claw back from three losing days to finish slightly higher. Energy ended lower as world leaders met in Washington, trying to find ways to end the Ukraine conflict, though crude oil inched up Monday from recent two-month lows.

6:05Renewable energy stocks renewed their rally Monday, too, helped by new rules for tax credits from the Treasury Department. Small caps outpaced their larger brethren Monday, with the Russell 2000 up about 0.3%, despite one-month highs for the 10-year Treasury yield at 4.34%. Small caps performed better than the large caps last week as well, and small value stocks outperformed large growth stocks, possibly a sign of shifting sands on Wall Street. The S &P 500 is up two weeks in a row and four of the last five, but September is traditionally a weak month for stocks. In earnings action, late Monday, Palo Alto Networks beat analysts' estimates for earnings per share and revenue and offered better-than-expected guidance for this quarter and the fiscal year.

6:55Quarterly revenue rose 16 % year-over-year. Shares of the cybersecurity firm initially leaped 6 % in post-market trading. If the strength continues, it might give other cybersecurity firms and perhaps the tech sector a lift. The Dow Jones Industrial Average slipped 34.3 points Monday, or 0.08%, to 44 ,911.82. The S &P 500 index dropped 0.65 points or 0.01 % to 6 ,449.15. And the NASDAQ Composite gained 6.80 points or 0.03 % to 21 ,629.77. 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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8:08For important disclosures, see the show notes and schwab.com slash market update podcast.