Inflation in Focus After Volatile Day for Stocks

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, June 10th. Inflation data arrives this morning after another volatile session for stocks Tuesday, while the recent sell-off in chip stocks and flare-ups in the Middle East are keeping investors on edge. Inflation has gained some traction after oil prices jumped due to the war in Iran, forcing a rethink about future Federal Reserve interest rate moves. The market could see more selling pressure if inflation data for May exceeds expectations, particularly if the core reading indicates prices of everyday items and services arising along with gas prices.

0:57The first inflation data of the week comes this morning. The Consumer Price Index, or CPI, for May is due at 8.30 a.m. Eastern Time. For CPI, analysts expect 0.5 % headline growth month over month and 0.3 % growth in core CPI, which excludes food and energy. Both would mark a slight deceleration from April's numbers. Headline CPI is seen up 4.3 % year over year. PPI inflation data follows at 8.30 a.m. Eastern Time tomorrow. The numbers for April showed that upstream price pressures and not just from higher oil prices are rising and could hit consumers in the months ahead. The PPI Index for Trade Services for Final Demand rose at the fastest pace in more than a decade in April, indicating businesses were already starting to pass along price increases.

1:51In fact, more than a third of businesses surveyed by the National Federation of Independent Businesses, or NFIB, said they plan to raise prices over the next three months, the most since July of 2022, the NFIB said Tuesday. U.S. small business optimism tracked by the NFIB fell to its lowest level since October of 2024, hurt by rising fuel costs. For tomorrow's PPI data, analysts expect monthly increases of 0.7 % for headline PPI and 0.4 % for core PPI, according to Briefing.com. Though still elevated, those numbers would represent a slowdown from April's jumps of 1.4 % and 1 % respectively, perhaps due to U.S.

2:36gasoline prices stabilizing in May.

2:42Oil prices fell Tuesday, even as the U.S. and Iran made headlines. President Donald Trump said the U.S. must respond to an alleged Iranian attack on an Apache helicopter that was patrolling the Strait of Hormuz. WTI crude spiked briefly but closed about 3 percent lower. This week's inflation data and last week's better-than-expected jobs numbers will certainly inform the Federal Reserve's mid-year view of the economy ahead of its policy meeting next week when it will issue interest rate and economic projections. As of Tuesday afternoon, the futures market was pricing in a 67 % chance of a rate hike by year-end, according to the CME's FedWatch tool.

3:27However, no rate move is seen at next week's meeting. The Fed's last move was a rate cut in December. Initial jobless claims due at 8.30 a.m. Eastern Time tomorrow are another data point to watch. Analysts expect claims to total 222 ,000, down slightly from the prior week, but on the high end of recent reports, according to Briefing.com consensus. While the labor market has stabilized, consumers are increasingly under strain, and real wage growth has slipped into negative territory as inflation has picked up. Another negative reading of real wage growth in today's CPI data will signal further deterioration of consumer spending power, a bad sign for the economy, especially when inflation may get worse before it gets better.

4:16The Preliminary University of Michigan Index of Consumer Sentiment for June will be released Friday. Consumer sentiment has hit a series of all-time lows in recent months, but consensus expects a rebound to 46.0 from 44.8 last month. In more upbeat news Tuesday, existing home sales exceeded expectations in May, rising 3.2 percent from a year earlier and reaching the highest level since December. The data likely reflected contracts signed in March and April. Corporate news is thin this week, but picks up today with earnings from Oracle after the close. Capital spending plans are likely to take center stage as investors monitor demand following Broadcom's slightly disappointing guidance last week, which contributed to the chip sell-off on Friday and Tuesday.

5:10Oracle's capital expenditures are likely to rise 30 percent year-over-year, Barron said, citing Wall Street analysts. Last time, Oracle reported in March the company's shares enjoyed an initial 9 percent rally as sales and earnings beat expectations and the company promised it didn't plan any new financing measures to fund its data center construction. Oracle, like other software stocks, enjoyed a spring surge before losing ground early this month. Looking ahead to tomorrow, software giant Adobe and the home builder Lenar report after the close. Lenar received a downgrade from Keefe Bruyette to underperform yesterday as the analysts cited the company's high exposure to entry-level customers who may be less economically comfortable.

5:59Treasury yields fell across most of the curve Tuesday, even as a three-year note auction was met with lukewarm demand. Investors will be closely monitoring today's 10-year note auction as a result. Further signs of weak demand might put pressure on treasuries and raise yields. The European Central Bank's, or ECB's, rate decision tomorrow morning is another key development that could affect U.S. yields. Analysts expect the ECB to raise rates as it tries to fend off inflation, Reuters reported. Shifts in European interest rate expectations can potentially impact U.S. bond yields because global fixed income markets are closely interconnected.

6:42The U.S. dollar index briefly topped 100 on Monday for the first time since April 7th before falling back on Tuesday. Though partly a reflection of higher oil prices, recent dollar strength could also be due to solid U.S. economic data, including last week's jobs report. The dollar is near the midpoint of its long-term range, so it likely isn't a major bullish or bearish factor for equities. However, should it keep rallying, it might be a potential threat to current high Wall Street earnings expectations. A strong dollar makes U.S. products more expensive overseas, which can dent demand. The S &P 500 index fell Tuesday but closed well off its lows, staging a furious rally starting around midday after dropping by as much as 2 % and approaching its 50-day moving average.

7:38Chip stocks got hammered again, more than wiping out the gains achieved during Monday's rebound. With some growing anxiety over the AI trade, some investors may be looking to lock in profits or perhaps free up capital ahead of initial public offerings ahead, including one by SpaceX on Friday. Among individual movers Tuesday, Marvell tumbled more than 7%, while Qualcomm fell more than 5%, and Arm Holdings lost more than 6 % amid the tech sell-off. Micron rebounded sharply off its lows to close roughly 1.4 % lower, while Advanced Microdevices lost about 3%. Vail Resorts hit an ice patch, falling more than 4%, as the ski resort operator cut its full-year net income guidance.

8:27Weather conditions remained extremely unfavorable in the third quarter, adding to what had already been one of the most challenging winters in history across the western U.S., driving continued pressure on visitation and revenue, the company said. J.M. Smucker climbed more than 10 percent after reporting better-than-expected earnings per share and in-line revenue. However, its revenue guidance came in below Wall Street's fiscal 2027 consensus. Crypto-related stocks dipped early Tuesday as Bitcoin fell more than 2%. Strategy was among the biggest losers on the day, falling about 8%. Coinbase dropped about 4%.

9:11Toll Brothers climbed about 5 % following an upgrade to Outperform from Market Perform by Keith Brouillette, which said homebuilders like Toll Brothers, who are exposed to affluent buyers, are better positioned to defend margins. Despite the drop in major indexes Tuesday, nine of 11 S &P 500 sectors ended the day in the grain. Real estate and materials led the pack, while Infotech plunged amid a renewed rotation out of chipmakers. Breadth remained relatively strong in spite of the volatility, with roughly 58 % of S &P 500 stocks trading above their 50-day moving average. The Dow Jones Industrial Average rose 86.10 points Tuesday, or 0.17%, to 50 ,872.11.

10:02The S &P 500 index fell 19.08 points, or 0.26%, to 7 ,386.65. And the NASDAQ composite sank 250.84 points, or 0.97%, to 25 ,678.82. 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. Join us for another update tomorrow.

10:51For important disclosures, see the show notes and schwab.com slash market update podcast.