Investors Brace for PPI, Jobs Data After New Highs

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 Thursday, August 14th. After a Wednesday that lacked fireworks but featured fresh new highs for major indexes, investors brace for fresh inflation and employment data this morning and digest earnings from Cisco. The July Producer Price Index, or PPI, comes out at 8.30 a.m. Eastern Time, along with weekly initial jobless claims. For PPI, analysts expect headline and core readings of 0.2 percent month over month, up from flat readings in June, Briefing.com says.

0:55Annual PPI is expected to rise 2.5 percent, while core, which excludes food and energy, is seen up 2.9 percent. The June PPI report looked relatively benign and was well-received by investors. Wholesale prices are often a harbinger of future consumer prices, as they may eventually filter further into the system. Focus again could be on prices of imported goods that might reflect tariff pressures. Jobless claims have generally stayed below$230 ,000 in recent weeks, but any climb above that might get some attention. There's been little sign of an extension in the brief spring bump above 240 ,000.

1:35But continuing claims, which measure the ease of obtaining a new job after losing one, have stayed stubbornly high and reinforce ideas that the labor market is sputtering. Continuing claims hit a nearly four-year high above 1.97 million last week, and analysts expect just a slight drop this time around. Though Tuesday's July Consumer Price Index, or CPI, met expectations and helped spark this week's rally in stocks and treasuries, it didn't necessarily wave a green flag either. Several goods categories exposed to tariffs continued to gain in July, though in some cases at a slightly lower pace than in June.

2:15And the core annual CPI was 3.1%, well above the Fed's 2 % inflation goal. This means investors might not want to get complacent about inflation and rate cuts, even if market volatility indicates that might be just what's happening. As of July, we now have 68 % of CPI components rising faster than 2 % annualized on a month-to-month basis, the highest share since October of 2022, said Kevin Gordon, director and senior investment strategist at Schwab. Markets may be rallying off a CPI print that wasn't as hot as many feared, as the full brunt of tariffs haven't yet been fully appreciated. Below the surface, the core reading was the highest since January.

3:04Cisco, often seen as a barometer of global tech demand, reported late Wednesday and narrowly topped analysts' consensus on earnings and revenue. Guidance for the fiscal first quarter were near the market's estimates. Shares slipped 2 % in post-market trading. Applied Materials reports later today and is another tech name to watch for possible insight into the semiconductor market. One worry as Applied Materials unveils earnings is the weak outlooks shared by other semiconductor firms recently, including Texas Instruments and ASML. This appears to reflect soft demand in non-AI chip markets, including automotive and electronic goods.

3:47Applied Materials makes advanced node technologies critical to AI chip production, so it's considered a decent barometer for that market. The blended S &P 500 earnings per share growth rate is now 13.2 % for the second quarter, with more than 90 % of firms reporting, up from the expected 5.8 % at the start of July. Blended earnings measure companies that already reported and estimates for those that haven't. Retail earnings pick up next week as big box firms including Walmart and Target report. it. Retail sales proceed that Friday and could provide more insight into consumer spending. There are some pockets of softness, including recent struggles by casual dining chains like Kava Group that disappointed with its earnings earlier this week.

4:37Not disappointing yesterday were shares of homebuilders and large retailers, which seemed to gain steam from ideas that lower interest rates expected later this year could spike consumer demand for larger purchases like homes and washing machines. Whirlpool rose 5 % yesterday, and home builder Lennar also climbed 5%. The 10-year U.S. Treasury yield fell six basis points to 4.24%, and now appears to be in a near-term range between 4.2 % and 4.3%. Treasuries, which move the opposite direction of yields got a boost yesterday when Treasury Secretary Scott Bessent said he thinks the Fed should lower rates 50 basis points in September and eventually by 150 to 175 basis points.

5:25Treasuries continue to price in less political and fiscal risk than they had been, but time will tell if that's right or wrong. The CME FedWatch tool prices in 100 percent odds of a rate cut next month, including 6.2 percent chances that the Fed will cut rates by 50 basis points at the September meeting, as it did in September of 2024. Keep in mind, however, that the market is pricing in rate cuts not because the market is surging, but because it's showing early signs of weakness. Data was light yesterday, but a few numbers are worth noting. U.S. crude oil futures hit a two-month low below$63 per barrel after the International Energy Agency said in its monthly report that oil market balances look ever more bloated, with supply expected to far eclipse demand toward year-end and into 2026.

6:19Weekly U.S. mortgage applications rose 10.9 percent from a week earlier in the latest weekly survey from the Mortgage Bankers Association. Yesterday's action on Wall Street revived ideas that market breadth hasn't completely faded, despite some signs of top heaviness. By late in the session, 387 members of the S &P 500 were up for the day, with 7 of 11 sectors in the green. Atypically mega-cap-dominated sectors, Infotech and communication services both struggled, while health care finished near the top. Though healthcare remains the second-worst performing sector over the last month, it's up about 2 % over the last five sessions and appears to be building some technical momentum as investors seek value.

7:08Consumer Discretionary remained a hot ticket Wednesday, helped by the home builders and retailers like Nike and Home Depot. Apple also had another solid day, as did chip giant advanced microdevices. Small caps in the Russell 2000 index are up 4 % in the last two days, pushing to within 5 % of last November's highs on hopes of rate cuts. Russell companies could benefit from lower borrowing costs because the index houses a greater share of struggling borrowers and because small caps have felt the fuller brunt of tariffs compared to their larger brethren. Not all went well Wednesday on Wall Street.

7:48Oracle fell 3.8 % after Bloomberg reported layoffs in the company's cloud business, and CoreWeave fell nearly 21 % after reporting a wider quarterly loss than analysts had expected. Market breadth improved this week as 62 % of the S &P 500 is above the 50-day moving average, but that's not what veteran traders would call broad participation. In fact, as the S &P 500 sets new highs, only 24 % of S &P 500 stocks are outperforming the index over the last 60 days. This suggests it remains a stock picker's market. The Dow Jones Industrial Average rose 463.66 points Wednesday, or 1.04%, to 44 ,922.27.

8:41The S &P 500 index gained 20.82 points or 0.32 % to 6 ,466.58, and the Nasdaq composite climbed 31.24 points or 0.14 % to 21 ,713.14. 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.

9:28For important disclosures, see the show notes and schwab.com slash market update podcast.