Job Openings, 10-Year Auction Ahead as Fed Meets

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.

0:18I'm Colette O 'Claire, and here is Schwab's early look at the markets for Tuesday, December 9th. The long-anticipated two-day Federal Reserve rate meeting kicks off today before the decision at 2 p.m. Eastern Time tomorrow, and stock market action could be muted as investors hunker down and await the news. Leading up to Wednesday, I feel that it's likely that markets remain in a wait-and-see mode, which likely means some choppy sideways price action, said Nathan Peterson, director of derivatives research and strategy, Schwab Center for Financial Researcher Skiffer. Though the Fed is expected to slice rates by 25 basis points for the third straight meeting to a three-year low range of 3.5 percent to 3.75 percent, Treasury yields rallied fiercely last week.

1:09As of late Monday, futures trading put odds of a rate cut at nearly 90%, according to the CME FedWatch tool. Though the Fed isn't required to do what the market thinks it will, in the more than seven years Fed Chairman Jerome Powell has led the Federal Open Market Committee, or FOMC, there's never been a surprise move or lack of a move. The Fed has always delivered what the market has expected. One concern this time is lack of data after the long government shutdown. The Fed makes its decision without seeing any official October or November labor market data, though private sector reports showed continued weakness.

1:49Inflation, meanwhile, shows little sign of returning toward the Fed's 2 % goal. One possibility tomorrow is a hawkish cut, in which policymakers slice rates but warn that they may go on pause for a while. Odds of a January cut following one this week fell below 22 % today in futures trading. Even this time around, not all policymakers seem likely to fall in line, and there's a sense this could be the last rate cut in a while. We expect the Fed to cut by 25 basis points this week, but it won't be unanimous, said Cooper Howard, Director of Fixed Income Research and Strategy at Skiffer. The argument to cut is based on evidence that the labor market is softening and could soften more.

2:37That could drag the economy down. The argument not to cut is based on the fact that inflation remains too high and isn't showing signs of cooling. With tomorrow's rate decision come the Fed's quarterly dot plot on future rate expectations and its projections for the economy. The median estimate for the September dot plot pegged the Fed funds rate at between 3.25 % and 3.5 % by the end of 2026, slightly below the June projection of 3.5 % to 3.75%. We expect the median estimate in the dots to stay at 3.375%, but there will likely be differing views about the path forward, Howard said.

3:24Another piece of the incomplete data puzzle locks into place at 10 a.m. Eastern Time today when the government issues its September Job Openings and Labor Turnover Survey, or JOLTS. Consensus is for 7.2 million, a high number historically that would be little changed from August. Any big dip, however, might heighten suspicions that the labor market is weak. The quits rate in jolts is also worth watching, as it can indicate how easy or hard the job-seeking process might be. Workers are less likely to quit if demand for their services isn't evident or if they feel nervous about job prospects in general.

4:06Quits hit a high for the year above 3.31 million back in March, but has generally fallen since, though obviously there's no data after August due to the shutdown. Though the Fed appears set to lower rates, Treasury yields rallied fiercely last week in a sign that participants aren't convinced the central bank can ease policy without triggering more inflation. Spiking yields in Japan and rising U.S. corporate and government debt also play into the yield gains, which put the 10-year yield near the top of its recent range, near 4.15 percent. Also in Asia, China's trade surplus has reached$1.1 trillion this year through November.

4:50There's very little evidence that China is suffering from the trade war, said Kevin Gordon, head of macro research and strategy at Skiffer. The Treasury auctioned off a batch of three-year notes Monday and saw decent demand. Despite that, the 10-year yield surged three basis points to 4.17 percent, the highest since late September. Though pressure on equities can come from multiple directions, it's probably fair to say that steadily rising yields over the last week led to some of Monday's weakness on Wall Street. Though the Fed is planning to cut rates, there's concern doing so could ignite more inflation, and that, along with fiscal stimulus from tax changes last year, is likely pushing yields higher on the long end of the curve.

5:38If the Fed's language tomorrow isn't tough in terms of pushing back prospects of further rate cuts, Treasury yields could rise more. The 10-year yield pushed above its 100-day moving average Monday and may face resistance at around 4.25 percent, a psychological spot that also correlates closely with the 200-day moving average. Today brings a 10-year note sale. any sign of weak demand might trigger more pressure on Treasury trading, possibly with more Wall Street headwinds. Oracle and Broadcom put the spotlight back on AI when they report earnings Wednesday and Thursday after the close, respectively.

6:19When Oracle results arrive, focus will likely be on spending. The narrative around debt financing to pay for AI is likely to raise questions for executives on the call. Oracle and MetaPlatforms both saw rallies get snapped earlier this quarter when it became clear they were borrowing money to raise their AI outlays. In trading Monday, broad early strength quickly dissipated across major indexes, and most spent the entire day in the red to break a four-day win streak for the S &P 500 index and the Nasdaq. Tech stocks fared best and were the only sector to finish higher, led by chip names including Micron, Broadcom, Supermicrocomputer, ASML, and NVIDIA ahead of this week's earnings.

7:09NVIDIA is now up three of the last four sessions, but still down sharply from late October highs, and appeared to get a boost one day from a media report that the Trump administration might soon approve exports of NVIDIA's H200 chips to China. It's unclear how important this might be, considering Beijing has discouraged Chinese companies from using U.S. chips. Also, H200 is a relatively low-powered chip compared to others made by NVIDIA. Broadcom climbed nearly 3 % Monday after the information reported that Microsoft is in talks to design custom chips with Broadcom. This hurt shares of Marvell, which currently has business with Microsoft.

7:54Marvell fell 7%. SectorWise Monday, communication services brought up the rear, hurt by a 3 % drop in Netflix and a 2.3 % drop in Alphabet. The Netflix weakness followed news of Paramount making a competing bid for Warner Bros. Discovery after Netflix bid for that company's studio and streaming business last week. Paramount offered to buy all of Warner Bros. Discovery in a direct offer to shareholders. Alphabet didn't appear to suffer any bad news. Instead, recent weakness could reflect what appeared to be overbought conditions indicated by its Relative Strength Index, or RSI, which rose above 75 late last month.

8:37Shares are up about 65 % year-to-date, in part on excitement over its AI platform. Bitcoin futures slipped 0.5 % Monday, the second straight Monday of weakness for crypto, and shares of crypto-related stocks, including Coinbase, Strategy, and Circle Internet Group. Bitcoin's 20-day moving average is just below$93 ,000 and may be an area to watch, as futures haven't closed above its 20-day since October 16th. Confluent climbed 29 % on news IBM plans to buy the tech firm in an$11 billion deal. shares of IBM climbed marginally, a possible sign of investor confidence in the deal. Carvana jumped 12 percent after S &P Dow Jones indices announced late Friday that Carvana will join the S &P 500 as part of the index's quarterly rebalancing.

9:35The Dow Jones Industrial Average slid 215.67 points Monday, or 0.45 percent, to 47 ,739.32. The S &P 500 index eased 23.89 points, or 0.35%, to 6 ,846.51. And the NASDAQ composite lost 32.22 points, or 0.14%, to 23 ,545.90. This has been the Schwab Market Update podcast. To stay informed, visit schwab.com slash market update or follow for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or review. It really helps new listeners find the show. Join us for another update tomorrow.

10:34For important disclosures, see the show notes and schwab.com slash market update podcast.