Jobs, D.C. in Focus after Stocks Post Losing Week

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 29th. The final two days of the quarter dawn with eyes on Washington as investors prep for a gauntlet of jobs data. Tomorrow's August job openings report gets the data ball rolling, but Friday's September non-farm payrolls update looms larger after several months of slow growth helped lead to the Federal Reserve's rate cut two weeks ago. Today is light in terms of earnings and data, which could strengthen the market impact of any geopolitical developments and several Fed speeches. The old week ended with worries about a possible U.S.

0:55government shutdown, though short shutdowns haven't had a tremendous impact on stocks historically. Lengthy shutdowns can raise uncertainty, especially if economic data gets delayed. The Fed depends on that data to make its rate policy, and the next Fed meeting is in a month. While U.S. data is light, numbers from China this evening, U.S. time could draw attention. The country's official September manufacturing and non-manufacturing PMI data are due, with manufacturing expected to remain in contraction below 50. It hasn't been above 50 since March, but the data might indicate if the current tariff truce between China and the U.S.

1:34is having an effect.

1:39Last Friday's key U.S. data was the August Personal Consumption Expenditures, or PCE, Price Index, and it appeared to soothe investors worried about a pause in rates following strong economic data earlier in the week. Inflation edged up, but not to shocking levels, and consumer spending stayed resilient despite job market hiccups. PCE rose 0.3%, and Core PCE, which excludes food and energy, climbed 0.2 % last month, while year-over-year Core PCE was steady at 2.9%. PCE was in line with expectations, said Cooper Howard, Director of Fixed Income Strategy at the Schwab Center for Financial Research.

2:18Personal income, wages, and salaries were up, but not as much as the prior reading, so it suggests some slowing, but not a significant drop-off. PCE was also revised downward for the prior month, so it gives the green light for the Fed to continue with the bias to cut rates this year. Personal spending topped analysts' forecasts at 0.6%, and real spending, which measures spending on an inflation-adjusted basis, rose 0.4%. It was the third straight month of 0.3 % or above. While there are cracks forming in the labor market, the consumer continues to drive economic growth, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research.

3:02Odds of an October rate cut edged up to around 88 percent by late Friday, according to the CME FedWatch tool. Odds of two cuts between now and the end of the year climbed to 65 percent from 61 percent Thursday, still down from a week ago levels near 80 percent. Several Fed speakers last week suggested more cuts might not be needed and relatively solid data could reflect the impact of a K-shaped scenario, meaning strong spending by higher-tier income groups and weaker spending by less well-off consumers. Strong spending by upper-income consumers might be one reason for inflation's stickiness. Core PCE remains near 3 % and hasn't dipped below 2.6 % in any of the last 12 months, compared with the Fed's 2 % target, which raises the question of how committed the Fed ultimately will be to 2%.

3:53Last week, Atlanta Fed President Rafael Bostic said he'd be open to using a range, suggesting 1.75 % to 2.25%, rather than a specific inflation number for the Fed's target. Two other Fed policymakers also discussed that last week, Bloomberg reported. Looking ahead, analysts expect tomorrow's August job openings and labor turnover survey, or JOLTS to show 7.1 million openings, not much below July's 7.18 million. The quits number will also be eyed for signs of how willing people are to leave old jobs and go to new ones. And for non-farm payrolls Friday, early estimates hover near 40 ,000. That's up from the anemic 22 ,000 in August, but still well below the average reading over the last year.

4:41Monthly jobs growth topped 100 ,000 as recently as April and was above 200 ,000 in November and in December of last year. But growth between May and August disappointed. Tariff and immigration policy could be affecting the numbers, with many companies hesitant to grow or shrink workforces until there's more certainty around trade and worker availability. Earnings season next month could provide investors more insight on company hiring plans and how they're responding to government policy. Earnings are light this week, but tomorrow afternoon's results from Nike could give insight into consumer spending and the impact of the U.S.-China tariff battle.

5:22Major indexes rebounded Friday as chances for two more rate cuts this year edged up following the PCE data. While nearly every sector rose Friday, the two leading sectors of the last month, information technology and communication services, finished near the bottom, letting others do the heavy lifting. Investors piled into consumer discretionary shares despite another rise in the 10-year Treasury yield, which ended Friday near one-month highs just below 4.2%. The S &P 500 index fell last week for the first time since the week that ended August 25th. Shares of large U.S. pharmaceutical makers, including Eli Lilly, Merck, and Pfizer, all climbed Friday after President Trump's announcement of 100 % tariffs on pharmaceutical imports, with exceptions for firms building plants in the U.S.

6:12Several large-cap companies in the space have already announced they're building U.S. manufacturing facilities, so the move upward today could reflect ideas that their products won't be affected. PACCAR shares accelerated Friday after the Trump administration announced 25 percent tariffs on heavy trucks manufactured outside of the U.S. PACCAR owns Peterbilt and Kenworth and manufactured 90 percent of its U.S. trucks domestically, CNBC reported. Electronic Arts soared more than 13 % Friday after the Wall Street Journal reported that the video game company is near a roughly$50 billion deal to go private.

6:49Though the stock market appeared enthused Friday about possible rate cuts, Treasury trading told another story. The 10-year yield bumped up another two basis points, meaning it rose five basis points for the week to near one-month highs just below 4.20%.

7:08The Dow Jones Industrial Average climbed 299.97 points Friday, or 0.65%, to 46 ,247.29. The S &P 500 Index added 38.98 points, or 0.59%, to 6 ,643.70. And the Nasdaq Composite gained 99.37 points, or 0.44%, to 22 ,484.07. For the week, the Dow Jones Industrial Average fell 0.15%, the S &P 500 Index fell 0.31%, and the NASDAQ dropped 0.65%. This has been the Schwab Market Update Podcast. To stay informed, visit www.schwab.com slash marketupdate 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.

8:07Join us for another update tomorrow.

8:15For important disclosures, see the show notes and schwab.com slash market update podcast.