Market Awaits PCE, Fed’s Favorite Inflation Gauge

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. First, an important note. U.S. markets are closed Monday, September 1st in observance of the U.S. Labor Day holiday. The Schwab Market Update podcast will return on Tuesday, September 2nd. I'm Colette O 'Claire, and here is Schwab's early look at the markets for Friday, August 29th. This week's data report, the Personal Consumption Expenditures, or PCE Price Index, awaits investors at 8.30 a.m. Eastern Time today and could help shape the inflation narrative on Wall Street.

0:47The numbers arrive after a hotter-than-expected producer price index, or PPI, report earlier this month that spooked some investors and Federal Reserve officials. If PCE sounds a new alarm and next Friday's August jobs report improves from July, it could complicate the Fed's decision-making process at its mid-September meeting. Analysts expect a 0.2 % monthly increase in July headline PCE and a 0.3 % monthly rise in core PCE, which excludes volatile food and energy categories. The annual growth is seen at 2.6 % and 2.9 % respectively, compared with 2.6 % and 2.8 % in June. With today the last session before the long Labor Day weekend and U.S.

1:38markets closed Monday for the holiday, it's unclear how many market participants will stick around to trade the PCE news. If volume is lower than normal, that could lead to increased market volatility. Remember, too, that the markets approach this holiday weekend near record highs, which has sometimes prompted profit-taking before the break, historically. Looking ahead, all eyes will be on the jobs report next Friday. There are some forecasts for jobs growth to pick up after July's bearish surprise, but more weakness in the August data might bring back ideas of a possible 50 basis point Fed rate cut in September.

2:19That's not the base case, but a very weak jobs report might generate calls for such a move. Revisions to prior reports were a big factor last month and likely will draw attention again as well. Investors will also monitor the Jobs Opening and Labor Turnover Survey, or JOLTS, next Wednesday. Job openings, layoffs, and quits data in the survey could provide insight into workers' confidence and the labor market's tightness, which will be critical to Fed policy moving forward. Congress also returns to Washington after their summer break next week. Their top priority will be government funding, which runs out on September 30.

3:03Legislators will need to pass the 12 appropriations bills that fund every government agency and program by October 1. Congress is nowhere close to doing that, and that means there is a risk of a government shutdown at the end of September, said Michael Townsend, Managing Director of Legal and Government Affairs at Schwab. Historically, government shutdowns have not been big market movers. In fact, the market has gone up in the last five government shutdowns. But it would add yet another element of uncertainty that markets will have to consider. In data Thursday, the government's updated estimate for second quarter gross domestic product, or GDP, rose to an annual rate of 3.3 percent from the initial 3 percent.

3:50Consumer spending helped push the figure higher, rising from the initial annual estimate of 1.4 % to 1.6%. Meanwhile, weekly initial jobless claims dropped 5 ,000 to 226 ,000, while continuing claims fell to 1.954 million. First-time jobless claims edged down last week, but continuing claims stayed high, said Kathy Jones, chief fixed-income strategist at Schwab. laid-off workers are having a harder time finding a job. With the labor market still on relatively unsteady ground, odds of a September rate cut reached 87 percent late Thursday, according to the CME FedWatch tool. That's up roughly 12 percentage points from a week ago, but down slightly from Wednesday.

4:40The National Association of Realtors also revealed on Thursday that its pending home sales index slipped 0.4 percent month over month in July, compared to the estimates for a 0.3 percent rise from Wall Street, CNBC reported. Sales were still up 0.7 percent from a year ago, but a Redfin report found that 16 percent of home sales contracts were canceled in July, the highest rate since it began tracking this metric in 2017. Treasury yields had a mixed day on Thursday as investors looked ahead to Friday's PCE reading. The 30-year bond yield felled 4 basis points to 4.87%, while the 10-year yield dropped 3 basis points to end the day at 4.2%.

5:27The yield on the two-year note, on the other hand, rose slightly to 3.63%. The minor flattening of the yield curve marks a shift from the recent trend and may reflect Thursday's stronger GDP estimate, which could make the Fed slightly less likely to rush to cut rates. Shorter-term yields had been under pressure of late amid rising expectations for a Fed rate cut next month, while longer-term yields had risen largely due to inflation concerns. All three major U.S. market indices ended Thursday in the green, with the S &P 500 breaching a record 6 ,500. Markets were buoyed by the upward GDP revision and strength in the tech sector after NVIDIA stressed that demand for its AI chips remains robust, challenging the narrative that the AI market may be cooling.

6:25The chip giant's earnings, revenue and guidance all topped estimates, but crucial data center growth fell short of consensus and overall numbers didn't blow away expectations the way investors have become accustomed to recently. The company's upbeat earnings call and guidance that may have only appeared conservative because it didn't include any sales to China both helped NVIDIA shares erase its biggest losses. NVIDIA CEO Jensen Huang also told Fox Business on Thursday that his company is in talks with the Trump administration to get permission to sell its Blackwell chips to China. The tech giant's stock still fell 0.82 percent on the day, however.

7:08Looking at individual stocks on Thursday, Pure Storage popped 32 percent after posting better than expected earnings results and raising its annual revenue guidance amid AI-driven in demand for its software and hardware storage offerings. Amazon, Salesforce, and American Express helped the blue-chip Dow Jones eke out again for the day, and several big-name retailers added to investors' tariff concerns on Thursday. Best Buy was under pressure despite beating analysts' earnings and revenue forecasts after CEO Corey Berry highlighted tariff uncertainty in the back of the year in the company's earnings call.

7:48Hormel Foods also sank over 13 percent after the packaged foods company's adjusted earnings missed expectations and it issued a weak outlook due to commodity inflation. Tesla dropped just over 1 percent on Thursday as well, mainly due to new data from the European Automobile Manufacturers Association, which showed a 40 percent year-over-year drop in the company's car sales in Europe this July. marking the seventh consecutive month of declines in the region. Next week, investors will be keeping an eye on earnings from tech stalwarts like Salesforce and Broadcom as well as the cybersecurity giant Zscaler and a slew of software companies.

8:32More than half of the 11 S &P 500 sectors ended higher Thursday. Communication services and technology led the way, rising 1 % and 0.85 % respectively, while consumer staples, health care, and real estate lagged as investors took a risk-on approach. The Dow Jones Industrial Average rose 72 % Thursday, or 0.16 % to 44 ,637. The S &P 500 index advanced 20 points or 0.32 % to 6 ,502 and the Nasdaq composite jumped 115 points or 0.53 % to 21 ,705. 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.

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9:40For important disclosures, see the show notes and schwab.com slash market update podcast.