Micron Mulled Ahead of ISM Data, Nonfarm Payrolls

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 Thursday, October 1st. After a slightly encouraging inflation report yesterday, investors await Friday's non-farm payrolls data and mole earnings from semiconductor giant Micron. Odds of a rate hike later this month scurried down the ladder after several developments, including the cooler-than-expected personal consumption expenditures, or PCE, data for August. PCE was 0.3 % monthly for headline and 0.2 % for core, excluding food and energy. Consensus for the Federal Reserve's favored inflation data was 0.4 % and 0.3%. Chances of an October rate hike, which had climbed to 70 % early this week, tracked near 37 % late Wednesday according to the CME FedWatch tool.

1:06Market participants still dial in 88 % odds of a hike at some point before year-end, but it now looks more like a December event than an October one. I don't think PCE changes the story with the Fed, said Cooper Howard, director of fixed income research and strategy at the Schwab Center for Financial Research. We still expect at least one more hike this year, and potentially another either late this year or early next year. PCE is far from the final word and may not even be as helpful for the Fed as usual. There were some methodological changes to how the government calculated PCE this time, making it more difficult for comparisons, and some analysts said going in that the new methodologies could lead to a lower reading.

1:53Diving in, the Fed likely noticed that many prices tracked by the report rose more than it might be comfortable seeing. The breadth of PCE is still too high for what the Fed likely wants, Howard said, noting that 52 % of PCE subcomponents are rising above 3%. Fed Chair Kevin Warsh mentioned breadth this month as a metric he watches. Next up is September non-farm payrolls at 8.30 a.m. Eastern Time Friday, with consensus at 84 ,000 jobs created. That's roughly half of August's surprisingly firm 162 ,000, but revisions to August and any earlier data might be enlightening. Unemployment is seen unchanged at 4.1%, while wages are expected to rise 0.3 % month over month, according to the consensus from Briefing.com.

2:46Better-than-expected ADP job growth and GDP point to a healthy economy, said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research. However, recent signs of tightness in the labor market could make the wages component more important this time.

3:06On the Fed front today, investors brace for remarks from several key policymakers, at least one of whom plans to discuss monetary policy, according to the central bank's online schedule. Minutes from the Fed's last meeting are due next Wednesday and could provide insight into the hike. The Treasury Department steps in today to purchase another$6 billion in long-term treasuries, likely a slight disappointment to any Treasury market bulls who hoped Treasury would raise the amount from previous purchase levels. Longer-term yields continued their relentless rise yesterday despite the PCE data, perhaps as investors contemplated some other resilient economic data points.

3:49Data Wednesday was generally solid and included a 90 ,000 jump in ADP September employment, a private sector measure, well above consensus of 58 ,000 and August's 36 ,000. The government's final third-quarter gross domestic product, or GDP, estimate rose to 2.2 % on a quarter-over-quarter annual basis from the prior 1.5%. Personal spending rose 0.9 % monthly in August, a strong showing from the consumer. Crude oil rose Wednesday, although Middle East supplies have recovered to their strongest levels in months, according to media reports. The trouble is product supplies, which remain low, and Axios reported little progress in talks between the U.S.

4:34and Iran. The 10-year Treasury note yield reacted to Wednesday's data and oil rally by making new 24-year highs above 5.3 percent intraday, the loftiest since May of 2002. This took the stuffing out of Wednesday's early broader market rally, though tech stocks kept most of their games. Shorter-term yields generally were unchanged or up less than the 10-year as October rate hike odds dipped. More data direction comes shortly after today's open with the ISM September Manufacturing PMI Index. Analysts expect 55.2 % for the headline, a relatively firm number well above 50 % needed to show expansion and up from August's 54.6%.

5:23A manufacturing report from S &P Global late last month that topped expectations sent October rate hike odds higher at the time as market participants feared an overheating economy might boost inflation. The employment and prices paid elements of the ISM report are also key. Also ahead is Challenger job cuts data due before the open. Analysts see September layoffs of around 78 ,000, up from 53 ,000 in August and 54 ,000 in September last year. Turning to earnings, memory chip maker Micron reported after the closed Wednesday and topped analysts' estimates for earnings and revenue, it also offered better-than-expected guidance and gross margin.

6:07Nevertheless, shares barely moved in initial post-market trading. This could suggest so-called whisper numbers were more optimistic amid recent solid AI growth trends. Revenue grew 379.1 % from a year earlier compared with the 351 % consensus. Nike wraps up major earnings for the week after today's close, and then it's quiet for a bit. The market is still about two weeks from the traditional start of earnings season in mid-October. Big banks report first, as usual, after the financial sector struggled much of the third quarter due to a flatter yield curve, AI competition fears, and worries that the investment banking market might slow.

6:53As the broader market backtracked from early highs yesterday, so-called mega caps including Alphabet, Microsoft, NVIDIA, and Apple generally climbed before a late sell-off in Alphabet and Meta. The early strength could reflect investors seeing these behemoths as less sensitive to rising yields. The Dow Jones Industrial Average, which contains many stocks in the financial, industrial, and staples sectors, often more prone to rate sensitivity, trailed the tech-heavy Nasdaq and finished red on Wednesday. So did small caps. The S &P 500 index split the difference, falling slightly. Sector action remained narrow Wednesday, with three of 11 S &P 500 sectors up.

7:39This continues a trend, with Infotech and Energy the only strong sector performers. Checking individual performers Wednesday, Moderna fell 5.3 percent after Citigroup downgraded shares to sell from the previous neutral rating, citing valuation as shares are up 222 percent since the results of its cancer vaccine trial. Northrop Grumman fell 4 % after the U.S. Navy chose rival Boeing to build its next-generation jet fighter, according to the Wall Street Journal. Hewlett Packard Enterprise climbed almost 4 % after the company raised its fiscal 2027 networking segment revenue growth outlook. The company is hosting a networking investor day.

8:23J-Bill plunged 10 % despite sharing a strong AI demand outlook and topping earnings expectations, Barron's reported. And ConAgra fell nearly 5%, despite earnings topping analysts' expectations. Sales volumes dropped.

8:41The Dow Jones Industrial Average tumbled 443.87 points, or 0.86%, Wednesday, to 50 ,906.05. The S &P 500 index slipped 19.30 points, or 0.25%, to 7 ,651.54, and the Nasdaq Composite gained 63.52 points, or 0.24%, to 26 ,861 .06. The S &P 500 dropped slightly in September, which is a seasonally weak month, historically. 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.

9:37Join us for another update tomorrow.

9:45For important disclosures, see the show notes and schwab.com slash market update podcast.