Nvidia, Inflation Data, Auctions Highlight 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, August 25th. After Federal Reserve Chairman Jerome Powell lifted the market's spirits Friday by hinting at rate cuts, investors gear up for a late summer picnic of inflation, economic growth, and housing data. But the main course is NVIDIA, which reports earnings late Wednesday after several days of weakness in shares as China worries mount. Odds of a September rate cut jumped to 83 percent by Friday afternoon from 70 percent before Powell's speech at Jackson Hole early in the day, according to the CME Fed Watch tool.

0:55The 10-year Treasury note yield and the shorter two-year yield both fell seven basis points Friday and finished moderately lower for the week as stocks enjoyed sharp gains to end the week. The key line from Powell's speech was that the current situation may warrant adjusting the policy stance, said Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research. We believe that the Fed will cut in September and then one more time this year, likely in December. Powell also said that the labor market is currently in balance, but it's largely because of a combination of a slowdown in job growth as well as a decline in the labor force.

1:35That doesn't bode well for growth going forward, Howard said. Powell acknowledged that the downside risks to labor are rising and that the economy is slowing. Furthermore, Powell noted that tariffs may only result in a one-time price shock, but that's still to be determined. As Powell observed, the tariffs aren't all happening at once, so the inflation impact may be a one-time impact for many products all happening at different times. With that in mind, it's likely the Fed will continue to be cautious about cutting rates. Futures trading now projects a nearly 50 % chance that the year will end, with the Fed's target range between 3.75 % and 4%, down 50 basis points from the current level.

2:21There's only a 37 % chance that the Fed eases 75 basis points by year end.

2:30The biggest data point this week is Friday's personal consumption expenditures, or PCE price index for July. This report, however, rarely includes any shocking readings because many of the inputs come from previous Consumer Price Index or CPI and Producer Price Index or PPI reports. Also worth watching in coming days is today's July new home sales and tomorrow's June S &P Case-Shiller Home Price Index. Consensus is for new home sales to reach a seasonally adjusted annual rate of 630 ,000, according to Briefing.com, up from 627 ,000 in June. In terms of the economic data, the housing data is starting to capture more attention, and it's regional in nature, but there are some really weak pockets, said Lizanne Saunders, chief investment strategist at Schwab.

3:22More sales and price data come out in the next week, so I'm certainly keeping an eye on those as well. Though Fed rate cuts might help the housing market, keep in mind that mortgage rates rose by almost a full point last fall when the Fed cut rates 100 basis points. That contrary move reflected rising treasury yields, which the market sets. We are looking for a steeper yield curve, nevertheless, said Kathy Jones, Chief Fixed Income Strategist at Schwab, meaning higher yields on longer-term treasuries versus shorter-term ones. The short-term treasuries are more reflective of near-term Fed policy, which now appears more likely to be accommodative.

4:05Another challenge for the Fed continues to be tariffs, especially considering they keep moving based on the administration's decisions. Instead of this one-time price-level shock that everyone kind of expects with tariffs, There is a series of price increases over time because it's constantly changing and constantly going up, not down, Jones said. It really makes the Fed's framework decisions very difficult because if this is a new component to the inflation story and it's so unpredictable, how do you set policy that's forward-looking based on that? Before PCE, investors await the government's second estimate for a second-quarter gross domestic product, or GDP, growth due Thursday after the first one came in at a strong 3%.

4:53The Atlanta Fed's GDP Now tool last pegged third-quarter GDP at 2.3 % with an update due tomorrow. Friday saw stocks surge after Powell's speech, with the Dow Jones Industrial Average hitting a new record high for the first time this year, and the S &P 500 just missing one. Volume was above average, which can signify decent conviction in the market. Not surprisingly, Powell indicated room for rate cuts since policy is currently restrictive, Schwab's Jones said. Markets like it. Powell described policy as being in restrictive territory, a phrase he also used after the July Fed meeting. This coming weekend is the three-day U.S.

5:41Labor Day holiday, and volume typically falls heading into holiday weekends. That may not be the case this time with PCE due Friday morning. Magnificent 7 stocks, after sagging most of last week, all rose Friday and were led by 5 % gains from Tesla. Meanwhile, Microsoft rose less than 1 % to bring up the rear. NVIDIA entered Friday, down 3 % over the last week from recent all-time highs. Shares were back in the news Friday following a report in The Information saying NVIDIA instructed some component suppliers to stop production related to the H20AI chip, the less powerful chip NVIDIA recently got re-approved to sell in China.

6:27Beijing has urged companies not to use it, citing security concerns. The production halt by some suppliers could reflect lack of demand in China for the product, Bloomberg reported, but CEO Jensen Huang told reporters Friday that NVIDIA is considering a potential follow-up to the H20 for China and that there are no security backdoors in the H20. Financial stocks were big gainers Friday along with transports on hopes lower rates could put a charge into the U.S. economy. Airlines, automakers, Wall Street banks, and homebuilders also got a boost from rate hopes. The Nasdaq Bank Index rose 4%, and the Dow Jones Transportation Average jumped 3%.

7:13Semiconductors, battered by softness earlier this week, rebounded Friday as the PHLX Semiconductor Index rose more than 3%. NVIDIA broke a losing streak but gained less than 2 % amid possible position squaring ahead of Wednesday's earnings. Intel led chips with a 7 % rise, while shares of other slumping tech firms, including Palantir and Oracle, also clawed back. Every S &P sector except Staples rose Friday, with healthcare and utilities also near the bottom of the board. Those defensive areas were ones that had shined earlier the week when the market took a more defensive tilt. Consumer discretionary and energy, which often do better when there's economic growth, led Friday's pack.

8:03The sector showdown this week could help determine if risk appetite is truly back or if Friday was a one-day event. That said, market breadth stayed robust throughout the last week, even when the major indexes flagged, often a positive sign. And the S &P 500's relative strength index, a momentum indicator, looks healthy near 62. It would take a reading of 70 or above to suggest overbought conditions. Technically, the S &P 500 climbed firmly back above its 20-day moving average of 6 ,385 Friday after closing below it Thursday for the first time since August 1st. This support point has been important through the last three months, and previous rare closes below it saw the index quickly bounce back.

8:52It could be the first level to watch if stocks start getting shaky this week.

9:00The Dow Jones Industrial Average rose 846.24 points Friday, or 1.89%, to 45 ,631.74. The S &P 500 index climbed 96.74 points, or 1.52%, to 6 ,446.91, and the Nasdaq Composite gained 396.22 points, or 1.88%, to 21 ,496.53. 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.

9:59For important disclosures, see the show notes and schwab.com slash market update podcast.