Nvidia Results Awaited and Could Have Broad Impact

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. I'm Keith Lansford, and here is Schwab's early look at the markets for Wednesday, August 27th. NVIDIA reports after the close, so today's session could be a sideways affair, with investors fixated on the coming numbers. The stock makes up about 8 % of the S &P 500 index's total value and typically moves sharply one way or the other following results, meaning Thursday's action once the market opens could feel the impact. After Hours trading tonight could provide clues.

0:48The AI giant has historically exceeded analysts' expectations for revenue and guidance, but any failure to continue that string might hurt NVIDIA shares and Wall Street. Analysts expect revenue of almost$46 billion, up around 53 % from the same quarter a year ago. Earnings per share are seen at$1.00 and a penny. NVIDIA climbed more than 1 % yesterday to near its all-time high. Key factors to watch when NVIDIA reports is any updates on the chip market in China and any new observations on AI chip demand.

1:26While NVIDIA gets more attention after today's close, action early today might reflect continued concerns about Federal Reserve independence after President Trump fired Fed Governor Lisa Cook yesterday, and Cook vowed to stay on. The Fed and Trump said they'd abide by court rulings on the matter. Our view is that any move by the administration to influence the Fed erodes confidence in it as an institution and raises concerns among investors, said Kathy Jones, chief fixed-income strategist at Schwab. While the outcome is not likely to change the outcome of the September meeting, it is a negative for the long end of the curve.

2:07There are already issues with increasing inflation and rising deficits to push the yield curve steeper. This only adds to the risk premium or the term premium that investors require to compensate for the risk of inflation down the road. Cook said later Tuesday she would sue Trump over the firing, which she says has no justification. The move by Trump comes after he threatened earlier this year to fire Fed Chairman Jerome Powell, and after the administration said NVIDIA would share some of the company's revenue from China with the U.S. government. Trump also recently announced the government had taken a 10 percent position in shares of Intel.

2:46This is arguably a leap toward what might be defined as state capitalism and its unsettling, said Lizanne Saunders, chief investment strategist at Schwab, speaking on CNBC yesterday. Odds of a September rate cut reached 89 % late Tuesday, according to the CME FedWatch tool. That's up slightly from earlier in the week. While a September rate cut seems very likely, further cuts will depend on the labor market, Schwab's Jones said. Before Friday's Personal Consumption Expenditures, or PCE Price Index, the most important data this week, investors await the government's second estimate for second-quarter gross domestic product, or GDP, growth, due early tomorrow after the first one came in strong at 3%.

3:31The Atlanta Fed's GDP Now estimate for third-quarter GDP fell to 2.2 % Tuesday from the previous 2.3%. Weekly jobless claims Thursday morning also loom with most attention on continuing claims after last week saw that reading again flirt with four-year highs. Tuesday's$69 billion two-year note auction ended up being timed auspiciously following Trump's threatened firing of Cook. The auction saw decent demand, and Treasury yields generally fell, though the 30-year bond yield climbed. The 10-year note yield dropped two basis points to 4.26 % Tuesday. Foreign interest in the auction was below average, Briefing.com noted, possibly significant considering renewed concerns about demand for U.S.

4:19assets after Trump tried to fire Cook. Concerns about Fed independence also weighed on the U.S. dollar yesterday, though losses were blunted by European weakness. This year's trend of international indexes outperforming those in the U.S. could accelerate if the dollar continues to weaken. In data Tuesday, July durable goods orders fell 2.8 percent, less than the 3.5 percent decline analysts had expected. Today's report looked relatively solid, with the transportation component excluded rising 1.1 percent from June. This could possibly indicate business investment picking up in areas like machinery and computers.

5:01Consumer confidence from the conference board came in at 97.4 for August, slightly above the 96.3 briefing.com consensus, but down from a revised 98.7 in July. It's also down from 105.6 at this time last year. Expectations continued to be below the 80 level that often signals recession ahead, while the average 12-month inflation expectation rose to 6.2 % from 5.7%. Stocks rebounded Tuesday, and major indexes have now climbed two of the last three sessions after a slight mid-August slump. The S &P 500 index narrowly missed a new record high close. Dip buying appears firmly in place for now. It's lifted the major indexes many times over the last few months when they briefly touched their respective 20-day moving averages.

5:55The Nasdaq 100, packed with tech stocks, and the S &P 500 index both fell below the respective 20-day moving averages briefly last week, but clawed back Friday. The current 20-day level for the S &P 500 is near 6 ,390, well below Tuesday's close. Some of the stocks that have performed best since the early April lows show retail traders' fingerprints, including the so-called mean stocks, unprofitable tech firms, retail favorites, and heavily shorted stocks. The retailer trader lives, eats, and breathes this buy-the-dip mentality, and we've seen it in the outperformance of various baskets, Schwab's Saunders said on CNBC.

6:40At the sector level, Tuesday saw a minor flow through from the rotation into the previously unloved cyclicals and small caps that started a couple of weeks ago. Financials, communication services, consumer discretionary, and materials lead the way in terms of breadth and month-to-date performance. The small cap Russell 2000 outpaced the other indexes again Tuesday and is up nearly 10 % month-to-date. This setup has occurred in the recent past, but ultimately failed as mega caps again found favor. A lot of it comes down to interest rates, however. If they continue their downward trajectory, then there could be another leg to this move by small caps.

7:23If they bottom around the 4.20 % level for the 10-year note, then money may move back toward the mega caps. Among Tuesday's leaders were Eli Lilly, which bounced following positive drug trial results, and Boeing, which rose after Korean Air committed to buying 103 planes from the company. Some of this year's tech market leaders like Palantir and Marvell Technology also placed near the top of the S &P 500 leaderboard Tuesday, along with some industrial giants like GE Vranova and Lockheed Martin. Magnificent Seven performance was a mixed bag, with Apple, Tesla, and NVIDIA all up, but others in the red.

8:04Industrials, financials, and healthcare led all sectors yesterday, with infotech and consumer discretionary close behind. The SIBO volatility index, or VIX, sometimes known as the market's fear index, remained below 15 late yesterday, while under the historic average of 20 that would possibly point to white water ahead. Hedging activity, or lack thereof, implied a sanguine market that's comfortable adding risk at these levels.

8:34The Dow Jones Industrial Average gained 135.60 points Tuesday, or 0.30%, to 45 ,418.07. The S &P 500 Index climbed 26.62 points, or 0.41%, to 6 ,465.94. And the Nasdaq composite added 94.98 points or 0.44 % to 21 ,544.27. 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.

9:33For important disclosures, see the show notes and schwab.com slash market update podcast.