Oil, Yields In Focus Amid Geopolitical Uncertainty

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 Tuesday, September 22nd. With little major economic data or earnings news due today, investors will likely remain focused on geopolitical tensions, oil prices, and treasury yields. Several Federal Reserve speakers are also set to speak, potentially offering more insights into the path ahead for interest rates following last week's rate hike. All three major market indexes rose Monday, fueled by a surge in AI names and retreating oil prices and treasury yields. Benchmark Brent crude prices sank 3.5 % to just above$100 per barrel amid hopes for diplomacy between the U.S.

0:59and Iran. Investors were feeling optimistic after President Trump told Fox News over the weekend that he is in constant communication with Iran and may be open to meeting his Iranian counterpart at the UN General Assembly in New York this week. However, tensions between the two nations are far from quashed. Investors have been repeatedly whipsawed by shifting U.S.-Iran headlines in recent weeks, shifting back and forth from fears of an extended oil supply shock to relief over temporary ceasefires or diplomatic talks. This weekend's headlines exemplified that trend. Despite peacetalk hopes, Iran's Islamic Revolutionary Guard Corps threatened Sunday to respond to any new U.S.

1:43assault by expanding the geography of the war. President Trump also said he's still deciding whether to strike a deal to end the war, noting in his Fox News interview that he's also considering wiping Iran out or letting them rot economically. Investors are certainly hoping for an end to the conflict, with persistently elevated energy prices threatening to keep inflation and rates higher for longer. Another resurgence in fighting between the U.S. and Iran could worsen the oil supply shock at a time when the market has little buffer against disruptions. The Strategic Petroleum Reserve and commercial crude inventories are both sitting near multi-decade lows.

2:24The U.S. Strategic Petroleum Reserve is well below its historical highs, while diesel sits at the tightest point in the energy complex, said Casey McCurdy, chief portfolio strategist at Schwab Wealth Advisory. With less policy cushion and thin distillate inventories, another disruption could travel more quickly through transportation costs, inflation expectations, and interest rates. The potential market impacts of geopolitics will also be in focus on Thursday, when President Trump is expected to meet with China's President Xi Jinping at a bilateral summit in Washington, D.C. The pair will likely discuss extending their trade truce, potential AI development restrictions, and the war with Iran.

3:10With oil prices declining Monday, Treasury yields fell across most of the curve. The closely watched 10-year note yield slipped below the key 5 % level, offering some reprieve for stocks. Higher yields would likely be biting stocks more if it weren't for the fact that multiples have already compressed, alongside earnings growth being much stronger than stocks appreciation, said Lizanne Saunders, chief investment strategist at the Schwab Center for Financial Research, noting that the forward price-to-earnings ratio for the S &P 500 has fallen from around 23 at this time last year to just 19 today.

3:49While markets have largely muddled along in recent weeks, despite rising yields and geopolitical tensions, investors are becoming increasingly pessimistic. This week's American Association of Individual Investors, or AAII, sentiment survey showed 53.3 percent of investors have a bearish outlook for markets over the next six months. That was up from 39.3 % a week ago and well above the 31.5 % historical average. Investor sentiment remains a story of what's being said is not what's being done, said Saunders, noting that despite investors' bearish outlook, equity inflows remain strong. Investor sentiment could also be swayed this week by a raft of Fed speakers.

4:37New York Fed President John Williams is set to speak at 10.05 a.m. Eastern Time today, followed by Fed Vice Chair Philip Jefferson at 10.20 a.m. Eastern Time and Richmond Fed President Tom Barkin at 1 p.m. Eastern Time. The trio could shed more light on the central bank's outlook for the economy and rates amid elevated inflation. Chicago Fed President Austin Goolsbee already drew attention Monday after saying the Fed may no longer be able to look past ongoing supply shocks given their duration. Goulesby also warned AI may be raising overall economic output by more than the economy can handle. If demand overheats, there is no ambiguity about how the Fed needs to respond, he said at the official Monetary and Financial Institutions Forum in London.

5:29Treasury auctions may also draw attention this week with investors focused on the impact of higher yields. A two-year note auction is set for today, followed by five - and seven-year auctions on Wednesday and Thursday. Strong demand at these auctions could potentially ease some of the pressure on yields, while weak demand could increase that pressure. With yields retreating from their recent highs, Bitcoin surged above$86 ,000 on Monday. The eight-month high has some in the industry beginning to believe the quote-unquote crypto winter is finally coming to an end, even after the Senate voted to block the Clarity Act last week.

6:10However, the cryptocurrency remains roughly 30 % below its all-time high. While this week's earnings calendar is light, today brings results from AutoZone and KB Home. The latter may be in focus amid the housing market's slump. Elevated mortgage rates and home prices continue to sideline buyers and slow new construction for now. Looking at Monday's individual market movers, Intel shares surged 12.1 % due in part to investor excitement about a potential increase in central processing unit or CPU demand triggered by Meta's rollout of its Muse AI agent. Autonomous AI agents like Muse rely on CPUs to handle more general computing tasks, data processing, and system orchestration.

7:01Advanced Microdevices and Arm Holdings also got a boost from the new outlook for CPU market growth, jumping 10 % and 17.2%, respectively. Warner Bros. Discovery and Paramount Skydance surged after the companies settled an antitrust lawsuit with state regulators allowing their$110 billion mega-merger to move forward. United Parcel Service sank 4.3 % after Bank of America downgraded the company from hold to sell due to concerns about the impact of the end of U.S. de minimis exemptions. UPS faces increased administrative and compliance costs as it will now be forced to create detailed customs data and collect tariffs on previously fast-tracked low-value packages.

7:52After plunging since mid-August, market breadth recovered slightly on Monday. Still, only roughly 31 % of S &P 500 stocks traded above their 50-day moving averages, while 49 % traded above their 200-day moving average. This suggests the market is in the middle of a narrow rally, which could make it more susceptible to pullbacks moving forward. Seven out of the 11 S &P 500 sectors ended Monday in the green. Risk-on sectors, including communication services and information technology, surged as yields fell and AI names jumped. The energy sector pulled back as oil prices sank.

8:34The Dow Jones Industrial Average rose 366.19 points, or 0.71%, Monday, to 52 ,048.83. The S &P 500 index added 114.20 points, or 1.49%, to 7 ,764.70, and the Nasdaq Composite surged 599.55 points, or 2.26%, to 27 ,122.09. 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.

9:34For important disclosures, see the show notes and schwab.com slash market update podcast.