Peace Hopes, Sentiment Data Could Set Early Tone

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.

0:18I'm Colette O 'Claire, and here is Schwab's early look at the markets for Friday, June 12. Wall Street remains on tenterhooks approaching the weekend amid conflicting reports of progress ending the war. Though markets jumped late Thursday on a post by President Trump that the agreement was close, both Israel and Iran denied that with an hour left in the session. Middle East intrigue and uncertainty keep calling the shots day to day. That's true for crude oil and treasury notes as well as equities. Both yields and oil fell significantly Thursday, though shorter-term yields, more sensitive to Federal Reserve rate policy, fell less than longer-term yields.

1:00Late yesterday, media reports said an agreement in principle was reached between Iran and the U.S., but Iran's supreme leader has yet to approve it. Shares of the Elon Musk-helmed SpaceX are anticipated to go public today. The IPO is priced at$135 per share and seeks to raise$75 billion through the sale of 555.56 million shares. If accomplished, it would value the company at$1.77 trillion and make it the biggest IPO ever, not to mention one of the 10 most valuable companies in the U.S. overall. In addition to its space technology arm that includes Starlink satellite internet, the SpaceX universe is home to XAI, parent of X, formerly Twitter, and Grok.

1:51Investors should know it can take several hours after market open until the new listing begins trading, and early trading can be volatile. Otherwise, today is light on earnings and data, but does bring a look at preliminary June University of Michigan consumer sentiment. This metric has hit a series of all-time lows in recent months, but consensus expects a rebound to 46.0 from 44.8 last month. One thing to track in the report, other than the headlines, is inflation expectations. Long run is what the Fed tracks most closely, and it rose to 3.9 % in May from 3.5 % in April. Next week features rate meetings from both the Federal Reserve and the Bank of Japan, or BOJ.

2:40The Fed is widely expected to keep rates paused at the first meeting for the new chairman, Kevin Warsh. The BOJ appears likely to hike, according to a Reuters poll of analysts. Earnings action hits a summer lull next week, with few companies of consequence on the calendar. Often an earnings pause can mean intensified market focus on outside events, particularly geopolitics. Looking back at yesterday's data, the May Producer Price Index, or PPI, which tracks prices at the wholesale level, surged, in some ways more aggressively than Wall Street had expected. Headline PPI climbed 1.1%, and CORE, excluding food and energy, rose 0.4%.

3:29Consensus was for 0.7 % and 0.4%, respectively. Annual PPI also topped Wall Street's thinking at 6.5%. Consensus was 6.4%. All told, wholesale prices are now rising at their fastest pace since late 2022. annual May core PPI was 4.9%, the low analyst average estimate of 5.4%. More concerning, components of PPI that map over to the May personal consumption expenditures, or PCE price report, the Federal Reserve's favorite inflation meter, suggest a firm print. Only the air transport component declined. A deeper look at PPI, excluding food, energy, and trade showed a 0.8 % monthly increase in May.

4:21In the history of this series, there have only been three months with stronger gains, said Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research, or SCIFR. This followed Wednesday's May Consumer Price Index, or CPI, that came in mostly as expected but still elevated well above Federal Reserve goals. One thing tempering worry is hope that an end to the war can clip oil prices, which might mean inflation loses some of its grip. Initial jobless claims, meanwhile, have been creeping up. They reached 229 ,000 last week, the government said Thursday, a three-month high and up from 225 ,000 the prior week.

5:09Software giant Adobe reported after the close Thursday and topped consensus. Its guidance also topped the fact set average estimates, but shares slipped 6 % initially in post-market trading. Lately, tech firms haven't been able to impress investors with their results. Homebuilder Lenar also unveiled quarterly results. More housing data is due next week with May housing starts and building permits after a stronger-than-expected existing home sales report earlier this week. Turning to crypto, Bitcoin's recent decline, one aspect of weaker sentiment among investors, also coincided with a steep drop in net accumulation by long-term holders.

5:52That cohort had been on a buying spree since March 1st, helping drive price about 25 % higher over two months. But their net buying fell off a cliff last week, dropping by more than half as Bitcoin's price fell 17 % over just five days. The European Central Bank, or ECB, met investors' expectations Thursday with its first rate hike since 2023. However, the ECB may now hit the pause button. The ECB is determined to avoid a repeat of 2022 and wants to raise rates sooner this time to prevent them from having to hike more later, said Michelle Gibley, Director of International Equity Research and Strategy at Skiffer.

6:39A string of hikes seems unlikely because downside risks to grow are greater than in 2022. Increases in producer prices now could show up in consumer prices later, which could complicate monetary policy. Higher rates abroad could swing demand away from U.S. Treasuries at a time when U.S. issuance is near all-time highs thanks to the heavy debt load. Buyers may be less enthusiastic if they can get decent yields elsewhere, meaning yields would likely rise here to find demand. Any move toward 4 % in the 10-year yield would almost certainly be seen as a hindrance to Wall Street. Much of the spring Wall Street rally rested on surging earnings estimates for the remainder of the year.

7:28Higher yields call that into question. FactSet normally issues its updated earnings estimates on Fridays around midday, and those could be closely watched ahead of second quarter earnings season next month for any signs of analysts or companies pulling back on their optimism. After PPI, chances of a Fed hike at some point this year remained near 55 % as of late Thursday, according to the CME FedWatch tool. That's down from 70 % earlier this week, and the decline may reflect Thursday's positive Iran headlines and related hopes for fading inflation. Major indexes climbed sharply Thursday on peace hopes.

8:11Nine of 11 S &P sectors gained, led by cyclical sectors like materials and industrials, that often do well in an improving economy. Tech rebounded 2.7 % after Wednesday's big decline, and discretionary stocks also performed well. Treasury yields descended to one-week lows Thursday near 4.45 % for the 10-year note. Besides hope for peace, the slightly lighter-than-expected core PPI data might have come to the aid of treasuries, which move opposite of yields. Technically, any move lower could quickly test support at the 50-day moving average of 7 ,213 for the S &P 500 index. It's been two months since the index traded below its 50-day moving average.

9:03Thursday's rally brought the S &P 500 within range of 7 ,400, a level it hasn't closed above since Monday. The index is on track for very light weekly gains if it can hold current levels. Among individual movers Thursday, Oracle plunged more than 8%, the latest major tech firm to disappoint investors despite earnings that beat expectations. Cloud and software revenue fell a bit short of estimates, and the company plans to raise an additional$20 billion in equity and debt to pay for its AI buildup. However, some Wall Street firms raised their price targets on the stock. Shoei remained under pressure after earnings earlier this week, falling merely 6%.

9:52Chip stocks, particularly volatile memory names, had solid outings with SanDisk up 14 % and ARM Holdings up 11%. NVIDIA continued to lag other chip names. Software shares went down as chips rose, a common teeter-totter in today's markets. Salesforce, ServiceNow, and Microsoft sank. Consumer stocks generally did well Thursday, including airlines, carmakers, and cruise lines. Tesla rose more than 4%. Energy stocks got hit by falling oil amid hopes for a resolution to the war. Intel surged more than 9 % after getting an upgrade to buy from Underperform from Bank of America. The analyst cited higher confidence in Intel's opportunity to help address industry constraints in leading-edge wafers and packaging, as well as supply into a much larger agentic CPU market.

10:52Applied materials rose 11 percent. The semiconductor company said in a press release Wednesday that it's expanding its Singapore manufacturing to support AI chip demand. It also got a lift from Oracle's spending plans, which also appeared to help other chip equipment stocks this morning. Shares of space companies lifted off ahead of today's IPO, including a 15 % gain for intuitive machines and an 8 % ascent for Rocket Lab. Zillow Group fell 5 % on worries Alphabet could be more competitive. Google said Thursday that its mobile search results will now include HON listings, Barron's reported. The Dow Jones Industrial Average rocketed 929.97 points, or 1.86%, Thursday to 50 ,848.75.

11:50The S &P 500 Index gained 127.31 points, or 1.75%, to 7 ,394.30. and the Nasdaq Composite climbed 640.16 points or 2.54 % to 25 ,809.66. Small caps rose nearly 3%. 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. And if you like what you've heard, please consider leaving us a rating or review. It really helps new listeners find the show. Join us for another update Monday.

12:42For important disclosures, see the show notes and schwab.com slash market update podcast.