Powell on Tap After Fifth Straight Lower Session

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, August 22nd. All eyes turn to Wyoming as Federal Reserve Chairman Jerome Powell makes what Barron's called his last stand in a final speech from the Jackson Hole Symposium. His term expires next May, and questions center on the tone and subject of today's remarks. Will Powell discuss rate policy and if so, will he sound hawkish or dovish? If he doesn't address rates, the market might be disappointed, but a hawkish tone might also hurt stocks. Powell is unlikely to give the market much confirmation in terms of policy outlook, considering so much data remains to be seen between now and the mid-September Fed meeting.

1:04U.S. S &P Global Manufacturing PMI of 53.3 and services PMI of 55.5 yesterday were both above the expected 49.7 and 54.2 respectively, with employment, new orders, output, and input prices rising. The composite reading was the highest since December. This could call monetary easing more into question, and markets are beginning to back off from the idea of a Powell put, or the notion of Powell and company giving bulls the rate cut they want. The market limps into Powell's 10 a.m. Eastern Time speech down five straight sessions for the first time since January 2nd. Though much of this reflects a recent sell-off in the highly capitalized technology sector, some of the weakness could reflect sliding hopes for rate cuts.

1:59Odds of a September cut fell to 73.5 % late Thursday from 100 % earlier this month, according to the CME FedWatch tool. And the tool now works in two rate cuts this year rather than three, as it did previously. Yields also rose Thursday. We believe the Fed will respond to weaker job growth with a 25 basis point cut in the Fed funds rate in September and likely another 25 basis point cut later in the year, said Kathy Jones, chief fixed income strategist at Schwab. However, inflation is proving to be a limiting factor on the pace and magnitude of rate cuts. We see a terminal rate that is closer to 3.25 percent as opposed to the administration's goal of getting the Fed funds rate to 2.5 percent.

2:50The Fed's Jackson Hole Symposium began amid controversies over central bank independence after President Trump called on Fed Governor Lisa Cook to resign. Trump has also called for rate cuts. Next week, the central bank gets a look at the Personal Consumption Expenditures, or PCE, price index for July, which might reflect sharp gains in some items seen in last week's producer price index, or PPI. If PCE rings new alarms and the August jobs report improves from July, the Fed could be in an even tougher position come its mid-September meeting. However, initial weekly jobless claims Thursday edged up to 235 ,000, above expectations, while continuing claims of 1.972 million hit a new cycle high at a level last seen in November 2021.

3:44The market opens about half an hour before Powell's remarks, but don't be surprised if the Fed issues a transcript shortly before he steps to the podium. This means investors should be watchful for sudden moves soon after the opening bell before 10 a.m. Eastern Time and be on the lookout for the transcript. It's not just Powell speaking at Jackson Hole. The heads of the European Central Bank, or ECB, Bank of England, the BOE, and Bank of Japan, or BOJ, also speak. The BOJ may keep a rate hike on the table for October, but likely needs further economic improvement, said Michelle Ghibli, director of international research at the Schwab Center for Financial Research.

4:28Disagreement at the Bank of England resulted in the need for two rounds of votes to cut rates at its August meeting, as inflation has been persistently high. In other data yesterday, July existing home sales fell 2 percent year-over-year to a seasonally adjusted annual rate of$4.01 million, slightly above the Briefing.com consensus of$3.92 million and up slightly from June. The Philadelphia Fed Index for August showed another bump in prices paid, raising inflation worries. On a more positive note, global PMI data yesterday impressed. Every region reported an improvement at the composite level, Ghibli said.

5:13This is a very rare occurrence, as usually there are some moves in different directions. This is still a preliminary reading, and not all economies report flash figures, notably China. Manufacturing improved in all economies except the U.K. It may be that this is a rebound from the weakness in July. The stronger PMIs complicate the course of monetary policy for the ECB and BOE, which may wait longer to cut rates, Ghibli added. In company news yesterday, Walmart missed Wall Street's earnings expectations and saw shares fall to cap a mixed week of retail results. Still, there were plenty of positives in the report, including a better-than-expected 4.6 % rise in U.S.

5:59sales at stores open a year or more, excluding fuel, and a hike in fiscal 2026 net sales guidance. Overall revenue last quarter also topped Wall Street's thinking. In its release, Walmart cited strong grocery and health and wellness sales. On its call, Walmart reinforced its commitment to keeping prices low and limiting the impact of tariffs even as costs rise, Briefing.com reported. The tariff impact on consumer behavior has been muted thus far. Market weakness broadened Thursday as decliners outpaced advancers 3 to 1 as of midday, though the weekly advancers versus decliners line remains just barely positive.

6:42This reflects some rotation out of tech and communication services into prior unloved sectors like health care, staples, and real estate, creating a more defensive market narrative. Hedging activity picked up. Technically, the S &P 500 closed just below its 20-day moving average of 6 ,381 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. An area to watch if there's more selling is the August closing low, just below 6 ,240. It's been feast or famine for the S &P 500 index.

7:25Just a couple of weeks ago, it closed at record highs five days in a row and remains just 1.5 % below its all-time peak. It's not at all unusual to see consolidation ahead of a key Powell speech, especially when the market has been at record highs and seasonal factors appear stacked against it. Individual stock weakness yesterday hit consumer-facing sectors and included shares of Walmart, United Airlines, Costco, Dollar General, Delta Airlines, Norwegian Cruises, and Target. Walmart's disappointing miss and worries that higher rates for longer might depress consumer spending appeared to hurt the consumer discretionary and staples sectors.

8:07Only two S &P sectors finished higher Thursday, Energy and Materials. Infotech is now down six of the last seven sessions, and Alphabet was the only Magnificent Seven member in the green yesterday. The Dow Jones Industrial Average fell 152.81 points Thursday, or 0.34 percent, to 44 ,785.50. The S &P 500 Index gave back 25.61 points, or 0.40 percent, to 6 ,370.17, and the Nasdaq composite lost 72.55 points or 0.34 % to 21 ,100.31. 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.

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