Precious Metals Shine Despite Hawkish Fed

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 Wednesday, September 24th. Despite Federal Reserve Chairman Jerome Powell's new hawkish stance, gold futures rallied 1.1%, creating another new record high. Gold has risen by more than 44 % this year. Silver futures also hit a 14-year high, rallying 0.62%, and taking their year-to-date returns above 52%. The performance of precious metals may have gone relatively unnoticed for many investors focused on AI stocks. However, stubborn inflation numbers and the Fed's need for liquidity have helped these commodities shine. On Tuesday, Chair Powell reiterated his September 17th message of modestly restrictive in a speech, but the comments didn't spark any real movement among precious metals.

1:11Bitcoin has recently declined compared to gold, which has created a divergence between the Bitcoin-gold pair and the Bitcoin-US-dollar pair. The two pairings tend to move relatively in sync because they have similar macro drivers, i.e. real interest rates, US dollar, and money supply growth. One reason for this divergence is that gold has been rallying while Bitcoin has moved lower. Monday's weakness in Bitcoin was due in part to large liquidations in the derivatives markets, said Jim Ferrioli, cryptocurrency strategist at Schwab. However, Jim thinks Bitcoin could bounce back as the derivatives detour is in the rearview mirror.

1:50Bitcoin may get a seasonal boost in October, which has historically been a positive month for the cryptocurrency. From 2011 to 2024, Bitcoin averaged 16.4 % in October.

2:06When earnings season begins next month, one trend to follow is whether the rest of the market's earnings growth starts to catch up with growth from the Magnificent Seven. Breadth remains above 60 % in terms of S &P 500 stocks trading above their 200-day moving averages, but that's low compared to above 80 % a year ago, which might indicate more concentration in the largest names. A healthier market is one where a rising tide lifts most boats and can help sustain rallies even when the bigger names hit turbulence. Lower interest rates could make money cheaper to borrow, perhaps supporting margins of smaller firms that rely more on loans.

2:45But margins might face pressure due partly to tariffs. We haven't seen a meaningful move higher in overall inflation driven by tariffs, said Lizanne Saunders, chief investment strategist at Schwab, in a recent podcast. Data suggests that what we are seeing is the start of some margin pressure because of tariffs, given that companies so far are absorbing more of the tariff hit versus passing it on to the consumer. That could begin a spiral into weaker labor markets to the extent that companies, for whatever reason, feel they can't pass on those higher tariff-related costs. One way to cut costs elsewhere is on the labor market side of things.

3:24One thing to watch if rates head much lower is the possible flow of cash back into stocks and other more volatile assets and away from CDs and money market funds. Typically, banks quickly cut yields for those products after a rate cut, which can stifle demand for fixed income and send money hunting for opportunity elsewhere. When rates stayed low for a decade after the Great Recession of 2007-2009, stocks steadily rallied amid the prevailing sense of Tina or There Is No Alternative. While that isn't truly the case, and no one expects rates to go back to those all-time lows, falling yields on fixed income did put stocks on a pedestal then.

4:05This time, there's more competition outside of stocks, thanks to the popularity of cryptocurrencies, the historic rally in gold, and increased stability for investment in non-public companies. Household exposure to financial assets rose to a record 45.4 % in the second quarter, which is notably higher than the peak of the dot-com bubble in the first quarter of 2000, which was 38.7%. If anything, it speaks to the increasingly optimistic sentiment backdrop in which we find ourselves, said Kevin Gordon, Senior Investment Strategist at Schwab. On the behavioral side, flows into equities have strengthened, and investors have doubled down on both the buy-the-dip and hold-the-rip mentalities.

4:48While that bodes well for long-term wealth creation, it also suggests increased economic risk from the wealth effect, meaning a longer-term, sustained downturn in equities will likely be a bigger driver of potential recession. Investors are favoring U.S. large-cap ETFs, according to data from Arbor Data Science, which reported$20.74 billion in inflows last week to this category. U.S. broad equity ETFs came in second with$5.6 billion in net inflows. Thematic ETFs were the biggest losers, seeing$3.76 billion in outflows, followed by consumer cyclical sectors, which lost$1.74 billion. dollars. Investors often move to large-cap stocks as part of a flight to safety if they're expecting a market downturn because large-cap stocks tend to be less volatile than small and mid-cap stocks.

5:41Likewise, investors often exit consumer cyclical stocks because they tend to be more volatile during downswings. One week doesn't make a trend, but this is a development worth watching. Micron reported fourth-quarter earnings of$3.03 per share, topping estimates by$0.17. The company also issued upside earnings and revenue guidance for the first quarter. And after hours trading, the stock moved more than 2 % higher. Boeing rallied 2 % on Tuesday on news the U.S. and China are nearing a trade deal that could include up to 500 aircraft. After rallying Monday on news of a$100 billion open AI investment, NVIDIA pulled back Tuesday as traders further digested the news.

6:27At the close, the chip giant was off 2.8%. And AutoZone fell 2.12 % after it reported an earnings miss, but the stock hit support at its 50-day moving average and rallied back into positive territory, closing marginally higher. Crude oil futures rallied 1.9 % on Tuesday, as President Trump threatened Russia with a new round of tariffs and encouraged EU countries to do the same if an agreement isn't reached to stop the war in Ukraine. However, the 200-day moving average continues to act as resistance, thwarting an extended rally.

7:05The Dow Jones Industrial Average lost 88.8 points, or 0.2%, to 46 ,292.8. The S &P 500 index broke its three-day winning streak, down 36.8 points or 0.6 % to 6 ,656.9. And the Nasdaq Composite dropped 215.5 points or 0.95 % to 22 ,573.5. 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.

8:00For important disclosures, see the show notes and schwab.com slash market update podcast.