Sentiment Data Loom as Shutdown Fears Escalate

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 Colette O 'Claire, and here is Schwab's early look at the markets for Friday, October 10th. Wall Street faces a couple days until earnings season begins in earnest, likely keeping focus on the government shutdown and lack of data after yesterday's broad-based slump from recent record highs. While the shutdown led to a rain check on weekly initial jobless claims Thursday, investors look ahead to today's University of Michigan's preliminary October consumer sentiment reading at 10 a.m.

0:47ET today. Analysts expect headline sentiment of 54.5, according to Briefing.com, down from the prior 55.1 and near the bottom of the historic range. As always, investors might want to monitor inflation expectations in the report, especially after the New York Federal Reserve earlier this week saw respondents worried that prices would rise more than they had previously thought. The Fed has tried without success to bring inflation back to its 2 % goal and likely wants expectations to retreat to that level. The earnings calendar is light today, but Wall Street braces for big banks Tuesday. These reports could provide a better sense of how the broad economy is faring, something they lack now thanks to the data outage.

1:36Next week's inflation data would be the next victim if the shutdown isn't solved by Wednesday. The shutdown continued as of the time of this recording. We've got a standoff, said Michael Townsend, Managing Director, Legislative and Regulatory Affairs at Schwab. And how and when it will end is, frankly, anybody's guess. One thing to watch is that there are some informal talks going on behind the scenes among Republican and Democrat senators about some kind of deal. Right now, these talks do not include the leadership of either party, but if there's a breakthrough among this informal group, I expect leaders of both parties would get behind it.

2:15If the shutdown lasts into next week, it could potentially affect the October jobs report, given that the Bureau of Labor Statistics, or BLS, typically collects data the first 12 days of each month. If the shutdown extends into the back half of October, it's worth keeping an eye on whether volatility increases, particularly if there's growing uncertainty about how the Fed will handle that meeting at the end of the month. The SIBO Volatility Index, or VIX, stayed in its recent trading range yesterday. Investors still expect a rate cut at the October 28th to 29th rate meeting, according to the CME FedWatch tool.

2:54Futures trading builds in 95 % chances, but Fed policymakers lack clarity. They can look at sentiment, private jobs reports, and elements like mortgage applications and even earnings from big consumer-related firms and banks for clues. But government statistics are the gold standard of macroeconomic data, as New York Fed President John Williams told the New York Times in an interview this week. Like other Fed officials, Williams sees a case for more rate cuts and said he's paying close attention to employment, Bloomberg reported. In other Fed-related news, Chairman Jerome Powell gave no rate hints in remarks yesterday, and Fed Governor Michael Barr said he's cautious about rate cuts, citing widespread economic uncertainty.

3:44The impact of tariffs, meanwhile, continues to filter through the global economy. The World Trade Organization, or WTO, upgraded its 2025 outlook based on front-loading caused by tariffs along with AI spending, but decreased its 2026 outlook as tariffs could be felt more broadly by that time. Separately, U.S. relations with China could take a hit, thanks to China's new clampdown on rare-earth export controls, noted Michelle Ghibli, Director of International Research at the Schwab Center for Financial Research. This comes ahead of a possible meeting between the two countries' leaders. Applied Digital reported late Thursday and beat analysts' estimates, sending shares up about 1 % in initial post-market action.

4:32Shares have been on the upswing since early summer after Applied Digital and CoreWeave signed two long-term lease agreements for AI data centers. Major indexes pulled back Thursday from Wednesday's record highs, but the dual drivers of AI euphoria and lower rate expectations remain the market's main engines. September saw money continue to pour into equity, fixed income, and commodity funds. What's perplexing, however, is that amid all this new investment, market breadth continues to narrow. The percentage of S &P 500 stocks trading above their 50-day moving average, a popular way to track market breadth, stumbles along at 53 percent, not much above the historic average.

5:18Other technical indicators hint that the uptrend remains on track, however. The AI trade got another potential boost yesterday when Taiwan Semiconductor Manufacturing, or TSM, reported that September revenues rose more than 31 percent year over year. TSM manufactures chips for many companies, including NVIDIA. Shares of NVIDIA hit new all-time highs above$190 yesterday, while Oracle, which slumped earlier this week on a report that its margins on NVIDIA chips were low, rebounded as two Wall Street analysts initiated coverage with positive ratings. Sectors were a vast sea of red Thursday, as only staples gained.

6:03Strong results from PepsiCo helped that sector, but even firm earnings from Delta Airlines couldn't keep industrials out of the red as Honeywell and Boeing sank. Gold, which had been roaring, lost ground as investors appeared in the mood to take profits on recent gains across asset classes. The exception was the U.S. dollar index, which topped 99.40 Thursday, its highest since August 1st. A strong dollar, which in part reflects yen weakness after last weekend's election could help explain why growth sectors exposed the most to overseas markets took a step back. Technology and materials fell yesterday and have major overseas exposure.

6:48A rising dollar makes U.S. goods more expensive. In individual stock action Thursday, Delta rose 4 percent and United Airlines, which reports next week rose in sympathy. Demand for travel heated up this summer, Delta's CEO told CNBC, and strength continues this quarter. Corporate travel demand is also improving, and Delta doesn't see any impact yet from the government shutdown. PepsiCo also climbed 4 percent Thursday on slightly better than expected quarterly results. Net revenue growth accelerated, PepsiCo said in a press release, and the company saw improved North American momentum. Beverage sales bubbled, but snack sales struggled.

7:32Tesla sank 0.7 % on a Reuters article saying that the U.S. has opened a probe into nearly 2.9 million Tesla vehicles on reported full self-driving traffic violations. Ferrari dropped 15 % as investors appeared disappointed by a guidance update, CNBC reported. Costco rose 3 % on strong September sales. Micron fell more than 2 % Thursday, heard by Samsung's announcement that its high-bandwidth memory chips have received approval for usage by NVIDIA. Micron competes with Samsung in the high-bandwidth memory chip market and is an NVIDIA supplier. NVIDIA rose another 1.8 % yesterday, while other AI and data center-driven stocks also performed well, including Constellation Energy, G.I.

8:21Vernova, CoreWeave, MetaPlatforms, and Salesforce. All this helped support the Nasdaq composite, which only finished slightly down. Treasury trading had another quiet day Thursday. The 10-year Treasury yield climbed two basis points to 4.15%, and its premium to the two-year yield held steady. Sentiment data could help give the Treasury market a push one way or the other. The Dow Jones Industrial Average sank 243.36 points Thursday, or 0.52%, to 46 ,358.42. The S &P 500 Index slid 18.61 points, or 0.28%, to 6 ,735.11. And the NASDAQ Composite lost 18.75 points or 0.08 % to 23 ,024.63. This has been the Schwab Market Update podcast.

9:24To 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.

9:46For important disclosures, see the show notes and schwab.com slash marketupdatepodcast.