September Dawns with Jobs, Tech Results in View

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 2nd. The earnings calendar thins this shortened week, but includes two key tech companies that could help shape market direction. Salesforce and Broadcom report tomorrow and Thursday, respectively, offering updates on the software and chip spaces. But barring any surprises, This week's main event is likely Friday's August non-farm payrolls report, one of the last pieces of the data puzzle to lock in place ahead of the Federal Reserve's September 16th and 17th rate meeting. Last Friday's July personal consumption expenditures, or PCE, price index, the Fed's favored inflation indicator, held no surprises and kept rate-cut odds in place.

1:02Headline PCE rose 0.2%, as analysts had expected, and Core PCE, which excludes food and energy, also met expectations at 0.3%. The July PCE releases came exactly in line with expectations, but highlighted that inflation remains elevated, said Colin Martin, Director of Fixed Income Strategy at the Schwab Center for Financial Research. Treasury yields initially dropped modestly, as an upside surprise might have resulted in Federal Reserve officials second-guessing a rate cut next month, but this likely gives the committee the green light to cut rates. That said, core annual PCE rose 2.9 % in July, the highest in five months and well above the Fed's 2 % target.

1:44That was expected, but outlines challenges for the central bank as it wrestles with its rate decision. Supercore PCE, which is core services excluding housing inflation, rose by 0.4 % monthly, its highest reading since February. This highlights the tension between the Fed's dual mandates as inflation is proving sticky, even as some labor signals turn red. While welcomed by the market, inflation is still too high and moving away from target, with a 2.9 % increase in the core PCE matching its 16-month high on a rounded basis, Martin said. The push and pull of goods and services inflation was interesting.

2:26While goods prices have generally been rising, there have been concerns that services inflation could cool, given the weaker labor market. Services inflation has been picking up lately, however.

2:40Beyond PCE, one other batch of Friday looked positive for the economy, with July personal spending up 0.5 % and July personal income rising 0.4%. The growth in personal spending might ease some economic worries, but other spending metrics have softened recently. Also, University of Michigan final August consumer sentiment release Friday came in at 58.2, down from 58.6 in the prior reading, and down 6 % from July's 61.7. Year-ahead inflation expectations fell to 4.8 % from the initial 4.9%. That was up from July's 4.5%. In sum, 58.2 is a historically light reading, and the decrease was visible across all age, income, and stock wealth groups.

3:29Durable goods buying and consumer expectations both slumped. Looking ahead, all eyes will be on Friday's jobs data. There are some forecasts for jobs growth to pick up after July's bearish surprise, but the early market consensus as of the end of last week was for another soft report with fewer than 100 ,000 jobs added in August. The July report contained dramatic downward revisions to the prior two reports, painting a much less healthy jobs picture than previously thought. Two weak months in a row would likely give the Fed more ammunition for a possible rate cut. Any further downward revisions to past reports would also likely catch the Fed's attention.

4:11As of late Friday, the market built in an 87 % chance of a 25 basis point rate cut in September, according to the CME FedWatch tool. We expect the Fed to cut twice this year, said Cooper Howard, Director of Fixed Income Strategy at the Schwab Center for Financial Research. The market's pricing in roughly six cuts this cycle, which would bring the Fed funds rate down to the low 3 % area. Another issue this week is a possible update on the status of Fed Governor Lisa Cook, whom President Trump tried to fire last week. Fed Chairman Jerome Powell has asked that Cook remain in her seat for the Fed meeting later this month.

4:48There was no ruling in a court hearing Friday. We believe Fed independence is very important for the markets and economy, Howard said. A loss of Fed independence would likely cause long-term rates to rise, the dollar to decline, and risk assets to sell off. Data include today's August ISM Manufacturing Index and Thursday's Job Openings and Labor Turnover Survey, or JOLTS, on Wednesday. Consensus for ISM, an important glance at U.S. manufacturing sector health that can have an impact on trading in the industrials and materials sectors, is 48.6%, up slightly from July's 48%, but still below the 50 % needed to signal expansion.

5:32Salesforce and Broadcom earnings keep tech in view following NVIDIA's in-line earnings and guidance last week. Salesforce's results come after some software names sagged this year as economic uncertainty led many businesses to tighten IT budgets and the AI threat unnerved analysts. But several firms in the sector reported solid results last week. Broadcom is a major player in semiconductors and might shed more light on the AI demand picture after Dell and Marvell earnings last week triggered anxiety. AI leader NVIDIA fell more than 3 % Friday. September is traditionally the worst month of the year for stocks, and investors appeared to brace for that Friday in a low-volume pre-holiday session.

6:17While there was no sign of a so-called flight to safety, as treasuries and the dollar both slipped, risk-off trading dominated with energy, consumer staples, and healthcare in Friday's sector leadership, and recent leaders, infotech, and consumer discretionary bringing up the rear. Still, so-called risk-on sectors led in August, with strong showing from communication services, materials, financials, and consumer discretionary stocks. Infotech had a mild month, rising less than 0.3%. The small-cap Russell 2000 index fell moderately Friday, but enjoyed a nearly 7 % August gain, its best month since a double-digit rally last November.

6:59Hopes for rate cuts supported small caps in August, but the Russell 2000 remains below its all-time peak recorded nearly four years ago. Meanwhile, the S &P 500 index posted its fourth straight winning month in August, but slipped for the week. So did the Nasdaq composite, but only by a sliver. Both remain close to recent all-time highs. Large individual stock moves Friday included Marvell Technology plunging double digits after second-quarter data center revenue rose 69%, but missed analysts' consensus. Earnings per share and revenue were in line with expectations, and guidance was also near consensus views.

7:37Shares had fallen 30 % this year before the latest drop. Dell Technologies fell nearly 9%, despite quarterly results that topped Wall Street's estimates and reflected strong growth in its AI server business. It also raised its full-year outlook, but guidance for third-quarter earnings per share fell short of consensus. Autodesk soared close to 9 % Friday after the software company beat earnings and revenue expectations and raised guidance, but Caterpillar crawled back after the company outlined the negative impacts of U.S. tariffs will have on its business during the second half of the year. Food and drink-related companies had strong days to close out the week, perhaps ahead of a strong Labor Day picnic demand.

8:19Hershey, Domino's Pizza, ConAgra, PepsiCo, and Coca-Cola were among the stocks gaining close to 1 % or more. The Dow Jones Industrial Average slipped 92.02 points Friday, or 0.20%, to 45 ,554.88. The S &P 500 Index fell 41.60 points, or 0.64%, to 6 ,460.26. And the Nasdaq Composite dropped 249.61 points, or 1.15%, to 21 ,455.55. For the week, the Dow Jones Industrial Average fell 0.19%, the S &P 500 fell 0.10%, and the Nasdaq fell 0.19%. In August, the Dow Jones Industrial Average rose 3.2%, the S &P 500 climbed 1.91%, and the Nasdaq added 1.58%. This has been the Schwab Market Update Podcast.

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9:45For important disclosures, see the show notes and schwab.com slash market update podcast.