Soybeans a New Trade War Front, Bank Results Due

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, October 15th. A market torn by volatility over the last three sessions awaits any new developments on the U.S. trade relationship with China, with soybeans possibly a new battlefront. Earnings reports from two major semiconductor companies today and tomorrow could provide a refresher on how the trade war is affecting this key sector, but the market also faces another round of bank earnings this morning. Market sentiment improved throughout the day Tuesday after a rough start, only to run into new trouble in the final 30 minutes of the session when President Trump again publicly called out China, this time saying it purposefully hasn't bought U.S.

1:02soybeans. He also threatened to stop imports of Chinese cooking oil. This turned gains into losses by the closing bell. Though trade remains the focus, chip supplier ASML reported early today, shedding light on semiconductor demand. Tomorrow morning, also before the open, investors hear from Taiwan Semiconductor Manufacturing, a company that makes chips for many of the major players, including NVIDIA.

1:31Big banks kicked off earnings season with better-than-expected results Tuesday. JPMorgan Chase, Wells Fargo, Goldman Sachs, and Citigroup surpassed Wall Street's expectations, and Morgan Stanley and Bank of America are expected to report before the open today. Banks appear to be thriving under the Trump administration through a combination of volatile markets leading to heavy trading and looser regulation allowing more mergers. Record high stock prices have encouraged more initial public offerings lately too. All this flows into banks' vaults. On balance, the big banks reported better-than-expected numbers to kick off this earnings season on the backs of strong trading revenues, better-than-expected net interest income, and increased deal-making in the last quarter, said Alex Coffey, senior trading and derivative strategist at Schwab.

2:24Bank stocks initially fell Tuesday despite the strong results, possibly because the recent rally had built in positive fundamentals. Over the course of Tuesday's session, however, there was some improvement, especially for Wells Fargo and Citigroup. The Nasdaq Bank Index finished almost 3 % higher. The early part of earnings season is dominated by financial firms, but there's a sprinkling of other results as well. For instance, United Airlines is due after the close today, following Delta's strong outing last week. It could be interesting to see if United sees some of the same improved travel fundamentals playing out, a sign of business and consumer confidence.

3:06Still, trade is top of mind, as it's been since last Friday's sell-off. The U.S. and China are now charging additional port fees on ocean shipping firms, threatening to raise prices on all sorts of goods, and fueling concerns that both countries are upping the ante ahead of a new round of trade negotiations. China also has sanctioned five U.S. subsidiaries of a South Korean shipbuilder. This means Chinese businesses are forbidden from doing business with these companies, CNBC reported. The two countries plan another round of talks before the November 10th expiration date of their current tariff trade truce, Bloomberg reported.

3:46Treasury Secretary Scott Besson told Fox Business that the U.S. and China communicated over the weekend, and Trump and Chinese President Xi still plan to meet. With the government shutdown nearing two weeks, the September Consumer Price Index, or CPI, originally scheduled for today, has been postponed until Friday, October 24th, the Bureau of Labor Statistics, or BLS, said. Other government reports won't come out this week with the government shutdown as of this recording. This means no producer price index or retail sales. Absent government numbers reports to monitor include today's Empire State Manufacturing Data and Weekly Mortgage Application Index and Thursday's Philadelphia Fed Index.

4:31Investors still expect a rate cut at the Federal Reserve's meeting two weeks from today and another one in December, according to the CME FedWatch tool. Futures trading builds in nearly 97 % chances of one rate cut and 96 % chances of two before year-end as of late Tuesday. In a speech Tuesday, Fed Chairman Jerome Powell suggested that the Fed could end its quantitative tightening, or QT, program in coming months. The program, which shrinks the Fed's balance sheet, was designed to slow inflation by reducing liquidity in financial markets. Ending it wouldn't mean a return to the stimulative quantitative easing of the pandemic period when the Fed was trying to boost consumer and business spending.

5:13However, it would keep the Fed's balance sheet stable and potentially remove one headwind for risk assets. Additionally, Powell reiterated some of the comments he made at the last Fed meeting, noting that the labor market has demonstrated pretty significant downside risks, Bloomberg reported. The outlook for inflation and employment seems to have changed little since the Fed's meeting last month, Powell added. Major indexes reversed an early slump Tuesday after Powell's speech. though they had been coming back even before that. The rough early start Tuesday came on new concerns about trade relations with China, but solid earnings from the banks kept losses from running away.

5:55So did technical factors, notably the fact that the S &P 500's 50-day moving average of 6 ,540 held up on Tuesday's initial downward move, selling stalled below 6 ,560 above... Selling stalled below$6 ,560 above last Friday's low and the 50-day, perhaps encouraging buy-the-dip sentiment to take over. The SIBO Volatility Index, or VIX, was all over the map Tuesday, so despite the slight recovery from Friday in stocks, uncertainty remains elevated. The VIX soared to nearly 23 at its high Tuesday, then fell briefly below 20, before popping back above 20 after Trump made his soybean post. And a possible warning sign of more choppiness to come, the VIX hasn't come close to returning to its levels before last Friday, even though stocks have recovered roughly half of their losses since then.

6:54There's been push and pull lately between market-hitting trade escalations and market-benefiting dovish comments from Chair Powell, said Lizanne Saunders, Chief Investment Strategist at Schwab. Checking individual stocks, Wells Fargo jumped 7.5 % Tuesday, leading the big banks, in part because it raised its profitability target. The bank is now targeting a 17 % to 18 % return on tangible common equity over the medium term, up from earlier expectations of 15%. This comes after regulators removed an asset cap imposed after a fake account scandal in the late 2010s. Advanced microdevices climbed 2.7 % on Tuesday, boosted by news that the Oracle Cloud will deploy 50 ,000 AMD graphic processors starting late next year, CNBC reported.

7:45However, that news appeared to hurt shares of NVIDIA, which fell more than 3 % on the news boosting its competitor. AMD's coming MI400 series could make it a more serious rival to NVIDIA's chips, Barron's reported. J.P. Morgan Chase fell 1.6 percent, despite reporting results that easily beat Wall Street's estimates, bolstered by strength in trading and investment banking. Fixed income trading jumped 21 percent during the quarter, and equity trading rose 33 percent. Domestic rare earth stock, Critical Metals, rose 27 % Tuesday. It's nearly tripled over the last week, thanks mainly to China's clampdown on rare earth exports.

8:31Gold hit a new record high above$4 ,100 per ounce Tuesday amid trade uncertainty, and is now up 55.3 % year-over-year. That's the strongest gain since December of 2009. Technically, the S &P 500 index is rattling around between key levels marked by the 50-day moving average below and the 20-day moving average above. Failure to pierce the 20-day average on Monday's rally partly set up the weak tone on Tuesday, and the S &P 500 has now closed below the key 20-day mark three days in a row for the first time since April. This ignited concerns that the long uptrend that saw the 20-day serve as key support may be failing.

9:16The S &P 500 index lost its grip above 6 ,670 late Tuesday and lost ground in the final minutes, evidence that the technical boomeranging might not be over. Treasury markets and the dollar initially found buyers on Tuesday as risk-off sentiment returned and investors sought perceived safety, though no investment is truly safe. Powell's dovish speech gave Treasuries another lift. The 10-year yield is scraping near short-term lows just above 4%. The dollar turned tail and ended lower Tuesday. The Dow Jones Industrial Average climbed 202.88 points Tuesday, or 0.44%, to 46 ,270.46. The S &P 500 index fell 10.41 points or 0.16 % to 6 ,644.31.

10:09And the NASDAQ composite dropped 172.91 points or 0.76 % to 22 ,521.70. 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.

10:48For important disclosures, see the show notes and schwab.com slash market update podcast.