Three Positives Result in Negative Stocks

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, September 26th. Positive economic news became a negative for stocks, prompting the S &P 500 to fall 1 % on the open after the GDP, unemployment claims, and durable goods data all came in better than expected. These announcements may push out rate cut expectations and lower the probability of two more cuts in 2025. The December rate cut expectation moved from 83 percent to 61 percent in just one week.

0:53After two months of declines, August durable orders grew 2.9 percent month over month, which was much better than the projected minus 0.3 percent. Transportation was a big winner, rising 7.9 percent. Aircraft spending rose with defensive aircraft and parts booming 50.1 percent and non-defense rising 21.6 percent. Core durable goods topped estimates of minus 0.1 percent by rising 0.4 percent, up 1.9 percent when excluding defense. It's one report, but it suggests the economy continues to hold up, said Cooper Howard, fixed income strategist with Schwab. Consumer spending was revised up to 2.5 percent from 1.6 percent, which shows that the consumer is still in decent shape and continues to spend.

1:48Unemployment claims numbers suggest there's little reason to worry about the labor market. Both initial claims and continuing claims came in lower than expected. The story with the labor market continues to be no hire, no fire, said Howard. The labor market isn't falling off a cliff, which leaves the Fed room to analyze future hiring trends. The third estimate of second quarter U.S. gross domestic product, or GDP, was 3.8 percent, well above the previous estimate of 3.3 percent, the strongest performance since the third quarter of 2023. Revisions included a big rise in net exports and consumer spending.

2:29The PCE inflation metric rose 2.5%, which was also higher than the previous 1.6%, and was boosted by similar increases in goods and services. With all the major indices at or around fresh all-time highs, you might expect there would be more participants and better breadth. That's just not the case right now, as the S &P 500 only shows 63 % above 200-day moving averages and the Nasdaq 55 % above the 200-day moving average. The rally is still driven by a handful of leaders, many of which are in the MAG-7. The Russell 2000 small cap index tried to add some breadth to the market and even broke a four-year resistance level to hit an all-time high last week.

3:18Unfortunately, the move appears to be a head fake, as the Russell 2000 broke support and fell back below its 2021 high. Small-caps companies are often working with thin or no profit, and lower short-term rates help keep interest costs down. However, with the market expecting the Fed to delay rate cuts, the expense savings will be delayed. The Dow Jones Industrial Average fell 1073.96 points or 0.38 % to 45 ,947.32. The S &P 500 Index slid 33.25 points or 0.5 % to 6 ,604.72. and the NASDAQ composite dropped 113.16 points or 0.50 % to 22 ,384.69. 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.

4:29And 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.

4:44For important disclosures, see the show notes and schwab.com slash marketupdatepodcast.