Treasury Auctions, CPI Could Provide Fresh Clues

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 8th. Investors spent the long weekend digesting surprisingly vigorous August U.S. jobs data and now stare down inflation readings due later this week. Corporate news is thin with earnings season over, keeping central bank activity and geopolitics front and center eight weeks before U.S. elections. As a reminder, U.S. jobs growth surged to 162 ,000 in August, and unemployment was steady at 4.1%, the government said Friday in its non-farm payrolls report. In addition, it upwardly revised what had been a negative July reading to positive territory.

1:01Analysts had expected August growth of 45 ,000 to 55 ,000. July's job losses were revised away And we've now seen six straight months of payroll gain Said Colin Martin, head of fixed income research and strategy At the Schwab Center for Financial Research With all eyes on the potential hold versus hike discussion At the next FOMC meeting In a vacuum, this could lend support for the hike camp But inflation matters more right now For the past three months, jobs growth averaged 70 ,000 The government said that might sound light versus pre-pandemic levels, but in the current economy, with immigration down substantially and an older population, 70 ,000 could be considered moderate.

1:45Hourly earnings jumped 0.3 % in August and are up 3.1 % over the last year, near the lowest annual rise in five years. Jobs growth soared in the leisure and hospitality sector last month, where food and drinking places added 59 ,000 positions, the government said. Though inflation data looms, the rate implications of the jobs report can't be ignored. This just raises the risk of a hike this year, Martin said. As of late Friday, when this report went to press, odds of a rate hike at the meeting a week from tomorrow stood at 58 percent, according to the CME FedWatch tool. That was up from 43 percent a week earlier.

2:24Chances for at least one hike by the end of the year stand at 86 percent.

2:32This week kicks off the larger liquidity buybacks recently announced by the Treasury, with a possible easing effect on yields. We should know this week how much above$4 billion the operations are, as Secretary Besant suggests it's the floor, and operations could be larger, Martin said. Higher yields are not something that necessarily need to be fixed. The economy is growing, and the Fed funds rate is near neutral or below, so a positively sloped yield curve makes sense. The Fed's recent shift from a cutting bias to a hiking bias explains much of the recent yield rally. Coming days also feature Treasury auctions likely to grab attention with yields near long-term highs.

3:14It starts with a three-year note auction today, followed by a 10-year note auction tomorrow. Weak demand at current yields might signal investors stepping back and waiting to see if the Fed raises rates. Speaking of which, the European Central Bank, or ECB, is expected to announce its second-rate increase of the year early Thursday U.S. time, according to a Reuters survey of economists. The hike is largely baked in, but what the statement and press conference indicate about plans for coming months might be more valuable for investors. Crude stayed firm late last week, still above$90 per barrel for U.S.

3:52product. There was no signs, resolution in the Middle East, and ship traffic through the Strait of Hormuz remained light. This is the time of the year when the U.S. typically begins to restock crude after summer driving season and strategic reserves are at 40-year lows. Diesel, a key element for the transport industry, is above$7 per gallon now in California. With jobs data behind, this week's Producer Price Index, or PPI, on Thursday and Consumer Price Index, or CPI, on Friday represent the final key data points heading into next week's Fed meeting. Early CPI consensus is 0.4 percent monthly for headline and 0.2 percent for core, which excludes food and energy.

4:36I'm not sure how resilient U.S. equities will be if the Iran conflict gets worse and oil prices and yields continue to march higher, said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research. Throw in bearish seasonality during the month of September, along with the potential for higher volume and adjustments to positioning when most fund managers and traders come back from vacation Tuesday, and I'm going to stay with a cautious outlook. Major indexes retreated Friday, ending a three-day win streak, while the broader market had a basically flat week.

5:11Tech fared slightly better than the other sectors Friday and for the week. Just three of 11 S &P 500 sectors rose Friday, reversing the midweek move toward greater breadth. Industrials and Infotech both led, helped by the week's earnings reports indicating strong AI demand. Utilities held their ground, but consumer sectors that powered to gains earlier in the week when yields fell reversed course Friday when yields popped. Consumer discretionary sank more than 1.2%. The benchmark 10-year Treasury yield climbed to 6 basis points last week to 4.78%, not far from intraday two-year peaks. Technically, there was a sense of relief that recent selling didn't send the S &P 500 index below long-term support near 7 ,620.

6:00The tech-heavy Nasdaq 100, however, traded above and below its 50-day moving average last week, hesitating to pull away from that important chart line. and the PHLX Semiconductor Index, or SOX, hasn't spent much time above the 50-day since June. The S &P 500 Index appears to be consolidating near record highs and holding the important support zone around 7 ,600, said Rachel DeShiel, Director and Head of Technical Research and Strategy at the Schwab Center for Financial Research. Checking individual movers Friday, Lululemon dove 17 % after sharing disappointing results late Thursday. Earnings per share beat estimates, but the company missed analysts' revenue consensus and guidance was lowered and missed consensus.

6:48Tesla dropped to 6 % after revealing its latest driverless car at an event in Austin Thursday, and the event didn't feature CEO Elon Musk. Adobe plunged 6 % after the company named Anil Chakravarty as next CEO. He replaces Shantanu Nararian, who announced his departure last March. The chip stocks generally outperformed the market Friday, led by a 12 % gain for SanDisk and an 8 % gain for SK Hynix. Micron climbed 6%. The opposite side of the ledger was software, which weakened after its big midweek earnings-driven rally. Snowflake and Palantir lost ground. Friday's volatile action in both sectors appeared technical.

7:36Media-related names generally declined Friday, with Netflix falling 5%. Shares of Netflix had risen about 20 % from the July low, but are down 28 % from the April peak. Bitcoin fell around 2.5 % as rate hike odds rose. shares of crypto-related stocks retreated, and gold fell 1.3 % after the jobs report, hurt by ideas that the Fed might raise rates. Mining stocks lost ground.

8:08The Dow Jones Industrial Average tumbled 271.86 points, or 0.51%, Friday, to 53 ,414.25. The S &P 500 index lost 29.11 points, or 0.38%, to 7 ,718.60. And the NASDAQ composite shed 77.07 points, or 0.29%, to 26 ,506.99. For the week, the Dow Jones Industrial Average lost 0.27%. The S &P 500 index climbed 0.09%, and the NASDAQ added 0.40%. 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.

9:09Join us for another update tomorrow.

9:17For important disclosures, see the show notes and schwab.com slash market update podcast.