Waiting Game as PCE Inflation Loom Soon After Open

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.

0:18I'm Colette O 'Claire, and here is Schwab's early look at the markets for Friday, December 5th. After waiting more than a month beyond schedule for September's Personal Consumption Expenditures, or PCE Price Index, investors need to be patient an extra 90 minutes before the data finally hit this morning. The inflation reading favored by the Federal Reserve won't be issued until 10 a.m. Eastern time, well after the normal 8.30 a.m. release and 30 minutes into the trading session. That could cause a confusing half hour, with stocks getting little direction at the opening bell and then potentially reacting to any interesting numbers.

0:57One question is how much credence investors will give such outdated numbers in the first place. What the Fed really needs to know as it gathers next week is how inflation trends now, not three months ago. Still, it's the best answer they have thanks to the shutdown. Consensus for headline PCE is 0.3 percent equal to the August rise. For core PCE, which excludes food and energy, analysts expect 0.3 percent, up from 0.2 percent in August, briefing.com said. Another key element is annual core PCE, which analysts see at 2.9 percent after it rose that same amount in August. That's well above the Fed's 2 % target.

1:40However, Fed Chairman Jerome Powell said in his last press conference he expects 2.8%. It's not a huge difference. The report is unlikely to change what appears to be an almost certain rate cut next week, though worse than expected data could move the Fed toward a more hawkish cut where policymakers vote to ease but warn of a pause ahead. We expect another rate cut next week, but it's not a slam dunk, and there are likely to be multiple Fed officials who dissent from whatever decision is made, said Michael Townsend, Managing Director, Legislative and Regulatory Affairs at Schwab. Chances of a Fed rate cut reached 87 percent by late Thursday, according to the CME FedWatch tool.

2:25Investors might want to watch where that goes after PCE. Rate cut odds stayed roughly the same after Thursday's Challenger Job Cuts report showed November U.S. layoffs fell but still posted three-year highs for the month. That said, the report might also cover attrition as when jobs get cut because the employee retired. Job cuts of roughly 71 ,000 were down from October's heavy 153 ,000 but still rose 23 percent from November 2024, more evidence of labor softness. The Challenger report showed hiring intentions down 35 % this year from the same point a year ago, hitting their lowest since 2010.

3:07Then again, weekly initial jobless claims of 191 ,000 were nearly 30 ,000 below estimates, though data collection may have been skewed by the holiday. Though the two reports yesterday were just a snapshot, their conflicting signals reinforce ideas that employers are less interested in hiring. The Fed, which has juggled slowing jobs growth with stubborn inflation all year, gets another arrow in the quiver with the PCE report. In other data Thursday, September factory orders rose 0.2 percent, slightly below the consensus of 0.3 percent, excluding transportation, growth was 0.2 percent, an improvement from August's 0.1 percent drop.

3:54Preliminary December University of Michigan consumer sentiment is another bellwether number also due at 10 a.m. Eastern Time today. Consensus from briefing.com is for a headline of 52.0, little improved from 51 in November and still near historic lows. Long-run inflation expectations, an element of the report watched closely by the Fed, fell to 3.4 percent in November from 3.9 % in October. Corporate news slows here at the end of the week, which belies a busy schedule ahead. Though the holidays beckon, there's quite a lot on the way, including earnings next week from Oracle and Broadcom, two of the most visible companies in AI.

4:38Despite those earnings next week, reporting season is long over. Today brings the latest update on quarterly earnings progress from FactSet. Third quarter earnings growth had been 13.4 percent year over year when FactSet last reported before Thanksgiving. Checking Treasuries, today's PCE might help set direction, as could next Tuesday's job openings data. Thursday saw the 10-year yield clamber back above 4.1 percent amid worries about possible rate hikes in Asia and the Pacific, as well as light U.S. jobless claims. Still, Treasuries lack direction to some extent because of missing U.S. data that only partly gets filled in by the PCE report.

5:22Investors may lack a clearer picture until after the November jobs data. Despite higher yields, the Russell 2000 Index of Small Cap Stocks continued to lead the way Thursday. It's been the best-performing index over the last week, in part due to hopes for rate cuts that might help smaller businesses that are more dependent on borrowing. The Russell 2000 also has a heavy weighting toward regional banks, which enjoyed a solid move since mid-November on the charts. That may reflect optimism about loan issuance and demand for loans, possibly easing concerns that came up earlier this quarter about the credit market.

6:05Beyond the Russell, Wall Street had an uneventful session Thursday that saw little movement in the other major indexes and mixed performance from the influential mega caps. Still, the S &P 500 index and NASDAQ managed to climb marginally for the third straight day. Though today's data could make things more volatile, depending on the numbers, trading might flatten out again early next week, ahead of the Fed's rate decision Wednesday afternoon. Five of 11 S &P 500 sectors finished with gains Thursday, but none were substantial. Cyclical sectors that tend to do better in the early part of an economic cycle, including small caps, industrials, and transports, have been up the last few days.

6:49Industrials led Thursday, and energy and financials also had solid outings. Healthcare did the worst and has lost 3 % over the last five sessions, despite being the second-best sector performer over the last month. Lilly and UnitedHealth Group both came under pressure Thursday, as investors await a promised health plan next week from Washington Republicans. Checking individual stocks Thursday, NVIDIA climbed close to 2%. It possibly benefited from a Barron's report that the U.S. annual defense bill is unlikely to contain a measure NVIDIA had opposed, requiring that NVIDIA and its peers give U.S.

7:30customers priority on AI chips ahead of foreign buyers. MetaPlatforms gained more than 3 percent Thursday following media reports that the company seeks to cut costs in its Metaverse division, where spending and losses have been heavy. MetaShares have been under pressure for weeks amid worries about its surging AI spending. Intel lost 7 % as several media outlets reported the firm plans to hang on to its networking and communications unit within the company. This appeared to disappoint investors who wanted the company to focus on cost-cutting. Shares of NVIDIA-backed CoreWeave climbed 8 % Thursday after Barron's ran a positive article about the company saying that renting AI chips in the cloud has become one of the hottest areas of the AI rollout.

8:20Bitcoin fell slightly but remains well above recent lows and traded near$93 ,000 late Thursday. Dollar General climbed 14 % after reporting solid earnings and raising guidance. Salesforce rallied 3.6 % as investors cheered its earnings and guidance. Snowflake fell 11 % on what some analysts call a weak outlook from the firm. The Dow Jones Industrial Average slid 31.96 points Thursday, or 0.07%, to 47 ,850.94. The S &P 500 Index added 7.4 points, or 0.11%, to 6 ,857.12. And the Nasdaq Composite rose 51.04 points or 0.22 % to 23 ,505.14. 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.

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