Warsh Watch: Fed Chair Remarks Could Set Tone

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 Friday, August 28th. With NVIDIA's earnings capping a memorable reporting season and lifting markets, investors prepare for the final event of the week. Remarks from Federal Reserve Chairman Kevin Warsh. The chairman, who speaks at the Fed's Jackson Hole Symposium at 10 a.m. Eastern Time today, has been reticent to offer much outlook in terms of the economy and rates, but investors hope for more clarity as inflation remains well above the Fed's 2 % target. His remarks are likely to come out shortly before the speech begins if the Fed adheres to past practice and there are no questions or answers afterward.

1:02Past Fed chairs have used this occasion to deliver a wide economic and policy view. Warsh, however, doesn't want the Fed to lead the markets by hinting how it might act. The market hopes to get some clarity from Warsh about whether the Fed still sees 2 % inflation as its goal, and if so, how it plans to use monetary policy to help get there, said Michael Townsend, Managing Director of Legislative and Regulatory Affairs at Schwab. It'll be very interesting to see what he focuses on, given his distaste for guidance or really for sharing much at all about his own thinking or the Fed's plans. Two topics to listen for are any updates on various task forces Warsh initiated and any comments on the Treasury's recent decision to raise the size of buybacks designed to lower yields.

1:54However, the Fed, Chairman, and Treasury Department normally stay in their own lanes, not commenting on each other's policies. Warsh isn't likely to give any guidance on the rate path but might provide an update on communications policy Perhaps the dot plot of rate expectations which Warsh has hinted he's no fan of is on a short leash It would not be surprising to see the dot's plot or other forms of forward guidance be eliminated said Cooper Howard, director of fixed income research and strategy at the Schwab Center for Financial Research The Fed's favored inflation data, annual core personal consumption expenditures, or PCE prices, rose 3.3%, stripping out food and energy in July.

2:41Headline gains reached 3.7%. That said, monthly core and headline PCE of 0.2 % weren't too steep. Monthly changes are more important to policymakers since they reflect near-term conditions. As of late Thursday, futures trading plugged in 34 % chances of a hike at the Fed's September meeting, according to the CME FedWatch tool. Odds rise sharply for at least one hike by the end of the year, to almost 75%. We expect the Fed to remain on hold for the time being, Howard said. Inflation didn't surprise to the upside, which has given the Fed some time to be patient. The labor market continues to defy gravity given geopolitical volatility, the sharp rise in inflation, and weak sentiment.

3:33NVIDIA took the spotlight yesterday after earnings of$2.22 per share on revenue of$96.2 billion easily topped estimates. Perhaps more importantly, NVIDIA said on its call it expects approximately 70 % revenue growth in fiscal 2028, pushing solid AI demand farther into the future. Analysts had expected 44 % revenue growth that fiscal year. Demand is accelerating, the company told analysts. Software results from CrowdStrike and Salesforce injected more vigor into a part of tech that's struggled all year. Late Thursday brought fresh software results from Workday and Autodesk. Both fell initially in response.

4:18But today is a blank for earnings. Next week features Broadcom and Snowflake. It's a big data week, too, highlighted by next Friday's August non-farm payrolls report. Data is limited today, with primary focus on the 10 a.m. Eastern Time University of Michigan final August Consumer Sentiment Report. Consensus is for a headline of 51.0 % unchanged from the preliminary reading. Inflation expectations were 3.3 % long-term in the preliminary reading and bear watching today. Speaking of inflation, crude oil rose Thursday, partly reacting to stalled Middle East talks. Gold rally also stalled this week as peace progress flagged.

5:04The dollar trades near its 200-day moving average. Treasury yields creeped up Thursday despite solid results from a seven-year note auction, where the 10-year note goes as Warsh speaks might quickly indicate investor responds to his message. Bitcoin's 24 % move last week, its biggest weekly gain in more than three years, was fueled partly by an extraordinary burst of short covering, but investors also jumped into long positions. Technically, major indexes continue to drift just below all-time highs, but don't show much enthusiasm to retest those. That's not to say it couldn't happen, but September tends to be a weak month, which may make investors reluctant to jump in.

5:51Indexes remain above their 50-day moving averages, a constructive element technically.

5:59More on Thursday's market action in a minute, but if you'd like to receive market news and actionable insights from Schwab's experts, sign up for the Daily Market Update newsletter at schwab.com slash daily update.

6:18Major indexes had an odd day Thursday. They all rose, but almost entirely because of NVIDIA and other tech firms. Just one of 11 S &P 500 sectors rose Thursday, but the 3.2 % jump in tech was enough to drive a 0.7 % gain in the index. The S &P 500 Equal Weight Index, which weighs all components the same rather than by market cap, fell 0.29 % Thursday and might be a better vector of the session's performance. Checking individual movers Thursday, NVIDIA surged 8.7%. Its$5 trillion market cap is a big reason the S &P 500 and NASDAQ climbed. Salesforce leaped 22.6 % as earnings, revenue, and guidance all topped analysts' expectations.

7:11The company also benefited from its investment in Anthropic. CrowdStrike soared 20.5 % after earnings and revenue for the cybersecurity firm surpassed analyst estimates. Guidance also beat expectations. Other software firms took their cue from Salesforce and CrowdStrike. Adobe climbed sharply, as did ServiceNow, Palo Alto Networks, and Palantir. Chip stocks generally got boosted by NVIDIA's powerful quartering guidance. Strength flowed into names like Seagate Technology, Intel, Broadcom, Western Digital, CoreWeave, Micron, and Arm Holdings, all up 3 % or more. Circle Internet Group and Coinbase rose nearly 5 % as Bitcoin futures jumped another 1.7 % to build on this week's sharp gains.

8:02Wendy's sank more than 13 % after Reuters reported that investment firm Tryan has no plans to make a bid for Wendy's right now that would take Wendy's private. Hewlett-Packard tumbled 4 % despite a solid quarterly showing and guidance from the computer maker. Total hardware unit sales fell 7%, however, possibly a disappointment. Best Buy fell 4%, even though the electronics retailer surpassed analysts' expectations and lifted guidance. Sales at stores opened a year or more rose 4.1%. Homebuilders, restaurants, and clothing firms struggled as treasury yields showed no signs of weakening, keeping borrowing pressure firmly on consumers.

8:47The cost of a 30-year mortgage climbed this week. Okta jumped 28 % after earnings late Wednesday topped expectations for the cloud software firm and Gap climbed 8.8 % in initial post-market trading after reporting better-than-expected earnings and despite a revenue mess. The company's guidance topped consensus.

9:12The Dow Jones Industrial Average climbed 105.56 points or 0.20 % Thursday to 53 ,569.44. The S &P 500 Index added 55.29 points or 0.72 % to 7 ,730.99. And the NASDAQ Composite gained 411.15 points, or 1.57%, to 26 ,541.35. This has been the Schwab Market Update Podcast. To stay informed, visit www.schwab.com slash marketupdate 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. I'll be back with another update Monday.

10:12For important disclosures, see the show notes and schwab.com slash market update podcast.