Yields, Oil Still Directing Traffic as BOJ Meets

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 Eau Claire, and here is Schwab's early look at the markets for Friday, September 18th. Even with all the fuss over central bank rate hikes, crude oil still waves the baton for this market. That became evident yesterday when stocks surged following a decline in crude that contributed to falling treasury yields. Volatility might pick up today, creating some choppiness, but it's triple witching day for the options market. Investors also get a rate decision from the Bank of Japan.

0:51Oil prices fell briefly below$100 per barrel in the U.S. and ended Thursday down about 1 % after Saudi Arabia outlined steps to loosen its taps following a recent pipeline attack, and Axios reported that President Trump plans to talk to golf leaders next week about post-war plans. Crude oil is heavily correlated with stock prices at this point, and Treasury yields lately tend to take direction from oil. Yields might also be down slightly after their elevator ride up, thanks to the Federal Reserve's rate hike. It was the first since 2023 and made clear that Fed Chairman Kevin Warsh isn't afraid to follow hawkish words with action.

1:37That said, 25 basis points isn't likely to make a huge difference in the fight against energy-driven inflation that drove U.S. diesel costs above$6 per gallon this week. Diesel fuels trucks and trains that ship most goods to Americans, threatening to either push prices up further for consumers or damage company margins. Though the Fed's decision was unanimous, some analysts note that higher rates could hurt the already bruised housing market and cause pain for auto buyers and those who have credit card debt. The rate hike may have had more of a psychological impact on Treasury yields, which closed above 5 % for the 10-year note earlier this week for the first time since 2007.

2:22In a sense, the Fed couldn't ignore the signals the market was sending. Those signals persisted after the rate hike, with futures trading indicating 53 % chance of another hike in October and 88 % chances of at least one by year-end, according to the CME FedWatch tool. Chances of two hikes by year-end are just under 40%. It's unclear if a series of rate hikes might slow the AI build-out that's driven the economy, though that very build-out contributed to high borrowing costs. The Bank of Japan's decision came after this report was published, but analysts expected a hike. Borrowing costs there recently hit 30-year highs, and a recent joint effort by the U.S.

3:07and Japan to support the yen didn't seem to have much impact. A higher yen makes Japanese products more expensive for importers. Next week is packed with Fed speakers, and while 2027 remains cloudy, eight policymakers penciled in another hike next year as part of the Fed's dot plot of rate projections. Whether that happens depends on the pace and outlook of inflation moving back toward the Fed's 2 % goal. The Fed's economic projections are for no return to 2 % inflation until 2029. The Fed will have September consumer and producer price data in hand by the time of its next meeting late next month.

3:53Data continued yesterday, although earnings remained sparse. Weekly initial jobless claims fell by 10 ,000 to 196 ,000, the government said, near the low end of the recent range and very light historically. August housing starts and building permits totaled$1.275 million and$1.325 million on a seasonally adjusted annual basis. Both missed the briefing.com consensus and fell from July. This followed disappointing earnings Wednesday from home builder Lenar. Its competitor, KB Home, reports next week. Housing is in a long slump as mortgage rates recently hit two-year highs above 7 percent and new home sales sagged.

4:39The MBA Mortgage Applications Index fell six of the last eight weeks. The sector is a major contributor to gross domestic product, or GDP, which has disappointed this year. The earnings calendar picks up slightly next week, with consumer companies in focus. AutoZone, Darden Restaurants, and Costco all report. Data next week remains light in terms of market-moving numbers. New home sales and durable goods orders, along with the University of Michigan's final September consumer sentiment, might draw the most attention. Today's calendar is relatively light as well, though August Industrial Production and the Conference Board's leading economic index both are due early.

5:24Major indexes climbed yesterday for just the second time in nine sessions. By midday, the rebound was widespread, with three S &P stocks up for every decliner. The S &P 500 index is down about 19 points this week, less than 1%. It's also down less than 1 % so far in September. The tech-dominated NASDAQ 100 is in the green this week. Nine of 11 S &P 500 sectors climbed Thursday, led by Infotech. Tech entered the session down slightly over the last month, and the chip part of tech recently traded down 20 percent from June highs in a bear market. Rate hikes are often bearish for growth sectors, and it was consumer discretionary that placed second Thursday, possibly helped by falling oil and yields.

6:18Yesterday's rally did little to improve market breadth, as only 31 % of S &P 500 stocks trade above their 50-day moving average. The S &P 500 index itself clawed back after dropping below its own 50-day moving average of 7 ,615. That's been something of a line in the sand over the last two weeks of tough sledding. Treasury yields fell moderately across the curve yesterday, with the long end seeing more yield pressure after the rate hike. The 10-year yield fell to 4.93 percent, down from 19-year highs above 5 percent earlier this week. Though it was just one session, the pullback might suggest the bond market got what it wanted in terms of the Fed not pulling punches with inflation stubbornly above the Fed's 2 percent goal for years.

7:13Checking individual movers Thursday, Lennar climbed 1.6 percent despite missing consensus for both revenue and earnings per share. Deliveries of new homes fell 3 percent. Chip and AI infrastructure stocks led by Nasdaq's upward move helped buy strength in shares of advanced micro devices Intel, SanDisk, and Micron. A CNBC report that NVIDIA planted double chip sales helped the semiconductor sector. AI server stocks like Hewlett-Packard Enterprise and Supermicrocomputer also posted sharp gains Thursday, a sign that some of the AI slowdown worries of early this week had faded. Dell, another in this category, is one of the leading S &P 500 stocks this month.

8:02Arm Holdings rose 8 % after the company's CEO told CNBC he's more confident Arm's new AI chip can meet a$2 billion revenue goal. Lucid rose 6 % on a Bloomberg report that the EV maker has finalized its work with restructuring advisors. Workday rose 6 % after CNBC reported more optimism about a possible effort to take the company private. Corweave fell 4 % after launching a$3 billion convertible debt sale, Reuters reported. Applied digital rose 8 % after Wells Fargo initiated coverage with an overweight rating. Generac surged 18 % after CNBC reported that Amazon was granted warrants to buy up to$340 million in shares of Generac.

8:55This was part of a deal to supply backup power for Amazon's data centers. The Dow Jones Industrial Average rose 316.14 points, or 0.61%, Thursday, to 51 ,778.04. The S &P 500 Index added 85.95 points, or 1.14%, to 7 ,637.76. and the NASDAQ composite rose 439.87 points, or 1.69%, to 26 ,418.30. 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. And 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.

10:05For important disclosures, see the show notes and schwab.com slash marketupdatepodcast.