After Three-Day Slide, Traders Await Key PPI Data

0:00Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and look at what's ahead. I'm Keith Landsford and here is Schwabs' early look at the markets for Thursday, September 10. After waiting most of the week, investors get their first taste of August inflation data as part of a one-two punch today and tomorrow. The 8.30am Eastern Time Producer Price Index or PPI is something of an appetizer, as Friday's consumer price index typically packs more calories in terms of market impact. Following PPI, Oracle and Adobe report after the close, investors also await a rate decision from the European Central Bank this morning with a hike widely expected. All this occurs with a backdrop of accelerating conflict in the Middle East.

1:02The U.S. said it struck several Iranian oil tankers earlier this week, and Iran targeted U.S. bases in Jordan. Brent Crude, the international benchmark, hit $100 per barrel on Wednesday for the first time since July. PPI and CPI are the final key numbers before next week's Federal Reserve Meeting and any sign that inflation inched up from recent benign readings might strengthen arguments for a rate hike. PPI consensus is for monthly headline growth of 0.4%, but 0.2% for core PPI, excluding food and energy. They were flat and 0.2% respectively in July. Core annual PPI is seen at 4.6% up from 4.2% in July, and headline PPI is expected at 5.3% up from 4.7%. Last week's strong August jobs report eased one source of concern for the Fed, which likely

2:03wouldn't want to hike rates if the labor market struggled. Average monthly jobs growth of 71,000 over the last three months looked decent. Still, jobs data is typically volatile in summer months, something policy makers understand. And data will continue to determine the Fed's decision to hike, said Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research. CPI is probably the most important reading in terms of the Fed's next move. Both reports feed into the personal consumption expenditures or PCE price report due later this month that is the Fed's favorite inflation indicator. CPI consensus is 0.4% for the headline monthly reading and 0.2% for Core according to briefing.com, those compare with 0.1% and 0.2% respectively in July. As of late Wednesday, odds of a rate hike at the Fed's meeting next Wednesday stood at 60% according to the CME Fed watch tool.

3:06One hike wouldn't necessarily change the landscape much nor would another by the end of the year, which futures trading pegs is possible. It's how the Fed ushers in these hikes that might ultimately matter. If we see the Fed adopt an elevator response or hiking rates and small increments, perhaps at every other meeting, stocks should be able to digest the relatively slow tightening process, Gordon said. Wednesday started the larger liquidity buybacks recently announced by the Treasury. The impact wasn't quite what Treasury Secretary Scott Bessent might have had in mind as the 10-year yield spike to 4.85% the highest since late 2023 after the announcement of $6 billion in buybacks. There may have been hopes for a higher amount in the program ends in November. However, the 10-year Treasury Note Auction Wednesday saw excellent demand briefing.com reported, which slightly blunted the negative market impact of the underwhelming buyback.

4:08Yields at the auction were the highest since 2007, suggesting investors are relatively happy with the amount they're being paid hold long-term debt. High oil is one factor keeping yields elevated, progress towards ending the war faded this month and USWTI oil topped $96 by late Wednesday. Experts have been resilient in the face of rising oil prices, said Nathan Peterson, director of Derivedev Research and Strategy at the Schwab Center for Financial Research. The story, however, may be getting more complicated. $95 oil is not the same as $95 oil back in April because of the SPR depletions around the globe, Peterson said, and since oil goes into everything, what about inflation getting embedded into expectations? It's a tough spot for the Fed, especially if oil prices continue to climb, and I'm not sure markets are appreciating that.

5:09SPR is a reference to the strategic reserves maintained by many countries. US strategic reserves are the lowest since 1982. In corporate news, Adobe and Oracle report after the close, putting fresh focus on AI spending and software. Oracle shares have had a volatile year, falling sharply on concerns about return on investment for its AI spending. Last time the company reported, shares fell double digits, despite better than expected results, as Oracle announced another debt offering. Since then, shares have slowly risen despite pressure on free cash flow. An impossible sign of AI beginning to pay off is growth in cloud computing. A 93% annual rise in the previous quarter suggests positive developments, and the question is whether Oracle can repeat. In census is for earnings per share of $1.74 on revenue of $19.1 billion.

6:14Adobe shares fell sharply over the last week after announcing a CEO change, but had been rising over the last few months from their June lows, helped by General Exuberance in the software sector. Major indexes sagged a third-strait session Wednesday in trading reminiscent of Tuesday, weighed down by rising crude and yields in the absence of data and earnings. Small caps suffered most, but tech stocks also wilted after holding a better on Tuesday. Only one of 11 S&P 500 sectors climbed Wednesday, and it was energy. The percentage of S&P 500 stocks trading above their 50-day moving average plunged to 36% from above 45% at the end of last week. Growth areas like consumer discretionary and industrials exposed rising borrowing costs and possible economic softness fared worst. Semiconductors rose slightly. Technically, 7,600 or 7,620 are likely lines in the sand for the S&P 500 index.

7:21A drop below that level could lead to more feeble buying demand, Peterson said. Checking individual mover's Wednesday, Meta platforms jumped 5% following Meta's introduction late yesterday of its Muse personal AI agent, which it called Secure, Private, and Personal. Apple fell slightly despite introducing a folding iPhone that will be more expensive than the current product. Some analysts said the price hike wasn't as high as the expected raising margin concerns. Chewy dropped 11% despite beating analysts' earnings and revenue estimates, investors seemed unimpressed with how the quarter shook out nevertheless. If fell 8% as it reaffirmed guidance, market participants may have been hoping for a lift, so to speak. SK Highnex jumped 7% as memory chip prices stayed robust. HP rose about 5% after announcing an AI-related collaboration with Red Hat and Nvidia.

8:27SpaceX fell almost 4% after GE Aerospace paid $11.75 billion for turbine bladecaster consolidated precision products, Barron's reported. This raised competition fears in the turbine market after SpaceX CEO Elon Musk recently mused about SpaceX entering the blade casting business. Lithium Americas climbed 6% following a JP Morgan Chase upgrade to overweight from neutral, the firm cited increase lithium price assumptions. SpaceX General Stores tumbled 14% despite earnings the top estimates, an unchanged outlook, slower sales growth inside its stores, and rising operating expenses might have disappointed Barron's noted. Sigtit Jewelers popped 24% following solid earnings and a guidance boost, and Academy sports and outdoors climbed 14% following strong earnings.

9:29The Dow Jones Industrial Average fell 405.41 points or 0.77% Wednesday to 52,380.66. The S&P 500 index lost 37.16 points or 0.48% to 7636.36, and the NASDAQ composite gave back 168.07 points or 0.64% to 26,253.34. This has been the Schwab Market Update Podcast. To stay informed, visit www.Schwaab.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. Join us for another update tomorrow.

10:29For important dislosures, see the show notes and www.Schwaab.com slash Market Update Podcast.