I'm Colette Auclair, and here is Schwab's early look at the markets for Thursday, June 26th:
The market's course early this week was shaped by events in the Middle East and testimony from Federal Reserve Chairman Jerome Powell. Data today and tomorrow could be pivotal deciding where things go from here. Meanwhile, receding war fears could put tariffs back in the driver's seat.
Today brings the final government estimate for first quarter gross domestic product (GDP), along with initial weekly jobless claims. Tomorrow brings May Personal Consumption Expenditures (PCE) prices, an inflation metric closely tracked by the Fed. Meanwhile, investors scrutinize earnings from chip giant Micron released late yesterday and await Nike later today.
Powell still sounded cautious yesterday about making rate moves without knowing the ultimate impact of tariffs on inflation.
"The question is, who’s going to pay for the tariffs?” Powell told the Senate Banking Committee, Bloomberg reported. “How much of it does show up in inflation? And honestly, it’s very hard to predict that in advance."
Though the May PCE data tomorrow morning won't be the final word on inflation before the Fed's next meeting, it is one factor as some policy makers make the case for a rate cut before fall. Analysts expect relatively benign headline and core PCE readings up 0.1% month over month. Core excludes volatile food and energy prices.
Before that, there's GDP to consider, though it's a backward-looking number and might not have a huge impact when it comes at 8:30 a.m. ET today. Analysts expect no change from the last estimate of -0.2%, but will likely keep an eye on the GDP's quarter-over-quarter price index, last at 2.3%. Consensus is for a significant rise to 3.7%.
Analysts also expect weekly initial jobless claims, due at 8:30 a.m. ET today, to remain elevated at 247,000, Briefing.com said, up from 245,000 a week ago. Until June, they'd spent most of the year below 230,000, but government job cuts and some recent corporate layoffs appear to be raising the level. Continuing claims have also been high, above 1.9 million, perhaps a sign of less hiring. The jobs market tends to have a big impact on consumer sentiment, and investors await final University of Michigan June Consumer Sentiment this Friday.
As of late Wednesday, odds of a July rate cut were 25%, compared with 18% a week ago, according to the CME FedWatch Tool. Odds of at least one rate cut by September were 88%, up from 64% a week ago. Two Fed policy makers recently said they are biased toward a July cut.
The benchmark 10-year Treasury note yield was roughly steady yesterday despite weaker-than-expected demand seen for a $70 billion U.S. Treasury auction of 5-year notes. But Tuesday's 2-year note sale had a better outcome, possibly easing anxiety. There are no major Treasury auctions the rest of this week.
With the ceasefire holding for now, issues like tariffs, the U.S. budget, jobs, and earnings might all get more market focus in coming weeks. Especially tariffs.
"Middle East news took tariffs off the proverbial front pages, but focus may shift back in that direction," said Liz Ann Sonders, chief investment strategist at Schwab, noting the lack of meaningful trade deals being reached and the July 9 deadline for Trump's "reciprocal" tariffs to take effect. The administration has hinted the deadline could be extended for countries negotiating in good faith.
Semiconductor firm Micron reported after the close yesterday, surpassing analysts' consensus for both earnings per share and revenue. Data center, a closely watched metric, doubled from the year-ago quarter. The company also issued guidance for the fiscal fourth quarter that topped market estimates. Shares leapt more than 5% in post-market action immediately after the news, and if the positive reception continues into today's session, it could buoy other chip stocks as well.
Nike approaches the starting line after today's close, an important milestone in tracking consumer sentiment both at home and abroad. Nike's business in China is under a microscope due to U.S. tariffs, and its U.S. business could be affected by higher costs associated with importing goods made abroad. Shares of Nike remain underwater this year and only up slightly from April lows, with investors apparently unenthused by the gloomy guidance Nike shared when it last reported in March. However, at that time, executives said they expected the quarter ending in May – the one Nike reports today – to be the worst in terms of headwinds.
In trading Wednesday, there were signs of consolidation following the swift two-day rally that started the week. The S&P 500 finished flat but the Nasdaq managed light gains. Falling oil prices and the easing of geopolitical tensions sparked the move to all-time highs for the Nasdaq 100 on Tuesday and near-all-time highs for the S&P 500, but fresh positive catalysts failed to emerge Wednesday. Buying was concentrated in the tech and communication services sectors, with most others falling.
The semiconductor arena stayed relatively strong, led by sharp gains for AI chip leader Nvidia ahead of Micron's earnings. Nvidia got a boost to new record highs yesterday from investor excitement associated with the firm's annual shareholders' meeting and a Wall Street Journal article on Nvidia's cloud business. In energy, shares of BP rose on a Wall Street Journal report that Shell was holding early-stage talks to acquire its oil rival. Crude oil rebounded from Tuesday's lows, in part on hopes for Fed rate cuts.
"Defensive" sectors like utilities and staples were among the worst performers yesterday, more indication of risk appetite coming back to the market but also a sign that buying is more concentrated in certain high-profile areas.
In data yesterday, new signs of housing weakness emerged as new home sales for May dropped 13.7% to an annualized 623,000 units. That was well below the average analyst estimate of 700,000 and the sharpest decline in nearly three years. Homes remain expensive, with the median new home sales price climbing to $426,600 in May from $411,400 in April, the U.S. Census Bureau said.
Technically, the major indexes look solid on an intermediate-term basis but are having some trouble pushing through resistance at 6,100 for the S&P 500. The all-time high close of 6,144 was set in February. Market breadth, an indicator of investor sentiment and how many stocks are participating in the rally, is down from recent highs with 67% of S&P 500 stocks above their 50-day moving averages. That's below the May peak of nearly 80%.
The Dow Jones Industrial Average® ($DJI) fell 106.59 points Wednesday (-0.25%) to 42,982.43; the S&P 500 index (SPX) dropped 0.02 points (0.00%) to 6,092.16, and the Nasdaq Composite® ($COMP) rose 61.02 points (+0.31%) to 19,973.55.
