Here is Schwab's early look at the markets for Tuesday, August 11.
The big event this week is tomorrow's 8:30 a.m. ET July Consumer Price Index (CPI), and trading could stay relatively quiet ahead of that print. Early expectations are for a slight 0.1% headline rise in July, with core CPI up 0.2% month over month. Core extracts food and energy.
On an annual basis, analysts 3.4% headline inflation and 2.5% core, down from 3.5% and 2.6% a month earlier.
While unpleasant surprises can't be ruled out--especially considering a surge in producer prices that raised wholesale costs earlier this year--if numbers come in as expected it could further reduce September rate hike odds.
As of late Monday, chances of a 25-basis point hike next month were back above 50% after falling to around 40% late Friday in the wake of the soft July jobs report, according to the CME FedWatch Tool. The economy lost 23,000 jobs in July and the government subtracted 103,000 jobs from previously reported May and June gains, the worst two-month revision in a year.
"Last week’s jobs report allows the Fed to be patient, but a hot CPI print this week would likely reverse that," said Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research (SCFR). "When the labor market is strong and inflation is high, it’s harder to defend not hiking rates. But if the labor market is showing weakness, there could be officials worried about potential downside risks following a rate hike."
Cleveland Fed President Beth Hammack, a voting member of Federal Open Market Committee, said Monday that "some number" of hikes might be necessary, Bloomberg reported. Hammack dissented last month when the Fed kept rates unchanged.
This week also includes $125 billion in Treasury auctions. Lack of interest might keep pressure on Treasuries, supporting yields and keeping borrowing costs elevated.
"With yields already elevated, weak auctions could suggest that there are lingering fiscal concerns that are preventing investors from being more interested in high yields relative to the last 15 years or so," Martin said.
A 3-year note auction today starts things off, followed by a 10-year note auction tomorrow and a 30-year bond auction Thursday.
Turning to earnings, the calendar feels quiet after the last few exhausting weeks. Cisco is key tomorrow afternoon, preceded later today by CoreWeave and Lumentum.
Shares of optics and laser maker Lumentum are up around 100% year to date, helped by growing optimism around the AI infrastructure space. The consensus earnings per share estimate is $2.97 on expected revenue of $987.9 million.
CoreWeave rebounded lately after a summer swoon, lifted by several partnership announcements. Investors may want more color on those when it reports today.
On Monday, major indexes walked back some of last week's sharp gains, pinned by rising oil prices and Treasury yields. Progress toward a Middle East agreement slowed to a crawl over the weekend and the Strait of Hormuz remains largely shut.
Just two ships had made the transit on Monday through late afternoon U.S. time, about 3% of normal daily traffic, according to the online Strait of Hormuz monitor. Crude topped $81 per barrel after falling near $75 last week when the Trump administration hinted a deal might be close.
Wall Street's retreat Monday wasn't dramatic, in light volume. This is a slow time of the year with many people on vacation, and the looming CPI might also keep some on the sidelines.
Technically, the S&P 500 Index last week broke out of its trading range of between 7,250 and 7,600, which had held for three months. When the SPX hits fresh all-time highs, additional buying pressure can occur due to performance chasing by fund managers and short covering.
"From a technical perspective, one could say we are overbought on a very-near term basis given the strong week, but the momentum is to the upside," said Nathan Peterson, director of derivatives research and strategy at SCFR. "I believe the outlook favors the bulls due to bullish technical factors and momentum, potential performance chasing, and potential short covering."
Market breadth remains healthy with about 70% of S&P 500 stocks above their respective 200-day moving averages, possibly reflecting earnings growth that's looked solid across multiple sectors. By midday Monday, however, the S&P 500 had barely moved even though more than 280 of 500 components fell.
Five of 11 S&P 500 sectors managed to climb Monday, led by energy thanks to crude's rally. Health care also rose more than 1% and is up more than 4% over the last month to improve its weak year-to-date standing. Despite this, health care companies are dead last in second quarter and projected full year earnings growth, according to FactSet. Strength from Eli Lilly after its recent earnings extended into the new week.
Stocks moving Monday included Berkshire Hathaway up 1.5% after quarterly operating profit jumped 16% to $12.98 billion, a stronger-than-expected performance generated mainly by its railroad and service businesses. The conglomerate bought more stock than it sold, including a large purchase of Alphabet shares. It also repurchased more than $4 billion worth of its own shares.
Conoco, Chevron, and ExxonMobil all climbed more than 4% as oil rebounded.
Hewlett Packard Enterprise popped 2.7% after Morgan Stanley lifted its rating to overweight from equal weight. The firm cited strong hardware spending.
Lumentum fell 8% after a 6% rise Friday in volatile trading ahead of earnings. Some pressure could reflect a 14% decline in shares of Coherent, another manufacturer of optical materials and semiconductors, possibly driven by pre-earnings profit taking.
Chip stocks mainly fell while software mostly gained, continuing their divergence. Adobe, Salesforce, and ServiceNow rose, but Nvidia dropped nearly 3%. This came after the Financial Times reported Nvidia had reached a deal with several large Wall Street firms to help raise $500 billion to fund the AI buildout.
Varex Imaging surged 49% as Teledyne Technologies said it would buy the maker of x-ray imaging components for about $1.1 billion, The Wall Street Journal said.
Airline shares lost altitude Monday as oil rose.
SpaceX rose 4% amid apparent relief that the end of the share lockup period might ease bearish pressure. Shares rose 16% Friday when heavy selling didn't occur as anticipated after the lockup expiry, Barron's reported. The end of the lockup also allowed large institutional funds to accumulate positions.
Intel dropped 4% after the company announced a $15 billion common stock offering, putting more shares on the market. The proceeds are expected to go for capital expenditures and working capital.
Apple fell 1.5% following a downgrade to underperform from hold at Jefferies, which said it doesn't expect Apple to launch an all-glass iPhone, a setback in the firm's efforts to offer higher-priced phones as it wrestles with rising memory costs.
The Dow Jones Industrial Average® ($DJI) fell 60.95 points (-0.11%) Monday to 53,975.98; the S&P 500 Index ($SPX) slipped 4.53 points (-0.06%) to 7,753.11, and the Nasdaq Composite® ($COMP) lost 85.26 points (-0.32%) to 26,605.36.
