Here is Schwab's early look at the markets for Wednesday, August 26:
Markets face a two-part test today, with key economic data arriving before the opening bell and a slew of tech earnings coming after the close.
The busy day kicks off with two reports that could help shape interest rate expectations: the July personal consumption expenditures, or PCE, price index and an updated reading on second quarter gross domestic product, or GDP. Earnings from Nvidia, CrowdStrike, Synopsys, and Salesforce will then put the AI trade back in the spotlight this afternoon.
Markets head into these tests after getting some relief from the recent rise in oil prices and Treasury yields early in the week.
Benchmark Brent crude prices sank for a second consecutive day on Tuesday, hitting roughly $88 per barrel after the Trump administration opted for a sanctions campaign against Iran instead of military escalation. Renewed hope that Pakistan's mediation efforts will prove fruitful added to the downward pressure on oil.
Treasury yields also fell across the curve for the second straight day. The retreat came after CNBC reported the Treasury could tap its General Account to fund expanded buybacks of long-dated government debt.
While falling oil prices and Treasury yields helped lift major indexes Tuesday, trade tensions remain a wildcard for markets.
Over the weekend, the U.S. instituted tariffs on roughly $20 billion of Canadian goods. The Trump administration then announced plans Monday to increase tariffs on cars, trucks, and auto parts imported from Canada starting January 1. Canada responded with "dollar for dollar" retaliatory tariffs on Tuesday, sparking concerns about a growing trade war.
"There are no winners in a trade war," said Michelle Gibely, director of international equity research and strategy at the Schwab Center for Financial Research. "The breakdown of talks between the U.S. and Canada over the weekend is resulting in tariff rates escalating once again. The losers will be consumers in both countries as tariffs contribute to higher inflation."
The dispute with Canada isn't the only potential trade headache for markets. The Trump administration's sanctions campaign against Iran and its economic partners threatened a fragile trade truce with China this week. The U.S. is also reportedly planning to impose an additional tariff on Chinese goods due manufacturing overcapacity concerns.
"Market volatility related to China trade relations could return but a continued trade truce [is] in both countries’ best interests," said Gibley.
Despite the trade and geopolitical tensions, market volatility has remained relatively subdued this week. The Cboe Volatility Index fell roughly 2.5% on Tuesday and is trading near its year-to-date lows.
That relative market calm could face a test this afternoon when Nvidia reports earnings. Expectations are high for the AI bellwether, with analysts expecting both earnings per share and revenues to nearly double year-over-year. Option traders are pricing in a potential $280 billion post-earnings swing in Nvidia's market cap.
Investors will be closely watching forward guidance, margins, and new product ramps in Nvidia's earnings report. The company's newly announced $500 billion financing platform aimed at supporting large-scale AI buildouts will be under the microscope as well.
Earnings from the cybersecurity company CrowdStrike, the software giant Salesforce, and the chip designer Synopsys could also make waves after the bell today. Names like Agilent Technologies, HP, and Veeva Systems are on the menu, too.
The July reading of the Fed's favored inflation gauge, due at 8:30 a.m. ET, will likely be the highlight of today's economic calendar. Consensus expects year-over-year headline PCE to drop slightly to 3.6%. Core PCE—which excludes more volatile food and energy prices—is expected to match June's 3.3% figure. However, on a month-over-month basis, both headline and core PCE are expected to rise slightly, signaling the Fed may have more work to do to tame inflation.
Futures traders are pricing in a roughly 36% chance of a rate hike at the Fed's mid-September meeting, according to the CME FedWatch Tool. The odds of at least one rate hike over the next 12 months are now over 83%.
The second estimate of second-quarter GDP, also due at 8:30 a.m. ET, could influence those odds. Consensus expects a 1.5% annualized growth rate, which would be in line with the first estimate. However, GDP was revised down significantly in both the first quarter of this year and the fourth quarter of last year. Another downward revision could challenge the case for a more hawkish Fed stance.
Rounding out the morning's economic data, durable goods orders could provide another read on the strength of the economy. Consensus forecasts a 0.5% jump in orders for July, up from a 0.3% rise in June.
In economic data Tuesday, new home sales fell 10.5% in July to 607,000 units as high mortgage rates and home prices sidelined buyers.
June's S&P Cotality Case-Shiller Home Price Index came in above expectations, with the 20-city composite index climbing 2.1% year-over-year.
August consumer confidence data also disappointed economists. Higher gas prices helped push the Conference Board's Consumer Confidence Index to a 7-month low of 89.4, down from 90.2 in July.
Turning to Tuesday's earnings highlights, the Bank of Montreal topped analysts' estimates in its second quarter report, posting double-digit revenue and adjusted net income growth.
The Bank of Nova Scotia surpassed consensus forecasts as well, reporting record profits after strong results from its wealth management and capital markets units.
Intuit beat Wall Street's forecasts on both the top and bottom line, but its shares plunged in after-hours trading. Weaker-than-expected guidance and slowing revenue growth seemingly spooked investors.
Looking at individual market movers, SuperMicro Computer jumped 9.4% after Cisco announced an expanded partnership with the company.
Moderna continued its run higher, surging 14.4% amid investor enthusiasm about recent positive trial results for the company's mRNA cancer vaccine.
Dick's Sporting Goods plunged 30.8% after falling short of Wall Street's expectations and offering weaker-than-expected guidance amid disappointing sales at Foot Locker.
Nike was caught in the crossfire, sinking 3.1% after Dick's warned of a challenging environment for athletic footwear and apparel.
Overall, seven out of 11 S&P 500 sectors ended the day in the green. Information technology led the pack, rebounding after a tough start to the week. Energy lagged amid falling oil prices.
The Dow Jones Industrial Average® ($DJI) rose 160.24 points (+0.30%) Tuesday to 53,577.40; the S&P 500 Index ($SPX) jumped 24.42 points (+0.32%) to 7,677.28, and the Nasdaq Composite® ($COMP) popped 171.11 points (+0.66%) to 26,151.30.
