Here is Schwab's early look at the markets for Thursday, August 21.
Walmart earnings and the Federal Reserve's annual Jackson Hole symposium loom today with the market still buzzing from sudden weakness in the tech sector.
Jackson Hole's main event is tomorrow morning's speech by Fed Chairman Jerome Powell, which might keep action light on Wall Street as investors gear up for his remarks. Meanwhile, volatility has climbed this week amid tech's struggles, a sign that investors may be more cautious after the long spring and summer rally.
Powell could hint at a September rate cut, but his tone is another story and might help investors gauge if additional rate cuts are likely to follow. Recent data show weakness in parts of the economy, including labor and housing, but prices keep rising. This makes the Fed's job extra hard.
Next week, the central bank gets a look at Personal Consumption Expenditures (PCE) prices for July, which might reflect the large gains in some items seen in last week's Producer Price Index (PPI). If PCE rings new alarms and the August jobs report early next month improves from July, the Fed could be in an even tougher position come its mid-September meeting.
"Barring a hot print by the PCE inflation reading next week and/or a stronger-than-expected set of readings on labor market conditions, we are still penciling in (though perhaps not penning in) a September rate cut of 25 basis points," said Kevin Gordon, senior investment strategist at Schwab. "We don’t expect Chair Powell to reveal much in Jackson Hole; perhaps a nod to a cut in September, but that is very different than firmly committing to resuming a full-blown cutting cycle."
Minutes from the July Federal Open Market Committee (FOMC) meeting released Wednesday demonstrated a divide as some argued for a rate cut while others pushed back, citing the possible inflationary impact of tariffs. It was the first time since 1993 that two Fed governors voted against the majority as the FOMC kept rates unchanged.
As of late Wednesday, the CME FedWatch tool put odds of a September rate cut at 83%, pretty much unchanged from before the Fed minutes.
Reasons for tech's recent weakness include worries ahead of Powell's speech, OpenAI CEO Sam Altman's recent remarks reported by The Verge that there's an AI "bubble" forming along the lines of the internet frenzy of the late-1990s, seasonal trends, profit-taking, and sector rotation.
The next big test comes when Nvidia reports this coming Wednesday. Meanwhile, it's important to see if other sectors can balance any further softness in the tech sector. That could be a challenge considering how heavily weighted toward tech the major indexes are, but investors might want to check the S&P 500 Equal Weight Index (SPXEW) to get a better sense of how hundreds of non-tech stocks are performing.
Market breadth is another key indicator if tech softness continues. It's held up well so far, indicating resilience across much of Wall Street. As of late Wednesday, about 65% of S&P 500 stocks traded above their 50-day moving averages, a solid number historically. Breadth on the 50-day measure is up slightly this month, not too surprising considering the S&P 500 index itself remains slightly higher for August despite backtracking this week.
Technically, the 20-day moving average for the S&P 500 just below 6,380 was breached yesterday. This is an important support level and got tested earlier this month before clawing back after one close below it on August 1. It would likely take a few settlements underneath that moving average to solidify ideas that the technical tone of the market has changed from the current bullish trend. The S&P 500's settlement above that yesterday appeared technically constructive.
It's often said consumer spending accounts for around 70% of gross domestic product (GDP), meaning what companies like Walmart say about their customers means a lot. Rival Target saw shares plunge yesterday after earnings met expectations while sales fell year over year, and Target's executives cited tariffs as a headwind. It could be interesting to see what Walmart leaders have to say about tariffs and the possible inflationary impact on their customers, especially considering media reports that the company raised prices on some items to counter tariff costs.
The last time Walmart reported, in late May, quarterly sales just missed expectations but earnings topped Wall Street's forecasts and the company maintained its full-year outlook, CNBC reported at the time. Walmart also reported the first profitable quarter for its e-commerce business in the U.S. and globally. At the same time, it warned that customers could see higher prices this summer. The question is how widespread those increases were and whether they drove customers away.
Walmart may be able to weather any price increases in part because its reputation as a low-cost retailer appears to be attracting higher-income customers away from retailers like Target that typically attract a more affluent clientele. That trend could accelerate if tariff headwinds keep prices rising, but eventually even discount retailers may run short on price elasticity after four years of rising inflation.
This week's theme of resilience below the surface continued to some extent Wednesday even as the S&P 500 fell a fourth straight session after posting an all-time high close last Thursday. At one point around midday, 251 of the S&P 500 stocks were up despite the index itself being down about 0.8% due to mega-cap weakness. The Equal Weight S&P 500 fell only half as much as the cap-weighted S&P 500. This was the second recent four-day lower stretch after one that ended August 1. Previously the quadruple dip occurred in late May, and the recent return of sluggishness suggests seasonal weakness heading into September, historically the worst month for stocks.
Sector-wise, it was all green Wednesday except for the mega-cap dominated info tech, consumer discretionary, and communication services sectors. Semiconductors again showed weakness in what appears to reflect rotation into other parts of the market. Intel, Micron, and Taiwan Semiconductor Manufacturing all dropped sharply, while market leader Nvidia managed to rebound from midday lows but still lose a small amount.
Palantir, which suffered major losses over the last week, fell another 1%. Intel, which has swung dramatically in recent days, lost ground Wednesday as CNBC reported other large investors are in talks with Intel about taking an equity stake at a discounted price. The stock bounced earlier this week on a report that SoftBank is investing $2 billion.
Some consumer staples stocks enjoyed a welcome Wednesday ahead of Walmart's report tomorrow. Dollar General, Philip Morris, Kroger, and Costco advanced. Energy stocks led all sectors but crude oil trades not far off this week's two-month lows. Tech sector stocks have fallen five of the last six sessions.
Treasury yields slipped yesterday. With not much news other than Fed minutes, it appeared Treasures have benefitted the last two days from the stock market decline as investors seek perceived safety.
The Dow Jones Industrial Average® ($DJI) inched up 16.04 points Wednesday (+0.04%) to 44,938.31; the S&P 500 index (SPX) slipped 15.59 points (-0.24%) to 6,395.78, and the Nasdaq Composite® ($COMP) fell 142.09 points (-0.67%) to 21,172.86. The tech-dominated Nasdaq 100 (NDX) is now down nearly 3% from the all-time high close achieved last Wednesday.
