I’m Colette Auclair, and here is Schwab's early look at the markets for Friday, September 19th.
It's "triple witching" day on Wall Street as contracts for stock index futures, stock index options, and stock options all expire. This could lead to greater trading activity and increased volatility after stocks posted new record highs yesterday following the Federal Reserve's first rate cut since December.
Triple witching was a bigger deal before midweek and weekly options were introduced, so there's no guarantee of heavier action today. Still, anyone trading should be extra watchful for sudden moves. The market is also nearing the traditional start of "window dressing" season ahead of the quarter's end in 11 days, meaning fund managers might be stepping in to buy winners and sell losers before sending out quarterly reports. That's another element that could cause some extra activity over the next week or two.
Today's earnings and data calendars are relatively light, putting focus on earnings from FedEx late yesterday and the conclusion of the Bank of Japan's rate meeting this morning. The BOJ is expected to keep rates steady, though analyst surveys don't rule out another rate hike before the end of the year. If foreign central banks keep rates unchanged or raise them while the Fed moves U.S. rates lower, it could hurt the dollar. The greenback already trades near its recent multi-year lows just above 97 for the dollar index that tracks it against other major currencies.
A weaker dollar could help tech and other firms with large overseas presence, and that might be one reason the tech sector rallied Thursday after the Fed's rate move. Another reason for tech's rally was Nvidia's investment of $5 billion in Intel stock. The two companies also announced a collaboration to jointly develop multiple generations of custom data center and PC products. The focus will be on connecting Nvidia and Intel architectures, but the deal doesn't include plans for Nvidia to use Intel's foundry business to make chips, at least for now, Barron's reported. Instead, Nvidia will continue to rely on Taiwan Semiconductor Manufacturing for that.
Intel soared more than 22% yesterday and Nvidia climbed more than 3%. Other big tech stocks followed suit. Advancing names included Palantir, AppLovin, Broadcom, and Marvell. But shares of Nvidia competitor Advanced Micro Devices fell almost 1%, hurt by worries the Nvidia-Intel collaboration might pose a competitive threat.
Big tech dominated news, but small cap investors cheered the Fed's quarter-point rate cut by sending the Russell 2000 index up more than 2% to a new all-time high Thursday of 2,467. This finally took out the old all-time intraday high set last November, and the index closed above its old all-time high close set in November 2021. Lower rates often help small firms that tend to rely more on borrowing.
Though the small cap rally suggests better breadth beyond mega caps, the rally continues to be dominated by the largest stocks. Over the last month going into Thursday, the Magnificent Seven collectively were up 10.5%, the S&P 500 index was up 3.7%, and the Equal-Weighted S&P 500 index that weighs all 500 members equally rather than by market capitalization was up 0.7%.
With the Fed super focused on unemployment, this week's initial jobless claims of 231,000 on Thursday provided some relief, though one week isn't a trend. Claims fell from 264,000 a week earlier, but that may have been affected by Texas extending the deadline for claims after deadly flooding earlier this year.
The new weekly claims figure is in line with short-term averages and continuing jobless claims of 1.92 million were also down but still near recent four-year highs.
Fed Chairman Jerome Powell indicated Wednesday that the Fed leans more toward the "full employment" aspect of its dual mandate. The Fed cut rates a quarter point to a target range of between 4% and 4.25%. That would fall to 3.5% to 3.75% by year-end if two more cuts occur, but some policy makers don't expect two cuts and some don't expect another at all. Still, for now the Fed seems comfortable cutting rates with inflation at roughly 3%, well above its 2% goal.
"This is one of the most interesting Fed meetings I've seen lately," said Kathy Jones, chief fixed income strategist at Schwab. "You can see the wide dispersion of projections and Powell's struggle to explain the rate path."
If it weren't for one policy maker penciling in far lower rates in their dot plot projections than anyone else, it's possible that average projections for the target rate at the end of next year would have stayed where they were instead of falling to 3.4% from 3.6%. The Treasury market expects rates to drop below 3% by the end of 2026, setting up a conflict between investors and Fed policy makers that could take some time to play out.
The Treasury yield curve continued to steepen Thursday after the rate cut, a sign that the Fed's projections for more cuts could keep shorter-term yields under pressure even as fiscal worries and relatively strong economic growth prop longer-term yields. The 10-year yield rose three basis points to 4.1% Thursday while the 2-year yield rose two basis points. The 30-year yield rose 5 basis points to 4.72%, not necessarily good news for those hoping the Fed's tilt toward lower rates would help the housing market.
Package delivery firm FedEx earnings surpassed estimates after the close Thursday, sending shares 6% higher out of the gate in post-market trading. Revenue guidance for fiscal 2026 appeared to easily top consensus expectations, Briefing.com said. FedEx is often seen as a solid barometer of business and consumer demand.
In other data yesterday, the Philadelphia Fed Manufacturing Index came in at 23.2, well above the Briefing.com forecast of 0.0 and last month's -0.3, with anything above 0 indicating expansion. It was the highest figure since January and a positive sign for manufacturing conditions in the Philadelphia region, though manufacturing across the country has struggled most of the year. The Philadelphia report saw healthy breadth among sub-components like new orders, shipments and prices paid.
But the Conference Board's Leading Economic Index dropped by 0.5% in August to 98.4 after a small 0.1% increase in July. It was the largest monthly decline since April and signals more headwinds, the Conference Board said in a press release. Soft manufacturing new orders and consumer expectation indicators weighed.
Thursday saw major indexes climb across the spectrum, with new closing highs for the S&P 500 index and the Nasdaq Composite, along with the Russell 2000's record high close. The new highs came even as the percentage of S&P 500 stocks trading at or above their 50-day moving average remained at around 55%, well below summer highs near 80% and another sign that fewer names are rallying while many tread water.
On a sector basis, tech motored its way to first from last the day before, while the cyclical industrial sector also climbed more than 1%. Still, four of 11 S&P sectors ended lower, with staples and discretionary last on the list. Disappointing results from Cracker Barrel and Darden Restaurants appeared to hurt consumer discretionary stocks. Health care got a boost from Novo-Nordisk after late-stage trial results for its once-daily obesity pill showed "significant" weight reduction and tolerability.
The Dow Jones Industrial Average® ($DJI) climbed 124.10 points Thursday (+0.27%) to 46,142.42; the S&P 500 index (SPX) added 31.61 points (0.48%) to 6,631.96, and the Nasdaq Composite® ($COMP) gained 209.4 points (+0.94%) to 22,470.72.