Here is Schwab's early look at the markets for Monday, August 31:
The new month starting tomorrow ushers in a host of labor data, crescendoing with Friday's August nonfarm payrolls report. Investors await numbers while pondering the hawkish impact of Friday's speech by Federal Reserve Chairman Kevin Warsh, who gave investors plenty to ponder by suggesting the Fed has "work to do" on inflation.
Speaking at the Fed's annual Jackson Hole symposium, Warsh mentioned the word "inflation" 25 times and immediately sent odds of a rate hike next month far higher, according to the CME FedWatch Tool. A September hike went from being around a 36% possibility first thing Friday to 57% by late Friday after his speech. Odds of at least one hike by the end of the year soared to nearly 90%.
"We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed," Warsh said, adding he doesn't see current financial conditions as restrictive.
Treasury yields climbed after the remarks, with the 2-year note yield quickly surging more than 10 basis points to 4.34%. That helped flatten the yield curve somewhat, possibly a sign of market faith that the central bank will try to tame inflation. Shorter term yields are most sensitive to near-term rate policy.
The long rally in yields appears to have the market--and perhaps the Fed--nervous, and stocks fell Friday but finished higher for the week.
"If we have one takeaway over the past couple months, it's that the bond market is indeed final boss," said Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research (SCFR).
Warsh reinforced the Fed's focus on inflation by saying that the central bank's 2% Personal Consumption Expenditure (PCE) prices objective is a firm, fixed target. PCE is the Fed's favored inflation reading, and headline PCE was 3.7% in July and 3.3% for core PCE excluding food and energy.
Climbing yields can raise borrowing costs for companies and consumers, slowing economic and earnings growth. They also can steer investors into bonds, hoping for solid income at perceived lower risk. Small-cap stocks, growth stocks, and defensive areas like real estate and utilities are particularly rate sensitive, and all struggled more than the broader market Friday.
Though monthly inflation data recently cooled, that didn't appear to satisfy Warsh. "While this summer's PCE and CPI readings were better than expected, they do not tell me that underlying trends have meaningfully improved," he said.
The speech came about a week after the Treasury Department announced a plan to increase the size of the Treasury Department's liquidity buyback operations—an apparent effort to address high long-term yields.
Hike odds could change between now and the Fed's mid-September meeting as market participants watch August jobs and inflation data over the next two weeks. Friday's payrolls report is expected to show jobs growth of around 45,000, according to consensus from Wall Street analysts. That compares with a surprise drop of 23,000 in July.
The July figure will again be in the spotlight Friday as investors watch for possible revisions. The July report downwardly revised May and June jobs growth by more than 100,000, making the labor market look far weaker than it had going in.
Before Friday's report, investors get a full buffet of jobs data starting with tomorrow's July Job Openings and Labor Turnover Survey (JOLTS) report and August private sector ADP jobs data early Wednesday. Job cuts data arrives Thursday.
Turning to earnings, the main event comes Wednesday morning when chip giant Broadcom reports. Others to watch this week include Snowflake, Palo Alto Networks, Dell, and Ciena.
Margin worries for tech persist thanks to chip shortages and high memory prices, something investors will likely check for with Broadcom after Nvidia's margin outlook came in conservative.
With 97% of S&P 500 companies reporting through Friday, blended earnings growth is 52% year over year, FactSet said. About 86% of companies beat analysts' estimates for earnings.
Crude oil eased slightly Friday after a media report that Iran was open to further negotiations. The U.S. stopped its barrage against the country several weeks ago and is focused instead on an economic blockade. Talks are stalled and oil didn't make a meaningful move last week.
Major indexes fell Friday as participants grew nervous over possible rate hikes. Rate-sensitive small caps performed worst, along with utilities. Growth areas like industrials and materials also retreated amid ideas higher rates could slow the economy.
Five of 11 S&P 500 sectors climbed Friday, a better showing than one of 11 on Thursday. There was a mix of sectors in the green, including communication services and consumer discretionary, despite higher yields. Info tech got hurt by software losses and a sharp retreat for Nvidia after Thursday's massive earnings rally. Tech is also sensitive to rising rates, as the huge AI spending depends in part on borrowed money.
Technically, the week did some chart damage to the S&P 500 Equal Weight Index (SPXEW), which fell below its 20-day moving average for the first time in a month. Momentum measures are also lower.
Nvidia plunged 4%. The Information reported that the White House is developing an AI rule to limit China's remote access to chips. Nvidia just got back into China's market with its first sale of H200 chips, Bloomberg reported.
Checking individual movers Friday, Gap climbed almost 13% after reporting better-than-expected earnings and despite a revenue miss. The company's guidance topped consensus. It also named a new CEO of Old Navy, a brand that's struggled.
Marvell Technology slid 10% after earnings and revenue came in close to estimates amid strong AI-related demand. Guidance met expectations. Investors appeared disappointed that a recent AI chip agreement with Alphabet's Google didn't have more impact on the outlook, Reuters reported.
Rubrik plunged 13% late Friday despite better-than-expected second quarter revenue and improved guidance for the security software firm.
PayPal plunged 12% on a report by Bloomberg that Advent and Stripe had abandoned their $50 billion pursuit of the company.
Bank shares edged up as long-term Treasury yields remained high and potentially could aid profits on loans.
Amazon climbed 4% after Evercore ISI raised its price target and noted its survey shows Agentic AI is supportive for Amazon's retail business.
Autodesk slipped 3.7% even though quarterly results surpassed analysts' estimates. The software company guided for third quarter earnings per share below consensus.
The dollar jumped 0.5% after Warsh's speech as investors began pricing in higher rate odds.
Gold, sometimes seen as an inflation hedge, fell 3% on ideas the Fed might get more aggressive fighting price increases.
Bitcoin fell nearly 3% after the Warsh speech, dragging crypto-related stocks.
The Dow Jones Industrial Average® ($DJI) lost 9.45 points (-0.02%) Friday to 53,559.99; the S&P 500 Index ($SPX) slipped 19.23 points (-0.25%) to 7,711.76, and the Nasdaq Composite® ($COMP) fell 138.93 points (-0.52%) to 26,402.42.
For the week, the DJIA added 0.53%, the SPX climbed 0.49%, and the Nasdaq rose 0.85%.