Stocks Fall: Fed Policy Assessed After In-Line PCE

Published as of: August 29, 2025, 9:14 a.m. ET

(Note to readers: U.S. markets are closed Monday, September 1, in observance of the U.S. Labor Day holiday. The Schwab Market Update will return on Tuesday, September 2.)

(Friday market open) Major indexes slumped after Thursday's all-time highs, but new inflation data didn't harbor any last-minute surprises before the long weekend. The Personal Consumption Expenditures (PCE) price index for July rose 0.2%, as analysts had expected, and core PCE—which excludes food and energy—also met expectations at 0.3%. 

"The July PCE releases came exactly in-line with expectations but highlighted that inflation remains elevated," said Collin Martin, director, fixed income strategy at the Schwab Center for Financial Research. "Treasury yields initially dropped modestly as an upside surprise might have resulted in Federal Reserve officials second guessing a rate cut next month, but this likely gives the committee the green light to cut rates."

Today's trading might be thin if participants depart early for the holiday once any PCE tremors fade. Low volume can cause sharper moves, so anyone trading should consider taking extra care. Next week—following Monday's Labor Day closure—includes key tech earnings and the critical August jobs report that may shape Fed thinking ahead of its September 16-17 meeting. Stocks ended Thursday in the green, with the S&P 500^® index closing above 6,500 for the first time. It's up more than 10% since the end of May and 2.6% for August. 

1. PCE and the Fed: Though the monthly tally for PCE—the Fed's favored inflation index—was in line with expectations, core annual PCE rose 2.9% in July, the highest in five months and well above the 2% Fed target level. That was expected, but it outlines challenges for the central bank as it wrestles with the coming rate decision. "Supercore" PCE, which is core services excluding housing inflation, rose by 0.4% on a monthly basis, its highest reading since February. This highlights the tension between the Fed's dual mandates as inflation is proving sticky. 
    
2. Despite in-line PCE, inflation remains elevated: Odds of a rate cut stood at 85% shortly after today's data, according to the CME FedWatch Tool, down from close to 90% at its peak this week. "While welcomed by the market, inflation is still too high and moving away from target, with the 2.9% increase in the core PCE matching its 16-month high on a rounded basis," Martin pointed out. "The push and pull of goods and services inflation was interesting. While goods prices have generally been rising, there have been concerns that services inflation could cool given the weaker labor market. Services inflation has been picking up lately, however." Beyond PCE, other data this morning looked positive for the economy with July personal spending up 0.5% and July personal income rising 0.4%.
    
3. FOMC meeting in focus after attempted firing: Concerns about Fed independence remain high on investors' worry list. It's unclear now how the attempted firing of Fed Governor Lisa Cook affects the next Federal Open Market Committee (FOMC) meeting, but the issue will likely be front and center next week when the Senate Banking Committee holds a confirmation for Stephen Miran, the president's nominee to fill a Fed vacancy. One analogous event came earlier this year when President Trump tried to fire Rebecca Slaughter, a commissioner of the Federal Trade Commission (FTC). For now, there are no signs of Cook not being allowed to participate in the September meeting, but the overhang could affect yields as investors fret about political pressure. "There are already issues with increasing inflation and rising deficits to push the yield curve steeper. This only adds to the risk premium—the term premium—that investors require to compensate for the risk of inflation down the road," said Kathy Jones, chief fixed income strategist at Schwab."

• Nvidia closed mostly unchanged Thursday and was down 1% early Friday after its earnings exceeded analysts' consensus but data center revenue missed Wall Street's thinking. At one point, shares were down 3% in the post-market Wednesday night, but they recovered for the most part and the rest of the tech sector ended up fighting for first place in Thursday's sector competition.
   
• Marvell Technology (MRVL) plunged nearly 14% ahead of the open. Second quarter data center revenue rose 69% but missed analysts' consensus. Earnings per share and revenue were in line with expectations, and guidance also was near consensus views. Shares had already fallen 30% this year before the latest drop.
   
• Hormel Foods (HRL) sank more than 13% Thursday after the packaged foods company's adjusted earnings missed expectations and it issued a weak outlook due to commodity inflation. 
   
• Affirm (AFRM) soared 16% this morning as earnings impressed investors. Revenue rose 33%, easily topping expectations.
   
• Tesla (TSLA) dropped just over 1% Thursday, mainly due to new data from the European Automobile Manufacturers Association, which showed a 40% year-over-year drop in the company's car sales in Europe this July. It marked the seventh consecutive month of declines in the region.
   
• Autodesk (ADSK) soared 10% in pre-market trading. The software company beat earnings and revenue expectations and raised guidance.
   
• Alibaba (BABA) rose 4.4% in early trading after earnings from the Chinese e-commerce firm beat expectations, even though revenue fell short. Strength in shares might reflect a Wall Street Journal report that said Alibaba has developed a new and more versatile AI chip.
   
• Ulta Beauty (ULTA) jumped 3.6% in the early going after raising earnings and revenue expectations for the full year.
   
• Caterpillar (CAT) slipped 3% in pre-market trading after the company said the impact of U.S. tariffs could have a $1.5 billion to $1.8 billion impact this year, and that because of that, it expects its full year adjusted operating profit margin to be near the bottom of its target range.
   
• Petco (WOOF) climbed nearly 23% ahead of the open. The pet supply company reported earnings that exceeded estimates and raised its full-year outlook, though sales at stores open a year or more fell 1.4% last quarter.
   
• Dell (DELL) dropped 6.3% in early action despite quarterly results that topped Wall Street's estimates and reflected strong growth in its AI server business. It also raised its full-year outlook. But its guidance for third quarter earnings per share fell short of consensus.
   
• Bath & Body Works (BBWI), Best Buy (BBY), and Dick's Sporting Goods (DKS) all lost ground yesterday following earnings from the retailers. Best Buy cited tariff uncertainty that could have an impact on second half earnings, while Dick's fell despite topping analysts' estimates and raising guidance. Its full-year revenue outlook missed Wall Street's expectations, however.
   
• Alphabet (GOOGL) rose 2% Thursday, and shares are now up nearly 28% over the last two months. Last quarter's earnings were solid and worries about AI's competition in search and the possible breakup of the company due to a court ruling that it maintained a monopoly in two key businesses don't appear to be hurting shares. Alphabet's position as a lower-valued member of the Magnificent Seven may have lifted investor interest.
   
• Bitcoin futures (/BTC) dropped nearly 2% early Friday and is down 5.6% in August despite hitting an all-time high on August 14. Crypto-related stocks Circle Internet Group (CRCL), Strategy (MSTR), and Coinbase (COIN) were all down around 1% in early trading.
   
• The small-cap Russell 2000 index (RUT) rose again yesterday and is up 7.5% this month, outpacing the broader market on hopes for rate cuts.

Take time to understand the minutes: After every Fed meeting, the central bank publishes minutes outlining behind-the-scenes discussion. In our latest analysis, learn what's in the minutes, changes to monitor, and themes to track—all of which can help you improve your Fed-watching ability and potentially give you more insight into the decision making behind rate policy.

The PHLX Semiconductor Index (SOX-candlesticks) is up a solid 21% over the last three months. But it's been buttressed by two of its components with their feet most firmly in the data center AI market: Nvidia (blue line), and Advanced Micro Devices (purple line). Other giants like Micron (MU) and Broadcom (AVGO), not in the chart above, have also outperformed the index. Where is there relative weakness? Texas Instruments (TXN), ASML (ASML), Applied Materials (AMAT), and Arm Holdings (ARM) all have performed below the pace set by the overall index.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap this week.

September 1: U.S. markets closed for Labor Day holiday.
September 2: August ISM Manufacturing PMI^®, July construction spending, and expected earnings from Nio (NIO) and Signet Jewelers (SIG).
September 3: July Job Openings and Labor Turnover Survey (JOLTS), July factory orders, and expected earnings from Dollar Tree (DLTR), Macy's (M), Campbell Soup (CPB), Salesforce (CRM), Hewlett Packard Enterprise (HPE), and American Eagle Outfitters (AEO). 
September 4: August ADP Employment, August ISM Services PMI^®, and expected earnings from Ciena (CIEN), Broadcom (AVGO), and lululemon (LULU).
September 5: August Nonfarm Payrolls, August unemployment.