Stocks Rebound Post Rout, Inflation Still In-Focus

**Keith Landsford** (0:05)
Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.
I'm Keith Landsford, and here is Schwab's early look at the markets for Tuesday, June 9th. Key inflation data due this week will set the tone ahead of the Federal Reserve's policy meeting next week, offering the latest clues to whether higher oil prices are starting to show up in core inflation. Both the Headline Consumer Price Index, or CPI, due Wednesday and the Producer Price Index, or PPI, due Thursday have risen sharply since the Iran War started more than two months ago. Analysts expect 0.5% growth month over month in Headline CPI and a 0.3% month over month rise in the Core CPI, which excludes food and energy. Both numbers would represent slower growth than seen in April. Headline annual CPI is expected to rise 4.3%.
If inflation exceeds expectations, the market could see some additional selling pressure as investors recalibrate their interest rate expectations. A rating that shows core inflation accelerating beyond expectations would be especially important since it would indicate high energy costs are filtering through to prices of everyday items and services. PPI data has shown price pressures, and not just from higher oil prices are building upstream from consumer prices. And the PPI index for trade services for final demand rose at the fastest pace in more than a decade in April, indicating businesses were beginning to pass along price increases. Initial jobless claims due Thursday will be another data point to watch. The employment picture has been mixed lately. Claims hit a three-month high in the week ending May 30th according to data released last week. In addition, Challenger Gray and Christmas reported 97,000 layoffs in May, up from around 83,000 in April. That was the highest figure for the month of May since 2020 Yet, the economy added a healthy 172,000 jobs in May, about double the number expected by analysts. While there's no expectation of the Fed making any rate moves at its June 16th and 17th meeting, the combined weight of Friday's jobs data and this week's inflation reports could help shape Fed thinking for the meetings after that. In a vacuum, high and rising inflation and the recent strength in the labor market support the case for a hike at some point. But the inflation outlook has been driven a lot by the conflict with Iran, said Colin Martin, head of fixed income research and strategy for the Schwab Center for Financial Research. A possible de-escalation could mean the recent inflation could turn to disinflation and therefore lower the pressured hike rates. The Fed will likely be patient, but some policy makers have raised the prospect of potential hikes. As of Monday afternoon, the futures market was pricing in more than a 70 percent chance of a rate hike by year end, according to the CME FedWatch tool.
In corporate news, after months of delays, Apple unveiled an AI-upgraded version of its virtual assistant Siri that's built on Alphabet's Gemini technology at its annual Worldwide Developers Conference yesterday. Apple also launched a stand-alone Siri app, announced new AI features for its iOS 27 operating system, and revealed new Safari updates. Markets weren't overly impressed by the conference updates, however, with Apple stock falling 1.9 percent on Monday. With Treasury yields rising across the curve on Friday and Monday, Treasury auctions may draw extra attention moving forward. This week features a three-year note auction today and a ten-year note auction Wednesday. Both could come under scrutiny after recent auctions found tepid demand. Weak demand for US. Treasuries threatens to send yields even higher.
The European Central Bank, or ECB's, rate decision Thursday morning could also move yields in the US. Analysts expect the ECB to raise rates as it tries to fend off inflation, Reuters reported. Shifts in European Interest Rate Expectations can potentially impact US bond yields because global fixed income markets are closely interconnected. As far as earnings highlights for the week, investors will be closely watching Oracle after the close tomorrow. The AI bellwether could swing more weight than usual, coming so soon after Friday's chip sell-off and amid concerns of a possible top in AI spending. Software giant Adobe and homebuilder Linar also report after the close on Thursday. Technically, now that the 7,500 area, a key pivot point in the S&P 500 index has been breached, the 7,330 low from mid-May represents a possible support level. Below that lies the 50-day moving average around 7,180. Friday marked the first time the S&P has closed below its 21-day exponential moving average since early April when the ceasefire in Iran began. It might be constructive for stocks if the index can reclaim and stay above that level, currently around 7,450. It also might be constructive if shares of Apple could reclaim and surpass last week's all-time high of around $316.