Yields, Oil In-Focus Amid Light Earnings Slate

**Keith Lansford** (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 Lanceford, and here is Schwab's early look at the markets for Friday, August 21st. With earnings season winding down and little economic data due today, rising oil prices and Treasury yields could continue to take the spotlight. Benchmark Brent crude prices approached $94 per barrel on Thursday, after President Trump threatened Iran with economic warfare and isolation on an unprecedented scale, a warning any country doing business with the regime will face tremendous economic consequences.
Treasury yields also continued their march higher after Wednesday's intervention from Treasury Secretary Scott Besson provided only temporary relief. Besson's buyback put is fading fast, said Lizanne Saunders, Chief Investment Strategist at the Schwab Center for Financial Research. Yesterday's Treasury announcement to double buybacks of longer dated debt sparked a nine basis point drop in the 30-year yield, but that rally has almost entirely reversed. With yields rising on Thursday, Besson told CNBC that he is prepared to further expand the Treasury Department's buybacks of government debt. He added that the Trump administration plans to announce an increased focus on fiscal consolidation in the coming days, amid market fears about excessive government spending and the surging national debt. Buybacks alone won't solve the deep-rooted issues, including elevated US government debt pushing yields higher, noted Colin Martin, head of fixed-income research and strategy at the Schwab Center for Financial Research. Despite Besson's efforts to ease pressure on Treasury yields, all three major market indexes retreated yesterday in a broad-based sell-off as oil prices rose and the yield curve steepened. The US dollar also continues to face pressure with the dollar index sitting near a multi-month low. US dollar credibility is in focus with some framing the Treasury's buyback intervention as a turning point that raises longer-term questions about US policy credibility, said Saunders.
In Economic Data Thursday, jobless claims edged lower in a sign the labor market continues to roll with punches for now. The Department of Labor reported 206,000 initial claims a week ending August 15th just below the consensus forecast for 210,000. Leading economic indicators data showed that the economy remained resilient last month despite elevated energy prices and Treasury yields. The Conference Board's Leading Economic Index rose by a better-than-expected 0.2 percent in July following a 0.1 percent decrease in June. The Philadelphia Federal Reserve revealed that its Manufacturing Business Outlook Survey spiked to 47.4 in August, up from just 41.4 in July. The regional survey showed strong manufacturing activity and an optimistic outlook from businesses for the next six months. While Thursday's economic data painted a relatively encouraging picture, earnings from Walmart raised concerns about the health of US consumers on Wall Street. The retail giant topped second-quarter earnings estimates and lifted its full-year guidance, but its shares plunged 9.2% after same-store sales growth slid to a six-year low of just 2.6%. The figure was well below consensus estimates for same-store sales growth of 3.8%.
Alibaba also slipped as much as 5% before recovering to end the day in the green after reporting a 75% year-over-year drop in its quarterly profit amid aggressive AI spending. The Chinese tech leader's cloud revenues, which are seen as key to monetizing AI, surged 45% from a year ago. But with competition among AI developers rising worldwide, investors have been less willing to look past profit and cash flow declines caused by AI spending this quarter. Friday's economic and earnings slate is light, to say the least, but investors will be monitoring S&P Global's manufacturing and services purchasing managers indexes at 9:45 a.m. Eastern Time. Consensus expects a slight bump in both indexes this month versus July. Selling prices will likely be in focus after July's data showed a surge in both services and goods prices. Looking ahead, the Fed's favored inflation gauge due Wednesday morning will highlight next week's action. Earnings from Nvidia, Salesforce, Marvell Technology and a slew of Canadian banks will also be closely watched with markets losing steam. Overall, nine of 11 S&P 500 sectors ended Thursday in the red, with energy being the only real bright spot. Walmart's Rocky Earnings report seemed to spook investors in both consumer discretionary and consumer staples stocks, causing those sectors to lag. Looking at Thursday's individual market movers, Moderna plummeted 23.6%, giving back a large chunk of its recent gains. The drugmaker's stock more than doubled Wednesday after positive results from the mRNA Cancer Vaccine Trial. Space exploration technologies also sank 4.1% after another share unlock hit the market. Roughly 319 million shares held by early investors and employees became eligible to trade. Meanwhile, Deer jumped 6.9% after topping consensus earnings and revenue estimates in its second quarter report. Management raised the low end of its full year net income guidance to $4.75 billion as well, citing solid cost discipline despite a challenging farming and agriculture backdrop. Shares of the Bitcoin Treasury Company Strategy and the crypto exchange Coinbase also surged more than 7.5% due to a jump in the price of Bitcoin. Market breadth fell Thursday amid the broad-based equity sell-off, but participation remains relatively strong. Roughly 70% of S&P 500 stocks traded above their 200-day moving average, although just 54% traded above their 50-day moving average.