Powell Prep: Fed Chair Ahead as Iran Updates Eyed
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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 Lansford, and here is Schwab's early look at the markets for Tuesday, June 24th. The war in Iran might compete for headlines on Wall Street today with Federal Reserve Chairman Jerome Powell. FedEx earnings after the close are another potential highlight.

The Fed chairman delivers his semi-annual monetary policy report to Congress before the House Financial Services Committee at 10 a.m. Eastern Time and follows with comments to the Senate Committee Wednesday.

These occasions often feature Q&A that's more interesting than the testimony itself, given that Powell made his views on the rate path clear last Wednesday. He sounded hawkish then and isn't likely to change his tune six days later, considering no major data since then.

Many of the questions he receives the next two days might be retread as well for investors who follow the markets closely, but there's always the chance for a nugget or two of news amid the political grandstanding that often accompanies these events. Powell may be asked how the U.S. attack on Iran affects the Fed's economic outlook, especially given the possible inflationary impact of higher oil.

He might also be probed more intensely about alternative views on rates expressed Friday by Fed Governor Christopher Waller and Monday by Fed Vice Chair for Supervision Michelle Bowman, both of whom think conditions might be appropriate for a rate cut as soon as next month.

Should inflation pressures remain constrained, I would support lowering the policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market, Bowman said, according to Bloomberg. She believes risks to the labor market could rise even as inflation appears to be on the way toward the Fed's 2 percent goal.

These comments appeared to help stocks early yesterday and raised chances of rate cuts, according to Futures Trading. As of late Monday, the odds of a July rate cut were 22 percent, up from 14 percent a week ago, according to the CME FedWatch tool. Odds of at least one rate cut by September reached 81 percent, up from 65 percent last week. The market now almost fully prices in two rate cuts this year, with rising chances of three.

The Fed's target range has been between 4.25% and 4.5% since last December. Treasury yields fell sharply to start the week, especially at the near end of the curve, most sensitive to rate cuts. The benchmark 10-year note yield fell six basis points to 4.32% toward the low end of its near-term range.

Some of the strength in underlying treasuries, which move inversely to yields, could reflect defensive positioning after the U.S. strikes on Iran. It also could reflect hopes for rate cuts coming sooner than previously expected. The dovish comments from Fed policymakers contrasted with Powell's remarks in his post-Federal Open Market Committee press conference last week when he cautioned about the possible impact of tariffs on inflation.

This hasn't shown up in a big way, but many economists think it's ahead. One question is whether tariffs will have a one-time or long-term impact on the inflation rate. Inflation has steadily dropped for several years since the 2022 peak. Despite the median dot still projecting two rate cuts this year, seven officials are not projecting any rate cuts at all, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research.

Looking at the median dot masks the dispersion of views, and with plenty of officials seemingly in no hurry to cut rates, the bar for two rate cuts by the end of the year may be high. Major market-sensitive deadlines come long before the next Fed meeting, which could keep trading subdued before earnings season begins in mid-July.

President Trump gave Congress until July 4th to settle on a budget bill, but the Senate and House measures have differences that need sorting out. The July 9th tariff deadline is approaching quickly with little sign of progress. The SIBO Volatility Index, or VIX, a popular gauge of market fear, initially climbed to nearly 22 early Monday, but then finished back just below 20.

While there's concern Iran may close the Strait of Hormuz and block oil exports out of the Persian Gulf, doing so would hurt Iran itself. Oil sales to China are about 6% of Iran's economy and equal to about half of Tehran's government spending, the New York Times reported. Crude retreated yesterday below $70 per barrel even after Iran launched an attack near midday on U.S. military operations in Qatar.

It's unclear if more strikes might come. However, the drop in oil after the attack suggested market participants see it as a symbolic one that makes closing the strait less likely.

The relative calm in the commodities market is likely helping keep Treasury yields relatively steady as inflation expectations have not reacted as much, Schwab's Martin said. With the price of oil back near Friday's close, the fear of a surge in gasoline prices and therefore higher inflation has subsided for now.

KB Home reported earnings after Monday's close and more housing data are on the way with housing prices today and new home sales tomorrow. Home building stocks rose moderately yesterday as Treasury yields retreated.

U.S. May existing home sales were $4.03 million on a seasonally adjusted annual basis versus the $3.94 million Briefing.com forecast. That was up slightly from $4 million in April but down 0.7% from a year earlier. The median price rose to a record $422,800, but inventories are up sharply.

FedEx reports after the close today, providing possible color on consumer and business sentiment in a quarter characterized by confusion around tariffs. The company disappointed with its outlook last time. Sector-wise, consumer discretionary outpaced all others Monday, mainly thanks to Tesla's nearly 8% rally following a successful debut of its robo-taxi in Austin over the weekend.

Almost every sector gained yesterday, but defensive areas like real estate and utilities were near the top of the board, along with discretionary. Energy dove 2.5 percent as oil prices retreated, but heading into this week, energy had been the best-performing sector in June. One area to consider watching in coming days is cybersecurity, considering some intelligence experts worry Iran could try to disable various networks.

Shares of CrowdStrike and Palo Alto Networks both rose more than 2% Monday. Technically, yesterday's S&P 500 close back above 6,000 broke a three-session losing streak and may be psychologically constructive, especially considering a late-market surge that helped the index close near its highs for the day.

The recent high close of 6,045 set on June 12th and now just 20 points away is one level to watch above. Momentum improved yesterday as the Relative Strength Index, or RSI, for the S&P 500 index climbed back above 60, but it would take a breach of 70 for that indicator to suggest overbought conditions. RSI is also now above 60 for the tech-heavy NASDAQ 100.

The Dow Jones Industrial Average climbed 374.96 points Monday or 0.89% to 42,581.78. The S&P 500 Index added 57.33 points or 0.96% to 6,025.17. And the Nasdaq Composite rose 183.57 points or 0.94% to 19,630.98.

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