Trade Talks Eyed Amid Upbeat Patter, with CPI Next
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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 Colette O'Clare, and here is Schwab's early look at the markets for Wednesday, June 11th.

Inflation takes center stage as investors await the May Consumer Price Index, or CPI, before today's opening bell. If prices exceed expectations, concerns might grow about the impact of trade policy, as many companies said they'd raise prices to cover tariffs they're paying.

CPI follows strength on Wall Street early this week associated with upbeat comments from U.S. officials about trade talks with China. Those talks could be in focus again today, with sudden moves possible on any positive or negative announcements. However, stock market volatility has been declining for weeks, indicating less fear about the tariff picture.

Getting back to inflation, analysts expect 0.2% headline CPI growth and 0.3% core growth, with core not including volatile food and energy prices. That's up from 0.2% for both in April. Annual CPI is seen rising to 2.5% from 2.3%, according to FactSet.

With tariffs on everyone's minds lately, the next few inflation reports will be key to see how much, if any, companies are passing along the price increases, said Colin Martin, director, fixed income strategy at the Schwab Center for Financial Research. Today also brings a 10-year Treasury note auction. Light demand could raise yields, which sometimes hurts stocks.

Major indexes remain at levels suggesting investors don't see many near-term headwinds and think the July 9th tariff extension deadline and July 4th U.S. budget deadline will get ironed out on time. Worries about trade eased yesterday when Commerce Secretary Howard Lutnick told reporters that talks with China are going really, really well and that they could continue today.

Treasury yields traveled different directions Tuesday based on duration. The longer-term yields, more tied to economic growth in years ahead, fell, perhaps because trade talks with China didn't yield any major progress, at least for now. Shorter-term yields rose slightly after a three-year note auction saw relatively weak demand. But that's a less closely followed duration, making today's 10-year auction and tomorrow's 30-year the main events.

The benchmark 10-year yield stayed slightly below 4.5 percent late Tuesday, long seen as a pivotal level. It's been hovering around that for several weeks.

Later today, tech giant Oracle reports, followed by Adobe tomorrow. Otherwise, the earnings calendar is light. With Oracle, focus is likely to be on cloud infrastructure segment growth, which climbed 49% year-over-year last time out. Oracle is coming off consecutive earnings reports and forecasts that missed analyst estimates. But other tech earnings the last month or two have been strong, one reason the sector has rallied back from early April lows.

Today's CPI and tomorrow's producer price index, or PPI, data could play a part in the Fed's meeting next week. No one expects a rate move, with odds for that near zero, according to the CME FedWatch tool. But the Fed could incorporate recent inflation trends into its updated economic projections, which also arrive with the rate decision next Wednesday.

The economy is not out of the woods, notwithstanding Friday's better-than-expected jobs report, said Lizanne Saunders, chief investment strategist at Schwab. Cracks in the labor market have appeared. These include the government's downward revisions to previous jobs reports, a big drop in household employment, and continuing jobless claims hovering near their cycle high. The labor market can be classified as limited hiring, limited firing, Saunders added.

High tariffs are just one challenge confronting the U.S. economy as the second half approaches. Worries also include possible stagflation, faltering consumer credit and deficits. Sector churn that characterized stock trading in the first half could continue. Keep the seatbelts on, wrote Schwab, Saunders, and Kevin Gordon, director, senior investment strategist at Schwab.

Futures trading as of late Tuesday worked in about 1% chance of a rate cut in June, according to the CME FedWatch tool. Chances for a July cut are around 15%, rising to 60% at the September Fed meeting. Volatility has been light for stocks, but hedgers may be tempted to dip their toes back to set themselves up for possible disappointment if the budget and tariff talks run into trouble.

Many near-term developments could lead to more hedging activity. Volatility might rise on tariff news or updates related to the U.S. budget process. Speaking of which, the U.S. debt ceiling is a hot topic right now. Congress is aware of the approaching deadline and the importance of raising the debt ceiling and avoiding a default, said Michael Townsend, Managing Director, Legislative and Regulatory Affairs at Schwab.

The One Big Beautiful Bill Act that was approved by the House on May 22nd includes a $4 trillion increase in the debt ceiling. That should be enough to ensure that the debt ceiling is not an issue again until 2027.

On Tuesday, major U.S. indexes again spend much of the day treading water at slightly higher levels. Small caps delivered the best performance, sometimes a sign of hopes for strength in the U.S. economy and also taking a cue from improved small business sentiment data. The market remains in a wait-and-see mode ahead of hopes for trade progress, the coming Treasury auctions, and inflation data.

Investors over the last week have migrated back toward cyclical sectors that tend to do best in a growing economy, including communication services, infotech, materials, and industrials. Energy stocks have done better recently, too, with crude oil coming off its best week of the year. It's up in part on hopes for trade progress, but rising supplies remain a possible headwind.

Tuesday's sector performance echoed Monday's, led mostly by cyclicals, including energy and consumer discretionary. Over the last week, communication services and health care are up the most, while defensive sectors, consumer staples, and utilities have fallen the farthest. Eight of 11 sectors are up over the last five days.

Semiconductors had another solid day yesterday, led by Intel, as investors focused on signs of new momentum for its 18A process technology for chip development, Briefing.com noted. Tesla also made solid gains on hopes for a robo-taxi launch, and the Magnificent Seven generally rose, helping bolster the major indexes. Even Apple joined in, despite a lack of fireworks at its Worldwide Developers Conference.

Technical support for the S&P 500 index likely remains near the 200-day moving average, currently around 5,800. Resistance is near the all-time high of 6,144. It's technically constructive that the S&P 500 index has closed three days above the psychological 6,000 level.

The Dow Jones Industrial Average rose 105.11 points Tuesday, or 0.25%, to 42,886.87. The S&P 500 Index climbed 32.93 points, or 0.55%, to 6,038.81, and the Nasdaq Composite

added 123.75 points, or 0.63%, to 19,714.99. This has been the Schwab Market Update podcast.

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