Rates Ripple Through Dollar, Diesel, Housing

Every morning before the opening bell, the Schwab Market Update sets the stage for the day ahead, covering key market movers, economic developments, and emerging themes. Each edition includes "Three things to watch" while Thursdays feature a weekly section, "Crypto currents." This recap revisits select items for those who may have missed them, helping traders head into the weekend better informed.

Despite a brief pullback in response to Friday's weaker-than-expected jobs numbers, the U.S. Dollar Index ($DXY) remains near 2026 highs on rate hike expectations. The index is now approaching 102, a level it hasn't traded above since April 2025. A rising dollar can hinder U.S. multinational companies by making their products more expensive abroad. If the dollar index remains above 100 for a while, it might draw focus to coming earnings reports from export-heavy sectors like technology and industrials. With U.S. manufacturing apparently out of its long slump, it can also be good news that the domestic economy remains powerful. The dollar took recent cues from data that's been mostly resilient, even though housing remains lackluster and consumers report being in a bad mood. The key with consumers is to watch what they do, not what they say, and muscular August personal spending data this week showed that perhaps people are engaged in some "shopping therapy." Earnings from consumer-focused firms like Amazon (AMZN) and Apple (AAPL) late this month could provide insight into consumer trends.

Crude prices fell Tuesday, giving stocks a lift, after The Wall Street Journal reported that flows out of the Middle East reached 80% of pre-war levels. This may be close to what's needed in the near term, considering global demand has fallen sharply since the war began, the newspaper reported. Prices, however, haven't fallen for drivers or transport firms as refinery damage limits production of products made from oil, and the Trump administration's consideration of a diesel export ban likely wouldn't help matters. "A diesel export ban would only provide temporary relief at best," said Michelle Gibley, director of international equity research and strategy at the Schwab Center for Financial Research (SCFR). "Every barrel of oil produces gas, diesel, and jet fuel. Stopping production of one product stops all of them. With pipelines full, refineries would have to shut down, resulting in an almost simultaneous increase in gas prices, trading one problem for another."

Bitcoin experienced volatile trading in the wake of Wednesday's softer-than-expected Personal Consumption Expenditures (PCE) price index report. The cryptocurrency surged above $85,500 immediately after the Fed's favorite inflation gauge was released, but then quickly sank below $83,500 over the next hour and a half. The moves mirrored the volatility seen in U.S. Treasuries. After dipping in early trading, the 10-year Treasury yield climbed again Wednesday as traders seemingly looked past August's soft inflation data and towards Friday's jobs report. Rising Treasury yields have been a major headwind for bitcoin this year because they increase the opportunity cost of holding non-yielding risk assets. Long-term bitcoin holders appeared to be unfazed by the post-PCE drama, however. Investors who have held bitcoin for at least 155 days now control a record 80% of the cryptocurrency's circulating supply, according to Glassnode data.

Technical trends look bullish for the market-capitalization-weighted S&P 500^® Index and Nasdaq Composite^®, but bearish for the S&P 500 Equal Weight Index (SPXEW) and Russell 2000^® (RUT), which recently bounced off its 200-day moving average. Also, market breadth has almost completely collapsed over the last six to seven weeks, leaving only about 42% of S&P 500 stocks above their 200-day moving averages versus nearly 75% in mid-August. Potential disruptions to a bull thesis include chances of the data center buildout being stalled by politics or more severe rogue AI incidents, as well as questions on how long the Iran conflict might persist, how high oil prices go and for how long, and how high Treasury yields go. "There doesn't appear to be a lot of buyers stepping up to the plate for Treasuries even at these elevated levels," said Nathan Peterson, director of derivatives research and strategy at SCFR. Treasury auctions scheduled for next week, including a 10-year note auction next Wednesday, could provide insight into demand for U.S. debt. Solid auction demand might ease yields, but there's no guarantee.

Reacting to surging bond yields, the average 30-year fixed-rate mortgage moved above 7% last week, marking the first move above this psychologically significant level since January 2025. While a 7% rate isn't especially high by historical standards, it is up from 6.3% a year ago and may further challenge an already limp housing market. Inventory is flush—currently 1.5 million homes are for sale, a 46% increase from 2023, per Redfin. Given this increased competition, it's no surprise that the typical home is on the market for 50 days, up from 36 three years ago. We'll get another look at housing-market health tomorrow, when the August S&P Cotality Case-Shiller U.S. National Home Price Index is released. Analysts are currently expecting a modest increase of 0.5%. But Redfin said one in five homes for sale saw its price reduced in August. The good news? It could be considered a buyer's market. The bad news? Roughly four-fifths of potential buyers are already homeowners, meaning they'll likely be wanting to sell a home, too.