But What Will Warsh Say?: 8 Key Items Shaping the Stock Market Wednesday

These are the early headlines and other items poised to influence the market at the start of trading Wednesday. As we share this collection of market drivers, U.S. equity futures point to a positive start to the trading day.

1. The Fed is expected to lift its benchmark rate by a quarter of a percentage point to 3.75%-4%. Fed-funds futures traders put the odds of a hike at 91%, up from just 30% ahead of the central bank’s July meeting, according to the CME FedWatch tool… Persistent inflation remains the driving force behind calls for a rate increase both within and outside the Fed. Prices have grown in excess of the Fed’s 2% annual target for more than five years, as measured by the central bank’s preferred gauge, the personal consumption expenditures price index. For August, Citi economists estimate that core inflation, which strips out food and energy prices, rose 3.1% from a year earlier. The three-month annualized pace of core PCE inflation should slow to 2.9% from 3.3%. (Barron’s)

The market is widely expecting the Fed to deliver a rate hike at 2 PM ET this afternoon. As we explained yesterday, we are in that camp, but we continue to think the tone struck by Fed Chair Kevin Warsh and the learnings in the Fed’s updated Set of Economic Projections could have a greater impact on the market.

To the extent both are more hawkish than expected, we could see the market come under pressure late this afternoon. However, if they aren’t that could lead a market, whose mindset is wondering about a cadence of hikes, to rebound. We’ll have much more to say on this after Warsh’s afternoon presser.

2. Norfolk Southern expects higher fuel prices to create a significant headwind in the third quarter, even as the railroad operator continues to gain ‌freight share from trucks, executives told investors at a Morgan Stanley conference in California on Tuesday. CFO Jason Zampi said fuel prices had been expected to peak around May, but continued increases now represent roughly a 250-basis-point headwind to Norfolk Southern’s operating ratio compared with expectations two months ago. (Reuters)

The above from Norfolk Southern (NSC) reinforces our thinking shared yesterday about the likely impact of higher oil, gas, and diesel prices on margins and bottom-line performance. Also confirming our thinking that consumers are facing renewed inflation pressures that are sapping disposable income, this morning Canada’s Dollarama raised its annual comparable sales growth forecast as shoppers facing mounting inflationary pressures increasingly turn to low-cost everyday products such as grocery and household items.

3. Korean Air has finalized an order for 103 Boeing aircraft worth $36.2 billion at list prices, including wide-body passenger jets, freighters and single-aisle planes, the airline and the U.S. planemaker said ‌on Wednesday, completing a deal first announced in 2025. (Reuters) Boeing is close to finalising a delayed order for 150 of its 737 MAX jets after Turkish Airlines threatened to walk away from the ‌high-profile deal in a dispute over maintenance with engine maker CFM, four people familiar with the matter said. The deal, part of a package of 225 jets announced after Turkish President Tayyip Erdogan met U.S. President Donald Trump a year ago, had been held up by disagreement over the airline’s request for an industrial deal on engine maintenance but is back on course and may be signed next week, three of the people said. (Reuters) Airbus has not seen any softening in aircraft demand or deliveries due to geopolitical or supply chain headwinds, its Asia-Pacific president said on Tuesday… The European planemaker forecast that about 42,000 new aircraft will be required globally over the next 20 years, and about 45% of those will be delivered to the fast-growing Asia-Pacific region… Airbus data shows China, its ‌single largest market for commercial jets, will need 8,830 new passenger aircraft over the next 20 years, India will need 3,480, and the rest of Asia-Pacific will require 6,880. (Reuters)

After reaching a tentative contract agreement with the Society of Professional Engineering Employees in Aerospace (SPEEA), the market’s focus on Boeing (BA) should return to orders, production levels and subsequent deliveries. As production and deliveries rise, our view is Boeing will recognize greater operational synergies, lifting cash flow and earnings along the way.

4. Independent phone and laptop makers are redesigning products, testing incoming chips for fakes and passing on costs ‌as a memory shortage they expect to last through 2027 squeezes the lower end of the device market. Availability, not price, is the binding constraint, executives at three companies said. (Reuters) South Korea’s SK Hynix is in talks with Intel about a deal that would see it manufacture memory chips on U.S. soil for the first time, three people familiar with the discussions said. (Reuters)

It’s worth nothing that the completion of Intel’s chipmaking complex in Ohio, the one that SK Hynix (SKHY) would likely tap, isn’t expected to come until 2030-2031. That suggests memory capacity is likely to be tight beyond 2027. While many are debating safeguards for AI, the reality being overlooked for the moment is the continued chip shortage that keeps us bullish on the Portfolio’s chip holdings as well as Applied Materials (AMAT).

5. Meta Platforms Inc. plans to begin deploying a new in-house artificial intelligence chip in data centers during the first half of next year, a move it says will save money and energy when running AI models. The company, which first announced plans to develop homegrown AI chips in 2023, is testing the third generation of the line, called MTIA 450, or Arke. The next one — dubbed 500, or Astrid — will complete design work in about a month and go into data centers at the end of 2027. Meta expects to use that one even more widely… The company is working with Broadcom Inc. on the designs and Taiwan Semiconductor Manufacturing Co. on manufacturing — a project aimed at reducing its reliance on Nvidia Corp.’s industry-leading processors. (Bloomberg)

While not what we would call ground-breaking news, the above reaffirms that Meta (META) is developing its own chips with Broadcom (AVGO). We see this bringing another layer of credibility to Broadcom’s multi-year custom silicon guidance. When Meta holds its next iteration of Meta Connect next week and CEO Mark Zuckerberg discusses “how Meta is building a future for everyone” we will connect how those intentions sync up with multi-year capital spending, data center capacity and aggregate chip demands.

6. OpenAI has held early conversations with investors about raising another private funding round at a $1.2tn valuation before its planned IPO, as it seeks to capitalise on the success of its latest AI model. The ChatGPT maker, which in March raised $122bn at an $852bn valuation, including the new money, has recently held discussions with large backers about a fresh capital raise that would increase its value to about $1.2tn, according to people familiar with the matter. The conversations with investors are at an early stage and the figure could change over the coming months, the people added. (FT)

OpenAI says it has ample resources following its last capital raise earlier this year, but, in our view, an influencing factor for the company’s decision on this potential private funding round is when it expects to IPO. Over the weekend, CEO Sam Altman commented that action isn’t likely to come before 2027, but that doesn’t necessarily mean it will be in early 2027. When OpenAI completed the private funding round that placed its valuation at $852 billion, the thinking at the time was it would go public in mid-to-late 2026.

7, Economic data today per TipRanks: MBA Mortgage Application Index (Weekly), Retail Sales (August), Import/Export Prices (August), NY Fed Services Activity Index (September), Business Inventories (July), NAHB Housing Market Index (September), EIA Crude Oil Inventories (Weekly).

8. Companies reporting today per TipRanks: PM – Lennar (LEN).

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At the time of publication, TheStreet Pro Portfolio was long AMAT, AVGO, BA, and META.