I'm Colette Auclair, and here is Schwab's early look at the markets for Friday, March 27:
The weekend approaches with Middle East tensions mounting and investors shying away from risk assets. Stocks dropped to six-month lows Thursday as Iran and the U.S. didn't appear to make progress in toning down the conflict. In some ways, it seems to be worsening, with the Strait of Hormuz still closed, mutual threats being exchanged, and more U.S. troops heading toward the region.
This has Brent crude back above $105 per barrel and U.S. Treasury yields at nearly nine-month highs above 4.4% for the 10-year note amid inflation fears. Major indexes are on pace for their fifth straight lower week, a streak last seen during the miserable market year of 2022.
Concern grew Thursday that the U.S. might inject ground troops soon. Investors sold growth stocks, including many in the chip sector, as a general "risk-off" attitude prevailed Thursday. Nvidia shares slid almost 4%. Chip sector action could again be key to overall sentiment after rising chip shares helped the market briefly rally Tuesday and Wednesday.
While there's always a chance the weekend could see progress toward peace, market participants seem more worried about the flip side of that scenario. Late Thursday, President Trump extended his pause on a threat to attack Iranian energy facilities to April 6, CNBC reported. It was previously scheduled to expire Saturday. As of publication, it's unclear if this might help ease market tensions or point to possible progress in talks.
Before the weekend, there's Friday's session to get through. No major earnings or data interrupt the market's sharp focus on oil and the war, though there may be a distraction or two along the way.
Shortly after the open, investors get the final March University of Michigan Consumer Sentiment report after a tepid preliminary reading. The initial report pegged headline sentiment at 55.5%. Investors will likely focus on five-year inflation expectations to see if they rose from the preliminary report's 3.2%. The headline figure earlier this month was the lowest in three months and reflected initial concerns as the Iran war began.
Several Federal Reserve speakers took to podiums yesterday after the third large Treasury auction of the week—this time for 7-year notes—met poor demand. Soft auction results all week are one factor pushing Treasury yields higher, and most shorter-term yields rose double-digits Thursday. The 2-year note yield approached 4% and the 30-year bond yield neared 5%. Poor demand for auctioned Treasuries likely hints at participants demanding higher yields to protect them from inflation that some analysts think could spike to 4% this year.
Checking Washington, Congress is expected to enter recess this afternoon while still trying to reach a bipartisan deal that would fund the Department of Homeland Security (DHS) except for ICE's migrant removal operations. As of late Thursday, it was unclear if President Trump would support a deal Congress put forward. Lines at airports lengthened this week as the Transportation Security Administration, or TSA, remained unfunded, causing travel snarls for many and creating headaches for airlines. However, airline shares held up relatively well Thursday amid the general market carnage.
In data yesterday, initial weekly jobless claims of 210,000 were near the lower end of the recent trend and in line with expectations. It's unclear why jobless claims have remained so low despite a drop in U.S. jobs last month, though it might reflect fewer workers due to immigration enforcement.
For months, the futures market anticipated between two and three Federal Reserve rate cuts this year despite the Fed projecting only one in its December "dot plot." The Fed's updated dot plot this month still projects a cut, but the market has removed that possibility.
As of late Thursday, odds of rates ending the year below the current target range of 3.5% to 3.75% sank to nearly zero, according to the CME FedWatch Tool. Chances of at least one hike this year approached 50%, though odds of a hike at next month's Fed meeting are just 6%.
The quick reversal in rate cut anticipation drew scrutiny amid ideas that market participants might have overshot, this time too hawkishly. This reflects concern that the rising cost of oil might trigger a slowdown, forcing the Fed into rate cuts later this year despite the inflationary impact of gas and diesel. Jobs growth has been dismal the last six months, including February's drop of 92,000.
"The Fed's in a pickle with the dual mandate in conflict," said Liz Ann Sonders, chief investment strategist at the Schwab Center for Financial Research, or SCFR, referring to the Fed's dual mandate of maximum employment and stable prices.
Next week is light for earnings, other than expected results from consumer bellwether Nike on Tuesday afternoon. This is another chance for investors to hear how tariffs are affecting major U.S. firms heavily exposed to foreign trade.
It's also the final week of the first quarter, meaning "window dressing" could be an element. That's when fund managers shift positions before the end of the quarter to add better-performing names and drop worse ones. This sometimes means higher volatility and possible choppy trading.
Data next week builds toward next Friday's March nonfarm payrolls report. Along the way, investors receive the February Job Openings and Labor Turnover Survey, or JOLTS, on Tuesday, ADP Employment on Wednesday, and Challenger job cuts data Thursday. All these numbers could receive heightened scrutiny on Wall Street amid the war and the Fed's tribulations. So will the Conference Board's Consumer Confidence reading for March, due Tuesday, which could reflect sentiment during the early weeks of the war.
The twist next week is Friday's market closure for the Good Friday holiday on April 3, which means investors won't immediately be able to trade the jobs report.
Major Wall Street indexes fell sharply Thursday and lost all their gains for the week.
From a technical standpoint, the S&P 500 Index remains in a downtrend below its 200-day moving average of 6,633. Any close today below 6,506.48 would make this the fifth straight week of losses for the index, the longest losing stretch since the spring of 2022 following Russia's invasion of Ukraine. The S&P 500 closed yesterday near a long-term support area of 6,475, but may have a long drop to the next major area of support near 6,174, which corresponds with a 38.2% retracement of the recent rally.
Though major indexes haven't fallen out of bed since the war began, that disguises bigger moves just below the surface. The maximum drawdown for the S&P 500 Index has been 7% from recent highs, but the average member has seen a 17% drawdown. It's even more dramatic in the Nasdaq Composite, where the average member has seen a 31% drawdown.
"In other words, corrections have been occurring via a process of rotation and churn versus indexes falling as monoliths," Sonders said.
Reversing the broadening rally of Tuesday and Wednesday, nearly every S&P 500 sector fell Thursday other than energy and utilities. Info tech dropped 2.5% and communication services, burdened by Meta Platform's worst day in months, dropped 3.4%. Discretionary stocks, which appear tightly correlated with the price of oil, finished red.
In individual trading Thursday, energy stocks gained as oil climbed. ConocoPhillips and Chevron climbed 3% and 1.5%, respectively, while Valero Energy rose 5% and ExxonMobil also rose.
Shares of memory chip firms including Micron and SanDisk fell sharply after Alphabet's Google introduced an AI model that it said could reduce the amount of memory needed to run large language models, CNBC reported.
Microsoft fell more than 1% after the company announced that it's frozen hiring in cloud and sales units amid cloud pressure, The Information reported.
Shares of Meta Platforms and Alphabet both slid, with a dramatic drop of almost 8% for Meta after a Los Angeles jury found Alphabet's Google unit and Meta liable in a landmark social media addiction lawsuit whose outcome could influence thousands of similar cases against the tech companies, Reuters reported.
Gold dropped nearly 4% and silver fell almost 7% as traders warily eyed lack of progress ending the war. Mining firm stocks including Freeport-McMoRan, Hecla, and Newmont all fell. Gold and silver are down double-digits since the fighting began, hurt by ideas that central banks might start raising interest rates amid oil-fueled inflation.
The Dow Jones Industrial Average® ($DJI) slid 469.38 points Thursday (-1.01%) to 45,960.11; the S&P 500 Index (SPX) gave back 114.74 points (-1.74%) to 6,477.16, and the Nasdaq Composite® ($COMP) dropped 521.74 points (-2.38%) to 21,408.08.