I'm Colette Auclair, and here is Schwab's early look at the markets for Friday, February 20th.
Even as tensions ramp up between the U.S. and Iran, investor focus turns inward this morning to data. The December Personal Consumption Expenditures (PCE) price index, due at 8:30 a.m. ET, could help set today's tone on Wall Street, and analysts expect a relatively warm reading that won't show progress fighting prices.
If that's the case, it might reinforce a message from the Federal Reserve's last meeting when some policy makers argued for a "two sided" approach that would work possible rate hikes back into Fed guidance. That hawkish tone, along with geopolitics and a cautious outlook from Walmart, kept stocks under pressure yesterday. "Risk-off" trading ahead of today's inflation reading also kept the market on a tight leash.
For headline PCE, the Briefing.com consensus is 0.3% month over month. Core PCE—excluding food and energy—is seen up 0.4%. Both would accelerate from 0.2% the prior month. Year-over-year numbers also stand in the spotlight after rising 2.8% in November, well above the Fed's 2% goal. Several services readings in the Producer Price Index, or PPI, that pull through to PCE, led analysts to suspect that PCE could remain stubbornly high with another 2.8% annual gain.
PCE is the Fed's favored inflation meter, so it receives elevated attention from market participants. The previous PCE was fairly benign, so if today's exceeds estimates, it might send a message that inflation progress stood still. At the same time, yesterday's drop of 20,000 in weekly initial jobless claims toward near-term lows at 206,000 suggests the labor market remains in decent shape even if it's not growing all that fast.
Heading into PCE, chances of a Fed rate cut next month stood at 6%, according to the CME FedWatch Tool. PCE could help determine where things go beyond that, but generally the market expects the first cut to come around mid-year. Futures trading suggests better than 50% odds that by June rates will have been cut at least once.
A large contingent of policy makers seem willing to wait for inflation to ease before considering further rate cuts, minutes from the last Federal Open Market Committee, or FOMC, revealed earlier this week.
"FOMC minutes suggest that the hawks pushed back," said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, or SCFR. "'Several' would support two-sided language about policy direction and 'several' noted that if inflation remains high, rate hikes might be necessary."
Gross domestic product, or GDP, is also due today and represents the first official government estimate of fourth quarter growth. The Atlanta Fed's GDPNow meter puts GDP growth at 3.6% on a seasonally adjusted annual basis. That's down from 5% a few weeks ago, with soft retail sales and housing data contributing to the pullback. Analysts see 3% growth, down from 4.3% in the third quarter.
Data continues after today's open with a final February reading on consumer sentiment from the University of Michigan at 10 a.m. ET. Consensus, according to Briefing.com, is 57.3, equal to the initial February report and still historically weak. New home sales due at the same time are seen slightly down in December from the prior month at a seasonally adjusted annual rate of 714,000. This follows a very weak pending home sales report yesterday.
Another thing to monitor starting soon after the open is a potential Supreme Court decision on President Trump's tariffs. Though analysts broadly expect the Court to rule against the administration, it won't mean the end of trade restrictions. The decision doesn't cover all tariffs, and Trump may have other ways of applying restrictions in some cases. Companies in their earnings reports early this year continued to cite tariffs as a business headwind.
Speaking of earnings, Walmart's holiday quarter looked quite solid as earnings and revenue topped Wall Street's expectations. The nation's largest retailer delivered earnings per share of $0.74, narrowly topping Wall Street's $0.73 consensus. Revenue of $190.7 billion edged above FactSet's average estimate of $190.5 billion.
Shares of Walmart fell 1.4% Thursday, however, possibly because guidance for the full fiscal year pegged sales growth in a 3.5% to 4.5% annual range, below the 5% analysts had expected. Earnings guidance was also below consensus, but this could reflect a conservative approach after CEO John Furner recently took the helm. Still, the company's comparable sales growth at stores open a year or more was 4.6% and it cited "strong sales and favorable general merchandise trends."
Walmart's earnings call, a quarterly hallmark for investors digging into the consumer landscape, didn't have the same cautious tone as guidance. The company said it's seeing share gains in general merchandise and fashion, and that momentum is strong across all businesses, including e-commerce. Consumers remain resilient, even those at lower income levels, the company said, but most of the company's market share gains came courtesy of customers making $100,000 or more, a sign that higher-income people are stepping down to find bargains in Walmart's cheaper aisles.
Turning back to Iran, tension mounted ahead of the weekend after talks with the U.S. failed to make progress and the Trump administration built its military presence in the region. Any interruption of Persian Gulf shipping might tip crude oil prices even higher than the new 2026 intraday peaks above $66 posted Thursday. Market participants may exhibit caution ahead of the weekend amid uncertainty over the situation, though geopolitics don't tend to have lasting market impacts. Trump hinted today that a deal is still possible, media reports said, and he hinted the next 10 days would be critical.
Last June, when U.S. crude oil prices climbed above $78 during a U.S. bombing campaign in Iran, the S&P 500 Index stepped back but not to any great extent, and then resumed its rally relatively quickly after tensions eased.
Looking ahead, next week's corporate news highlight is likely Nvidia's earnings due Wednesday after the close. Margins might come under scrutiny as Nvidia, like other chip players, faces higher memory costs. Other metrics include next Friday's January Producer Price Index, the next day's earnings from Berkshire Hathaway on February 28, and retail sector earnings that include Home Depot on Tuesday and Lowe's on Wednesday.
Depending on what happens this weekend, the Iran situation could outweigh all those things and keep caution simmering on Wall Street. Uncertainty tends to hurt stocks, so investors might want to monitor the Cboe Volatility Index, or VIX, which traded late Thursday above its long-term average of 20.
Another possible landmark next week is Wednesday's earnings from software giant Salesforce, which arrive after the software sector got slammed earlier this month by AI competition concerns. Its guidance could help set the tone for software stocks, and any weakness in the outlook might exacerbate bearish sentiment for the sector.
Technically, the S&P 500 Index remains in a tight range between roughly 6,800 and 7,000, with the 100-day moving average of 6,815 representing a key support level that's held on several recent tests. The index has now settled within that range five straight days, the longest stretch since November. Back then, the index climbed back above the 50-day, where it's traded most of the last nine months. Failure to do so, or a series of closes below the 100-day, could suggest technical weakness and possible chips in the armor of the long rally.
In trading Thursday, major indexes turned lower, ending a three-day win streak as the market mulled rising Iran and Walmart. Travel firms, home builders, and auto makers were among stocks that struggled, while the financial sector slumped on concerns about the private credit market. Airlines descended on worries about possible travel impact and associated rising crude oil prices from a potential conflict with Iran.
Only three of 11 S&P 500 sectors ended higher Thursday, led by the defensive utilities group and followed by energy, which received a boost from crude. Industrials also were green thanks partly to solid results from Deere. Info tech continued struggling, pulled down by a drop in chip stocks and more pressure on the software side.
The 10-year Treasury yield marched in place and settled at 4.08% Thursday, showing little movement ahead of today's data.
In individual trading Thursday, Blue Owl Capital declined 6% after the Financial Times reported that the firm has halted redemptions in its private retail debt fund. The company denied the report. Shares of other asset management firms such as Blackstone and Ares Management also fell on the news, Barron's reported. Private credit initially came under scrutiny earlier this year as the software sector sold off on AI competition concerns. Many smaller software companies appear highly leveraged.
Deere ran up 10% gains as investors appeared impressed with the farm equipment maker's quarterly results. Earnings and revenue easily exceeded analysts' expectations, and the company cited "ongoing recovery in demand" within construction and small agriculture even as the global large agriculture industry continues to experience challenges.
Carvana skidded 8% Thursday after the company drove strong retail unit sales but disappointed on a key profit metric--gross profit per unit. Several Wall Street firms lowered their price targets.
Super Micro Computer rolled up 8% gains Thursday in what appeared to be a technically driven rally. There was no fresh news.
Etsy popped 9% after the company announced that eBay would pay $1.2 billion to buy Etsy's secondhand clothing reseller Depop, CNBC reported.
The Dow Jones Industrial Average® ($DJI) lost 267.50 points Thursday (-0.54%) to 49,395.16; the S&P 500 Index (SPX) gave back 19.42 points (-0.28%) to 6,861.89, and the Nasdaq Composite® ($COMP) lost 70.90 points (-0.31%) to 22,682.73.