Schwab Market Update

Published as of: February 4, 2025, 9:15 a.m. ET

(Tuesday market open) Wall Street starts Tuesday anticipating job openings data and Alphabet (GOOGL) earnings with volatility still elevated and trade issues unresolved. Yesterday's rebound after the Trump administration said it would delay 25% tariffs against Mexican and Canadian imports by a month cheered investors, hinting that tariffs might be a negotiating tool and not necessarily long lasting. But 10% U.S. tariffs on goods from China took effect today and China responded with tariffs of its own against U.S. imports of coal, liquid natural gas, crude oil, and machinery, dimming the lights on an initial overnight rally.

Tariff worries dominate, but earnings season rolls on amid one of the busiest reporting weeks of the quarter. Palantir Technologies (PLTR) kicked things off late Monday on a positive note and shares popped more than 20% ahead of the open. It's followed by Alphabet this afternoon and Amazon (AMZN) on Thursday, with Uber (UBER), Walt Disney (DIS), and Advanced Micro Devices (AMD) among other big firms to watch in coming days. Early today featured Merck (MRK) dropping on a disappointing outlook and PepsiCo (PEP) also losing ground in pre-market trading as demand for chips and soft drinks sank.

The 10-year Treasury note yield hit its lowest intraday level since mid-December Monday amid safe-haven bond buying but then clawed back above 4.5% all the way to 4.59% this morning despite news yesterday that the U.S. Treasury plans to borrow less money this quarter than previously expected. The current yield is well below the January peak of 4.80%. "Longer-term treasury yields have pulled back from early January highs, which is net-bullish for stocks," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. "We don't necessarily need rate cuts from the Fed right now given the firm economic data, but 10-year yields will likely need to stay below their recent high for stocks to continue to march into all-time high territory."  

1. Alphabet earnings on deck: Last week's DeepSeek AI news hurt chip stocks, and weak guidance from Microsoft (MSFT) raised worries about cloud demand. That's the climate Alphabet faces when it shares quarterly earnings this afternoon, but generally there's a positive vibe ahead after strong results from competitor Meta Platforms (META) last week. Though any cloud softness would likely raise concerns, Alphabet appeared to take share from larger rivals the last time it reported. Investors approach today's quarterly results looking to see if that continued. Year-over-year cloud growth was 35% in the prior quarter, so any sequential improvement would likely get a positive reaction after Microsoft's slight drop in sequential cloud growth. Alphabet spent heavily on AI over the last few years along with others in the online ad space, but if technology featured by DeepSeek reduces costs, it could help companies like Alphabet and Meta. Both have touted improved ad targeting thanks to AI. Ad-supported services form 75% of Alphabet's revenue, Barron's notes, and AI can enhance Google's search functions. Analysts expect earnings per share of $2.13 following Alphabet's solid beat of earnings estimates the prior quarter and a slight beat a year ago.
2. Uncertainty brings choppiness: Volatility flared Monday, perhaps as much from the tariffs as the notion that facts on the ground have become less predictable. Uncertainty usually means a higher Cboe Volatility Index (VIX), and it jumped nearly 20% early Monday to a two-week high above 20 before relaxing slightly. It continued to pull back this morning and recently fell just below 18, well above the sub-15 levels it reached late last month. That said, judging by the setup of the Cboe VIX futures complex, investors aren't building in massive amounts of drama. VIX for months ranging from February through June remains below 19 and isn't projected to reach 20 through October.
3. Rate pause still seen likely: Chances of a March rate cut slipped to 13.5% after the tariff scare and yesterday's solid U.S. manufacturing data. Tariffs put the Fed in a tough place because they can reduce growth and create joblessness but can also be inflationary. The Fed might be more prone to wait things out and see where the dust settles rather than making a move before it's sure what tariff policy will be and how long it will last. Boston Fed President Susan Collins told CNBC Monday that unless tariffs cause higher, persistent inflation, the Fed would "try to look through" any rise in prices driven by tariffs, Bloomberg reported. Fed policy makers might feel well positioned to wait, judging from Fed Chairman Jerome Powell's comments last week about the Fed being "in a good place to pursue both sides of the dual mandate," meaning price stability and maximum employment. 

• Palantir Technologies (PLTR) jumped nearly 22% in pre-market trading after its earnings late Monday beat analysts' estimates. It also impressed with its outlook and received an upgrade from Morgan Stanley to Equal Weight from Under Weight. The analyst said PLTR's outlook for 30%-plus growth and AI is resonating in the market.
• Merck plunged more than 8% ahead of the open after earnings surpassed analysts' expectations but the company's 2025 outlook disappointed investors. The firm's guidance was for revenue and earnings per share below Wall Street's consensus, and sales of HPV vaccine Gardasil fell 17%.
• PepsiCo fell 2.3% in pre-market action after quarterly revenue came in below the consensus view on Wall Street. The snack and soft drink company reported "subdued category performance trends in North America" and said the quarter was affected by a recall in its Quaker Oats North America division.
• General Motors (GM) and Ford (F) each rose nearly 1% in pre-market trading after U.S. tariffs against products from Canada and Mexico were delayed a month.
• Bitcoin (/BTC) fell nearly 2% ahead of the open, back below $100,000, after choppy action yesterday. Tariff worries have some investors shifting to "risk-off" mode, which can hurt cryptocurrencies.
• Crude oil (/CL) dropped 2.8% to $71.10 a barrel—a one-month low—on worries that China's tariffs on U.S. crude imports might reduce demand and on recent dollar strength, which makes crude more expensive for overseas buyers. 

What traders are watching: Active traders can find up-to-date charts, technical indicators, directional indicators, and key metrics to watch for the coming days in Schwab's Weekly Trader's Outlook. Another way active traders can stay up to date is through Schwab Coaching, which offers live, interactive webcasts and virtual workshops on a wide range of topics. 

There's a tendency to mentally combine the info tech (IXT-candlesticks) and communication services ($IXC-purple line) sectors because of overlap in AI and cloud. But this one-month chart shows how communication services has easily outpaced tech as earnings from communications giant Alphabet (GOOGL) loom later today. Solid earnings from Meta and Netflix (NFLX) last month gave the sector a lift.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap this week. 

February 5: January ISM Services PMI® and expected earnings from MicroStrategy (MSTR), Uber (UBER), and Ford (F).
February 6: Q4 productivity and unit labor costs and expected earnings from Amazon (AMZN), Eli Lilly (LLY), ConocoPhillips (COP), and Honeywell (HON).
February 7: January nonfarm payrolls, January unemployment, January average hourly earnings, University of Michigan preliminary January U.S. consumer sentiment.
February 10: Expected earnings from McDonald's (MCD).
February 11: Expected earnings from Lyft (LYFT), CocaCola (KO), and Humana (HUM).