I'm Colette Auclair, and here is Schwab's early look at the markets for Wednesday, November 11.
The bond market is closed today for Veteran's Day, which may be just as well for investors considering how yesterday's yield rally hurt Wall Street and knocked major indexes off Monday's pedestal.
With no data of note today and earnings light, investors might continue to ponder the inflation picture while also digesting results late Tuesday from CoreWeave.
Tuesday's hotter-than-expected Consumer Price Index (CPI) reinforced ideas the Federal Reserve hasn't been able to get inflation back under control and on a path toward its 2% annual target. The Consumer Price Index (CPI) rose 0.4% monthly in October while core CPI, excluding food and energy, climbed 0.3%.
Analysts had expected 0.3% and 0.2%, respectively, and there were no annual figures due to last year's government shutdown.
"I think this all but ensures a rate hike in December," said Cooper Howard, director of fixed income research and strategy at the Schwab Center for Financial Research (SCFR).
In the wake of CPI, the 10-year yield quickly rallied while the 2-year yield climbed a dramatic 18 basis points, smoothing the curve in a development that can portend slower economic growth if prolonged. The dollar spiked, too, which can hurt earnings for multinational U.S. firms.
Rising inflation, accompanied by last week's meteoric October jobs growth of 165,000—about three times consensus—sent signals of an overheating economy that the Fed likely wants to address. The central bank kept rates unchanged in October after raising them in September. Now the question isn't whether December delivers another hike, it's by how much.
Fed Gov. Christopher Waller spooked the bond market yesterday morning even before CPI by saying he could see the argument for a 50-basis point rate hike in December. The typical move is 25 basis points.
"That isn't our base case," Howard said, referring to Waller's remarks about 50, and other Fed speakers may not agree. In fact, Fed Vice Chair for Supervision Michelle Bowman said later Tuesday that she favors holding rates.
Even so, the futures market began factoring in odds of a 50-basis point December hike, putting them at 9.5% as of late Tuesday, according to the CME FedWatch Tool. Chances of at least a 25-basis point increase from the current target range of 3.75% to 4% are now 100%, with strong chances of more hikes next year.
Higher rates can hurt growth stocks by slowing the economy and raising the cost of borrowing for businesses and consumers. However, the Fed appears to have room to focus on inflation and not worry about hurting employment, judging from the economy's current strength.
The next Fed meeting is about a month out and a lot could change by then. There's another jobs report in early December, for instance, and later this month investors get a look at the Personal Consumption Expenditures (PCE) price index for October, the Fed's favorite inflation meter. Even before that, Friday brings the October Producer Price Index (PPI).
Controversy around Nvidia—the second largest U.S. stock by market capitalization—amounts to another source of possible pressure. Nvidia reports next Tuesday.
On Tuesday, the Trump administration confirmed the FBI is investigating reports that a woman who had an affair with Nvidia CEO Jensen Huang was an alleged Chinese spy. Huang hasn't outlined a succession plan, but next week's earnings call could provide more color on the controversy as well as the chip market.
Analysts generally stayed positive Tuesday regarding Nvidia's fundamentals, and Taiwan Semiconductor Manufacturing—the biggest maker of chips—said October revenue rose 59.7% annually and 14.7% sequentially. That paints a healthy picture as companies continue to frantically spend on their AI plans. Shares of TSM rose 2.4% Tuesday.
With so much in the air and inflation stubborn, investors could go back to their cautious stance, which was the case even before the election and last Thursday's tech sell-off. A level to watch is 7,500 in the S&P 500 Index, which it clawed back above earlier this week and managed to hold Tuesday. Any drop back toward last week's lows below 7,400 could set up a test of the 200-day moving average now at 7,328.
Looking under the surface of CPI, food prices rose 0.4%, possibly on tariffs and higher oil prices. The rise in diesel might be spreading across the economy, judging from an increase in transportation services costs. Medical care goods also rose, along with new cars, though used car and truck prices fell.
PPI on Friday measures prices at the wholesale level, and parts of PPI and CPI filter into PCE. The Briefing.com consensus for PPI is 0.4% for headline and 0.3% for core, down from September's parabolic 1.3% headline and 0.7% core rise.
In other news, u demand for Tuesday's 10-year Treasury note auction was underwhelming, according to Briefing.com. That followed a weak 3-year auction Monday, and yields finished at fresh November highs Tuesday up 12 basis points to 4.98% for the 10-year note.
Thursday brings a 30-year bond auction. Even with Tuesday's yield rally, the benchmark 10-year note yield is down sharply from a month ago, helped by falling crude on hopes Iran progress. Crude fell slightly Tuesday to back below $87 per barrel.
Though earnings are winding down, CoreWeave reported late Tuesday, an important barometer of "neocloud" companies that saw shares plunge last week on worries about borrowing costs. Quarterly revenue beat consensus views, and so did revenue guidance. However, the company raised its capital expenditure estimates. Shares popped 6.4% initially in post-market action.
On Tuesday, major indexes fell across the board, cowed by yields. However, some cyclical areas like financials and discretionary continued to show life. Meanwhile, the AI and semiconductor trade is splitting as money heads out of Nvidia into competitors. The PHLX Semiconductor Index (SOX), which fell 12% last Thursday and rose 7% Monday, was back in the red just slightly Tuesday and the question is whether it can avoid re-testing last week's lows.
Five of 11 S&P sectors rose Tuesday, down from unanimous gains Monday. Health care, energy, and staples gained, but tech finished last on Nvidia pressure.
Tuesday's individual movers included Nvidia plunging another 5% as worries about its CEO swirled. Nvidia forms about 7% of the S&P 500 in terms of valuation, meaning weakness in this one name has a huge impact. Rival Broadcom climbed almost 4% and Advanced Micro Devices rose 1% as they continued to benefit from their competitor's widely publicized troubles.
Microsoft slipped 2% after Anthropic introduced new tools that could pose competition for Microsoft Office, CNBC reported.
Securitize, a financial technology company, rose 23% on an upgrade by Citi, which cited valuation among other factors.
Berkshire Hathaway kept rolling as investors sought perceived safety, though no investment is truly safe.
AI-adjacent firms including GE Vernova and Bloom Energy both fell more than 4%, a drop attributed to news that Softbank revised its equipment procurement strategy, Briefing.com said.
On Holding plunged almost 7% despite topping consensus on profit and sales. The running shoemaker also raised its gross margin estimate. Shares hit nearly three-month highs last week.
Consumer companies generally performed well later Tuesday despite higher yields, possibly helped by ideas that rising inflation means better pricing power, so long as other economic indicators like jobs are strong. Typically, consumer firms get hurt by rising yields.
Home builders were one exception to the consumer story, with D.R. Horton falling nearly 5% and Lennar down more than 5% late in the day on mortgage concerns.
AAON surged 20% following strong results from the heating, air conditioning, and ventilation equipment maker.
The Dow Jones Industrial Average® ($DJI) slipped 157.86 points (-0.30%) Tuesday to 52,231.89; the S&P 500 Index ($SPX) backtracked 29.01 points (-0.38%) to 7,520.93, and the Nasdaq Composite® ($COMP) lost 187.26 points (-0.74%) to 25,065.87.