Schwab Market Update

Published as of: February 27, 2025, 9:19 a.m. ET

(Thursday market open) Solid earnings from AI chip giant Nvidia (NVDA) gave stocks an overnight lift, but Wall Street's had trouble lately holding gains. The question is whether Nvidia's 78% revenue growth and self-described "amazing" Blackwell chip sales can keep the rally fueled as investors await critical inflation data tomorrow.

Recent rallies have often faded, partly driven by tariff worries, which the White House exacerbated yesterday. The services sector is starting to roll back after months of expansion even as manufacturing data improves slightly. "My fear is that this pickup in manufacturing could stall due to policy-related uncertainty, and you're certainly hearing that from companies," said Liz Ann Sonders, chief investment strategist at Schwab, in a CNBC interview Wednesday. Policy concerns have clipped buying intentions for big-ticket items, and companies seem more reticent about capital spending.

President Trump initially delayed tariffs against Canadian and Mexican imports a month to April 2 before moving the date back to the original March 4 this morning and threatening 25% tariffs on products imported from the European Union. Treasury yields fell to new two-month lows as trade threats swirled and as worries grew over a possible government shutdown by mid-March. "The markets are showing more concern for growth as opposed to inflation when it comes to tariffs," said Kevin Gordon, director, senior investment strategist at Schwab. A sharp jump in weekly jobless claims this morning helped keep the 10-year Treasury note yield below 4.3%, near recent two-month lows.

1. Nvidia deeper dive: Nvidia's fourth-quarter earnings per share of $0.89 beat the average analyst estimate of $0.84, and revenue of $39.33 billion topped the average estimate by $1.3 billion, and shares climbed 3% in pre-market action. Fiscal first quarter guidance also slightly outpaced analysts' estimates and represented sequential revenue growth. However, outlook for margins appeared to miss analyst estimates, cooling some investor enthusiasm. Nvidia expects gross margin of 70.6% this quarter on a generally accepted accounting principles (GAAP) basis. Some analysts had expected closer to 72%, but Blackwell manufacturing costs appeared to press this metric. Still, the mostly strong guidance and 93% quarterly data center growth might temper concerns that hit the entire semiconductor sector after last month's DeepSeek scare. Most analysts who follow Nvidia kept their price targets, Barron's noted, but the law of large numbers means triple-digit revenue growth days are likely in the past. The entire chip sector caught a ride on Nvidia's coattails overnight, raising shares of Broadcom (AVGO), Marvell Technology (MRVL), and Taiwan Semiconductor Manufacturing (TSM).
    
2. Data tracker: The government's second estimate of U.S. fourth quarter gross domestic product (GDP) reached a seasonally adjusted annual rate of 2.3%, in line with consensus and unchanged from the first estimate, but the fourth quarter GDP deflator, which measures the cost of goods across the economy, ticked up to 2.4% from the initial 2.2%. "Personal consumption continues to be the driver of the economy, up 4.2% for the quarter," said Collin Martin, director, fixed income strategy, at the Schwab Center for Financial Research. "The core PCE price index was revised up to 2.7% for quarter, reiterating that inflation remains a problem." Initial weekly jobless claims jumped to 242,000, well above consensus of 220,000 and a four-month high, though one week's data aren't a trend. This bearish nugget was countered somewhat by a 3.1% rise in January durable orders, above the 1.8% consensus. Stripping out transportation, however, durable goods growth was flat.
    
3. PCE next: With Nvidia earnings over, focus shifts to Friday's January Personal Consumption Expenditures (PCE) price index, due at 8:30 a.m. ET. Analysts expect headline and core PCE to rise 0.3% monthly in January (core excludes volatile food and energy). Annual PCE is expected to edge lower at 2.5% and 2.6% for headline and core PCE, respectively, from 2.6% and 2.8% in December. January's Consumer Price Index (CPI) and Producer Price Index (PPI) both were hotter than expected, underpinning Treasury yields. But PPI tempered inflation worries, because the parts that affect PCE were cooler than expected. That's one reason hopes grew for PCE progress, but any failure could push yields up and perhaps pressure rate-sensitive areas like real estate and staples.

• Snowflake (SNOW) surged 13% in pre-market trading after the cloud-based data storage company reported better-than-expected quarterly results and also offered an outlook that topped Wall Street's estimates. Booming AI demand is driving growth, the company said.
   
• Salesforce (CRM) shares fell 3.5% after the cloud-based software company's revenue missed FactSet's earnings consensus, though earnings per share beat estimates. The company's outlook fell short, as well, causing worries that adoption of its AI agent platform might be slowing.
   
• AppLovin (APP) added 4.25% ahead of the open after falling double digits yesterday following short sellers publishing negative reports alleging fraud at the company, Barron's reported. AppLovin's CEO released a statement calling the claims "false and misleading."
   
• Walgreens Boots Alliance (WBA) climbed nearly 8% ahead of the open after the Financial Times reported that a takeover could result in a three-way breakup of the company.
   
• eBay (EBAY) dropped 8% ahead of the open, though earnings and revenue beat analysts' expectations. The outlook failed to impress, as the company cited "a challenging macro environment, particularly in Europe," and referred to uncertainty around U.S. tariffs.
   
• Moderna (MRNA) slid 4% in pre-market trading after Bloomberg reported that the Trump administration might pull funding for Moderna's bird flu vaccine.
   
• Dell (DELL) rose 2.3% ahead of the open as investors prepare for its earnings report later today. Its outlook for AI server sales will likely get a close look.
   
• Bitcoin (/BTC) jumped 3.2% but remains sharply lower this week amid what's been a general risk-off trading climate.

The 10-year Treasury note yield (TNX:CGI—candlesticks) retreated further yesterday, hurt by economic slowdown concerns amid new tariff threats. The yield is now below its 100-day moving average (blue line) for the first time since mid-October. At that point, it was rising on worries that economic growth might wipe out chances for several 2025 rate cuts. Now the futures market is beginning to work possible cuts back in.

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

February 28: January Personal Consumption Expenditure (PCE) price index, January personal spending, January personal income.
March 3: February ISM Manufacturing PMI^®, January construction spending.
March 4: Expected earnings from Best Buy (BBY), Target (TGT), AutoZone (AZO), CrowdStrike (CRWD), and Nordstrom (JWN).
March 5: February ISM Services PMI^®, January factory orders, and expected earnings from Foot Locker (FL) and Marvell (MRVL).
March 6: Fourth quarter productivity, first quarter unit labor costs, and expected earnings from JD.com (JD), Kroger (KR), Broadcom (AVGO), Costco (COST), Gap (GAP), and Hewlett-Packard Enterprise (HPE).