Schwab Market Update

Published as of: February 18, 2025, 9:21 a.m. ET

(Tuesday market open) Stocks rose but so did bond yields and volatility to start a shortened week featuring minutes from the Federal Reserve's last meeting, housing data, and earnings from Walmart (WMT). With earnings season about three-quarters done, 78% of S&P 500 stocks have beaten consensus on earnings per share.

Last week's rally to near-record highs helped market breadth, with 55% of S&P 500 stocks trading above their 50-day moving averages, and a wide variety of stocks gaining even with mega caps hot and cold so far this year. "It seems that stocks can maintain a bullish bias provided the economic data and earnings growth estimates hold up and yields on the 10-year Treasury note remain below the mid-January high of 4.8%," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

Trade remains a factor after the White House said last week it's evaluating potential tariffs on a country-by-country basis. "The announcement reinforces our view that while tariffs are likely to rise, they may have more bark than bite—rising by less than threatened," said Michelle Gibley, director of international research at the Schwab Center for Financial Research. "Trying to trade every announcement is fraught with risk. Investors might want to keep a longer-term perspective." So far, that appears to be the case, with the S&P 500 index (SPX) up nearly 4% year to date despite policy twists and turns.

1. Earnings could shed light on tariff impact: Key earnings this week include Walmart, Alibaba (BABA), Baidu (BIDU), Newmont (NEM), and Toll Brothers (TOL). All could provide insight on possible tariff impacts. So far, companies have generally been cautious about updating outlooks with the policy situation uncertain, but investors could be on the lookout for any changes. For many U.S. companies, proposed tariffs are a possible drag on earnings growth because they raise the price of materials. Companies then can choose to pass on those increases to customers, but that might not be welcomed by U.S. consumers exhausted from three years of rising prices. The other option is to eat the costs, which would likely hurt earnings growth. Some analysts think companies might take the 50/50 route, passing 50% of costs on to customers and absorbing the other 50%. Either choice wouldn't appear bullish.
    
2. Latest on rates: Last week's January Producer Price Index raised hopes that the Federal Reserve's favored inflation meter, the Personal Consumption Expenditures (PCE) price index, due February 28, might be benign. Bloomberg Economics now sees January PCE growth of 0.3% month over month, faster than December but still leading to a decline in the year-over-year rate. That sort of PCE, if it comes, probably wouldn't raise rate cut hopes by much, but it might quiet talk that emerged last week about possible hikes. Murmurs to that effect started to percolate after the 10-year Treasury note yield edged above 4.6% last week. The futures market works in no chance of a hike this year, however. Odds of a March rate cut are near zero, but as of early today the CME FedWatch tool shows odds of at least one cut this year at around 84%, likely in the second half. Two Fed officials spoke yesterday, with Fed Governor Michelle Bowman saying she expects inflation to slow further this year.
    
3. Volatility view: This week gives investors a well-deserved rest from the steady flow of key earnings and data earlier this month. Despite all the news, volatility measured by the Cboe Volatility Index (VIX) stayed relatively muted, below 17 versus the historic average of around 20. Still, VIX remains in contango, meaning future contracts trade higher than the spot one, projecting VIX in the 17–19 range over the next six months. Rising VIX can drag on the stock market. "There is high level of uncertainty in the current geopolitical environment, so it may be prudent for traders to remain flexible and not get lulled into complacency," Schwab's Peterson said. One geopolitical current to watch is talks to end the war between Russia and Ukraine, the first round of which ended today and appeared to provide a slight tailwind for stocks.

• Intel (INTC) jumped 5% early Tuesday and is up sharply year to date as talk continues to swirl about its future. Broadcom (AVGO) and Taiwan Semiconductor Manufacturing (TSM) are weighing a possible deal to break up Intel, The Wall Street Journal reported. Such a deal, the report said, would involve Broadcom making a bid for Intel's chip-design and marketing business. TSM has studied controlling some or all of Intel's chip plants.
• Snowflake (SNOW) climbed 2.9% ahead of the open after the cloud-based data storage company received an upgrade from Wolfe Research to Outperform from Peer Perform ahead of earnings next week. The analyst sees better core consumption trends, a more favorable hyperscaler competitive backdrop, and more product momentum driving higher sales growth.
• Nvidia (NVDA) climbed 1.7% in pre-market trading as investors began preparing for the AI chip company to report next week. NVDA shares are up sharply from lows last month associated with China's DeepSeek, which appeared to show competition for Nvidia's expensive technology.
• Lockheed Martin (LMT) climbed 1.6% ahead of the opening bell, but shares of LMT and Northrop Grumman (NOC), another large defense firm, are down over the last month. Investors might be worried by President Trump's comments last week about cutting defense spending.
• The Empire State Manufacturing Survey jumped to 5.7 in February, well above the –2.0 consensus from Briefing.com.

Around the market: Schwab's Weekly Market Outlook provides a quick glance at what to watch in coming days. "Alibaba (BABA) may offer guidance on AI and any possible impact on the planned imposition of U.S. import tariffs on small packages from Chinese sellers to American buyers," said Jeffrey Kleintop, chief global investment strategist at Schwab. Walmart's earnings on Thursday and preliminary February purchasing managers index data on Friday are also on Kleintop's watchlist.

The small cap Russell 2000^® Index (RUT—candlesticks) went down and then up again last week to finish Friday basically where it closed a week earlier, even as the broader market climbed. Technical issues seem to be tripping up the RUT, as it continues to encounter resistance near its 50-day simple moving average (SMA—blue line) near 2,291. The 200-day moving average of 2,196, well below the market, has acted as support. Falling yields late last week appeared to help small caps after they faltered early in the week.

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

February 17: U.S. markets closed for Presidents' Day holiday.
February 18: Expected earnings from Medtronic (MDT), Toll Brothers (TOL), and Baidu (BIDU).
February 19: January housing starts and building permits, expected earnings from Carvana (CVNA).
February 20: January leading indicators and expected earnings from Walmart (WMT), Alibaba (BABA), and Newmont (NEWM).
February 21: January existing home sales and University of Michigan Consumer Sentiment—final.