After Ceasefire Rally, Focus Turns to Inflation

0:05Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Thursday, April 9th. With a temporary Middle East ceasefire in place, the market could return to its regular knitting today, focused on key inflation and economic growth data. However, the suspension of conflict doesn't mean Wall Street can simply get back to normal. The shipping logistics take time to recover, and the sudden peace seems fragile. Negotiations between the U.S. and Iran are expected to resume tomorrow and their progress is likely to remain under close market scrutiny Fragile is the exact word used Wednesday by the Trump administration to describe the two-week truce with the two countries still at odds at how traffic through the Strait of Hormuz will be regulated Ceasefires can be shaky and terms aren't necessarily acceptable to both sides There's also no guarantee the hostilities will end following this short period.

1:17Reinforcing that, Iran briefly blocked straight traffic Wednesday, claiming it was a response to Israel's continued attacks on terrorist group Hezbollah in Lebanon. Then Iran told mediators it would let just a dozen ships a day through and would charge tolls, the Wall Street Journal reported Wednesday. Only four ships passed through that day, compared with 100 before the war. Normally, about 20 million barrels of oil, or 20 percent of world daily production, move through the strait each day. It's likely too soon to assume calm waters, literally and figuratively, over the next two weeks, said Lizanne Saunders, chief investment strategist at the Schwab Center for Financial Research.

2:00More than 800 container ships remain stuck inside the Gulf. Bottom line, this doesn't appear to be over. Even if the straight situation improves, real-world shipping and inventory normalization takes time, so this is de-escalation, not resolution. The near-term question is whether improved headlines translate into durable, verifiable normalization in real-world flows. If not, crude can snap back. Even with no damage, energy logistics take time. Ships need repositioning and loading, while voyages to Asian refineries can take weeks. That lag is why de-escalation can look cleaner in prices than it does in the supply chain.

2:47Crude fell as low as$92 per barrel for U.S. futures early yesterday, but got some of those losses back by the end of the day and finished down about 14 % at around$96 a barrel. This morning, focus turns to February's Personal Consumption Expenditures, or PCE, Price Index, due at 8 a.m. Eastern Time. The core PCE Price Index, which excludes volatile food and energy prices, rose 3.1 % year-over-year in January, its highest level in nearly two years, and that was well before the war started. For February monthly PCE, analysts expect 0.4 % headline growth and 0.3 % core, according to Briefing.com.

3:34That's not much changed from January, but doesn't reflect data from after the war when oil prices spiked. With that in mind, investors might discount the report to some extent. Also at 8.30 a.m. Eastern Time, the government delivers its final estimate of fourth-quarter gross domestic product, or GDP, growth. Last time out, the estimate fell to a seasonally adjusted annual rate of just 0.7 % from the prior 1.4%. PCE is the inflation meter the Federal Reserve watches most closely. While today's data might not get as much credence as some PCE reports due to the pre-war data collection, the interesting thing to watch is how Fed funds futures react.

4:18The ceasefire news put a possible 2026 rate cut back into the picture, according to the CME FedWatch tool. But if inflation remains sticky, those odds could fall. One report, of course, won't be a make-or-break proposition. And the Fed remains concerned about unemployment, too, despite the solid March jobs data. Minutes from the Fed's last meeting, released late Wednesday, showed policymakers concerned about both higher inflation due to the war, but also worried that an extended conflict could lead to job cuts. Some officials argued a rate hike might be needed at some point and argued for two-sided language in future interest rate decisions.

5:01The meeting occurred several weeks ago. As of late Wednesday, odds of a rate pause at this month's Fed meeting remained near 100%, which would make April the third straight meeting to keep the target range between 3.5 % and 3.75%. That's a level Fed Chairman Jerome Powell says he feels is a good vantage point for the Fed to adjust up or down depending on economic circumstances. Chances of any rate cut this year stood near 25 % late Wednesday and should be tracked closely after the data. There's more inflation news on TAP at 8.30 a.m. Eastern Time Friday when investors receive the March Consumer Price Index, or CPI.

5:44This data is a little newer and likely reflects the early March impact of spiking crude prices. Annual headline CPI is seen up 3.3 % year-over-year, but just 2.7 % for core CPI. With so much volatility last month as the war started and oil surged, it might be best to take near-term data with a grain of salt. April's data due next month might be more helpful, showing where things landed after the first rumblings of conflict played out in the market. A$39 billion 10-year Treasury note auction met weak demand yesterday following Tuesday's solid three-year note sale. The 10-year auction drew a high yield of 4.282%, Briefing.com noted, above the level initially traded in the Treasury market Wednesday.

6:36Treasuries quickly adjusted, with the 10-year yield jumping to 4.28 percent by late in yesterday's session, from lows of 4.20 percent earlier. It appears unlikely Treasuries will drop much below 4 percent any time soon, barring a recession, but resistance appears to have been established at 4.5 percent last month. Constellation Brands, a beer, wine and spirits marketer reported late Wednesday and its earnings call is early today, providing some updated news on consumer demand. First quarter earnings accelerate next week, starting with Goldman Sachs on Monday and followed by JPMorgan Chase and several other major banks the next day.

7:20I think the guidance is going to be murkier this earnings season, Saunders told CNBC earlier this week. Analysts will undoubtedly be probing companies about how the vagaries of energy prices and supply disruptions are playing into the cost side of their equations and how they are adjusting to those realities. In trading Wednesday, stocks surged 2.5 % or more for every major index, crude oil prices plunged, and treasury yields eased on the ceasefire news. The robust relief rally suggested market participants were caught off guard and hadn't completely positioned themselves. The question is whether that was a one-day event or if it triggers more animal spirits in coming days.

8:06The S &P 500 index is now down just about 3 % from January's all-time highs, even with the Middle East situation far from stable. Markets priced in, a fast unwinding of the geopolitical risk premium, but real-world shipping and inventory normalization takes time. The question is whether improved headlines translate into durable, verifiable normalization in real-world supply flows. The SIBO Volatility Index, or VIX, dropped sharply to around 21 yesterday, near the historic average, and down from peaks last week above 30. This looks like what traders call a de-risking unwind consistent with a relief rally, but it doesn't mean risk is gone, just that the market is paying less for immediate disaster insurance.

8:57Technically, the S &P 500 index surpassed its 200-day moving average of 6 ,655 for the first time in two weeks. It also topped its 50-day average. That sets up the 100-day moving average of 6 ,804 as another level to watch. The Nasdaq 100 leaped above its 200-day moving average of 24 ,488 and approached its 100-day of 25 ,022. Checking Wednesday's individual performers, Delta Airlines popped 3.75 % after the company's earnings beat estimates and crude oil fell dramatically, possibly reducing one of the company's largest costs. Other airline stocks, including United Airlines, also climbed double digits.

9:45Micron surged 7 percent, and other stocks related to memory chips also got a boost on the suspension of conflict. These stocks had been coming back from recent weakness and appeared to get a fresh boost from hopes that the global economy could be helped if fighting diminished. Western Digital and Sandisk were other big gainers on the memory sign. Norwegian Cruise Line and Royal Caribbean gained 7 % and 4 % respectively. Fuel is a big cost for these companies and a strong global economy is helpful for cruising demand. Along with airlines and cruise lines, the tech sector appeared to gain most from the ceasefire agreement.

10:26Worries about shipping interruptions, fuel costs, and supply shortages dogged the sector throughout the war. Some shares gaining Wednesday included ASML, Applied Materials, CoreWeave, Broadcom, and Taiwan Semiconductor Manufacturing. Intel led with an 11.4 % gain, but chip leader NVIDIA rose just 2.2%. Crypto-related stocks, including Circle Internet Group and Strategy, rose more Wednesday as Bitcoin jumped 3.4 percent following the ceasefire agreement. Rising crypto prices often go hand-in-hand with risk-on sentiment in the market. Gold prices climbed 1.5 percent, helping lift mining shares, including Freeport-McMoran and Newmont.

11:16Silver was much higher, up more than 3.6 percent. Metals prices had sagged during the war, in part as rate hike odds climbed around the world, but also on concerns about economic demand. Tesla slipped 1 % as oil prices fell, leading to concerns that EV demand might not grow as much as expected. Palantir fell 6 % Wednesday. Some analysts cited valuation concerns and an unwinding of the war premium. And energy stocks took a hit from falling crude oil Wednesday. Some companies losing ground included ConocoPhillips, ExxonMobil, Valero Energy and Chevron. The Dow Jones Industrial Average soared 1 ,325.46 points Wednesday or 2.85 percent to 47 ,909.92.

12:13the S &P 500 index surged 165.96 points or 2.51 % to 6 ,782.81, and the Nasdaq Composite rose 617.15 points or 2.80 % to 22 ,634.99. Though the 2.51 % gain for the S &P 500 index was impressive, it was only the second-best day since the start of the war. This has been the Schwab Market Update podcast. To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow.

13:13For important disclosures, see the show notes and schwab.com slash market update podcast.