BOJ Decision, FedEx, and Nike Results Follow Rally

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 Colette O 'Claire, and here is Schwab's early look at the markets for Friday, December 19th. Central banks move to the front of the room today, as the Bank of Japan, or BOJ, is widely expected to hike rates in its fight against inflation. The anticipated hike, which hadn't happened yet as of this recording, follows a rate cut by the Federal Reserve last week and a pause by the European Central Bank earlier this week that narrowed the gap between U.S.

0:46and overseas rates. The BOJ focus came after solid results and guidance from Micron, and an upbeat November Consumer Price Index pulled major U.S. indexes out of the injury tent. Still, the S &P 500 index is on pace for a second straight weekly decline as Friday opens and fell four sessions before Thursday's rebound. Earnings from FedEx late yesterday topped consensus, and the company raised its fiscal 2026 revenue outlook to 5 % to 6 % from the previous 4 % to 6%, but the results didn't initially move the needle much for shares. They rose 1 % initially in post-market action. Nike also beat earnings and revenue consensus, but shares initially fell slightly, possibly reflecting a 17 % decline in revenue for its important market in greater China.

1:40Getting back to central banks, a BOG hike could mean investors there pull out of U.S. investments to put their money to work at home. When this happened in mid-2024, it caused a sell-off for Infotech stocks. The decision is in little doubt, but any hawkish comments from BOJ policymakers could raise pressure on U.S. assets. Longer-term U.S. Treasury yields might get scrutinized after the BOJ move, though recent pressure on treasuries, which move opposite of yields, eased Thursday following CPI. Headline CPI rose 2.7 percent year-over-year, down from the previous increase of 3 percent and edged up 0.2 percent from September.

2:23Core CPI, excluding food and energy, rose 2.6 percent year-over-year and 0.2 percent from September. Analysts had expected 3 percent annual core and headline growth and 0.3 percent monthly growth, though there was no October data due to the shutdown. The two-month CPI rise of 0.16 percent was the lowest two-month increase since early 2021. This report was a step in the right direction, said Colin Martin, head of Fixed Income Research and Strategy at the Schwab Center for Financial Research, or SCIFR. Although the report was incomplete given the government shutdown, the year-over-year changes in both headline and core CPI came in well below expectations.

3:08We'll want to see more complete data over the next few months to confirm this trend, but it should alleviate the concerns for some of the Fed officials who have been worried about inflation stickiness. The 10-year Treasury note yield fell four basis points to 4.12 percent Thursday, the lowest close since December 4th after CPI eased inflation concerns. Falling yields often help rate-sensitive stocks, including small caps, utilities, real estate, and staples. Chances of a Fed rate cut in January were just below 27 percent late Thursday, according to the CME FedWatch tool. That's about as high as it's been this week, but still on the light side.

3:50A better chance might come in March when futures trading indicates at least 50 % odds of rates being lower than today. The CPI data doesn't change our view of a pause in rate cuts in January, Martin said, but more data like this could pull forward the timing of the next cut. One concern is incompleteness of data given the shutdown and October's lack of numbers. I worry about revisions given the incomplete nature, Martin said. November CPI data didn't start getting collected until mid-month, possibly affecting some readings. Also, analyst consensus for year-over-year CPI was 3.1 percent and the actual was 2.7 percent, representing the biggest analyst miss since May 2009, according to Bloomberg.

4:40Shutdown-related shakiness puts next month's December CPI on the front burner, along with December's jobs report. Until then, investors might want to proceed cautiously when it comes to reliance on government numbers, said Kathy Jones, chief fixed income strategist at Skiffer. Micron catapulted 10 % Thursday and provided a lift for chips as a sector and tech in general. The high-bandwidth memory chips Micron makes are used in AI data centers, meaning it is an AI barometer, and demand for those chips helped boost Micron's results. The company's results initially eased concerns about the AI spending spree running out of steam, but it likely won't reduce concern about the debt-fueled nature of some of that spending that helped capsize Oracle shares earlier this week.

5:32One day doesn't necessarily change the recent pattern of investors rolling out of tech and into other sectors, evident in the fact that 63 % of S &P 500 stocks have outperformed the index over the last month, even as the market cap-weighted index itself fell. Rotation is still underway, as many AI-related stocks correct, said Lizanne Saunders, chief investment strategist at Skiffer. Analysts expect slower earnings growth in the tech and communications sectors next year, but accelerating earnings in sectors like materials, industrials, utilities, and energy, all of which have AI connections. These sectors outpaced tech and communications recently, perhaps signaling that another phase of the AI build-out, construction, is well underway and could be an additional driver of 2026 growth.

6:28ConAgra reports early today, after a tough year for packaged food makers amid changing consumer trends. And that about wraps up 2025 earnings. Fresh earnings resurface in mid-January when big banks kick off fourth quarter reporting season. Today also brings final December University of Michigan consumer sentiment after the preliminary data edged up slightly but remained near historic lows. Briefing.com consensus for headline sentiment is 53.3. unchanged from the preliminary but down sharply from 74.0 a year ago. For the second straight Thursday, Wall Street rallied, though major indexes finished well off their intraday highs.

7:12Volatility eased as well, with the SIBO Volatility Index under 17 as hedging activity remained relatively quiet. Last Friday saw stocks dive heading into the weekend, so the question is whether strength can persist another day. Momentum hasn't been easy to find recently for the index, which depends a great deal on the biggest members for strength. Checking sectors, Infotech and Communication Services rebounded Thursday, thanks partly to earnings cheer from Micron that revived hopes that strong AI demand continues. However, these sectors have been quite choppy day-to-day, and tech as a sector is down more than 7.5 percent from its October peak.

7:56Around three-quarters of S &P 500 sectors gained yesterday, and only energy suffered a worse-than-one percent loss. That came despite a light gain in oil prices. In individual trading Thursday, GE Vernova climbed four percent after Jeffries upgraded shares to buy from hold, citing optimism around gas pricing and the outlook for electrification. Micron jumped 11 percent Thursday. Guidance far exceeded analysts' expectations, but also led to some concerns that demand for memory chips may be cresting in what's traditionally a cyclical market. Semiconductors as a sector rose more than 2.5 percent yesterday, but remained down sharply over the last week due to recent sell-ups in Broadcom and NVIDIA.

8:48Shares of Micron competitor Seagate Technology climbed 5 % as Micron's earnings suggested solid demand in the space. Rivian rose more than 15 % after getting upgraded to Outperform by Baird, which previously had a neutral rating. The firm said 2026 will be the year of the R2 launch. That vehicle is an electric five-seat SUV expected to be priced starting at$45 ,000. Lululemon climbed nearly 4 % Thursday after the Wall Street Journal reported that Elliott Investment Management has accumulated a stake of more than$1 billion in the company. Elliott is also bringing a potential CEO candidate to the struggling athletic apparel maker in an attempt to turn the company around, the newspaper said.

9:37Lululemon announced last week that its CEO will step down in January. The Dow Jones Industrial Average climbed 65.88 points Thursday, or 0.14%, to 47 ,951.85. The S &P 500 index added 53.33 points, or 0.79%, to 6 ,774.76. And the Nasdaq Composite climbed 313.04 points, or 1.38%, to 23 ,006.36. This has been the Schwab Market Update podcast. To stay informed, visit schwab.com slash market update or follow for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or review. It really helps new listeners find the show. Join us for another update Monday.

10:45For important disclosures, see the show notes and schwab.com slash market update podcast.