Crude Still in Control Ahead of Adobe Results, PCE

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.

0:17I'm Keith Lansford, and here is Schwab's early look at the markets for Thursday, March 12th. More inflation and earnings reports await investors before the weekend amid worries that the war and its associated impact on global oil prices could persist longer than initially thought. Those concerns helped keep a lid on stock prices yesterday without stirring any major selling pressure. Crude jumped more than 5 % to nearly$88 per barrel by late Wednesday, despite the International Energy Agency, or IEA, agreeing to release 400 million barrels of oil from stockpiles of its member countries. This would likely add about 4 million to 4.5 million barrels a day of additional supply, Barron's reported.

1:05However, around 15 million barrels of oil a day normally flow through the Strait of Hormuz and as of late Wednesday remained stuck in place. Even 4 million barrels a day is a relatively low amount and possibly explains crude's firmness. Plans by Gulf oil producers to reroute about 7 million barrels a day might help, but wouldn't make up the shortfall. U.S. gasoline prices are up 20 percent over the last 10 days to near$3.60 on average, according to AAA, faster than they rose after the invasion of Ukraine in 2020. For the American consumer, things are getting very real very fast, said Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research.

1:56Longer-term impacts include possible pain for trucking and freight firms, which might pass higher costs along to consumers. This could mean inflation seeping into other areas of the economy and could cause consumers to reduce spending, hurting many sectors beyond transports. Food prices could rise if liquefied natural gas exports from the Middle East, used partly to make fertilizer, continue being blocked. Stocks are captive to oil prices in both directions, said Lizanne Saunders, chief investment strategist at the Schwab Center for Financial Research. The IEA recommendation on release of reserves helps on the margin, but that's a stock story more than a flow story.

2:42At the level of major U.S. equity indexes, there's been resilience, with the S &P 500 index still off just 2 percent from January's all-time highs, but individual stocks have seen far more volatility. Continue to expect violent at times rotations given how much short attention span money there is among traders, Saunders said, adding that margin debt is at a record high.

3:09The February Consumer Price Index, or CPI, yesterday came in right down the middle. headline monthly CPI of 0.3 % and core of 0.2 % excluding food and energy matched Wall Street's expectations. Annual CPI rose 2.4 % also as expected. Digging into the data, apparel prices rose along with fuel costs in February before the war, while a light 0.2 % rise in housing cost increases kept the overall index in check. CPI was relatively benign, helped by continued easing pressure from owner's equivalent rent, Saunders said. That's a housing category highly weighted in the CPI, but not so much in tomorrow morning's January Personal Consumption Expenditures, or PCE, price report, one reason Saunders thinks PCE may remain elevated.

4:03The CPI didn't appear to change minds about the Federal Reserve's meeting next week. The market is aggressively pricing out Fed rate cuts this year, Gordon said. Chances of a rate cut next week are virtually zero, according to the CME FedWatch tool, and odds of at least one cut by June stood at 34 percent late Wednesday, down from 40 percent earlier in the week. Looking ahead, rate watchers might be inclined to dismiss the CPI data since it was compiled before the war began. Still, the Fed historically views data in more than one-month increments and might see the oil spike as a temporary impediment to fighting inflation unless the conflict lasts a while.

4:46The 10-year Treasury note yield climbed sharply Wednesday by seven basis points to near-recent highs, just above 4.2 percent, though CPI wasn't a negative surprise, but the 2.4 % annual increase remained above the Fed's 2 % goal. Rising crude prices also kept pressure on Treasuries amid ideas inflation could worsen. A 10-year Treasury note auction Wednesday saw light demand, according to Briefing.com, following a weak three-year auction the previous day. This is potentially emblematic of auction participants stepping aside and waiting for higher yields in a down market for treasuries. Key data before the weekend includes today's weekly initial jobless claims data and tomorrow's job openings and labor turnover survey, or JOLTS.

5:37The JOLTS data is from January, so a bit old, but still could be closely watched for clues about hiring after jobs growth in February fell 92 ,000. Consensus is 6.7 million openings, up slightly from 6.54 million in December. Generally, job openings have tracked downward over the past few years from post-pandemic peaks above 10 million. Before the pandemic, a monthly reading of around 6 million was common. Tomorrow's PCE Price Index, a report the Fed eyes closely for inflation, could show monthly 0.3 % headline growth and 0.4 % for core, compared with 0.4 % for both in December, according to Briefing.com consensus.

6:24Housing starts and building permits for January, along with weekly initial unemployment claims, are all due before today's open. Earnings get a bit more attention today as Adobe, Lululemon, Dick's Sporting Goods, and Lenar prepare to report. Lululemon recently traded at multi-year lows, and earnings come amid a proxy battle as founder Chip Wilson tries to change the company's board, news first reported earlier this year by the Wall Street Journal. Last time the firm reported it beat expectations, but its U.S. business remained under pressure and also recently went through a CEO transition. Adobe shares were on the rise earlier this month from recent one-year lows, but remain down dramatically from the one-year peak brought down with most of the software sector by AI fears.

7:17Adobe has countered with its own AI offerings. Last time out in December, Adobe narrowly beat consensus views with its results and offered upbeat guidance projecting fiscal first quarter revenue of between$25.9 billion and$26.1 billion. In other news, the Schwab Trading Activity Index, or STAX, rose to 57.32 in February, up from 49.96 in January. The trading behavior seen among Schwab retail clients could suggest they believe the AI-driven panic that rattled the markets in February was overblown and used it as an opportunity to pick up some battered stocks. Technically, major indexes traded in a relatively tight range yesterday, with the S &P 500 index unable to break above this week's highs on an intraday upward swing, but also staying well above recent lows.

8:15Any break below current levels might set up another test of lows below 6 ,700 reached last November and again earlier this week. The 200-day moving average of 6 ,596 hasn't been broken in almost a year. Major indexes on Wednesday performed much as they did Tuesday, with all lower save-for-light gains in AI-related stocks, including Oracle, that gave the Nasdaq a slight lift. Oracle's strong earnings and higher guidance might have given AI investors a bit more confidence to invest in some of the big chip and hyperscaler names. The PHLX Semiconductor Index rose 0.6 % yesterday and has almost wiped out its losses for the month.

9:00Memory chip names including SanDisk and Micron helped lead the charge once again. Micron reports next week. Most S &P 500 sectors declined Wednesday for the second straight session, though a 2.3 % rally for energy helped the market avoid even sharper losses. Most sectors stayed within 1 % of Tuesday's closing levels, indicating perhaps that few participants wanted to take large new positions either way amid war and oil uncertainty. That said, staples fell 1.3%, both on weak earnings from Campbell's and ideas that a longer-lasting conflict keeping gas prices high over an extended period might hit consumer wallets.

9:47In individual trading Wednesday, Oracle climbed 9 % after quarterly earnings and revenue topped consensus and fiscal fourth-quarter earnings guidance also exceeded Wall Street's thinking. Oracle's results might be another boost for the chip sector, which saw some strength in trading ahead of the open today. Asset management firms such as Aries Management and Apollo Global Management came under pressure again Wednesday on credit concerns that surfaced several weeks ago. JPMorgan Chase marked down loans held by private credit firms, the Financial Times reported, targeting software loans in particular.

10:26All this weighed on the financial sector Wednesday, and it's the second worst performing S &P 500 sector over the last week. And Campbell's tumbled 7 % as the company missed Wall Street's quarterly revenue expectations. The soup giant also missed analysts' consensus for first-quarter earnings per share and lowered its fiscal earnings per share in organic net sales guidance. This appeared to hurt sales of other packaged food makers, too, including ConAgra and General Mills.

11:00The Dow Jones Industrial Average lost another 289.24 points Wednesday, or 0.61%, to 47 ,417.27. The S &P 500 Index gave back 5.68 points, or 0.08%, to 6 ,775.80. and the Nasdaq Composite inched up 19.03 points or 0.08 % to 22 ,716.13. 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.

11:59For important disclosures, see the show notes and schwab.com slash market update podcast.