Fed Minutes Loom as Cautious Trading Persists

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 Wednesday, February 18th. Today's minutes from the January Federal Open Market Committee meeting could shed light on the decision to pause rates after three consecutive cuts. It also might provide clarity on how Fed officials view economic conditions and what might inspire them to cut rates further. The minutes due at 2 p.m. Eastern time follow another disappointing session Tuesday in which midday gains couldn't hold, leaving major indexes up just a fraction for the day.

0:52A small batch of earnings results last night from tech and homebuilder stocks could help set today's tone. Earnings season is winding down, with more than 75 % of S &P 500 firms reporting. Tuesday afternoon featured results from Constellation Energy and cyber security firm Palo Alto Networks. Both touch on the AI space, with Palo Alto down sharply since last fall on worries of slowing demand. Toll Brothers, a home builder that caters to the luxury market, also delivered results late yesterday. For Palo Alto, the suffering continued after its report. Shares initially dropped 5 % in post-market trading after the company issued below-consensus guidance.

1:38Quarterly earnings were better than expected. Data mounts as the week advances, with many key numbers due early Friday, including the government's first estimate of fourth-quarter gross domestic product growth and the Personal Consumption Expenditures, or PCE, price index for December. PCE is the Federal Reserve's favorite inflation metric and is seen coming in a bit warm. For headline PCE, the briefing.com consensus is 0.3 % month over month. Core PCE, excluding food and energy, is seen up 0.4%. Both would advance from 0.2 % the prior month. Year-over-year numbers also stand in the spotlight after rising 2.8 % in November, well above the Fed's 2 % goal.

2:28Several services readings in the Producer Price Index, or PPI, that pull through to PCE led analysts to suspect that the PCE could remain stubbornly high with another 2.8 % annual gain. Federal Reserve speakers pepper this week's calendar and now can opine on January jobs growth as well as recent producer and consumer prices. The PCE isn't the last piece of the puzzle heading into next month's Fed meeting, with another jobs report and more inflation data due before that. Meaning the Fed has plenty of time to decide if another rate cut is warranted after January's pause. Last year's surprisingly weak U.S.

3:10jobs growth, now clear after the Bureau of Labor Statistics issued its annual revisions recently, could be a factor for some policymakers. However, unemployment is still historically low, and the light 2025 job gains could reflect factors other than a slowing economy, including less immigration. As of late Tuesday, odds of a March rate cut were 8%, but chances climbed by mid-year to 64 % of at least one rate cut, according to the CME FedWatch tool.

3:44Treasury yields remain sharply down from recent levels, partly a function of last week's benign Consumer Price Index, or CPI, but also reflecting investors seeking perceived safety amid the tech market sell-off. The 10-year note hasn't had a yield below 4 % since October, but that came into sight early this week. Still, until inflation clearly moves towards the Fed's goal of 2%, and its unlikely yields can drop much further. Besides Fed policy, this week could provide clues on tariffs amid murmurs that the Supreme Court could issue its long-awaited decision on President Trump's tariffs, perhaps as soon as Friday.

4:24Trump might lose the case, but the question is how wide a ruling the court might make, as well as how quickly and effectively Trump can find other ways to impose trade restrictions. The main earnings event this week is tomorrow morning's Walmart results. Shares spiked early this year, helped by general strength in the consumer staples arena as investors rotate out of tech and into what they consider value parts of the market. Walmart got another positive jolt earlier this month when John Ferner, a veteran of the company, took command as CEO, which appeared to cheer market participants. Last time, Walmart reported it beat analysts' expectations and raised its Fulier forecast.

5:07One question for Walmart and other retailers that follow it next week is how consumer demand might be affected by the expiration of COVID-era health care subsidies. Many consumers face rising costs after Congress allowed those to end and retail sales were flat in December, a possible headwind for retailers. Despite two weeks of losses, market breadth remains healthy, with nearly 64 % of S &P 500 stocks above their 50-day moving averages. This means the S &P 500 Equal Weight Index could provide a better sense of the broader market, since it weighs all stocks equally rather than by market weight.

5:47On Tuesday, the Equal Weight Index trailed the S &P 500 Index after outpacing it last week, a sign of cash resuming its flow into large-cap tech stocks. Whether that has legs is unclear, as concerns about AI substitution and heavy data center spending haven't gone away. The S &P 500 index hovers above its 100-day moving average near 6 ,814, a possible support point on any pullbacks. The index closed just two points above that on February 5th, but hasn't settled below it in three months. The bright spot is that the S &P 500 is trying to bounce off the bottom of its trading range, said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research.

6:37Tuesday marked the third straight session where rally attempts flagged late in the day, historically a sign of a market that's tiring and perhaps can't generate enthusiastic buying interest on moves higher. The midday gains accompanied a slide in volatility. lower treasury yields, and signs of dip buying in the battered tech sector. Some sort of catalyst could be needed to give the market a jolt one way or the other, and NVIDIA's earnings a week from now could help set the direction. Tech did manage a higher close yesterday despite more software pressure, as did the slumping financials sector.

7:14Real estate also got a boost thanks in part to falling treasury yields. The 10-year Treasury note yield was steady Tuesday and finished just below 4.06%, staying at nearly three-month lows. Volatility gave some ground Tuesday, with the SIBO Volatility Index, or VIX, remaining above 20, evidence of caution and elevated hedging activity. The VIX has been in a pattern of higher highs and higher lows since late last year, underscoring the cautious environment. Only four of the S &P 500 sectors ended higher Tuesday. Three sectors fell more than 1%, with staples and materials among them. This appeared to represent a slight shift from last week's pattern, where value and defensive stocks led the way.

8:02Materials weakness Tuesday also reflected weak precious metals prices, which might struggle to find buyers this week, with China's markets closed for holidays. In Individual Trading Tuesday, Warner Bros. Discovery rose 2.7%. The company announced it will hold a special meeting of shareholders to vote on the merger with Netflix on March 20th. Warner Bros. Discovery also announced that Netflix has given Warner Bros. Discovery a seven-day period ending February 23rd to allow Paramount Skydance to make its best and final offer. Danaher slid almost 3 % on news the health care company plans to buy medical device maker Massimo for almost 10 billion dollars according to the Financial Times shares of Massimo leaped 34%.

8:53Norwegian cruise lines jumped 12 % after the Wall Street Journal reported that activist Elliott Investment Management has built a 10 % stake in the company. Software stocks continued to struggle with App11, ServiceNow, and Adobe losing more ground. EV firm Rivian Automotive skidded 7 % after a downgrade from D.A. Davidson. Southwest climbed 6%, and other airlines followed in its wake. UBS upgraded shares to buy from Neutral, seeing upside to the airline's recent moves to provide extra legroom and assigned seating. Apple rose 3 % as investors appeared excited about new product announcements scheduled for early next month.

9:37Micron fell 2.9 % on a Wall Street Journal report that the company plans to spend$200 billion on expanding memory capacity. Chip stocks, including Broadcom and NVIDIA, made solid gains Tuesday, pulled higher in part by a positive Citigroup note on NVIDIA and building on recent gains from early February lows. Palantir and Qualcomm also posted gains in the tech sector. Zim integrated shipping services soared 25 percent on news that the Israeli shipping firm is going to be acquired by German rival Hoppeg Lloyd for$4.2 billion, Barron's reported. And Bitcoin slid another 1.5 percent, extending its long decline of more than 50 percent from last October's highs.

10:23Bitcoin may have bottomed after finding support near its 200-week moving average, said Jim Ferrioli, Director of Crypto Research and Strategy at the Schwab Center for Financial Research.

10:37The Dow Jones Industrial Average added 32.26 points Tuesday, or 0.07%, to 49 ,533.19. The S &P 500 index climbed 7.05 points or 0.10 % to 6 ,843.22. And the Nasdaq Composite gained 31.71 points or 0.14 % to 22 ,578.38. 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.

11:33For important disclosures, see the show notes and schwab.com slash market update podcast.