More Bank Earnings, Jobless Claims, TSM Ahead

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, January 15th. Bank earnings roll on today with Goldman Sachs and Morgan Stanley on tap, along with some regional banking names. Earnings so far this week from the bank industry have been a mixed bag, but selling hit even those reporting strong results. Earnings from large financial firms often set the tone for the entire quarterly reporting season, which accelerates next week with companies like Netflix and United Airlines. Before that came this morning's results from Taiwan Semiconductor Manufacturing, a key barometer of chip industry demand that manufactures semiconductors for many firms, including NVIDIA.

1:02Strength or weakness in TSM can have implications for the tech sector, which fell yesterday on fresh signs of trading challenges with China. This morning's final batch of reports from the largest U.S. banks once again puts focus on loan activity, credit quality, net interest income, and trading volume. The banking sector dragged earlier this week due in part to a surprise decline in JPMorgan Chase's investment banking fees last quarter and concerns about higher spending possibly hurting margins for some other big banks that reported. Pressure on shares could also reflect ideas that solid earnings had been priced in during the long rally for many of these stocks.

1:44The data flow diminishes today after a flurry of numbers Tuesday and Wednesday. Weekly initial jobless claims due at 8.30 a.m. Eastern Time are next, with briefing.com consensus at 210 ,000. That would be near the low end of the long-term range and cause little worry of an economic slowdown. However, December's non-farm payrolls data brought evidence of slow hiring trends, which could mean continuing jobless claims rise over the longer haul. Another report to check later today is the government's data on long-term inflows into the U.S. Treasury market. This report's importance grew over the last year amid concerns of investors fleeing from U.S.

2:28assets due partly to rising debt and perceived threats to Federal Reserve independence. Recent Treasury auctions, however, enjoyed solid demand, easing those concerns somewhat.

2:43In data yesterday, December's Producer Price Index, or PPI, showed wholesale inflation up 0.2 percent in line with consensus. Core PPI, excluding food and energy, was flat and below the 0.2 percent estimate. On a year-over-year basis, however, PPI rose 3 % above the 2.7 % consensus and the previous month's 2.8%. Core annual producer inflation moved up to 3 % from 2.9%. Producer prices can be a canary in the coal mine for what consumers will pay in the future. The sharper-than-expected annual rise in PPI, accompanied by a relatively cool consumer price index earlier this week, might work their way into estimates for December personal consumption expenditures or PCE prices, which the Fed uses to track inflation.

3:36PCE is normally released the last week of the month, but the shutdown affected the process and it's unclear when investors will receive updated data. PPI generally came in hot on a year-over-year basis, but the monthly numbers generally met or came in lower than expectations, said Colin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research. Treasury yields could hold their current range until investors grow more confident that economic data no longer reflect possible inaccuracies caused by last fall's government shutdown, Martin added. Yields might also hold in their range until investors see the current situation of relatively solid gross domestic product or GDP growth and sticky inflation changing.

4:22The benchmark 10-year Treasury note yield fell three more basis points Wednesday to 4.14 percent and is down for the week. But the Atlanta Fed's GDP Now fourth quarter GDP estimate rose to 5.3 percent from 5.1 percent. Several Fed speakers this week have hinted they see no reason to reduce rates further for the moment. Odds of a Federal Reserve rate cut stood at 5 percent after Wednesday's data, according to the CME FedWatch tool. That was little changed from a day earlier, and the futures market bakes in relatively low odds of any cut at all before the Fed's June meeting. November retail sales, another Wednesday report, rose 0.6 percent versus a 0.4 percent consensus.

5:06That was a rebound from a revised 0.1 percent decline in October, but again, some of the fall numbers might have been affected by the shutdown. Of the two reports early yesterday, retail sales got more initial attention. More of the focus is on retail sales, given the inflation data are still plagued by the government shutdown, said Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research. The jump in November sales confirms that consumers had relatively strong demand heading into the holiday season, and it was good to see healthy breadth across categories.

5:42There was slight downside in that October sales were revised down, but not by enough to cause major concern.

5:54More on Wednesday's market action in a minute, but if you'd like to receive market news and actionable insights from Schwab's experts, sign up for the Daily Market Update and more at schwab.com slash newsletters.

6:11Major indexes struggled Wednesday but finished off their lows. Technically, strength remains on the charts, and the S &P 500 index didn't approach a key technical level at its 50-day moving average of 6 ,824 even at yesterday's lows. Though the index fell more than 0.7%, the percentage of S &P 500 stocks trading above their respective 50-day moving average actually rose slightly Wednesday to 68 percent, highlighting how weakness mainly showed up in the highly capitalized tech sector. That said, the S &P 500 index is now down two straight days and lower for the week. Technology stocks backtracked more than one and a half percent Wednesday.

6:55On news reports, the China would only allow imports of NVIDIA's H200 chips for special circumstances, and that Beijing had told companies not to use cybersecurity technology made by U.S. and Israeli firms. This double whammy hit both semiconductor and cybersecurity stocks. NVIDIA, Arm Holdings, Micron, and Broadcom were among the chip firms hurt Wednesday, while cybersecurity company CrowdStrike Holdings lost ground as well. The new concern over China and NVIDIA came just a day after the U.S. approved that chip for China with some conditions, Reuters reported. Despite weakness in tech and consumer discretionary, which was dragged by Tesla, major indexes recovered late in the day to finish well off their lows.

7:43In this, they received help from reports Wednesday afternoon that Iran might de-escalate action against protesters. President Trump said the killing in Iran is stopping. This seemed to ease concerns that the two countries might engage in any near-term skirmish though geopolitics can change quickly, and Trump has said he'd consider strikes on Iran over its crackdown on protests. Silver and Bitcoin both climbed again Wednesday on geopolitical turmoil, and Bitcoin climbed above$97 ,000 for the first time in two months. Shares related to crypto performed well. All this activity appears to correlate with market participants looking beyond the dollar, but the dollar index barely fell Wednesday and remains in the middle of its near-term range, just above the 50-day moving average.

8:37A slight majority of S &P sectors climbed yesterday, led by energy amid rising crude oil prices linked to tension around Iran. Oil pulled back late Wednesday as tensions eased. Staples and utilities, both defensive areas, continued climbing as they have most of the week, a sign of possible rotation away from tech or general caution amid both domestic and international concerns that peppered Wall Street over the last week. Volatility remained elevated above 17 for the SIBO Volatility Index. The creep higher in the VIX may be suggesting some near-term uneasiness as fourth-quarter earnings season gets underway, whether it's earnings expectations that may be fully priced, which could skew post-earnings reactions to the downside, Fed independence, or shots on the financial sector, such as proposals to limit credit card rates and ban some buying for large investors, said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research.

9:40search. Checking individual performances Wednesday, Wells Fargo dropped 4.6 percent following earnings that appeared to disappoint. Though the company's per share results exceeded analysts' earnings expectations, revenue fell short of consensus with a 4.5 percent year-over-year rise. That interest income rose 4 percent, driven by higher loan and investment securities balances, the company said. Bank of America fell 3.8 percent despite beating analysts' earnings and revenue estimates, driven in part by a 10 percent rise in net interest income that reflected strength in global markets activity, fixed rate asset repricing, and higher deposit and loan balances.

10:23Shares fell amid concerns about rising costs for the company, Bloomberg reported. Citigroup dropped 3.3 percent after quarterly revenue results fell short of consensus. Earnings per share surpassed the average Wall Street expectation, however. Revenue weakness might have reflected a 1 % drop in the markets division, driven by lower fixed income and equity revenue. And Tesla fell 1.8 % Wednesday after CEO Elon Musk announced a shift to subscriptions only for full self-driving, Barron's reported. Meanwhile, EV maker Rivian Automotive slid 7.5 % after getting downgraded by UBS to sell. Additionally, the National Highway Traffic Safety Administration issued an urgent warning related to Chinese airbag inflators used by many car companies, which might have hurt shares across the industry.

11:21The Dow Jones Industrial Average dropped 42.36 points Wednesday, or 0.09%, to 49 ,149.63. The S &P 500 Index shed 37.14 points, or 0.53%, to 6 ,926.60. and the Nasdaq Composite lost 238.12 points, or 1%, to 23 ,471.75. This has been the Schwab Market Update podcast. To stay informed, visit www.schwab.com slash marketupdate 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.

12:19For important disclosures, see the show notes and schwab.com slash market update podcast.