Nvidia, Retail Earnings and Jobs Report 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. I'm Keith Lansford, and here is Schwab's early look at the markets for Monday, November 17th. NVIDIA and a host of retail earnings loom this week following Wall Street's recent anemic performance. Concerns about growing Federal Reserve hawkishness and AI valuations took their toll, and the days ahead could shed light on investors' risk appetite now that the tech rally has faded a bit. To some extent, that hinges on government data, but skies are still foggy when it comes to numbers.

0:49The government reopened from its six-week shutdown last Thursday, and some data begins filtering in later this week, including September's jobs report on Thursday. Labor market concerns led the Fed to two rate cuts in September and October, but chances of another cut in December fell to around 44 percent by late Friday from 66 percent at the start of last week, according to the CME FedWatch tool. The likelihood of a December rate cut continues to decline, said Colin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research. Fed speakers last week sounded increasingly hawkish, with Minneapolis Fed President Neil Kashkari saying he sees underlying resilience in economic activity and suggesting he's undecided on how to vote, Bloomberg reported.

1:38And Kansas City Fed President Jeff Schmid, who voted against the October cut, warned that rate cuts won't do much to patch cracks in the labor market and could have longer-lasting effects on inflation.

1:54Magnificent Seven and AI stocks took it on the chin late last Thursday as the semiconductor space fell to nearly one-month lows. selling blanketed the sector before a slight rebound Friday, hitting the biggest and smallest tech firms alike. This followed months of concern about a possible AI bubble as valuations climbed. It's harder to spend when rates are at their current moderately high level, between 3.75 % and 4%, and that's where hawkish Fed talk and the AI sell-off collide. There's little coincidence that the tech plunge accompanied a plunge in rate-cut odds as the long rally partly built in an accommodating central bank.

2:37EDA Platforms and Oracle both are at the center of AI financing concerns with both facing interest payments. The 10-year U.S. Treasury yield climbed four basis points Friday and six for the week to 4.15 % near one-month highs as rate-cut odds sank. A continued rise in yields this week would likely raise eyebrows, especially if the 10-year moves much above 4.2%. The more likely rate scenario, and one that the market is building in, would be a pause in December and then one or two cuts in the first half of 2026. Economists and policymakers likely won't feel confident about the data picture until the end of the year, giving the Fed impetus to wait.

3:20Private data that filled the gap during the shutdown suggests lukewarm overall growth, cooler labor demand, and weak consumer sentiment. Minutes from the last Fed meeting are due Wednesday afternoon and could offer additional perspective on how policymakers feel about driving in the fog, to quote Fed Chairman Jerome Powell. Inflation remains stubborn at levels well above the Fed's 2 % goal, and consumers could face higher costs when the Affordable Care Act premiums expire at the end of the year. One bright spot is robust earnings with more than 90 % of companies reporting. The season gathers new momentum this week with reports from major retailers Walmart, Home Depot, and Target.

4:03it. Walmart was in the news Friday as its longtime CEO Doug McMillan announced his 2026 retirement plans. He'll be succeeded by a company insider. As retailers report, the key element could be fourth quarter guidance. Consumer sentiment recently hit multi-year lows and credit card delinquencies remain a problem, raising concern about how much holiday shopping will take place. That's particularly relevant now, as some people possibly bought large items earlier this year attempting to get ahead of tariffs. Consumers expect to spend 3.9 % less on gifts this holiday season versus last, not adjusted for inflation, the conference board said in its October Consumer Confidence Report.

4:49NVIDIA's results Wednesday could be the cornerstone this week, but they're far from guaranteed to get tech back on track, even if they impress. NVIDIA shares have frequently stepped back after recent quarterly reports, with investors scrutinizing the numbers for any weak spots. It wouldn't surprise if that's the case again. Falling margin is one worry. Sales guidance for the important China market is another, with recent trade talks apparently not providing much traction for getting NVIDIA's chips back into that market. Investors will be listening for any potential signs of deceleration in AI compute demand or competitive pricing pressures, said Nathan Peterson, Director of Derivatives Research and Strategy at the Schwab Center for Financial Research.

5:36Given the slew of AI deals that have been announced this quarter, along with the guide up in CapEx spend from the hyperscalers, one would think that demand has yet to reach saturation. Last week featured a clear rotation into sectors perceived as having more room to run due to lower price-to-earnings or P.E. ratios. Materials, health care, and energy were among the beneficiaries, so investors might want to watch if that pattern continues in coming days. Market breadth slightly improved last week, but if yields keep rising, it could hurt interest rate-sensitive sectors. As investors retreated to more defensive areas of the stock market, they showed little propensity to pile into Treasuries.

6:19That could reflect soft demand for several U.S. Treasury auctions last week, which often implies rates need to rise for investors to get interested. There's lots of worry about the U.S. fiscal situation as the deficit continues to swell another headwind for Treasuries. Friday's early Wall Street rally ran into late selling, keeping markets in check for the second straight week. Still, the S &P 500 index and the NASDAQ 100 held above their respective 50-day moving averages, and the NASDAQ composite managed a slightly higher finish Friday, buttressed by a slight recovery in semiconductor shares, including NVIDIA.

6:59It appears that technical support is holding up. This could set stocks up for a recovery when the new week starts, Peterson said. He also noted Friday's flat performance from the SIBO Volatility Index, or VIX, the so-called fear index. The VIX is at around 20, near historic averages, but its relatively mild move last week from recent lows below 17 suggests that at least for now, fear isn't taking over. Also worth pointing out is the bullish seasonality that accompanies November and December, and the potential for performance chasing by fund managers, especially since stocks have pulled back recently, Peterson added.

7:38Then there's NVIDIA's earnings report, which has the potential to reignite the AI bull trade or add fuel to recent concerns around high valuation and overinvestment. In Sector's Friday, Infotech took the silver medal behind energy, but defensive areas like real estate, utility, and staples also placed high. Discretionary stocks continued to struggle and are down 2.6 % over the last week, the worst performance of the S &P 500 and not a particularly positive omen heading into the holidays. In Stock Action Friday, Warner Bros. rose 4 % Friday after the Wall Street Journal reported that several firms, including Netflix and Paramount Skydance, are preparing bids for the entertainment firm.

8:23The deadline is November 20th. AI-related shares Micron, Supermicrocomputer, Palantir, and Oracle all rose 1 % or more following losses earlier in the week. Tesla recovered from sharp early losses Friday to close slightly higher, but finished the week well off recent peaks. And airline stocks generally fell amid economic concerns linked in part to rising yields and falling rate cut odds.

8:51The Dow Jones Industrial Average dropped 309.74 points Friday, or 0.65%, to 47 ,147.48. The S &P 500 index gave back 3.38 points, or 0.05%, to 6 ,734.11, and the NASDAQ composite gained 30.23 points, or 0.13%, to 22 ,900 .59. For the week, the Dow Jones Industrial Average was up 0.34%, the S &P 500 rose 0.08%, and the NASDAQ fell 0.45%. 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.

9:51Join us for another update tomorrow.

9:59For important disclosures, see the show notes and schwab.com slash market update podcast.