Oil Still Fuels Markets with Earnings, Data Scarce

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 26th. Hopes for de-escalation have major indexes higher so far this week, despite continued conflict. Any new diplomatic developments, along with moves in the oil market that's closely correlated with stock prices, could fuel Wall Street sentiment today in what's traditionally a slow time for markets with little data or earnings. Oil fell and stocks rose yesterday after Pakistan delivered a 15-point peace plan from the U.S. to Iran, the New York Times reported. Iran said it won't accept U.S. efforts toward a ceasefire or engage in direct talks with the U.S.

1:00However, Iran said it is examining the U.S. plan and countered with a proposal unlikely to be accepted, calling on the U.S. to make reparations and give Iran control of the Strait of Hormuz. On a more positive note, Iran said it would allow non-hostile ships to traverse the strait. Traffic through that key energy choke point remains thin, according to media reports, but a small number of vessels went through. This is likely why crude oil prices fell roughly 2 percent on Wednesday. At the same time, the U.S. is sending more soldiers towards the region, another sign of how things remain in flux.

1:41Here at home, investors face a Thursday packed with Federal Reserve remarks. Governors Lisa Cook, Stephen Myron, and Michael Barr speak this afternoon and evening, and Vice Chair Philip Jefferson delivers a speech on the economic outlook and energy prices at 7 p.m. Eastern Time that sounds like it might have market implications. With only around six weeks until Fed Chairman Jerome Powell's term ends, there's still no hearing scheduled by the Senate Banking Committee on his replacement. President Trump's nomination of Kevin Warsh has been held up amid the administration's criminal investigation of Powell, though last week a federal judge quashed subpoenas in the case, saying it had no substance.

2:25Also in Washington, outlines of a bipartisan deal emerged that could fund the Department of Homeland Security, except for ICE's migrant removal operations. Time is tight to get something across the finish line by Friday, but I think there is still at least a 60-40 chance it happens, said Michael Townsend, managing director of legislative and regulatory affairs at Schwab, noting that a two-week congressional recess begins tomorrow afternoon. The optics of Congress leaving town for two weeks without resolving the shutdown would be politically terrible. Today is light on data, but tomorrow features the University of Michigan's final March consumer sentiment figure after the initial report pegged headline sentiment at a tepid 55.5 percent.

3:14Investors will likely focus on five-year inflation expectations to see if they rose from the preliminary reports 3.2 percent. The headline figure earlier this month was the lowest in three months and reflected initial concerns as the Iran war began. In data yesterday, U.S. import prices rose 1.3 percent month over month in February, the U.S. government said, the largest increase since March of 2022. Keep in mind that if other countries were bearing the tariff burden, we wouldn't be seeing import prices going up like this, said Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research.

3:55Rising import prices followed higher costs noted in global PMI reports released earlier this week, and both sets of data showed an impact from rising oil prices. Unilabor costs also rose in the U.S. last quarter, the government said this week. All this could eventually have a negative impact on company margins, though analysts still predict solid earnings growth this year. U.S. crude oil inventories rose nearly 7 million barrels last week, the government said Wednesday, compared with market expectations of less than 1 million. Gasoline supplies fell sharply last week, and oil inventories are very close to the five-year average for this time of year.

4:36Gas prices edged up near$4 per gallon on average by midweek, AAA reported, and diesel fuel prices neared$5.50. That's devastating for trucking firms and for farmers getting fields ready to plant while already facing rising fertilizer costs. The U.S. Postal Service announced Wednesday it's adding an 8 % fuel surcharge to packages. However, airline executives appear to be looking through the crisis, as United Airlines announced it expects to take delivery of more than 250 new aircraft by April of 2028. United CEO Scott Kirby told CNBC this week that demand for main cabin seats is improving, though premium demand still leads.

5:23Bond yields fell Wednesday on hopes for de-escalation in the Middle East and lower oil prices. The drop occurred despite another disappointing Treasury auction, this time of$70 billion in five-year notes. The high yield was 3.98 percent in the auction, and short-term Treasury yields traded at nearly nine-month highs late Wednesday, despite the day's slight dip. Soft demand at Treasury auctions all this month suggests participants demand higher yields to take their chances with U.S. debt, possibly driven by anticipated growth in U.S. government spending due to the war and crude's rally. Increased spending threatens to raise the debt further when it's already approaching$40 trillion.

6:07This has a real-world impact, with 30-year mortgage rates recently touching 6.5 percent, up from 6 percent a month ago, and weekly mortgage applications falling 10 percent last week. Earnings are light this week, and results are mixed so far. KB Home disappointed with its results late Tuesday, but pet retailer Chewy impressed early Wednesday. No further significant earnings are due this week, but Nike reports next week. Major Wall Street indexes posted another solid outing Wednesday, despite Iran denying its negotiating with the U.S. over the conflict. Oil fell on hopes for some sort of resolution.

6:49It's now been nearly four weeks since the war began, and President Trump at that time estimated it could last four weeks. From a technical standpoint, major indexes remain below their respective 200-day simple moving averages, despite this week's attempts to rebound from six-month lows recorded last Friday. The S &P 500 index clawed briefly above its 200-day moving average of 6 ,630 intraday Wednesday, as it did Monday. Neither time could it hold those gains, and with the SIBO Volatility Index or VIX still historically high above 25, there doesn't seem to be much interest in testing S &P 500 resistance.

7:30The S &P 500 now seems caught in a tight trading range between last week's lows near 6 ,500 and this week's highs near the 200-day moving average. Without further progress towards peace, this might remain a window to watch. Market breadth, measured by the percentage of S &P 500 stocks trading above their respective 50-day moving averages, remains in the doldrums at 28.5%, though up from 17 % at its lows last week. Stepping back, it's a more positive story, as nearly 50 % of S &P 500 stocks now top their 200-day moving averages. That's down from this year's peak near 70 % when a broad rally lifted most sectors.

8:16breadth improved midweek as 10 of 11 S &P 500 sectors rose for the day Wednesday after 11 rose Tuesday. Leaders again included cyclicals like materials, consumer discretionary, and health care. Lower oil prices have correlated with discretionary sector strength recently, a sign that investors are focused on inflation's consumer impact. Still, the S &P 500 is down less than 5 percent since the start of the war. The fact that it hasn't completely fallen out of bed could reflect ideas that fighting won't be drawn out. Moody's analytics said this week that odds of a U.S. recession are up and appear more likely without a quick end to the conflict.

9:00The small-cap Russell 2000 index outpaced rivals Wednesday for the second consecutive day as yields fell. In individual trading Wednesday, Arm Holdings soared 16 percent. The semiconductor design firm said it expects its CPU business to reach 15 billion dollars in revenue by fiscal 2031 as it begins making its own data center chips. The company also reaffirmed its fiscal fourth quarter guidance and increased its operating margin target. Chewy leaped 14 percent following earnings. The company beat consensus on earnings per share and reported revenues in line with consensus. Its outlook also topped expectations.

9:44Alibaba added 3 percent Wednesday. Barron's reports that China's state administration for market regulation appeared to signal on Wednesday that it would move to end the food delivery price war, which has squeezed margins in recent years. Chip and chip-related names revived Wednesday, led by 7 % gains for Super Microcomputer, Advanced Microdevices, and Intel. Marvell Technology and CoreWeave also rallied. The PHLX Semiconductor Index is down 1.5 % since the war began, but still up firmly this year. Memory-related chip stocks bucked the trend following Wednesday. And gold, silver and copper all climbed moderately Wednesday as oil prices fell along with the dollar.

10:33But now Jones Industrial Average climbed 305.43 points Wednesday or 0.66 % to 46 ,429.49. The S &P 500 index edged up 35.53 points, or 0.54%, to 6 ,591.90, and the NASDAQ composite added 167.93 points, or 0.77%, to 21 ,929.82. 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.

11:31For important disclosures, see the show notes and schwab.com slash market update podcast.