Retail Sales, Netflix Next as Tariffs Stay in News

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, July 17th. Retail sales become the next major data point today after two straight sessions dominated by inflation readings and bank earnings. Fittingly, earnings from some large consumer-focused firms like United Airlines, Netflix, and PepsiCo are also in the spotlight, putting consumer spending trends front and center. United reported late yesterday, Pepsi comes this morning and Netflix arrives after the close. Heading into retail sales, analysts expect a 0.2 % monthly headline gain in June following May's 0.9 % drop.

0:59The May weakness likely reflected lower demand after many consumers pulled forward purchases into the earlier part of the year awaiting tariffs. One question is whether they return to shopping in June despite the tariff picture being unsettled. and slight increases in goods inflation outlined by the last two days of Consumer Price Index and Producer Price Index data. There's more to retail sales than initially meets the eye. Investors will probably want to check control group retail sales, the only part of the report used to calculate gross domestic product, or GDP. This reading excludes sales from auto dealers, building materials stores, and gas stations.

1:39Knowing the gap between headline retail sales and this number can give a better sense of how the government sees economic growth trending. The expectation is for 0.3 % control group retail sales growth, down from 0.4 % in May. As with the inflation data, participants likely will focus on elements of the retail sales report that reflect import prices possibly affected by tariffs. CPI showed many items with possible exposure to tariffs rising in price, including furniture, toys, clothing, and appliances. The tariff effect is clearly there with a lot of imported goods, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research.

2:22It looks like we're seeing the impact in goods, but slower services masks that. To the casual observer, the low CPI and PPI prints might make it seem like tariffs are not inflationary, but we are much more of a services economy than a goods economy.

2:41Yesterday's PPI for June came in flat month over month for both headline and core, with core excluding volatile food and energy prices. Analysts had expected a slight monthly rise to 0.2 % for both. But the government raised May's PPI gains to 0.3 % and 0.4 % for headline and core from the prior 0.1 percent, meaning the flat readings come off a higher-than-expected base. On the surface, PPI suggests that the disinflationary trend should continue, but upward revisions to May's numbers offset some of that good news, Schwab-Smartin said. Annual PPI fell to 2.3 percent, the lowest since September of 2024, and down from 2.7 percent in May.

3:28Core annual PPI of 2.6 % was down from May's 3.2%. Goods PPI rose while services fell. Inflation appears to be contained for now, but we're not out of the woods yet in my view, said Nathan Peterson, Director of Derivatives Analysis at the Schwab Center for Financial Research. The data has reflected approximately 10 % across the board tariffs, but the new tariff rates, ranging from anywhere between 19 % to 40%, will go in effect starting August 1st unless there are negotiations or unless Trump changes his mind. Maybe the market doesn't believe those rates will stick, but there is a vast difference between 10 % and 19 % to 40%, not to mention 50 % on copper.

4:15The U.S. imports 45 % to 50 % of its copper, Peterson added. Accompanying retail sales data at 8.30 a.m. Eastern Time today are weekly initial jobless claims, which have fallen several weeks in a row after rising to near-term highs back in early June above 240 ,000. Analysts expect initial claims of 230 ,000 today, up from 227 ,000 a week ago, according to Briefing.com. Continuing claims, which can measure how difficult it is to find a job, have trended at three-year highs above 1.96 million. The current labor market is one in which both hiring and firing seem muted. Another economic indicator, the Atlanta Fed's GDP Now reading for second-quarter GDP growth is due for an update today, more than a week after it last was set at 2.6%.

5:11Today's retail sales likely will play into that adjustment. United Airlines reported late yesterday and shares initially dropped on the news. While its guidance was in line with analysts' expectations and second quarter earnings for share topped Wall Street's consensus, revenue pulled up just shy. Big bank earnings are over and looked generally solid. Much of their strength came from Wall Street, reflecting heavy trading in the markets and an improving investment banking climate. Many smaller regional banks are also in their reporting periods and can often give better insight into small business and consumer loan activity.

5:53Netflix Later Today is an influential earnings report that could affect the broader market. Shares have taken a breather the last two weeks after a sizzling spring. Last time out, the streaming firm's strong revenue growth impressed investors, so it has a tough act to follow. Wall Street consensus is for earnings of$7.08, up 45 % from$4.88 a year ago, on revenue of$11.1 billion, up 15.76%. Stocks edged higher Wednesday, and Treasury yields slipped but remained near one-month highs. Stocks, treasuries, and the dollar dipped yesterday morning on headlines that President Trump might be ready to fire Federal Reserve Chairman Jerome Powell, something Trump quickly denied.

6:43The Treasury and stock markets are quite sensitive on this issue, and yields could spike if it occurs. I think central bank independence has served us incredibly well. It's important, said Goldman Sachs CEO David Solomon on CNBC Wednesday. It's something we should fight to preserve. Sector-wise, health care was a laggard over the last month, but a leader Wednesday thanks to Johnson & Johnson's 6 % rally on earnings. Health care, however, is a very diverse sector, meaning strong results from J &J don't necessarily translate to other big pharma names and their quarters. Sectors that tend to do better in an improving economy, like financials and industrials, also had strong showings yesterday, but mega-cap-dominated sectors trailed the pack.

7:32That's a turnaround from earlier in the week, when tech-dominated and most of the markets sagged. Still, the tech-heavy Nasdaq Composa made another all-time high close Wednesday, and small caps outperformed their larger counterparts. Stocks appear to be in consolidation mode and doing so by moving sideways rather than selling off, so the bullish resiliency remains intact, Schwab-Peterson said. Technicals are bullish on a longer-term and intermediate-term basis, though near-term it appears we need to digest and consolidate as evidenced by the decelerating RSI levels, and that's what markets have been doing over the past week or so.

8:15RSI refers to the Momentum Tracking Relative Strength Index for major stock indexes. Peterson also noted that volatility has moved higher, perhaps a sign of some participants taking protection as seasonal factors tend to turn more bearish this time of year. Past isn't precedent, however. Chances of a July Fed rate cut were 3 % late Wednesday, while odds of at least one cut by September were 58%. The Dow Jones Industrial Average climbed 231.49 points Wednesday, or 0.53%, to 44 ,254.78. The S &P 500 Index added 19.94 points, or 0.32%, to 6 ,263.70. And the Nasdaq Composite rose 52.69 points, or 0.25%, to 20 ,730.49.

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9:41For important disclosures, see the show notes and schwab.com slash market update podcast.