Short Week Packed with Data as Caution 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.

0:17I'm Keith Lansford, and here is Schwab's early look at the markets for Tuesday, February 17th. This holiday-shortened week has more than its share of potential market-moving data. Also, retail earnings swing into full gear this week and next, starting with Walmart on Thursday. A couple important earnings loom later today, as Constellation Energy and cybersecurity firm Palo Alto Networks report. Both touch on the AI space, with Palo Alto down sharply since last fall on worries of slowing demand. However, analysts expect double-digit Euro-year earnings growth. Concerns about AI substitution hurting businesses cascaded last week and haven't necessarily died down.

1:03Worries aren't unwarranted, but there might be winners and losers in each industry related to AI. The near-indiscriminate selling in the software space has degraded investors' sentiment and their willingness to pay up for stocks with lofty price-to-sales ratios since they now need to factor in the potential of AI competition, said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research. The S &P 500 index is down two straight weeks, and the tech-heavy NASDAQ 100 has fallen three weeks in a row. Major indexes are mostly lower year-to-date, rattled by the software sell-off that last week spilled into other areas, including financials.

1:46Also, February tends to be seasonally soft, so recent struggles aren't exactly surprising. The AI disruption is now in a phase which encompasses not just who the beneficiaries are across industries and sectors, but who the disruptors are and who's being disrupted. For a few weeks, it was software-as-a-service stocks, then it hit financial services companies. It's kind of a sell-first, ask-questions-do-real-research-later kind of backdrop, And I would caution investors not to get overly excited when you have a sub-segment of an industry or a sector all of a sudden doing well or poorly, said Lizanne Saunders, chief investment strategist at the Schwab Center for Financial Research.

2:32Panic or FOMO in the face of these rapid-fire shifts and rotations doesn't make a lot of sense either.

2:43Data is back-loaded with many key numbers on tap Friday morning. These include 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. Last week's data was a mixed bag. January jobs growth of 130 ,000 nearly doubled consensus, but the government dramatically cut its 2025 jobs growth estimate. Also, January's Consumer Price Index, or CPI, looked relatively benign Friday and even showed signs of progress, though inflation remains well above the Fed's 2 % goal.

3:24Headline CPI rose 0.2 % for the month, below the 0.3 % average estimate, while Core CPI, which excludes food and energy, rose 0.3 % in line with consensus. CPI climbed 2.4 % year-over-year, the lowest since May and slightly below the expected 2.5%. This should be well-received by those in the Fed worried about sticky inflation, said Colin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research. This shouldn't change the near-term path of Fed policy, with the Fed likely to stay on hold for a few more meetings, but more releases like this might get more officials on board for cuts later this year.

4:07Treasury yields fell sharply last week to two-month lows of 4.06 % for the 10-year note following CPI. This week features several Fed speakers who might reflect on recent data and its implications for rate policy. Tomorrow afternoon brings minutes from the last Federal Open Market Committee or FOMC meeting, perhaps shedding more light on the decision to pause rate cuts last month. Absent a sharp economic slowdown, which is not our base case, we don't see much room for yields to fall much further, Martin said. While inflation's moving in the right direction, it's still a bit elevated, and budget concerns and the rising trend in global bond yields should keep long-term treasury yields elevated even as the Fed cuts rates later this year.

4:55CPI may have looked tame on the surface, but there were some waves underneath as housing prices, airfares, and food all rose at annual rates well above the Fed's target. Services inflation rose 3.2 percent year over year. As of late Friday, chances of a rate cut at the mid-March meeting were still quite low, near 10 percent, according to the CME FedWatch tool. Chances of at least one cut by June, however, rose to nearly 70 % Friday, up from around 60 % before the CPI data. The market still prices in 80 % chances of at least two cuts in 2026, though December's Fed projections predicted only one.

5:36By then, it may be clearer when the Trump administration will get hearings from Congress on the nomination of Kevin Warsh to succeed Fed Chairman Jerome Powell. Approaching the weekend, that was still on hold, thanks to concerns in Congress about the administration's criminal investigation of Powell. Warsh's hearing is likely to be in March, but there's plenty of wiggle room because Powell's term as chair does not end until mid-May, said Michael Townsend, Managing Director of Legislative and Regulatory Affairs at Schwab. Staying in Washington for the moment, it's possible the Supreme Court could issue its ruling on President Trump's tariffs later this week.

6:15Expectations are for Trump to lose this case, but the administration could quickly find other ways to enforce tariffs if it desires, and the case doesn't affect all the tariffs imposed over the last year. From a technical perspective, the S &P 500 index finished last week well below its 50-day moving average of 6 ,894. The 100-day moving average near 6 ,812 held up early Friday on separate tests of support. the second day in a row the S &P 500 neared that mark. The index hasn't settled below the 100-day in almost a year, but came close earlier this month. A few settlements under that level might raise questions about the vigor of the long-term rally, especially since several recent attempts at new highs got turned back.

7:03Notably, last Wednesday featured an early rally to 6 ,993 near all-time highs before the index gave back all those gains and finished flat. Thursday followed with heavy selling, and stocks still seemed unsteady Friday as AI worries boomeranged. There's a sense that every day a new headline could surface and hurt some sector or other, and participants appear hesitant to get long in the face of these sudden shifts. Volatility stayed elevated last Friday, with the SIBO Volatility Index, or VIX, remaining above 20. Futures trading shows participants relatively certain of VIX remaining up in coming months, possibly meaning pressure on stocks.

7:46Also, Chinese markets are closed this week for holidays, which sometimes means thinner volume and possible sharper overnight moves in U.S. markets, Briefing.com warned. Despite all this, market breadth remains relatively strong as 63 % of S &P 500 stocks trade above their 50-day moving averages, a healthy sign that many companies are faring well even as indexes stall. Fourth quarter earnings have exceeded consensus for the S &P 500, though growth slowed from earlier quarters in 2025. Through Friday, with 74 % of S &P 500 companies reporting 74 percent topped earnings consensus, according to FactSet.

8:27Meanwhile, 73 percent reported a positive revenue surprise. Blended earnings growth is 13.2 percent year-over-year, well above the pre-season consensus near 8 percent. And the forward price-to-earnings, or PE, for the S &P 500 index was 21.5, down from recent peaks above 22, but still above the five-year average of 20. On Wall Street Friday, advancing shares easily outpaced declining ones, but index strength was limited by weakness in tech and communication services, two sectors with the biggest market capitalization names. Defensive areas like utilities, real estate, and health care stood near the top of the leaderboard, not necessarily a vote of confidence as the old week ended.

9:15However, the S &P 500 Equal Weight Index, which weighs all components the same rather than by market capitalization, climbed more than 1 % Friday and remains just off all-time highs. In individual trading Friday, Arista Networks added 6 % following the company's report of strong fourth-quarter revenue growth and gross margins, along with solid guidance. Two Wall Street firms raise their price targets. This followed double-digit share price losses for Cisco, another networking firm, after its earnings earlier last week. DraftKings stumbled more than 13 percent despite earnings and revenue topping consensus.

9:55The trouble came with guidance as the sports betting firm's revenue expectations for the year came in well below Wall Street's. Roku climbed 8.6 percent after getting upgraded to buy from neutral at Rosenblatt, which noted that the company handily beat fourth quarter estimates and provided better-than-expected guidance for this quarter and year that looks beatable again. Applied materials rose 8 percent as earnings and revenue both came in above analyst expectations. Summit Insights and Craig Hallam upgraded applied materials to buy from hold, and several analysts raised price targets. Rivian Automotive zoomed up more than 26 percent after reporting a narrower-than-expected fourth-quarter loss and higher-than-expected revenue.

10:41The EV company also sees 47 % to 59 % vehicle delivery growth year-over-year in 2026. Coinbase jumped more than 16 % following its report of solid trading volume in 2025, along with improved subscription and services revenue. Crypto competitor strategy rose 8%, while Bitcoin added 5 % Friday. Consumer stocks generally performed well Friday as yields fell and retail earnings loom. Leaders included Lululemon, Dollar General, Disney, Nike, Wendy's, and Target. Software stocks clawed back from recent losses Friday. Shares of Thomson Reuters, Salesforce, and Adobe advanced. The PHLX Semiconductor Index inched up 0.66 % Friday and managed a weekly gain, but leading names like NVIDIA, Advanced Microdevices and Broadcom fell last week.

11:38And homebuilder stocks continued climbing Friday as Treasury yields fell.

11:45The Dow Jones Industrial Average added 48.95 points Friday, or 0.10%, to 49 ,500.93. The S &P 500 index climbed 3.41 points, or 0.05%, to 6 ,836.17, and the Nasdaq composite fell 50.47 points, or 0.22%, to 22 ,546 .67. For the week, the Dow Jones Industrial Average descended 1.23%, the S &P 500 lost 1.39%, and the Nasdaq gave back 2.1%. 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.

12:45Join us for another update tomorrow.

12:52For important disclosures, see the show notes and schwab.com slash market update podcast.