Walmart, Deere Up Next Ahead of Key Inflation Data

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, February 19th. Walmart kicks off the big box retail part of earnings season early today after shares spiked to start the year. Deere also reports this morning with its shares also on an impressive run before this week. The two corporate updates follow a third straight day of gains on Wall Street, though rallies haven't gathered much traction yet. Last time out, Walmart, part of the Staples sector that's enjoyed 13 % gains so far this year, impressed investors by topping Wall Street's consensus views and raising guidance.

0:57Lack of a repeat might raise questions about consumer demand, especially after December's U.S. retail sales came in flat and U.S. jobs growth barely climbed last year. Also on investors' minds is whether customers pulled back as health care premiums rose. Walmart and other retailers like Lowe's and Home Depot reporting next week might be able to provide color around that. If the economy slows, that could give Walmart a boost as more shoppers head there looking for possible bargains. Earnings per share for Walmart are seen at 72 cents. Consensus for Deere's earnings per share is$2.05, Deere, along with some other big industry players like Caterpillar, has been on a roll early this year as investors rotate out of tech and into manufacturing firms.

1:48However, Deere has pointed to tariffs hurting results and might provide more insight on that headwind today. Company leaders said in November they think 2026 will be the bottom of the large agriculture cycle. Last time it reported, Deere easily exceeded analysts' expectations, but the stock initially dropped.

2:11Minutes issued yesterday from the January Federal Open Market Committee meeting initially halted what had been an impressive rally, coming in more hawkish than investors had expected. The minutes showed many policymakers willing to wait longer for inflation to die down before cutting rates. While that's been the theme for a while, the new element last month was a contingent of Fed officials who wanted to have the central bank's statement feature a two-sided message implying rates could go up as well as down if inflation isn't tamed. The Fed has lowered rates by 150 basis points in the last year and a half and hasn't hiked rates since the inflation struggles earlier this decade.

2:52To some market participants, the very fact that some policymakers would even consider a hike at some point soon, likely sent a bearish message and accounted for late selling yesterday that took major indexes down from their intraday highs. Fed minutes point to more cuts if there is inflation progress, but caution around disinflation being slower than expected, said Kevin Gordon, head of macro research at the Schwab Center for Financial Research. The minutes came at an auspicious time, just a couple of days before tomorrow morning's Personal Consumption Expenditures or PCE Price Index for December.

3:31PCE is the Federal Reserve's favorite inflation metric and is seen coming in a bit warm. For headline PCE, the briefing.com consensus is 0.3 % month over month. Core PCE, excluding food and energy, is seen up 0.4%. Both would advance from 0.2 % the prior month. Euro-over-year numbers also stand in the spotlight after rising 2.8 % in November, well above the Fed's 2 % goal. Several services readings in the Producer Price Index, or PPI, that pull through to PCE led analysts to suspect that PCE could remain stubbornly high with another 2.8 % annual gain. Gross domestic product, or GDP, is also due tomorrow and represents the first official government estimate, fourth quarter growth.

4:22The Atlanta Fed's GDP Now meter puts GDP growth at 3.6 percent on a seasonally adjusted annual basis. That's down from five percent a few weeks ago, with soft retail sales and housing data contributing to the pullback. Analysts see three percent growth, down from 4.3 percent in the third quarter. The slowdown from a quarter earlier partly reflects last fall's government shutdown, which likely took some growth off the table. In data Wednesday, December housing starts and building permits easily topped the briefing.com consensus, up 6.2 percent and 4.3 percent month over month, respectively. The tallies were 1.404 million on a seasonally adjusted annual basis for starts and 1.448 million for permits versus consensus of 1.32 million and 1.41 million, respectively.

5:16Another positive item was a 0.9 percent monthly rise in December durable goods orders excluding transportation. Today, before the open, weekly initial jobless claims are expected to dip to 225 ,000 from 227 ,000 the prior week, Briefing.com said. The U.S. December trade balance is out later today and expected to show the U.S. trade deficit slightly falling that month from the previous one. Treasury yields bounced with equities early Tuesday, but the 10-year note yield remains near the low end of its recent range that's seen it generally trade between 4 % and 4.2 % since last fall. A small bond auction Wednesday drew weak demand, and the Fed minutes likely also played into the rise to 4.08 % for the 10-year note yield.

6:09There's likely limited downside on longer-term yields, in our view, said Cooper Howard, director of fixed income research and strategy at the Schwab Center for Financial Research. The economy remains resilient and inflation remains elevated, which should keep longer-term yields higher. Additionally, higher debt levels by both governments and corporations are another factor keeping yields elevated. Looking beyond data, Friday could potentially bring a Supreme Court decision on President Trump's tariffs. Whatever the court decides, it won't mean the end of trade restrictions. The decision doesn't cover all of Trump's tariffs, and Trump may have other ways of applying trade restrictions in some cases.

6:53Companies in their earnings reports earlier this year continued to cite tariffs as a business headwind. Technically, the S &P 500 index seemed to have bounced off its 100-day moving average down near 6 ,815 after some brief intraday drops below couldn't find traction late last week and Tuesday. The index hasn't closed under that line in about three months. However, there still doesn't appear to be much enthusiasm to buy on rallies, with the index unable to push past the 50-day moving average now just near 6 ,900. A brief rise above 6 ,900 on Wednesday met selling pressure, and the index closed below the 50-day average once again.

7:39Things could remain range-bound today, with investors unlikely to want to take large new positions on either side ahead of tomorrow's PCE data. NVIDIA's earnings next Wednesday are another factor that might keep the market from making big moves. Though the Dow Jones Industrial Average popped briefly above 50 ,000 earlier this month, and the S &P 500 index made intraday highs above 7 ,000, The S &P 500 remains in a tight near-term range between roughly 6 ,800 and 7 ,000. In trading on Wednesday, major indexes all rose as market participants continued nibbling at stocks without taking a huge gulp.

8:21Tech led the way, pushing the Nasdaq past its counterparts as NVIDIA rose 1.6%, finishing well off its highs. Shares of many software firms performed better following the recent sell-off, while memory chipmaker Micron gained more than 5 percent despite little fresh news. Volatility gave some ground Wednesday, but the SIBO Volatility Index, or VIX, remained just below 20 by the end of the session, evidence of caution and elevated hedging activity. Eight of 11 S &P 500 sectors ended higher Wednesday, giving the rally a broad-based feel. Energy led things to a leap in oil prices as talks between Iran and the U.S.

9:04ran into stumbling blocks, according to media reports. Consumer discretionary and infotech jumped from the bottom of the pack last week to near the top yesterday, helped by chip stocks and general strength across the Magnificent Seven. Still, communication services fell sharply amid declines in telecom stocks. T-Mobile fell nearly 3%. In Individual Trading Wednesday, the jump for NVIDIA came after Meta Platforms announced what it called a, quote, multi-year strategic partnership with NVIDIA to advance our long-term AI infrastructure roadmap, end quote. The deal could be worth tens of billions of dollars, Barron's reported.

9:47The large-scale deployment of NVIDIA technology builds on the company's existing relationship and will support Meta's build-out of data centers optimized for AI training and inference. Palantir advanced 1.8 % after being upgraded by Mizuho to outperform from Neutral. The firm said the company is delivering total revenue growth, acceleration, and margin expansion at scale that is unlike anything else in software. Palo Alto Networks dropped nearly 7 percent, hurt by weak guidance issued late Tuesday. And Amazon rose 1.8 percent as regulatory filings showed Bill Ackman's Pershing Square grew its stake in Amazon by 65 percent in the fourth quarter, CNBC reported.

10:35Amazon shares had fallen nine straight sessions before a rise Tuesday, the longest losing streak since 2006. The Dow Jones Industrial Average added 129.47 points Wednesday, or 0.26%, to 49 ,662.66. The S &P 500 Index gained 38.09 points, or 0.56%, to 6 ,881.31. And the Nasdaq Composite advanced 175.25 points, or 0.78%, to 22 ,753.63. 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.

11:39Join us for another update tomorrow.

11:46For important disclosures, see the show notes and schwab.com slash market update podcast.