U.S. equities finished broadly higher to snap a three-day losing streak on the heels of news that Russia has begun pulling back troops from the Ukraine border, somewhat cooling tensions in the region. Meanwhile, monetary policy remained in focus following a hotter-than-expected read on January wholesale prices, while manufacturing activity in the New York region rose back into expansion territory after dropping into contraction territory last month. In earnings news, Marriott solidly beat estimates citing a slow recovery in leisure travel, but noted overall travel remains below pre-pandemic levels. On the M&A front, Dow member Intel announced a deal to purchase Israeli chipmaker Tower Semiconductors. Treasuries were mixed and the U.S. dollar lost ground, while crude oil prices retreated from a recent run, and gold also declined. Europe finished with widespread gains amid the Russia-Ukraine news, while markets in Asia were mixed.

The Dow Jones Industrial Average rose 423 points (1.2%) to 34,989, the S&P 500 Index increased 69 points (1.6%) to 4,471, and the Nasdaq Composite rallied 349 points (2.5%) to 14,140. In heavy volume, 4.3 billion shares of NYSE-listed stocks were traded, and 4.3 billion shares changed hands on the Nasdaq. WTI crude oil fell $3.39 to $92.07 per barrel. Elsewhere, the gold spot price traded $15.80 lower to $1,853.60 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.3% at 96.00.

Marriott International Inc. (MAR $181) reported adjusted Q4 earnings-per-share (EPS) of $1.30, well above the $1.00 FactSet estimate, as revenues grew 104.7% year-over-year (y/y) to $4.45 billion, besting the Street's forecast of $4.00 billion. The hotel operator benefitted greatly from the continued return to travel following the Covid slowdown. It said that leisure travel continues to be a big driver of the recovery, while business travel is improving but slowly. Marriott saw its revenue per available room increase 125% compared to Q4 2020 but still down 19% compared to Q4 2019. Its global average daily rate recovered in the fourth quarter to pre-pandemic levels, while occupancy was still 12 percentage points below 2019 levels at 58%. Shares traded higher.

In M&A news, Dow member Intel Corporation (INTC $48) announced a deal to buy Israeli chipmaker Tower Semiconductor Ltd. (TSEM $47) for $53 per share or $5.4 billion, which is a large premium over Tower's Monday closing price. Tower jumped over 40%, while Intel was slightly higher.

As Q4 earnings season is set to roll on this week, of the 370 companies that have reported results in the S&P 500, 69.1% have topped revenue forecasts, while 76.4% have bested earnings expectations, per data compiled by Bloomberg. Compared to last year, revenue growth is on pace to be up nearly 16.3% and earnings expansion is on track for about 27.0%.

The markets have seen some wild swings as the markets grapple with the Fed tightening uncertainty and still solid absolute earnings growth during the quarter but some relative deterioration compared to the previous four quarters. Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article, Smoke on the Water … Fire Down Below, how results have bucked the trends of the past six quarters—with a lower percentage by which companies have been exceeding consensus estimates. As for Fed policy, Liz Ann adds that as has nearly always been the case historically, a shift in the monetary policy backdrop can mark significant turning points in the equity market and typically lead to more frequent bouts of volatility. Liz Ann also notes how the much stronger-than-expected January nonfarm payroll report likely confirmed the Fed's full-steam ahead message for the near term in her latest commentary, Surprise, Surprise: Jobs Surged.

With the markets volatile, find all our market commentary on our Market Insights page, including our article, Market Volatility: Schwab's Quick Take, and follow us on Twitter at @SchwabResearch.

Wholesale prices rise further adding to inflation fears

The Producer Price Index (PPI) (chart), showed prices at the wholesale level in January rose 1.0% month-over-month (m/m), above the Bloomberg consensus estimate of a 0.5% gain, and north of December's unrevised 0.2% increase. The core rate, which excludes food and energy, gained 0.8% m/m, above estimates of a 0.5% rise and above the prior month's unadjusted 0.5% increase. Y/Y, the headline rate was 9.7% higher, matching the prior month, but above projections calling for a 9.1% gain. The core PPI increased 8.3% y/y last month, above estimates of a 7.9% gain and matching December's increase.

The Empire Manufacturing Index, a measure of activity in the New York region, showed the index moved back to a reading depicting expansion (a reading above zero) after surprisingly falling below the demarcation point last month. The index increased to 3.1 in February from -0.7 that was posted in January and compared to the Bloomberg estimate of an increase to 12.0. The rise came as new orders and employment both increased, with the former moving back above zero, while the expansion in inventories accelerated, and prices paid dipped slightly but continued to be elevated.

Treasuries were mixed, as the yield on the 2-year note was 2 basis points (bps) lower to 1.57%, while the yields on the 10-year note and the 30-year bond increased 5 bps to 2.05% and 2.35%, respectively.

The markets continue to grapple with expectations that the Fed will tighten monetary policy aggressively to combat persistent inflation pressures while contemplating what the implications could be for the economy. Treasury yields have moved higher, with the short end of the curve decisively outpacing moves on the mid and longer ends. Schwab's Chief Fixed Income Strategist, Kathy Jones points out in her latest article, Bond Market: Waiting for Liftoff, that we expect turbulence to continue as Fed Chair Powell indicated that policy plans are not on a set course, with the Fed preferring to take a "nimble" approach. However, she adds that the markets have discounted a significant tightening in policy for this year, with the telltale signs of tight policy expectations already showing up in the markets. Kathy discusses how the yield curve has flattened, with short-term rates moving up sharply relative to long-term rates.

Kathy says while it's clear that the Fed is anxious to initiate a new tightening cycle, we think it's premature to forecast such a rapid pace of rate hikes without more clarity about its plans to reduce the amount of bonds the Fed holds on its balance sheet. The Fed released general principles for quantitative tightening but hasn't spelled out a clear plan yet. She notes how allowing bonds to mature without reinvestment can have a similar impact as hiking rates in terms of the impact on the availability of funds to the banking system. She adds that the Fed has indicated it prefers using the federal funds rate as its primary tool to set policy, but given the size of its current bond holdings, it's possible that quantitative tightening will play a bigger role in the Fed's plans in this cycle than it did in the last cycle.

The January inflation picture will culminate tomorrow with the Import Price Index, forecasted to have increased 0.9% m/m following the prior month's 0.2% decline. Advance retail sales are also on tap, expected to have grown 1.9% m/m, while sales ex-autos and ex-autos and gas are projected to have respective m/m increases of 0.9% and 0.4%. Just before the opening bell, the Fed's industrial production and capacity utilization report will be released, with the former expected to be up 0.4% m/m and the latter to have ticked higher to 76.8%. After trading begins, the NAHB Housing Market Index for February will hit the tape, with economists calling for the measure of homebuilder optimism to remain at January's level of 83, with a reading of 50 the demarcation point between good and poor conditions, and business inventories will also be reported, forecasted to have increased 2.0% m/m during December. The MBA Mortgage Applications Index for the week ended February 11 will round out the busy economic calendar.

Europe higher as Russia pulls back some troops, Asia mixed

European equities finished with broad-based gains following some easing of tensions between Russia and Ukraine. Russia pulled back some troops from the Ukraine border, indicating an invasion may not be as imminent as first thought. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, provides his Guide to Geopolitical Risk: Russia-Ukraine, where he discusses how markets have historically shrugged off geopolitical events involving Russia. He notes that Russia makes up a very small portion of the main global and emerging market indexes, while Ukraine has no exposure in such indexes. He discusses the most likely sanctions that may occur if the situation escalates, but he doesn't believe that diversified investors need to take action to protect their portfolios from the risks related to an invasion of Ukraine. However, investors remained wary of global central bank policies after the Bank of England (BoE) has increased rates twice, the European Central Bank (ECB) sounded more hawkish following its last meeting, and the Fed is expected to raise rates beginning next month. The British pound and the euro were higher versus the U.S. dollar, while bond yields in the U.K. were mixed and yields in the Eurozone rose.

In economic news, jobless claims in the U.K. declined, while average weekly earnings rose more than expected. The final read on Spain's CPI showed that inflation fell 0.4% m/m, just above the 0.5% decline that was expected, but was up 6.1% y/y, slightly above the expected 6.0% rise. Germany's ZEW survey showed that expectations rose for February but was still slightly lower than expected. Finally, Q4 Eurozone employment rose 0.5% quarter-over-quarter (q/q), while GDP rose 0.3% q/q and 4.6% y/y, both in line with expectations.

The U.K. FTSE 100 Index was up 1.0%, Germany's DAX Index advanced 2.0%, Italy's FTSE MIB Index rose 2.1%, Spain's IBEX 35 Index and France's CAC-40 Index increased 1.7%, and Switzerland's Swiss Market Index gained 1.3%.

Stocks in Asia finished mixed as investors remained skittish of the geopolitical tensions in Russia and Ukraine. In addition, markets continue to be cautious of the prospect of tighter global monetary policies. However, the People's Bank of China has gone against the grain and loosened its policy, while the Bank of Japan announced earlier this week that it will buy its benchmark 10-year bonds for the first time since 2018 to try to keep rates low. Schwab's Jeffrey Kleintop, discusses in his article, What Do Rising Rates Mean for Stock Investors?, how recently, U.S. Treasury bond yields climbed back to their pre-pandemic levels and in Europe, German 10-year yields climbed above 0%, touching their highest level since May 2019. Jeff asks the question of what are the implications of rising global yields for stock prices? He points out that increasing yields could help lift stocks and may even signal outperformance of cyclical European stocks and value stocks.

In economic news, Japan's economy expanded 5.4% on an annualized basis in Q4 which was below estimates of a 6.0% expansion. In addition, the final read on Japan's industrial production showed that it declined 1.0% m/m but was up 2.7% y/y, in line with the previous reading. Meanwhile, India's trade deficit shrunk more than expected in January.

Japan's Nikkei 225 Index fell 0.8%, with the yen moving to the downside. China's Shanghai Composite Index increased 0.5%, and the Hong Kong Hang Seng Index decreased 0.8%. Elsewhere, South Korea's Kospi Index dropped 1.0%, but India's S&P BSE Sensex 30 Index jumped 3.1%, and Australia's S&P/ASX 200 Index was down 0.5%.

Tomorrow's international economic calendar will offer the Tertiary Industry Index from Japan, CPI and PPI from China, CPI, PPI and the Retail Price Index from the U.K., as well as industrial production from the Eurozone.