I'm Colette Auclair, and here is Schwab's early look at the markets for Monday, October 12.
Markets head into a busy week after showing resilience in the face of elevated oil prices and Treasury yields in recent trading sessions. Today's economic and earnings calendar is light, and the bond market is closed for the holiday, but third-quarter earnings season will kick into gear tomorrow. Investors are eagerly awaiting a slew of bank earnings and multiple reports from AI bellwethers this week.
Inflation and consumer spending will also be in focus. Consumer Price Index data is due Wednesday, and the Producer Price Index and Retail Sales releases are scheduled for Thursday. Those reports will be critical with the Fed still grappling with inflation amid elevated energy prices.
Oil prices fell slightly on Friday after surging throughout the week. The drop came after President Trump said the U.S. will not attack Iran ahead of the November midterm elections. However, persistent tanker attacks in the Strait of Hormuz and threats to the Bab el-Mandeb Strait amid an escalating war in Yemen continue to heighten global crude supply fears.
Investors will also be assessing Hurricane Isaias' impact on crude production in the Gulf today. The storm prompted widespread production shutdowns and threatened refining capacity last week. Now, the question is how quickly operations can return to normal.
In other energy sector news, President Trump announced an agreement with Russia to supply diesel to the U.S. on Friday in a bid to quell the recent surge in diesel prices. The President said Russia will immediately supply over 300,000 tons of diesel, followed by 500,000 tons during the month of November, and one million tons "immediately thereafter." Moscow will also deliver an additional 3 million tons of diesel based on the condition of its refineries after that, the President explained in a Truth Social Post.
Treasury yields largely resumed their climb on Friday amid the many potential threats to oil supplies. However, it's not just oil prices or a hawkish Fed that have driven long-term yields higher this year. An increasing Treasury term premium has also played a role. The 10-year Treasury term premium reached its highest level in more than a decade earlier this month.
The Treasury term premium is the extra compensation investors demand for the risks of holding longer-term government bonds. Its rise may reflect concerns about the growing national debt, persistent inflation, and geopolitical uncertainty. Further increases could keep long-term yields elevated even if the Fed softens its hawkish stance. That's something investors might want to watch moving forward.
Turning to this week's busy earnings calendar, although there are no major reports on the calendar today, JPMorgan Chase, Goldman Sachs, Wells Fargo, and Citigroup all report before the bell tomorrow.
Investors will be monitoring the results to gauge the impact of rising Treasury yields on net interest margins, lending growth, and dealmaking activity. Johnson & Johnson, UnitedHealth, Domino's Pizza, and Albertson's also report tomorrow morning, leaving investors with plenty to digest.
Looking ahead, those looking for a read on AI demand will be tracking ASML's earnings on Wednesday and Taiwan Semiconductor Manufacturing's earnings on Thursday.
"AI infrastructure has powered market leadership, with semiconductors up more than 80% this year despite renewed volatility," said Alexandra Semenova, financial insights strategist at the Schwab Center for Financial Research. "Rising debt and scrutiny of returns on AI spending are raising the bar for earnings delivery, even as we remain constructive on the long-term opportunity."
The year-over-year earnings growth rate for the S&P 500 is expected to hit a lofty 29.6% this quarter, according to data released by FactSet Friday. Earnings are always critical to market performance, but this quarter that may be particularly true amid the AI boom, persistent inflation, and the threat of more Fed rate hikes.
However, September's Consumer Price Index, or CPI, report—due Wednesday morning—has the potential to overshadow earnings this week. Consensus expects year-over-year headline CPI to rise 3.7%, while core CPI—which excludes more volatile food and energy prices—is seen hitting 2.5%.
On Friday, the University of Michigan's preliminary consumer sentiment reading for October offered a dour prelude to the CPI report. The Index of Consumer sentiment came in at a 5-month low of 46.3, down from 48.1 in September and well below Wall Street's estimate for 48. Importantly, consumers' inflation expectations also ticked up from already elevated levels. Year-ahead expectations hit 4.7%, while long-run expectations hit 3.5%.
Turning to Friday's individual market movers, T-Mobile, Version, and AT&T were all hit hard after SpaceX announced an agreement to purchase a nationwide spectrum portfolio. The move was viewed as a bid to challenge legacy mobile network providers with the Starlink service.
Moderna jumped more than 14% after the New York Times reported new details about an initiative to fast-track a planned cancer vaccine.
Humana popped 11% after revealing 95% of its Medicare Advantage members will be enrolled in plans rated four stars are higher. The improved ratings from the U.S. health department should put the company in line to receive more bonus payments from the government.
Delta Air Lines was the only major company to report earnings Friday. The airline cut its full-year profit outlook as higher fuel costs offset strong travel demand and said it expects to absorb $6 billion of additional fuel costs this year.
Overall, eight out of 11 S&P 500 sectors ended Thursday in the green. Real estate and healthcare led the pack, while communication services lagged amid SpaceX's challenge to legacy telecommunications giants.
Market breadth also continued to improve. Roughly 47% of S&P 500 stocks traded above their 200-day moving average, while 35% traded above their 50-day moving average.
The Dow Jones Industrial Average® ($DJI) rose 423.31 points (+0.83%) Thursday to 51,654.95; the S&P 500 Index ($SPX) popped 46.18 points (+0.59%) to 7,811.54, and the Nasdaq Composite® ($COMP) jumped 172.83 points (+0.64%) to 27,366.17.
For the week, the Dow Jones rose 0.93%, the S&P 500 advanced 1.15%, and the Nasdaq Composite edged up 0.64%.
