Here is Schwab's early look at the markets for Thursday, February 20.
A relatively firm economy points toward possible improvement in fourth quarter retail earnings as Walmart (WMT) prepares to report before the open.
Amazon (AMZN) set a positive tone for retail a few weeks ago, reporting a strong holiday shopping season. Analysts see Walmart's fourth quarter earnings per share at $0.64 and revenue up 4% year over year at $180.07 billion. Last time out, Walmart delivered earnings and revenue that topped analysts' expectations.
"Walmart's strong grocery and consumer staples mix allows consumers to trade down," said Alex Coffey, senior trading and derivatives strategist at Schwab. "Tariffs could hit margins, but groceries and staples could give Walmart some resiliency against competitors."
The S&P 500 index (SPX) set another new all-time high yesterday, but trading volume has been low. On a positive note, however, the so-called Magnificent Seven didn't contribute much to the new peaks, perhaps a sign that the recent improvement in market breadth has lifted more of the S&P 500's smaller names.
"The last two all-time highs for the S&P 500 have happened without major help from the Magnificent Seven," said Kevin Gordon, director, senior investment strategist at Schwab. "That group's last all-time high was in mid-December." Four of seven mega caps finished higher yesterday.
Yields have generally traded in a tight range lately, with a recent peak of around 4.65% and low of 4.4% for the 10-year Treasury note yield. The 10-year yield closed down one basis point at 4.54% Wednesday, near the middle of its recent range, despite what Briefing.com called an "underwhelming" 20-year bond auction.
"The steadiness of the market may reflect the push and pull effect of two forces," said Kathy Jones, chief fixed income strategist at Schwab. "On the one hand, tariffs are likely to push up prices and inflation in the short run. However, counter tariffs, layoffs of federal workers, and immigration reduction are likely to slow growth. The bond market is caught in the middle and consequently, 10-year Treasury yields have been anchored near 4.5% for a few weeks."
"The Fed is also caught in the middle," Jones added. "Most Fed speakers have emphasized the need for clarity around these issues before moving forward with policy changes."
Minutes yesterday from the Federal Open Market Committee's January 28-29 meeting indicated a central bank that doesn’t appear in any hurry to alter policy. The current target range is down 100 basis points from last summer at between 4.25% and 4.5%.
"Participants indicated that, provided the economy remained near maximum employment, they would want to see further progress on inflation before making additional adjustments to the target range for the federal funds rate," the minutes said. "Many participants noted that the committee could hold the policy rate at a restrictive level if the economy remained strong and inflation remained elevated."
By late Wednesday after the minutes, the CME FedWatch tool placed odds of a March rate cut below 3%, rising to nearly 50% for at least a 25-basis point cut by the June meeting. Futures trading still bakes in one to two cuts this year.
Data today include weekly initial jobless claims, which have tracked toward the low end of the long-term range recently. The Briefing.com consensus pegs weekly claims at 217,000, up from 213,000 the prior week. Housing data was mixed yesterday for starts and permits.
Key earnings besides Walmart today include Chinese e-commerce firm Alibaba (BABA) and U.S. gold miner Newmont (NEM). Gold has been setting record highs, but mining costs have risen.
Health care, one of the stronger sectors over the last month despite concerns about how the new administration might approach policy, was a leader Wednesday as Eli Lilly (LLY) and Johnson & Johnson (JNJ) gained. Strength in health care, utilities, and staples Wednesday might suggest investors leaning toward more defensive positions, though one day isn't a trend.
Info tech also got a boost with help from Apple (AAPL) as the company introduced a cheaper iPhone model.. Chip stocks mostly climbed yesterday, but the PHLX Semiconductor Index (SOX) remains well under last summer's highs and Nvidia (NVDA) failed to hold early gains.
Defense stocks were mixed Wednesday despite a Washington Post report that the Trump administration wants cuts in Defense spending of 8% each year for the next five years. Palantir (PLTR) sank more than 12%, possibly in response to the news, but Lockheed Martin (LMT) held onto light gains. That said, Lockheed shares are down nearly 30% from their October peak, perhaps meaning some of the bad news was already reflected by shares.
Technically, major indexes continue to rattle around not far from long-term ranges despite the record highs. The last two sessions saw some buying in the final minutes, perhaps a sign of the market's resilience. But the Dow Jones Industrial Average ($DJI) has wobbled between roughly 44,000 and 44,600 for nearly a month.
The SPX added 14.57 points Wednesday (+0.24%) to 6,144.15; the Dow Jones Industrial Average® ($DJI) gained 71.25 points (+0.16%) to 44,627.59; and the Nasdaq Composite® ($COMP) rose 14.99 points (0.07%) to 20,056.25.
