Here is Schwab's early look at the markets for Tuesday, February 18.
After a long weekend, investors return to a less hectic weekly calendar dominated by housing data and earnings from Walmart (WMT).
Tariff and U.S. budget concerns also could help set the tone after the tech and communication services sectors led a rally in the Nasdaq Composite ($COMP) last Friday and the S&P 500 index (SPX) finished near an all-time high.
Back on Friday, investors digested a disappointing U.S. January retail sales report that showed the headline reading down 0.9% from a month earlier, well below the expected 0.2% decline. This pushed the 10-year Treasury note yield below 4.5%.
"Retail sales disappointed, but it might not be as bad as the headline numbers suggest as winter weather and the California wildfires likely played a role," said Collin Martin, director, fixed income strategy at the Schwab Center for Financial Research. "The next month's reading will be key to see if there's an offsetting rebound, or if January was the start of a trend."
The Retail Sales Control Group—which excludes auto dealers, gas stations and several other categories and is closely followed by investors because it feeds into gross domestic product (GDP)—fell 0.8%, a big miss versus Wall Street's expectations.
The latest Atlanta Fed GDPNow estimate for first quarter GDP growth fell to an annualized 2.3% after Friday's retail sales report, down from 2.9% the previous week. Retail sales appeared to damage sentiment, as new surveys show declines among traders and investors. U.S. equity funds had their first outflow in seven weeks at $100 million, according to Bank of America (BAC).
Retail sales followed hotter-than-expected inflation data earlier last week, but investors saw the Producer Price Index (PPI) as constructive because elements feeding into the Fed's favored inflation meter, the Personal Consumption Expenditures (PCE) price index, rose less sharply.
Bloomberg Economics now sees January core PCE, due February 28, up 0.3% from December, a faster pace than the prior month but one that would lead to a decline in the year-over-year rate.
In other data Friday, January import prices rose 0.1% excluding oil, as expected. Industrial production in January rose 0.5%, above the 0.3% Briefing.com consensus, though that mainly reflected higher utilities output as cold weather drove heating demand.
The CME FedWatch tool now shows March rate cut odds near zero, down from 20% a month ago. Chances for at least one rate cut by the end of the year inched up to around 85% after the retail sales report, with odds for more than one cut this year now around 50%, up from 45% a week ago.
Key earnings this week include Walmart, Alibaba (BABA), Newmont (NEWM), and Toll Brothers (TOL). All could be worth checking for insight on possible tariff impacts. So far, most S&P 500 companies have been cautious about providing annual outlook changes, with the policy situation uncertain. This might continue, but investors could be on the lookout for any signs these firms and others are starting to incorporate tariffs into their guidance.
Tariffs also may play into a growing trend seen with fourth quarter earnings in which investors aren't rewarding companies much for beating estimates. Even though this has been one of the best earnings seasons in years, companies that have beaten analysts' earnings estimates have only risen 0.3% above the S&P 500 index (SPX) when reporting, versus declines 3.5% below the SPX for companies missing.
That said, the rally to near record highs late last week was accompanied by improving breadth, with 55% of S&P 500 stocks trading above their 50-day moving averages, versus 54% a week earlier. And advancing S&P 500 shares outnumbered decliners by a ratio of 1.5 to 1.0 last week. So far, 76% of S&P 500 stocks have reported, with 78% beating consensus on earnings per share and 56% beating consensus on revenue.
The blended S&P 500 fourth quarter earnings per share growth rate rose to 16.9% last week, according to FactSet, with blended growth combining results already in along with estimates of results to come. However, expected calendar year 2025 earnings growth fell to 12.7% last week from 14.7% at the end of 2024.
"Estimates for 2025 have consistently moved down," said Kevin Gordon, director, senior investment strategist at Schwab, speaking on CNBC Friday afternoon. "There hasn't been any meaningful pickup." There may be more clarity around company outlooks by mid-year.
Sector-wise, info tech and communications took back leadership Friday behind strength from Apple (AAPL), Nvidia (NVDA), and Meta Platforms (META). Intel lost ground Friday but finished up for the week after Bloomberg reported that Taiwan Semiconductor Manufacturing (TSM) is considering taking a controlling stake in Intel's factories following a request from the Trump administration.
Treasury yields resumed their retreat, with the 10-year note yield dropping five basis points Friday to finish at 4.48%, down one basis point for the week. For stock market bulls, it's important that the 10-year yield remain below last month's high of 4.80%.
The soft U.S. data Friday also weighed on the dollar, which traded at its 2025 lows below 107 for the dollar index ($DXY). A weaker dollar can help tech, as many major companies in that sector have large overseas markets.
Technically, Friday's SPX failure to finish above its all-time high close of 6,118 looked a bit disappointing, though the miss was slight. A close above that level would have been bullish, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research, but failure to do so raises the chance that a pullback to range-bound trading might continue.
The SPX fell 0.44 points Friday (-0.01%) to 6,114.63, up 1.47% for the week; the Dow Jones Industrial Average® ($DJI) fell 165.35 points (-0.37%) to 44,546.08, up 0.55% for the week; and the Nasdaq Composite® ($COMP) rose 81.13 points (+0.41%) to 20,026.77, up 2.58% for the week.
