I'm Colette Auclair, and here is Schwab's early look at the markets for Friday, August 15th.

After the market got side-swiped by unexpectedly hot wholesale prices Thursday, investors await the latest reading on consumer demand.

July retail sales are due at 8:30 a.m. ET and come ahead of next week's full helping of earnings from major retailers. Analysts expect a healthy 0.5% monthly increase in the headline number, down just slightly from 0.6% in June, according to Briefing.com.

As always with retail sales, remember to check other aspects of the report—especially core retail sales that exclude food services, auto dealers, building materials stores, and gas stations and are used to calculate gross domestic product (GDP). That number rose 0.5% in June.

Consumer confidence measures—punctured earlier this year by trade war gloom—rebounded early this spring and summer, possibly a boost for shopping. There was also a decent amount of discounting last month that might have attracted people to stores.

As earnings season winds down, companies appear to be splitting some tariff-related costs among suppliers and consumers, and now the question is how long consumers can hold up. It wouldn't be surprising to see the consumer pull back a bit, and this week's July Consumer Price Index (CPI) indicated that inflation outside of food and energy remains stubborn above 3%.

Another consumer-oriented report today is after the open as investors get preliminary August Consumer Sentiment from the University of Michigan. The Briefing.com consensus is 61.3, down from the prior 61.7 and still relatively low historically.

The July Producer Price Index (PPI) yesterday interrupted the market's summer rally and spiked volatility as investors rethought what the Federal Reserve might decide on rates next month. Though a rate cut is still widely expected, judging from futures trading, odds are down slightly from earlier this week and this month's release of the July Personal Consumption Expenditures (PCE) price index now becomes front and center. That report is due August 29.

Many components of PPI feed into PCE – the Fed's favored inflation meter – so the shocking jumps in July PPI might mean a higher PCE as well.

Drilling down, headline and core PPI readings both jumped 0.9% when analysts had expected 0.2%.

"This should muddy the outlook for Fed policy, as its two mandates appear to be in a bit of tension." said Collin Martin, director, fixed income strategy at the Schwab Center for Financial Research.

The Fed is charged with achieving maximum employment and stable prices and has kept rates unchanged since last December at somewhat restrictive levels. Recent weak jobs data led to the rate cut expectations, but if prices are rising and jobs are weak, it presents a conundrum for making rate policy.

Annual July PPI rose 3.3% from 2.4% in June and represented a five-month high, while core PPI jumped to 3.7%. Core excludes energy and food. Expectations had been 2.5% and 2.9%, respectively. Yesterday's swollen PPI numbers came out of nowhere in a sense, as both had been flat in June and CPI seemed relatively benign outside of a 3.1% core annual increase that topped expectations.

Now investors may have to rethink whether wholesale prices might eventually make their way into CPI, as is sometimes the case. This was the largest increase in PPI since June 2022, and the cost of services led the way with 1.1% gains, while goods prices went up 0.7%.

"PPI services this year has been in a range of a 0.3% drop to a 0.7% increase," Martin said. "The services increase was notable."

A 3.8% jump in machinery and equipment wholesaling led to 30% of the services rise, while trade services margins increased 2%—suggesting producers passed along tariff-related price increases to protect their margins. Food prices also rose sharply, though goods prices excluding food and energy rose just 0.4%.

In other data yesterday, weekly initial jobless claims were 224,000 and continuing claims were 1.953 million, in line with expectations.

Treasuries–which move the opposite direction of yields—suffered from the PPI news Thursday. The 10-year note yield popped six basis points to 4.29%, and two Fed speakers, San Francisco Fed President Mary Daly and St. Louis Fed President Alberto Musalem, both said they don't think a 50-basis point rate cut would be warranted next month. Before PPI, a small chance of a 50-basis point cut had seeped into futures trading, generated by worries about slow recent job growth.

The CME FedWatch Tool now puts odds of a September rate cut remaining high at above 92%, but still a 7% chance of no rate cut at all.

Stocks initially reacted poorly to the PPI data Thursday and then spent much of the session tracking near unchanged. The S&P 500 closed a fraction higher and the Nasdaq Composite a fraction lower. The exception to the market's mostly flat trading was the small-cap Russell 2000 (RUT) index, which tumbled 1% after rising nearly 2% Wednesday. The quick turn from rate cut hopes to inflation worries and higher yields likely hurt small-caps, which are more sensitive to rates since many smaller firms depend more on borrowing.

"The index most closely short-term correlated to changes in Fed policy is the Russell 2000, and you saw it yesterday and today," Schwab's Chief Investment Strategist Liz Ann Sonders said on CNBC Thursday.

Sector-wise, info tech struggled for the second straight day as Cisco fell nearly 1% following its earnings. The company narrowly beat expectations but guidance looked cautious. Consumer discretionary and health care strength spilled over from earlier this week as two of the largest stocks in those sectors, Amazon and Eli Lilly, had strong days. Banks also performed well, with some Wall Street financial firms getting a boost from ideas that the PPI reading might increase market volatility and provide more business for their trading segments. But some stocks more sensitive to rates might have been hurt by PPI, including auto companies, big-box retailers and home builders.

Individually, stocks deep in the red included AI cloud computing firm CoreWeave, which fell another 14% Thursday after reporting a larger-than-expected earnings loss earlier this week, and Tapestry, a fashion company that warned tariffs could hurt its outlook. Shares fell 15%. There are no major earnings reports due today. Walmart and Target are among the companies on next week's list. Late yesterday, semiconductor firm Applied Materials reported better-than-expected earnings but revenue that fell short of Wall Street's expectations. It also offered cautious guidance.

Intel bucked the lower trend in tech Thursday, rising more than 6% late in the session on a Bloomberg report that the U.S. government might take a stake in the chip company, which has been trying to expand its domestic manufacturing—an initiative supported by both the Trump and the previous Biden administrations. The deal would help shore up Intel's planned factory in Ohio, where delays have been an issue, Bloomberg reported. Talks between Intel and the Trump administration are taking place, the article said.

The Dow Jones Industrial Average^® ($DJI) fell 11.01 points Thursday (-0.02%) to 44,911.26; the S&P 500 index (SPX) added 1.96 points (+0.03%) to 6,468.54, and the Nasdaq Composite^® ($COMP) dropped 2.47 points (0.01%) to 21,710.67.