Opening Market Update

In addition to any insight from Fed officials on the PCE data, the latest Michigan sentiment survey should give a peak into consumers' views on inflation and jobs.

(Friday market open) The new month kicks off with a host of Federal Reserve speakers, giving investors a chance to hear policy makers' take on yesterday's inflation data. The January Personal Consumption Expenditures (PCE) prices report didn't move the needle much on projected first rate cut timing, as the futures market still pegs that happening in June or July.

Five Fed policymakers are on tap but there's no top-tier economic data, unlike yesterday when the tame PCE inflation report set a positive tone. But there is consumer sentiment and the February ISM Manufacturing Index. The consumer sentiment data follows a weaker-than-expected Consumer Confidence Index® earlier this week.

Investors also can mull the latest Q4 earnings scorecard from research firm FactSet released ahead of schedule Thursday. It showed Q4 blended S&P 500 earnings per share growth up 4% year over year, well above the 1.5% average analyst estimate entering earnings season. It's the second consecutive quarter of year-over-year earnings growth.

The market appeared to fear an upside surprise rise in PCE, "but can now breathe a sigh of relief" as the broader PCE trend continues to be lower, said Cooper Howard, director of fixed income Strategy at the Schwab Center for Financial Research.

Still, the PCE report "is unlikely to change the outlook for Fed policy," Howard said. "We expect the Fed to continue to preach patience with rate cuts. The market continues to push back the timing of the first rate cut. We still expect three to four rate cuts this cycle with the first occurring this summer, but it will be dependent on the economic data."

Futures based on the S&P 500® index (SPX) were up 0.01% shortly before the close of overnight trading. Futures based on the Dow Jones Industrial Average® ($DJI) fell 0.06%, and futures based on the Nasdaq-100® (NDX) rose 0.08%.

Mega-cap tech shares were mixed in overnight trading and major U.S. stock indexes lack direction early Friday after the Nasdaq Composite® (COMP) posted its first record closing high Thursday since November 2021 after a long chase.

Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.  

Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.  

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Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.  

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Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.  

Morning rush

  • The 10-year U.S. Treasury Yield (TNX) rose two basis points to 4.27%.
  • The U.S. Dollar Index ($DXY) is roughly flat at 104.1.
  • The Cboe Volatility Index® (VIX) is steady at 13.4.
  • WTI Crude Oil (/CL) rose 1.5% to $79.48 per barrel.

Just in

China check-in: The official NBS Manufacturing PMI for February slipped slightly to 49.1, in line with expectations but down from 49.2 the month before. A 50 is needed for expansion. New orders remained weak, Trading Economics pointed out, and output fell. The Caixin Manufacturing PMI stayed above 50, however. NBS is more oriented toward large, state-owned companies.

In other overseas news, Europe's consumer inflation continues falling, but not as much as analysts had expected. February's 2.6% annual gain was the lowest in three months, but Trading Economics had put consensus at 2.5%. The core rate, stripping out food and energy, fell to 3.1%, the lowest since March 2022, but above consensus of 2.9%.

WTI crude is testing the $80 per barrel mark for the first time since early November after trade media reports that OPEC might keep current production cuts in place longer and amid Middle East tensions. Strength in crude, which is up more than 11% year to date, might be another factor on the Fed's watchlist as it tries to dampen price growth. Unfortunately, there's not much in the central bank's playbook to quench an oil rally.

What to watch

Consumers report: This morning brings the final February University of Michigan Consumer Sentiment report soon after the open at 10 a.m. ET. This follows a lackluster Consumer Confidence report earlier this week from the Conference Board that showed short-term pessimism about the business and labor market. The preliminary February sentiment data, however, showed optimism growing about inflation and jobs. Analysts see the final reading rising to 79.6 from the preliminary 78.8, Briefing.com said. As always, keep an eye on inflation expectations.

The February ISM Manufacturing Index also bows at 10 a.m. It was below 50 in January for a 15th consecutive month, keeping it in contraction. However, the 49.1 reading was up from 47.1 in December and the highest since October 2022, sparking some optimism that the sector might be gaining vigor. That said, analysts think contraction continued in February and the consensus is 49.5, according to Briefing.com.

Week ahead: Once again, investors face a back-loaded schedule when they return to work next Monday. This week it was all about waiting until Thursday's PCE prices report. Next week, it's the countdown to Friday's February Nonfarm Payrolls data.

There are some highlights on the yellow brick road to Friday, including expected earnings from Target (TGT), Costco (COST), and Foot Locker (FL). From an earnings per share (EPS) perspective, the retail sector's had a nice Q4 so far, perhaps reflecting a resilient U.S. consumer.

Tuesday's January Factory Orders data provides another look at the less resilient U.S. manufacturing economy. Also, watch Thursday for a couple of less notable data points that might provide clues about U.S. consumer and labor trends (see more below).

Looking ahead to payrolls next Friday, analysts expect February jobs growth of 188,000, down from January's surprisingly robust 353,000, according to Trading Economics. This is a fluid estimate that could change as the report draws near. Still, a figure of 188,000 would potentially come as a relief following consecutive jobs reports that hinted the economy might be running too hot to cool inflation.

Stocks in spotlight

Earnings scorecard: In a surprise move, research firm FactSet released its latest S&P 500 earnings update Thursday, a day ahead of schedule. With 97% of companies reporting, 73% have beaten Wall Street's EPS estimates, while 64% reported a positive revenue surprise.

The 73% of companies beating on EPS is below the five-year average of 77%, FactSet noted, but in a positive development, seven of 11 S&P 500 sectors reported year-over-year EPS growth. Communications services top the scorecard, but consumer discretionary and utilities placed silver and bronze.

Info tech might not even make it to the medal ceremony, holding fourth place despite so much recent focus on AI and cloud performance. That said, Amazon (AMZN) was a large contributor to the consumer discretionary sector's EPS growth, and if you follow the cloud market you know it's been a while since Amazon was just a shopping site.

Blended S&P 500 revenue growth in Q4 averaged 4.2%, lifted by positive surprises in the health care and consumer discretionary sectors.

Analysts remain optimistic about the 2024 earnings picture. They expect 11% year-over-year EPS growth, FactSet said, though projected Q1 EPS growth is a pedestrian 3.6%. The back-nine Q3 and Q4 are where much of the earnings strength is projected this year, though Q2 also looks likely to be solid. Q1 might be the ugly duckling.

Stocks on the move early Friday include:

  • Autodesk (ADSK) climbed 8.6% in premarket trading after the software company posted better-than-expected quarterly results and solid revenue guidance.
  • Tesla (TSLA) rose 0.7% after Reuters reported the company rolled out new incentives in China to amp sales even as it tweaked U.S. Model Y prices slightly higher. Tesla faces fierce domestic EV competition in China.
  • Hewlett Packard Enterprise (HPE) slid 5% after its quarterly revenue came up shy of analysts' expectations and some of its guidance also fell short of Wall Street's thinking. In a news release, an HPE executive cited "challenges brought by the softening of the network market and GPU deal timing."
  • Regional bank New York Community Bancorp (NYCB) shed over 20% in premarket trading after the lender announced a leadership change and disclosed issues with its internal controls.
  • Dell (DELL) rose more than 20% in premarket trading after reporting quarterly earnings that beat Wall Street's expectations.

Thursday in review:

U.S. equities finished another strong month Thursday after PCE came in close to expectations. The SPX posted a new record high to cap its fourth-straight monthly gain.  Chipmaker shares were among the strongest performers Thursday, helping lift the Philadelphia Semiconductor Index (SOX) 2.7% to a record high close. Banks and food and beverage industries were also firm. Small-cap stocks also extended a recent upswing.

Eye on the Fed

Early today, futures trading pegged chances at 97% of the Federal Open Market Committee (FOMC) leaving rates unchanged at the March 19–20 meeting, according to the CME FedWatch Tool. The market prices in around a 25% chance the funds rate will be lower than now after the Fed's May meeting. Chances rise to 67% of at least one cut by June and 88% by July.

Retail update: Wondering about post-pandemic trends in the U.S. retail market? Check the latest OnInvesting podcast from Schwab's Chief Investment Strategist Liz Ann Sonders and Chief Fixed Income Strategist Kathy Jones. They also discuss market sentiment, trends in fixed income, and a disconnect between investors' attitudes and behavior.

Thinking cap

Ideas to mull as you trade or invest 

Data drilling: A couple of under-the-radar economic reports next week could provide clues into U.S. labor and consumer spending patterns. Both come next Thursday: The Challenger, Gray & Christmas monthly update on corporate layoffs and the Manheim Used Vehicle Value report. The first might get a few more eyes, especially after continuing jobless claims climbed above 1.9 million last week, the highest level since November. That comes after job cuts surged 136% in January from December, according to the Challenger report. The updated February report is expected to show a sharp drop in cuts to around 51,000, Trading Economics said. However, the claims report yesterday indicates it may be getting harder to find a new job for those laid off. Used car prices can often be a sign of underlying inflation and consumer demand. They fell five-straight months before coming in flat in January. However, that month might not be helpful due to winter storms that slowed activity. February could provide better insight.

Credit check: Another measure of resilience, especially for U.S. corporations, is the credit market. Regional bank stocks, which were the front and center of the credit worries that hit Wall Street a year ago, have had a bumpy week. Even so, the underlying credit market appears to be healthy. Minutes from the last FOMC meeting said that officials noted the potential risk of easing financial conditions. "Credit spreads in both the investment grade and high-yield market continue to fall," said Collin Martin, a director of fixed income strategy at the Schwab Center for Financial Research. "The average Option-Adjusted-Spread (OAS) of the Bloomberg US Corporate Bond Index recently made a new 2-year low, and the Bloomberg US Corporate High-Yield Bond Index is getting close. An ongoing 'risk on' rally could keep financial conditions accommodative and potentially limit the number of rate cuts on the horizon."

Talking technicals: A good way for investors to consider approaching charts is with the question, "At what price level did buyers step in or sellers emerge recently and how many times, and did volume confirm?" With that in mind, the first area of support for SPX is roughly 4,950 (where buyers stepped in earlier in February), followed by roughly 4,800 (where prior resistance became support). "The prior all-time high around 4,800 was such a key resistance level on the way up that I'm actually surprised we haven't re-tested it," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

Calendar

March 4: No major earnings or data expected.

March 5: January Factory Orders and expected earnings from Target (TGT), Ross Stores (ROST), and Crowdstrike (CRWD).

March 6: January Wholesale Inventories and expected earnings from Campbell Soup (CPB), Foot Locker (FL), and Victoria's Secret (VSCO).

March 7: Q4 Productivity, January Trade Balance, and expected earnings from Broadcom (AVGO) and Costco (COST).

March 8: January Nonfarm Payrolls.