Schwab Market Update

Published as of: February 21, 2025, 9:23 a.m. ET

(Friday market open) Pressure on the venerable Dow Jones Industrial Average ($DJI) yesterday stemmed from Walmart's (WMT) disappointing outlook. Today, the $DJI is again in the red, this time from a Wall Street Journal report that the Department of Justice is looking into Medicare billing practices of Dow component UnitedHealth Group (UNH). However, other major indexes were flat to a bit higher ahead of Friday's open on support from mega caps as yields eased.

Stocks are starting to look tired, with record highs this week coming on lower-than-average volume and small index gains. This could point toward consolidation and potential choppiness. Consumer-related names pulled back yesterday on worries that Walmart's forecast might reflect slowing demand, but major indexes finished well off their lows amid continued resilience and a prevailing "buy the dip" attitude. Technically, support for the S&P 500 index (SPX) may be around 6,050 with resistance at 6,150.

Data might provide a wake-up call as the month winds down. Next Friday features January Personal Consumption Expenditures (PCE) price index data, the Federal Reserve's favored inflation metric. Nvidia (NVDA) earnings next Wednesday are another highlight. January existing home sales and February S&P Global U.S. manufacturing and services PMI loom this morning and may also give direction, with the housing market still squeezed by high prices and lack of inventory.

1. Inflation update: The final February University of Michigan consumer sentiment data are due today, with expectations for a headline of 67.8. That's low, but equal to the preliminary read. More important for yields is what the report says about inflation. The preliminary reading showed inflation expectations climbing to 4.3% from January's 3.3%, the highest since November 2023. Fed Chairman Jerome Powell has long called inflation expectations "well anchored," but any signs of the boat floating away might raise eyebrows. "If a broad swath of consumers is expecting prices to go up because of tariffs, then there is a bit less of a firm anchoring of inflation expectations," said Kevin Gordon, director, senior investment strategist at Schwab. "To be sure, it's unlikely we're facing a repeat of the 2021–2022 inflation surge, but the Fed watches expectations across all consumers; and to the extent that influences their monetary policy decisions, investors need to be attentive of that risk." Early Friday, the CME FedWatch tool placed odds of a March rate pause near 98%, with chances for a rate cut rising to slightly above 50% by the June meeting.
    
2. Berkshire on deck: Berkshire Hathaway (BRK.B) unveils quarterly results tomorrow, perhaps a reason for investors to keep an eye on the Saturday news flow. Last week, the company's 13-F report showed Warren Buffett's conglomerate cutting its position in Bank of America (BAC) shares and Citigroup (C) while keeping its position in Apple (AAPL) unchanged at 300 million shares. Berkshire also carved out a new position in Constellation Brands (STZ), which sells beer, wine, and spirits. Tomorrow also features Buffett's annual letter to shareholders, which could reflect the Oracle of Omaha's current views on the market and economy. Buffett appears cautious about stocks, Barron's noted in a report on the 13-F, saying that Berkshire was a net seller last quarter, unloading $127 billion worth of stocks. "There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others," Buffett said in last year's letter.
    
3. Layoffs mount: U.S. layoffs in January reached nearly 50,000, up from 38,792 in December but down 40% from January 2024, according to outplacement firm Challenger, Gray & Christmas. Since then, there've been fresh layoff announcements from Southwest Airlines (LUV), Chevron (CVX), JPMorgan Chase (JPM), and Estee Lauder (EL). Also, UnitedHealth Group is offering employee buyouts and could pursue layoffs, according to media reports this week. Though U.S. jobs growth has been relatively strong the last few months, any further job cuts could add to economic worries, especially considering as federal government layoffs take place and tariffs potentially hinder corporate growth plans. Job cuts often show up over time in initial weekly jobless claims data each Thursday, which the Fed watches closely.

• Coinbase Global (COIN) and MicroStrategy (MSTR) climbed 1.7% and 5%, respectively, in the pre-market as Bitcoin (/BTC) again flirts with $100,000 and is up around 6% from recent lows, perhaps a sign of more "risk-on" trading underway. Coinbase also got a lift as Barron's reported that the Securities and Exchange Commission (SEC) is ready to drop its lawsuit against the company.
   
• Rivian (RIVN) dropped 4% in pre-market trading even though the EV maker's quarterly loss was narrower than analysts had expected and revenue was higher. The company sees first quarter deliveries clipped by the effects of California wildfires, and its forecast for 2025 vehicle deliveries was in a range below the 2024 level.
   
• UnitedHealth Group tumbled nearly 10% ahead of the open after The Wall Street Journal reported that the Department of Justice is investigating the company about Medicare billing practices. The DOJ's civil fraud investigation will examine UnitedHealth Group's practices for documenting diagnoses that trigger extra payments to its Medicare Advantage plans, the newspaper reported.
   
• DoorDash (DASH) inched higher early Friday after falling 5% on Thursday, though news around the stock was relatively scarce. Many consumer stocks like DASH met selling pressure yesterday after Walmart's disappointing guidance raised concerns about demand for everything from food orders to theme parks. Travel names, including United Airlines (UAL), also lost altitude yesterday.
   
• Celsius (CELH) jumped more than 30% early Friday after the energy drink maker's quarterly results beat analysts' expectations and the company said it agreed to acquire Alani Nutrition, which makes Alani Nu drinks popular with social media influencers, CNBC reported.

Overlooked bonds: Many investors overlook the taxable municipal bond market, a small portion of all bond offerings that unlike most munis is subject to both federal and state taxes. In Schwab's latest analysis, learn why these bonds may sometimes be an attractive option for investors in lower tax brackets, but also a few caveats, including generally lower liquidity.

The yen neared its strongest level versus the dollar (USD/JPY—candlesticks) since December, storming past the 200-day moving average (blue line) and trading late yesterday at 149.75 before easing slightly Friday on news that the Bank of Japan (BoJ) would buy government bonds in a nimble fashion if yields rise sharply. Yesterday's Japan Consumer Price Index (CPI) was broadly in line with expectations. The current USD/JPY is still well off last summer's peak when a BoJ hike triggered fears that the yen-carry trade—where investors borrow cheap yen to buy currencies and assets with higher yields—might flame out, hurting U.S. stocks. "Recent strength in GDP and wage growth, as well as inflation" could pave the way for another BoJ rate hike in coming months, said Michelle Gibley, director of international research at the Schwab Center for Financial Research.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap next week.

February 22: Expected earnings from Berkshire Hathaway (BRK.B).
February 24: Expected earnings from Cleveland-Cliffs (CLF).
February 25: February Consumer Confidence and expected earnings from Home Depot (HD).
February 26: January new home sales and expected earnings from Nvidia (NVDA).
February 27: Fourth quarter GDP second estimate, January durable goods, January pending home sales, and expected earnings from Dell (DELL) and HP (HPQ).
February 28: January Personal Consumption Expenditure (PCE) price index, January personal spending, January personal income.