Here is Schwab's early look at the markets for Monday, February 23.
After a pivotal Friday that included the Supreme Court overturning President Trump's tariffs, slower-than-expected economic growth, and hotter inflation data, investors face a keystone earnings report as Nvidia opens its books Wednesday afternoon. Trading might be sluggish ahead of Nvidia's release, which typically helps set the direction for AI-related stocks and the broader tech sector.
Despite Friday's bearish data punch, Wall Street's early losses turned to gains on the Supreme Court's decision. However, it's worth noting that the decision had been expected, it doesn't end all tariffs, and the administration is already attempting to use other methods to impose trade restrictions.
"This is a big blow to the president’s signature economic policy, no question. But there are other mechanisms available to the president to impose tariffs. The administration has said it has a 'Plan B,'" said Michael Townsend, managing director, legislative and regulatory affairs, at Schwab.
Townsend noted that there is an emergency provision that allows the imposition of 15% tariffs for 150 days. "If nothing else, that will buy the administration some time," he said. President Trump was quick to take advantage of this provision Friday afternoon, saying he would sign an executive order implementing 10% global tariffs. The administration could also seek to impose tariffs through other, more traditional means in the year ahead.
Outside of Washington, recent economic data and corporate earnings have largely disappointed bullish investors. From Walmart setting its sales expectations below analysts' consensus to signs of more pain in the housing market, it's been a relatively rough ride of late. That continued early Friday when investors received a double whammy of higher Personal Consumption Expenditures (PCE) inflation and slower gross domestic product (GDP) data that sent unwelcome "stagflationary" signals. Stagflation refers to an economy in which prices rise even as economic growth withers, putting the Federal Reserve in a pinch as it attempts to balance the two sides of its dual mandate: stable prices and maximum employment.
"Not great news on either the inflation data or GDP for the bulls," said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research, or SCFR.
December's Personal Consumption Expenditures, or PCE, price index rose 0.4% month over month, above the consensus of 0.3% and November's 0.2%. Core PCE, which excludes food and energy prices, also rose 0.4%, in line with consensus and above the 0.2% November level.
Year-over-year headline PCE growth was 2.9%, well above the Fed's 2% target and up from 2.8% in November, while core annual growth reached 3%. Consensus expected 2.8% for headline PCE and 3% for core. The main culprit of the inflation jump appeared to be goods prices, which rose 0.4% month over month in December, from 0.1% in November.
In one positive result, personal spending also rose 0.4% month over month in final month of last year, a sign that consumers continued opening their wallets.
The relatively hot PCE data wasn't a complete surprise, as earlier producer price data revealed rising prices for some elements that typically pull through to PCE, the Fed's favored inflation report. Investors will be closely watching this Friday's Producer Price Index (PPI) data for more insights into the trajectory of inflation. It's worth noting that there have been mixed inflation signals in recent reports. The January Consumer Price Index (CPI), for example, climbed just 2.4%. However, it is compiled using different metrics—giving a higher weight to housing.
"With economic growth still likely growing at or above trend and inflationary pressures still present, we expect the Fed to remain on hold until we see more persistent signs of disinflation," said Collin Martin, head of fixed income research and strategy at SCFR.
The government's first estimate for fourth quarter GDP, meanwhile, landed at just 1.4% on Friday, down from 4.4% the prior quarter. Wall Street had expected 3%. "Details under the GDP hood show solid business investment, positive consumption—though slower relative to Q3—and a significant pullback in government spending," said Kevin Gordon, head of macro research and strategy at SCFR.
After the combination of PCE and GDP, chances of a Fed rate cut next month stood at just 4% as of late Friday, according to the CME FedWatch Tool. The odds that rates will have been cut at least once by June were over 50%, however.
Still, a large contingent of policy makers seems willing to wait for inflation to ease before considering further rate cuts, minutes from the last Federal Open Market Committee revealed last week.
"The warmer-than-expected data PCE data is not great for getting clarity around the Fed's next move, especially in light of the relatively hawkish Fed Minutes showing that a few members wanted to hike rates," Peterson said. "This will likely cloud the monetary policy trajectory, especially with a new Fed Chair coming on board."
Investors could gain more insights into the Fed's policy stance this week, with six leading Fed officials set to offer public comments.
Adding to the complex economic picture, rising geopolitical tensions sent crude oil prices to six-month highs last week. As the weekend approached, media reports said the U.S. appeared ready to take military action against Iran, though timing is unclear and negotiations apparently continued as of late Friday. Back in June, when the U.S. bombed Iranian nuclear sites, crude oil jumped to nearly $80 a barrel.
Concerns about private credit were another source of market pressure last week that could linger. Blue Owl Capital dropped 6% Thursday after it said it was selling $1.4 billion in assets from credit funds so it can return capital and pay down debt, while permanently halting redemptions at one of its funds, Reuters reported. Shares of other asset management firms including Blackstone and Ares Management also fell on the news.
"Private credit concerns are making headlines, but the public markets are generally holding up well," Martin said. "High-yield bonds have generally delivered positive returns this year and their spreads remain low, suggesting there’s not too much stress in the markets yet."
Still, given private credit's recent reported issues, Martin believes the sectors' investors "should be cognizant of their relative illiquidity and redemption limits."
Data rolled on later Friday with February's final reading on consumer sentiment from the University of Michigan coming in at 56.6, below the preliminary reading of 57.3 and historically weak. Investors will get another read on consumer sentiment tomorrow from the Conference Board.
New home sales for December were a strong point last week, however, coming in at a seasonally adjusted annual rate of 745,000, well ahead of the Briefing.com consensus for 714,000. Still, new home sales declined 1.4% from November, and pending home sales tumbled to all-time lows last Thursday.
Looking ahead, this week's highlight is likely Nvidia's earnings, due Wednesday after the close. Margins might come under scrutiny as Nvidia, like other chip players, faces elevated high-bandwidth memory costs. Retail sector earnings will also be in focus, with Home Depot reporting tomorrow morning and Lowe's reporting on Wednesday morning.
Salesforce's earnings will draw attention Wednesday after the bell. The software giant's results arrive during dark times for the sector amid AI competition concerns. Guidance could help set the tone for software stocks, and any weakness in the outlook might exacerbate bearish sentiment for sector. Capping off the week, Berkshire Hathaway is set to report earnings on Saturday.
Other notable economic reports this week include December's factory orders data, due at 10 a.m. ET today, and construction spending, due Friday morning.
Reviewing last Friday's market action, all three major market indexes ended the day higher, with eight of 11 S&P 500 sectors rising. The communication services, consumer discretionary, and information technology sectors led the pack as investors took a risk-on approach following the Supreme Court's ruling against the Trump administration's tariffs. Meanwhile, energy, healthcare, and consumer staples lagged on the day.
In individual trading, Grail plunged 50.55% after saying its multi-cancer screening test Galleri didn't lead to a statistically significant reduction in stage 3 and 4 cancer in a large trial, Barron's reported.
Akamai Technologies slid 14.07% after the cybersecurity and cloud company saw its net income decline and posted weak guidance in its latest quarter despite higher revenue.
Opendoor Technologies rocketed 7.53% after the online homebuying platform reported quarterly revenue above Wall Street's consensus.
Corning surged 7.37% after the specialized glass and ceramics maker secured a multi-year $6 billion deal with Meta to supply advanced optical fiber and connectivity solutions for data centers.
The Dow Jones Industrial Average® ($DJI) rose 230.81 points Friday (+0.47%) to 49,625.97; the S&P 500 Index (SPX) advanced 47.62 points (+0.69%) to 6,909.51, and the Nasdaq Composite® ($COMP) jumped 203.34 points (+0.90%) to 22,886.07.
For the week, the DJIA rose 0.47%, the SPX advanced 0.75%, and the Nasdaq Composite jumped 0.23%.