Here is Schwab's early look at the markets for Monday, October 20.
The two regional banks that suffered double-digit share losses Thursday report early this week with sector health in focus after a credit-related market hiccup. The KBW Nasdaq Regional Banking Index rose 1.8% Friday as several smaller banks reported solid earnings, easing concerns.
Zions Bancorporation reports later today and Western Alliance Bancorporation reports tomorrow, and investors will likely monitor both for any exposure to fraudulent loans. Zions said last week it would take a charge related to loan issues and Western Alliance also disclosed loan fraud losses.
Banking concerns arose at a time when "speculative froth" has developed in the market, said Liz Ann Sonders, Schwab's chief investment strategist, speaking on CNBC late last week.
"When you have that speculative froth and then you have sort of a bigger picture potential issue, those two can sometimes collide and cause an increase in volatility," Sonders said.
On the positive side, credit spreads haven't widened. If that happened, it might indicate contagion, but there's no sign of that.
Even before the credit issues, investors seemed skittish and eager to sell rallies, partly because so much data is unavailable. The government shutdown continued as of this recording.
"The longer this drags on and the longer we go without getting some of these key economic data points, I do think that it could become more of a pressure point for the market," said Kevin Gordon, senior investment strategist at Schwab.
The Conference Board was scheduled to publish its September Leading Economic Index at 10 a.m. ET, but its site said reports might be delayed due to the shutdown. "The Conference Board will resume publication once updated U.S. federal government data are released," it said.
That means investors itching for data may have to wait for tomorrow's U.S. Redbook Index of year-over-year same-store sales growth in a sample of large U.S. retailers. It's due around the same time as Federal Reserve Governor Christopher Waller speaks. That might be the last Fed speaking engagement for a while as policy makers enter their "quiet period." Waller said last week he supports a rate cut.
Investors still expect a rate cut at the Fed's October 28–29 meeting and another in December, according to the CME FedWatch Tool. Futures trading builds in 100% chances of at least a 25-basis pointcut this month and 1% chance of a 50-basis point cut.
"A cut this month is all but baked in," said Cooper Howard, director, fixed income strategy at the Schwab Center for Financial Research. "Fed Chair Powell spoke last week and didn’t squash the notion that the Fed will cut later this month. They’re about to enter into the blackout period so the time has passed for Fed officials to use their communications tool to sway the markets."
The longer the shutdown goes, the more difficult it makes the Fed’s job because policy makers won’t get the normal flow of data. Instead, they’ll have to rely on private data, regional Fed surveys, and other information. However, some numbers are on the horizon this week including the September Consumer Price Index, University of Michigan Consumer Sentiment, and flash S&P Global PMI readings, all on Friday.
Shutdown and credit concerns weighed on Treasury yields last week, but the benchmark 10-year yield climbed back above 4% on Friday to close at 4.01%, up from six-month lows.
"The mid-week drop below 4% was a potential signal of longer-term growth concerns," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. "Friday's rebound was bullish for stocks in my view, even if it’s only a psychological boost."
As of late last week, 86% of S&P 500 companies reporting earnings had beaten analysts' estimates, according to FactSet. And analysts now expect 8.5% third quarter earnings growth, up from 7.9% at the start of earnings season.
The calendar gets busier this week, with Tesla, Netflix, GE Vernova, and Lockheed Martin among the biggest companies to report. Today is a little light on earnings, though results from Zions later might draw more attention than usual considering last week's credit-related sell off. Tomorrow morning includes Philip Morris, Lockheed Martin, Northrop Grumman and Coca-Cola, among others. GE Vernova and Vertiv on Wednesday will serve as barometers for data center and power-infrastructure demand, Briefing.com noted.
Also, the weekend brought a host of data from China, including an update on gross domestic product, industrial production, and the unemployment rate.
Returning home, retail investors appear to be buying the dip on Wall Street while the institutional side seems to be hedging downside risk. Retail investors also seem to be paring back their tech exposure and buying dips in energy, communication services, consumer discretionary, and industrials.
There's still some froth in the market, especially in quantum, nuclear, drone, and satellite stocks, Peterson said. But these have corrected 10% to 20% off their recent highs, which could be seen as a health sentiment reset.
Peterson said late Friday he's "moderately bullish" going into the week.
"I’m not saying that there won’t be any more volatility, and I’m not saying that there won’t be any more 'credit scares' in the coming weeks, but it feels to me that enough boxes have been checked to feel that stocks could be set to recover some lost ground," Peterson said. "What could challenge my forecast? Any headlines around trade escalations, credit events, or a push lower in treasury yields could lead to a more bearish outcome."
As earnings season rolls on, it's notable that analysts are raising their profit outlooks. This could be the quarter where the market really starts to see the impact (or lack of one) from tariffs. But lack of good data is going to be an issue soon. Like Fed policy makers, company leaders need to understand the economic picture. Underlying trends in inflation and U.S. growth do get factored into plans for plant expansions, hiring, mergers, and other corporate decisions.
Without data, earnings take on more importance. The market is more contingent on strong earnings to keep the rally going.
On Friday, stocks staged a slight revival on what investors viewed as positive China comments from President Trump, but the S&P 500 index still closed below its key 20-day moving average for the sixth straight session, a sign that the uptrend may be flagging. Two attempts to move above 6,700 were foiled last week, so technicians likely would want to see a couple closes above that to provide new strength on the charts.
The Cboe Volatility Index, or VIX, jumped more than 22% Thursday to the highest level since May at above 29, but pulled back Friday to 21. VIX hasn't really settled down since the October 10 stock market sell off. It's unusual to see the VIX this high and stocks within a stone's throw of all-time highs .
Though stock market volatility is high, volatility in fixed income remains near the lowest level since 2021,
In individual stock action Friday, Nvidia rebounded slightly from mid-week softness to stay above a chart trendline that may represent support. But the PHLX Semiconductor Index dropped slightly as Broadcom, CoreWeave, Super Micro Computer, and Advanced Micro Devices lost ground. The entire sector has been volatile lately amid China/U.S. trade tensions.
Oracle dropped nearly 7% Friday, weighing heavily on the tech sector despite the company saying its AI cloud server-rental business has a 35% gross margin over the contract's life, Barron's reported. This contrasted with an article last week raising concerns about margins. Investors may have sold shares Friday on new margin concerns after the company said it might accelerate near-term investments, Briefing.com noted.
Zions Bancorporation jumped 5% Friday after Baird upgraded it to Outperform from Neutral today despite the bank's regulatory filing regarding potential fraud on a $60 million syndicated loan. This followed a 13% drop on Thursday.
Eli Lilly dropped more than 2% Friday after President Trump promised "much lower" prices for weight-loss drugs.
Apple climbed almost 2% on Friday, possibly helped by India agreeing to lower its Russian oil imports at the Trump administration's request. This could improve India's trade status with the U.S., and India is an important iPhone manufacturing hub.
Nine of 11 S&P 500 sectors climbed Friday, led by staples and financials, followed by communication services and energy. Utilities and materials lost ground as gold and other metals pulled back on more positive comments about China from President Trump, CNBC said. A stronger dollar also hurt gold.
The Dow Jones Industrial Average® ($DJI) rose 238.37 points Friday (+0.52%) to 46,190.61; the S&P 500 index (SPX) added 34.94 points (+0.53%) to 6,664.01, and the Nasdaq Composite® ($COMP) climbed 117.44 points (+0.52%) to 22,679.97.
For the week, the DJIA rose 1.56%, the S&P 500 index climbed 1.7%, and the Nasdaq added 2.14%. However, major indexes remain below levels from before the steep October 10 sell off.