After Late Surge to New Highs, Fed Minutes Await
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Welcome to the Schwab Market Update podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Wednesday, February 19th. Minutes from the last Federal Reserve meeting, along with housing starts and building permits, could set the tone today, after homebuilders' sentiment hit five-month lows this month amid rising interest rates.

This comes after Tuesday's late rally lifted the S&P 500 index to its first record high close in nearly a month. The January housing data are due at 8.30 a.m. ET and follow yesterday's report showing that the NEHB Wells Fargo housing market index dropped to 42 in February from 47 in January, the lowest in five months. Six-month sales expectations plunged, more bad news for homebuilders and real estate firms.

Housing starts for January are seen falling sharply to a seasonally adjusted annual rate of $1.4 million from nearly $1.5 million in December, while permits are expected to come in at $1.45 million down from $1.483 million the prior month.

Despite the firm finish yesterday, U.S. stocks have generally been in a holding pattern lately amid a lack of near-term catalysts, relatively high treasury yields and tariff concerns, and some investor funds appear to be migrating abroad. Money is looking for relative value as evidenced by the rally in China and European stocks over the past five weeks, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

With the price-to-earnings, or P-E, ratio for the S&P 500 index at a historically high level of 22, and investors plugging in expected double-digit U.S. earnings growth this year and next, there's a sense that U.S. stocks have worked in much of the positive news. Also, the benchmark 10-year Treasury note yield rose back above 4.5% yesterday, another drag on major indexes.

Volatility climbed, though the SIBO Volatility Index, or VIX, pulled back from early highs above 16 on Tuesday. Typically, rising volatility is considered bearish for stocks, and the VIX futures market prices in generally higher volatility as the year advances.

Though the S&P 500 had trouble gaining traction Tuesday until the final minutes amid weakness in several mega cap stocks, including Amazon and meta platforms, advancing shares exceeded decliners by midday, a signal that market breadth continues to broaden.

The S&P 500 Equal Weight Index, which weighs all S&P 500 stocks equally rather than by market share to remove the outsized influence of the mega caps, outperformed the S&P 500 Index yesterday and registered a solid advance. The S&P 500 Equal Weight Index rose 0.67% yesterday compared with just 0.24% for the S&P 500 Index, a sign of strength below the surface.

Investors get an inside look at monetary policy proceedings from January's Federal Reserve meeting with today's 2 p.m. Eastern time release of minutes and the general tone around rate policy and economic trends is worth a look. Last month's meeting didn't include rate or economic projections, but words from policymakers could provide clues.

The minutes might also help shed light on what, if anything, policymakers said about possible tariff or immigration policy impacts on the economy and rate policy. The CME FedWatch tool now shows March rate cut odds near zero. Chances for at least one rate cut by the end of the year are above 80%, though any rate cuts are seen more likely in the second half of 2025. Key earnings this week include Walmart, Alibaba, and Newmont.

All could be worth checking for insight on possible tariff impacts. Alibaba may offer guidance on AI and any possible impact on the planned imposition of U.S. import tariffs on small packages from Chinese sellers to American buyers, said Jeffrey Kleintop, chief global investment strategist at Schwab. Walmart's e-commerce sales progress when the firm reports Thursday morning is under close scrutiny as Walmart tries to compete with Amazon in that space.

Next week brings a potentially major catalyst as MegaCap AI chipmaker NVIDIA is expected to report February 26th. Performance of the company's new Blackwell chip will likely take center stage, and any sign of softer-than-expected demand could end up hurting NVIDIA and tech overall.

In data Tuesday, the Empire Manufacturing Survey popped to 5.7 in February from the previous negative 12.6 and above the briefing.com consensus of negative 2.0. This index measures manufacturing trends in the New York City region and precedes manufacturing data from S&P Global later this week. U.S. manufacturing trends appear to be improving slightly after months of contraction.

Sector-wise, energy easily led the score sheet yesterday with 1.2% gains as crude oil rose following a Ukraine drone strike that might slow flows of the commodity, CNBC reported. Natural gas prices also spiked amid a U.S. cold wave. Materials, the leading market sector so far this year, also climbed more than 1%, helped by hopes for more focus on domestic manufacturing.

Communication services finished last yesterday amid a steep slide for shares of Meta Platforms as a long winning streak ended for that stock. Shares came into the week up more than 20% year-to-date. Technically, the S&P 500 index remains in a sideways trading range, which suggests momentum may be waning. On a longer-term basis, the uptrend remains intact, Schwab's Peterson said.

The S&P 500 index climbed 14.95 points Tuesday, or 0.24%, to 6,129.58. The Dow Jones Industrial Average rose 10.26 points, or 0.2%, to 44,556.34. And the Nasdaq Composite added 14.49 points, or 0.07%, to 20,041.26. This has been the Schwab Market Update Podcast.

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