After Monday Rally, Market Awaits Powell, CPI
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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 Tuesday, February 11th.

Federal Reserve Chairman Jerome Powell's semi-annual monetary testimony to Congress today and the Consumer Price Index, or CPI, Wednesday puts rates and inflation firmly in the driver's seat after Treasury yields fell to six-week lows a week ago. Powell's testimony comes after the benchmark 10-year Treasury yield barely moved Monday following mixed debt on inflation expectations.

It rose one basis point to 4.49% and 4.5% seems like an inflection point. Risks to Treasury yields are tilted towards the upside, with a 10-year Treasury yield possibly retesting the 5% area, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research. Last week's jobs report highlighted that the labor market remains relatively strong and the economy continues to grow at a 2.5% to 3% rate.

With inflation sticky and a strong economic backdrop, the Fed likely won't cut rates again anytime soon, likely putting a floor on short-term yields for the time being. Martin added long-term yields should continue to trade in a 4.5% to 5% range, as Trump's proposed policies could keep inflation elevated or even pull it higher, potentially pulling up long-term yields.

CPI due Wednesday before the open is expected to show a 0.3% headline and core inflation monthly growth in January, with core stripping out volatile food and energy prices. The figures for December were 0.4% and 0.2%.

The full-year inflation growth numbers are also going to be in the spotlight, with analysts building in 2.9% headline and 3.1% core. That compares with 3.2% core and 2.9% headline in December.

The expected monthly core increase to 0.3% from 0.2% would indicate that while inflation isn't re-accelerating, it's also not fully tamed. And last week's consumer sentiment data showed inflation expectations on the rise. However, Monday's U.S. Consumer Inflation Expectations Report from the New York Fed showed the headline reading at 3% for the year ahead, unchanged from a month earlier.

This may have given the market a slight lift, even as tariff worries continue to percolate. Even so, the market appears to be digesting tariff news well, though it has been relatively range-bound the last few months, and the dollar and gold both surged again Monday. Gold has been setting record highs almost every day this month amid global policy and economic uncertainty.

President Trump pledged he'd impose tariffs on imports of steel and aluminum after tit-for-tat tariffs with China hurt stocks last week. Trade tensions tend to raise volatility. Tariffs may rise, but trying to trade every announcement is fraught with risk, said Michelle Gibley, director of international research at the Schwab Center for Financial Research. Investors might want to keep a longer-term perspective.

Lyft, Coca-Cola, and Humana are expected to report Tuesday. Earnings later this week include Cisco, Roku, Coinbase, Palo Alto Networks, and Applied Materials. Lyft is teaming up with Mobileye on robo-taxis and plans to launch them as soon as next year, while Coca-Cola saw volume declines in its third quarter. Investors await the beverage company's initial fiscal 2025 guidance.

Several Treasury auctions this week, including a three-year note auction today and a 10-year note auction tomorrow, could help set direction for yields. However, Powell may also have an impact, with investors likely listening closely for any insight on rate policy, jobs, and inflation. The market keeps dialing down near-term rate cut ideas, with the CME FedWatch tool now showing just 6.5% odds for March, down from 30% a couple of weeks ago.

Generally strong economic data, along with government policy uncertainty, will likely keep the Fed on pause next month. Futures trading still builds in hopes of one to two rate cuts later this year. Powell's testimony today in the Senate and tomorrow in the House might have an impact on those odds, but Powell would likely have to depart dramatically from his post-Fed meeting comments of last month to really shift the landscape.

Back then, Powell made clear he felt rates were in a good place, balanced between the Fed's dual-mandate goals of maximum employment and price stability. In Sector Action Monday, semiconductors bounced back from recent weakness led by Broadcom, Micron, Intel, and NVIDIA as buyers re-embraced many tech shares they moved away from earlier this year.

The PHLX Semiconductor Index, or SOX, remains well below last month's highs, but is back in the green for 2025, helped by recent news of more big spending plans by Alphabet, Meta, and Amazon. According to Bloomberg, some hedge funds that had taken short positions betting against the market early this year are back into long ones that display optimism for Infotech and materials stocks.

Though Infotech enjoyed a nice jump yesterday, energy led all sectors as crude oil jumped back above its 50-day moving average of just above $72 a barrel and for falling steadily since mid-January. Almost every S&P 500 sector climbed yesterday, but financials struggled, hurt in part by weakness in Bank of America, as Barron's reported that Berkshire Hathaway might be selling shares of the company.

Retail stocks generally had a solid Monday as names like Uber, Foot Locker, McDonald's and Nike all climbed 3% or more.

The S&P 500 index rose 40.45 points Monday, or 0.67%, to 6,066.44. The Dow Jones Industrial Average climbed 167.01 points, or 0.38%, to 44,470.41. And the Nasdaq Composite added 190.87 points, or 0.98%, to 19,714.27.

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