After Monumental Rally, Market Braces For 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 Thursday, April 10th.

In normal times, today's 8.30 a.m. Eastern time release of the March Consumer Price Index, or CPI, would have most of the market's attention. But times aren't normal, and investors are less interested in backward-looking economic data amid so much trade tension.

Some of the tension dissipated yesterday and stocks rocketed to their biggest daily gains in more than 16 years after President Trump announced a 90-day delay of his reciprocal tariffs for every country except China. Though stocks remain 10% below recent all-time highs and the trade battle is far from over, relief permeated Wall Street following the market's worst four-day stretch since the 2008 financial crisis.

Trump's announcement that midday Wednesday raised tariffs on Chinese goods to 125% and left the 10% baseline tariffs he recently instituted on all countries unchanged. The administration said that many countries have approached the table to negotiate, but that China's retaliation with heavy tariffs of its own on U.S. products prevented Trump from giving China the same breathing room.

Returning to CPI, analysts expect mild 0.2% monthly gains in both the headline and core CPI readings, with core excluding volatile food and energy prices. CPI, followed by the Producer Price Index, or PPI, Friday, and yesterday's release of minutes of the last Federal Open Market Committee meeting puts the Federal Reserve back in focus, with policymakers in a tough place.

The dramatic rise in the 10-year Treasury note yield yesterday suggests investors may be less willing to buy U.S. Treasuries for their perceived safety. Treasury weakness could also reflect inflation worries, the need for liquidity, and investors heading to cash amid uncertainty.

Tariff-related inflation concerns could be one concern keeping the Fed from cutting rates at its next meeting in May, but worries about possible credit market issues if yields keep spiraling higher are another issue the Fed might find itself having to address.

I think they're sitting and watching, hoping that they don't have to do any emergency-type move, and they'll signal that they're on hold until they see something change and they're able to analyze it, said Kathy Jones, chief fixed-income strategist at Schwab. If the unemployment rate starts to go up and we start to see serious slowdown in job growth or negative job growth, then I think the Fed will say, yes, we need to address that with lower interest rates."

and the other is financial conditions tightening. We've seen that happen with a sell-off in the stock market and the bond market. Even if the Fed cuts short-term rates, it doesn't mean long-term bond yields will fall, Jones noted. That will depend on the economy and the inflation outlook. Jones was speaking before the tariff delay.

Federal Reserve minutes released Wednesday afternoon were from the mid-March meeting before Trump imposed his heavy tariffs. At the time, policymakers worried about what analysts would call possible stagflation, meaning higher inflation accompanied by weaker economic growth, meaning participants landed on a cautious approach to rates, Reuters reported.

Delta Airlines reported earnings per share and revenue that beat or matched the average Wall Street estimate. It's the outlook that got investors' attention, with the company saying in its press release that broad economic uncertainty has caused growth to largely stall. Delta's CEO told CNBC that main cabin bookings are weaker than previously expected and corporate travel demand has been hurt.

Delta said it's too early to update its 2025 financial guidance. Constellation Brands, an alcoholic beverage company, reported after the close yesterday, offering insight on how it might be affected by tariffs. Big bank earnings begin Friday and could provide insight on how the broader economy is reacting to the trade policy, as well as executives' thinking.

JPMorgan Chase CEO Jamie Dimon issued a gloomy shareholder letter Monday on tariffs and added Wednesday he sees a recession likely. That was before Trump delayed the reciprocal tariffs, however. Though companies aren't likely to be very eager to provide guidance given all the uncertainty, it might be interesting to see if any announce new stock buybacks now that their shares are down so much so fast.

Another less positive earnings season development might be cuts to previous growth estimates based on tariffs or possible slices to dividends as companies try to preserve margins amid rising costs. Yesterday's quick change of heart by Trump doesn't necessarily end the uncertainty, but may actually prolong it. Now the question is what happens in 90 days or around July 10th?

Banks specifically may be adding to their loan loss provisions as credit fears rise. Banks might face questions about loans they have on their books and whether they have any concerns about defaults from customers in the event of a recession. If loan loss provisions rise, that would likely hurt future bank industry profit growth.

The SIBO Volatility Index, or VIX, slipped back below 40 late in the session Wednesday after earlier approaching historic highs near 60. The VIX still indicates continued likelihood of sharp stock market moves. Bond market volatility is also high.

Highs will likely be on the Treasury market again today after only a slight pullback from highs yesterday following a decent 10-year note auction. Earlier Wednesday, especially during overnight hours, the 10-year note yield had soared around 20 basis points, a dramatic move. The fact that the yield remained above 4.3% by late Wednesday even as stocks rebounded is somewhat concerning, suggesting the tremors aren't over.

Odds of a rate cut at the Federal Reserve's May meeting fell below 20 percent on the CME FedWatch tool as of late Wednesday, but rate cut odds are 78 percent for June. The Dow Jones Industrial Average climbed 2,962.86 points or 7.87 percent Wednesday to 40,608.45. The

The S&P 500 index rallied 474.13 points, or 9.52%, to 5,456.90, and the Nasdaq Composite jumped 1,857.06 points, or 12.16%, to 17,124.97. This has been the Schwab Market Update Podcast.

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