Correction time: SPX Starts Day Off 10% From Highs
08:13 Share

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 Friday, March 14th. After officially entering correction territory Thursday, down 10% from recent highs, the S&P 500 index limps into the last day of the week, struggling to drum up any buying enthusiasm.

Catalysts appear thin for a pre-weekend recovery with today's calendar light on earnings and data. Still, short covering can't be ruled out after the second straight week of heavy selling related to U.S. tariff concerns.

Stocks are struggling to find buyers as economic uncertainty remains in the forefront of investors' minds, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. On Wednesday, there was a tentative bounce in tech stocks, but tariff escalations, a potential government shutdown, and persistent growth concerns due to trade policy make it difficult to sustain any kind of a bounce despite the technically oversold nature.

The oversold climate became evident late this week as the Relative Strength Index, or RSI, a momentum indicator, fell below 30 for the S&P 500, the level that traditionally suggests near-term oversold conditions. Sometimes a drop under 30 can precede a sharp counter-trend rally, but nothing is guaranteed and there are signs that many large funds have turned bearish.

The S&P 500 has now spent four days below its 200-day moving average, now near 5,730, and it would take a major rally to claw back to that level. When the S&P 500 last fell below that key chart point in late 2023, it spent just six sessions in sub-200-day territory.

A longer stretch, which might be in the making, would likely indicate less investor enthusiasm about buying the dip than there was in 2023. Length of time spent beneath technical support levels is sometimes a way to assess investor sentiment.

In data Thursday, the February producer price index, or PPI, showed a surprising 0% change in wholesale prices and a 0.1% drop in core PPI, which excludes volatile food and energy. Analysts had expected headline in core readings to be up 0.3% for PPI.

Additional good news on inflation data, said Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research. However, the market reaction to PPI was pretty limited, even though it came in better than expected. In other data Thursday, the U.S. job market showed some resiliency as initial jobless claims came in at 220,000, lower than the consensus estimate of 225,000.

Continuing claims were also lower than expected at 1,870,000 versus 1,900,000. Yesterday's helpful data was overshadowed by new trade threats from the White House, this time 200% tariffs on European alcoholic products.

This morning, After the Open features March Preliminary University of Michigan Consumer Sentiment Report, a timely one as recession fears and rising job cuts raise questions about consumer expectations. The sentiment index fell to 64.7 in the final February reading, down from 76.9 a year earlier and 71.7 in January.

The earnings calendar picks up next week as several keystone results come down the track. These include FedEx, Micron and Nike. The Federal Reserve's Rate Setting Committee also meets next week with a rate pause built into the futures market. However, the meeting includes updated projections for personal consumption expenditure or PCE inflation and a dot plot of the projected rate path, both of which are eagerly awaited on Wall Street.

Chances for a May rate cut retreated over the last week to around 25% as of late Thursday, according to the CME FedWatch tool, but chances for at least a 25 basis point cut by June remain above 75%. The benchmark 10-year Treasury yield slipped back below 4.3% on Thursday as PPI and CPI eased inflation concerns and Trump's tariff threats renewed fears about the economy.

But the 10-year yield, now at 4.27%, remains up more than 15 basis points from last week's lows, perhaps reflecting a premium in case tariffs ignite inflation. As the week draws to a close, Congress finds itself on the verge of a possible shutdown. The deadline for a funding plan to pass is midnight tonight, and it's unclear if that can be met as the Senate still has to vote.

The plan approved by the House earlier this week would extend funding through September 30th at fiscal 2024 spending levels. Shutdowns typically have little impact on the stock market unless they last more than a few days. In trading Thursday, semiconductors were surprisingly unaffected by another sell-off in the broader market, with NVIDIA and Intel leading the charge after Intel announced a new CEO –

But the rest of tech remained under pressure as investors resumed selling Apple, Oracle, Palantir, and Salesforce. This turn back towards selling in tech was a reversal from Wednesday when defensive stocks lost ground and investors turned back toward tech and the Magnificent Seven following mild consumer price index data.

Bank and transport stocks also saw selling Thursday amid concerns that more tariffs and policy uncertainty, including the potential government shutdown, could take a toll on the U.S. economy. Defensive areas like health care, utilities, and staples swung back into the lead among sectors Thursday as consumer discretionary and communication services lost their Wednesday mojo amid weakness from Tesla and meta-platforms.

The CBOE Volatility Index, or VIX, remains well below 30, an area it hit last December amid rate worries. A 10% correction isn't too uncommon for the S&P 500, but it's been a while since the last one in late 2023, and many large stocks have fallen into bear territory off more than 20% from recent highs.

The S&P 500 index fell 77.78 points Thursday, or 1.39%, to 5,521.52. The Dow Jones Industrial Average dropped 537.36 points, or 1.3%, to 40,813.57. And the Nasdaq Composite shed 345.44 points, or 1.96%, to 17,303.01.

The S&P 500 is down more than 10% from its all-time closing high of 6,144 posted less than a month ago. This has been the Schwab Market Update Podcast.

To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. I'll be back with another update Monday. For important disclosures, see the show notes and schwab.com slash market update podcast.