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, January 23rd. After closing just shy of an all-time peak yesterday, major indexes start Thursday up sharply this week, but searching for new catalysts amid sparse data.
A full earnings schedule could make up for the slack, and investors likely have an eye on Treasury yields after they bounced back slightly on Wednesday. Yields climbed in part on renewed tariff fears as President Trump threatened a 10% tariff on imports from China as soon as February 1st. The market remains very sensitive to anti-tariff news amid worries they could spark inflation.
One feature this week has been lower stock market volatility as measured by the SIBO Volatility Index, or VIX, which briefly fell below 15 yesterday. Bond market volatility remains elevated, which in the longer run might affect VIX.
Some air came out of the VIX this week due to Trump's less aggressive day one announcements and less yield volatility, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. If yields on the 10-year move back up towards 4.8% in the coming weeks or the velocity picks back up, the VIX is likely going higher.
When the VIX rises, it often points toward sharper swings in the stock market. A low VIX, on the other hand, can sometimes be a contrarian signal that volatility may turn higher. Volatility fell to its lowest levels since late December yesterday.
The Federal Reserve is now in its quiet period ahead of next Wednesday's decision on interest rates, so Fed speakers won't add to volatility this week. But another central bank meeting, the Bank of Japan's, starts today, and a rate decision is due Friday. Analysts expect an increase, which could have ramifications for U.S. stocks and treasuries. Still, the Bank of Japan has surprised markets in the past by going against expectations.
The last time the Bank of Japan raised rates in July, it caused an unwinding of the so-called yen carry trade that resulted in selling of high-growth U.S. stocks purchased using lower rates in Japan. Past isn't precedent, though. Looking ahead to the Fed meeting, there's nearly 100% odds of a pause, according to the CME FedWatch tool. Chances of a cut this quarter slipped below 25% late Wednesday.
Wednesday afternoon featured a relatively light earnings schedule, but things pick up later today with expected results from several major transport firms, including American Airlines, Union Pacific, and CSX. The airline sector's earnings got off to a solid start with Delta and United Airlines, but shipping metrics are under scrutiny after early results from that sector.
December leading indicators from the conference board released Wednesday fell 0.1% from a month earlier, below analysts' expectations of a flat reading. It was negative for months before a surprisingly revised 0.4% gain in November. Low consumer confidence about future business conditions, relatively weak manufacturing orders, a decline in building permits, and a rise in initial unemployment claims weighed.
However, this report is a bit dated in some ways, considering the recent drop to long-term lows in claims. The latest weekly jobless claims update is due at 8.30 a.m. ET today, and analysts expect 219,000 according to Briefing.com. That's near the middle of the recent range.
Yesterday saw the S&P 500 index set a new all-time intraday high just above 6,100 and then closed just below the all-time closing high of around 6,090 set in early December. Positive vibes continued amid hopes the new U.S. administration could spark economic growth and fourth quarter earnings have been generally impressive. But it's still quite early in the reporting season, however.
Also, yesterday's rally was mainly built around the tech sector, which climbed about 2.5%. Only one other sector, communication services, made gains, and the other nine S&P sectors fell. That implies lack of balance and breadth, though it was only one day of trading.
The S&P 500 index climbed 37.13 points Wednesday or 0.61% to 6,086.37. The Dow Jones Industrial Average added 130.92 points or 0.3% to 44,156.73 and the NASDAQ Composite rose 252.56 points or 1.28% to 20,009.34.
The benchmark 10-year Treasury yield gained three basis points to 4.60%. 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. Join us for another update tomorrow.
For important disclosures, see the show notes and schwab.com slash market update podcast.