Home Depot, Confidence Awaited After More Losses
07:24 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 Tuesday, February 25th. After several week retailer and consumer sentiment readings, the spotlight turns to Home Depot earnings this morning in what remains a lackluster U.S. housing market.

NVIDIA earnings Wednesday afternoon loom even larger as risk aversion and fears of a slowing economy appear to be steering more investors away from the tech sector.

Last week saw the City Economic Surprise Index hit its most negative level since last September, accompanied by defensive hedging in the market. Bearish sentiment also showed up in the latest AAII Investor Sentiment Survey, and value stocks outpaced growth in five straight sessions through Friday. Infotech and Consumer Discretionary, two of the sectors with the highest price-to-earnings ratios, flagged again Monday.

Downside economic risk continues to get priced into the market, said Lizanne Saunders, chief investment strategist at Schwab. The 10-year yield continues to move lower as a result. The combination of government policies, tariffs, immigration, and Doge is growth negative. Doge is the Trump administration's effort to cut government costs, including layoffs of government workers.

Last week's University of Michigan Consumer Sentimental Report reinforced ideas that the average person is more pessimistic about the economy and the possible inflationary impact of tariffs. Inflation worries aside, recent soft data helped push the benchmark 10-year Treasury note yield below 4.4 percent Monday to its lowest level of 2025.

Speaking of tariff, the market took a southern turn late Monday after President Trump said in a press conference that tariffs on imports from Canada and Mexico scheduled for March 4th are going ahead on schedule. Those had been delayed a month.

The S&P 500 index, which had spent most of the session pivoting near its 50-day moving average of 6,008 just below Friday's close, ended up closing below 6,000 and near its lows for the session. It was the first settlement below 6,000 since February 3rd. The tech-heavy Nasdaq Composite, meanwhile, closed Monday in negative territory for 2025. Less than a week ago, the Nasdaq was up nearly 4% for the year to that point.

This week is light on jobs data, but next week brings the February non-farm payrolls report, which may provide early indication on whether government job cuts are starting to slice labor growth. The key data point later this week is Friday's January personal consumption expenditures, or PCE, price index data. Labor market data may be more important than inflation data near term, Saunders said. That's often the case when growth worries outpace concerns about pricing.

As investors shy from growth stocks, the Magnificent 7 are down about 3% this year versus a 2% gain for the S&P 500 index. The Magnificent 7 collectively haven't posted a new high since December. A recent analyst report that Microsoft is canceling some leases for AI data center capacity added to tech concerns, especially after Microsoft recently said it didn't have enough capacity to meet growing AI demand.

It raised worries that so-called hyperscaler demand for AI chips may be slowing. NVIDIA executives likely will get asked about trends on the company's earnings call Wednesday, as well as any possible competition from cheaper AI applications like DeepSeek. Microsoft said Monday it remains committed to spending $80 billion on capital expenditures, CNBC reported, though there may be some adjustments in pace or infrastructure.

Microsoft fell with most other magnificent seven stocks Monday, though Apple bucked the trend as it pledged to spend $500 billion on U.S. manufacturing capacity over the next four years, according to Barron's. Palantir, which fell sharply to end last week, descended double digits Monday, still under pressure from worries that less government spending could hurt its business.

Government policy uncertainty is another negative drumbeat. Consumer confidence for February due today could be a signpost on how people feel about the flood of recent policy proposals, including tariffs. Analysts expect a slight drop in the headline number to 103.1 from 104.1 in January.

Another metric to watch is the report's inflation expectations for the next 12 months, which climbed to 5.3% in January from 5.1% in December. Home Depot's earnings today precede Lowe's tomorrow. One wild card for the two home improvement firms is continued repairs from last fall's hurricanes, which may have bumped up demand. Another new demand source could come as Los Angeles rebuilds from last month's fires.

But a weak housing market might remain challenging for both companies. Home Depot has had eight straight quarters of falling sales as stores open a year or more. Walmart's disappointing outlook last week hurt the retail sector and puts other big boxes in sharper focus. Investors are also on edge, awaiting earnings from NVIDIA tomorrow afternoon, with Salesforce, another large tech firm, reporting then.

NVIDIA shares have often made large moves after the company reports, and revenue guidance will likely be in sharp focus after recent slippage. As of late Monday, the CME FedWatch tool put rate pause odds near 98% for next month's Federal Open Market Committee meeting, but chances of a rate cut by the June meeting topped 60%.

The S&P 500 index lost 29.88 points Monday or 0.5% to 5,983.25. The Dow Jones Industrial Average rose 33.19 points or 0.08% to 43,461.21. And the Nasdaq Composite lost 237.08 points or 1.21% to 19,286.92.

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.