Housing Data Precedes Long Weekend, Inauguration
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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 Friday, January 17th. First, an important note. On Monday, U.S. markets are closed for the observance of the birthday of Dr. Martin Luther King Jr.,

The Schwab Market Update podcast will return on Tuesday, January 21st. Housing data highlights the final session before a long weekend as investors continued to mull inflation and bank results that lifted stocks and calmed Treasury yields. The benchmark U.S. 10-year yield hit a 10-day low under 4.6% yesterday before finishing just above that.

December housing starts and building permits are due at 8.30 a.m. Eastern Time. Analysts expect a slight rise in starts to $1.318 million on a seasonally adjusted annual basis and a slight dip in permits to $1.45 million. Housing stocks got a boost earlier this week from falling rates along with solid earnings and guidance from KB Home. Next Tuesday features results from D.R. Horton, another homebuilder.

Also next week, investors get an extra day off as the market observes the birthday of Dr. Martin Luther King Jr. on Monday. This could mean lighter volume later today if market participants depart early ahead of the long weekend. Low volume can sometimes exacerbate price moves, so anyone trading later today might want to exercise special caution.

Monday also features the inauguration of President Donald Trump, and investors might want to listen to his remarks for any policy hints, especially on tariffs and immigration. Expect a series of executive orders on day one of Trump's presidency on immigration and border security, including the launching of a massive deportation effort, said Michael Townsend, managing director of legislative and regulatory affairs at Schwab.

Checking yesterday's data, December retail sales climbed 0.4% from a month earlier, a bit less than the consensus estimate of 0.5% and down from 0.8% in November. But the closely watched control group of retail sales that excludes certain categories jumped 0.7%, a sign of strength under the surface.

Retail sales were slightly below expectations, but the control group which feeds into GDP calculations was above expectations for the month, said Kathy Jones, chief fixed income strategist at Schwab. Overall, consumer spending doesn't appear to be slowing down much, largely because consumer income growth is holding up. The Atlanta Fed's GDP Now forecast rose to 3 percent Thursday for the fourth quarter.

Big bank earnings rolled along yesterday after Wednesday's solid start. Both Morgan Stanley and Bank of America exceeded Wall Street's estimates. Bank of America also offered solid guidance for net interest income, an important component of banking profits. Today's earnings calendar is relatively light, but earnings accelerate next week with expected results Tuesday from 3M, Netflix, Verizon, and United Airlines.

Also, American Express, American Airlines, and Union Pacific report later next week. Initial weekly jobless claims yesterday stayed relatively low at 217,000, hinting that the labor market remained solid as January advanced. However, several major companies recently announced small layoffs, so investors might want to watch future claims closely for signs of that affecting the data.

The CME FedWatch tool builds in 97% chances of a Fed rate pause this month and only around a 31% chance of a rate cut this quarter. Those aren't unchanged much from before CPI. Two of the largest mega-cap stocks plummeted yesterday and helped prevent the overall market from gaining much traction. Apple fell more than 4% and Tesla dropped 3%.

Apple shares have been reeling for more than a week, hurt partly by signs that Chinese smartphone makers may be taking market share. Tesla dropped after Wednesday's sharp gains, possibly hurt by a CNBC report that the EV firm is offering Cybertruck discounts.

Technically, the 10-year yield traded below its 20-day moving average yesterday for the first time since early December. A secession of finishes below that level, now at 4.61%, might cool off the market. The 50-day moving average, now at 4.43%, served as support on the early December move lower.

However, investors might not want to expect much more of a drop. Ten-year Treasury yields could trade in the 4.5% to 5% region over the first half of the year, Schwab's Jones said.

The S&P 500 index dropped 12.57 points Thursday, or 0.21%, to 5,937.34. The Dow Jones Industrial Average fell 68.42 points, or 0.16%, to 43,153.13. And the Nasdaq Composite slid 172.94 points, or 0.89%, to 19,338.29.

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.