Inflation Data, Nvidia Next After Last Week's Dive
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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 Monday, February 24th. Investors are on edge, awaiting earnings from NVIDIA on Wednesday and U.S. inflation data Friday, after last week ended with a sharp sell-off following consecutive record highs.

Friday's dive reflected fresh worry about U.S. economic growth following a series of poor data readings, including retail sales, existing home sales, services PMI, and February University of Michigan consumer sentiment. All missed Wall Street's consensus, and sentiment rubbed salt into the wounds with year-ahead inflation expectations of 4.3 percent, the highest in more than a year.

Policy uncertainty is likely weighing on both consumer and business sentiment, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research. Market weakness and volatility were exacerbated by monthly options expiration and media reports of a new bat coronavirus discovered in China.

Former U.S. Food and Drug Administration head Scott Gottlieb told CNBC late Friday he wasn't too concerned about the virus reports. That seemed to help arrest the slide in stocks the last hour of the session Friday. The S&P 500 index held above 6,000 but still finished down 1.7 percent Friday and down 1.66 percent for the week.

Though inflation remains a concern amid tariff worries, the Treasury market appeared to see last week's U.S. data as a warning on economic growth. The benchmark 10-year Treasury yield fell below 4.45 percent Friday, near 2025 lows, as investors appeared to seek perceived safety in bonds.

We've been debating the question of which comes first, the growth slowdown or inflation, said Kathy Jones, chief fixed income strategist at Schwab. It looks like the market has decided growth is more important. Friday's S&P Global U.S. manufacturing and services PMI fell below the 50 level needed to show expansion for the first time in more than a year.

Firms cited weakness in new orders and worries about inflation driven by policies being pursued by the new administration. By late Friday, the CME FedWatch tool put rate pause odds near 95% for next month's Federal Open Market Committee meeting, but chances of a rate cut by the June meeting topped 60%. Futures trading also now projects better odds of two rate cuts this year rather than just one.

All this even as inflation expectations climb. An odd combination, especially considering that most of last week's Fed speakers took a hawkish note as they seem more worried about possible inflation driven by the new administration's policies.

Today's schedule is light except for results from steelmaker Cleveland Cliffs after the close. This might get more attention than usual since the industry is at the heart of the Trump administration's recent move to restore a 25% tariff on steel imports. Shares rose after the tariff news earlier this month. Sector-wise, Staples took the lead Friday as investors flocked toward more defensive investments. PepsiCo and Coca-Cola were among the leaders.

Apple also gained initially Friday before finishing steady. Investors sometimes perceive safety in mega caps at these times, though no investment is truly quote-unquote safe.

Bullish momentum took a bearish shift as several of the biggest winners over the past year experienced significant selling pressure last week, noted Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. He cited stocks like Applevin, CrowdStrike, Costco, and Reddit.

Small-cap shares fell the most Friday, with the Russell 2000 index dropping nearly 3 percent to below its 200-day moving average, an area where it found support in early January and last August and September. Airline and travel stocks plunged Friday as well, hurt by virus fears, while vaccine makers like Moderna and Pfizer found buyers.

Lower yields accompanied by weakness in small caps and strength in defensive sectors all suggest a risk-off attitude taking shape. Last week's all-time highs didn't come with much conviction amid low volume and light gains. The new highs also didn't trigger fresh buy, and Friday's data, along with Walmart's weak guidance and the virus news, put stocks on the defensive. Every sector except Staples finished flat to lower Friday.

If possible, the markets will shake off Friday's drop and find some bid support early this week. But I'm in a show-me stance before dismissing Friday's bearish price action, Schwab-Peterson said. Given the recent deep-seek shock, I believe NVIDIA's quarter could be subject to higher investor scrutiny and potentially larger post-earnings move in the stock.

Technically, the S&P 500 index dropped below key support at its 20-day moving average Friday and tested the 50-day moving average now at 6,011 for the first time since February 12. Support at that level appeared to hold at the close.

The S&P 500 index dropped 104.39 points Friday, or 1.71%, its worst day of 2025, to 6,013.13, down 1.66% for the week.

The Dow Jones Industrial Average lost 748.63 points or 1.69% to 43,428.02, down 2.51% for the week. And the Nasdaq Composite fell 438.36 points or 2.2% to 19,524.01, down 2.51% for the week. The Russell 2000 Index dropped 3.7% last week.

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