Nearing Record Highs, Market Awaits Retail Sales
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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. First, an important note. U.S. markets are closed Monday, February 17th in observance of President's Day. The Schwab Market Update podcast will return on Tuesday, February 18th.

I'm Colette O'Claire, and here is Schwab's early look at the markets for Friday, February 14th. January retail sales before today's open could end a long string of monthly gains going back to last August. Consensus is for a flat reading compared with December, but some analysts think that number might fall. The data due at 8.30 a.m. ET came after the S&P 500 index closed near an all-time

an all-time high Thursday amid receding tariff and inflation worries.

Price action is very resilient, and perhaps that just reflects that investors are more focused on healthy economic data and double-digit earnings growth rather than the potential for higher yields and inflation, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. Still, he warns investors to monitor the trajectory of earnings revisions due to uncertainty about how government policy changes might affect corporate growth.

Projected retail sales softness likely reflects disruptive January events, including a freak snowstorm in the U.S. South and wildfires in Los Angeles, both of which disrupted business.

Though the headline reading draws headlines, investors likely want to check the month-over-month control group number excluding food services, auto dealers, building materials stores, and gasoline stations as it's used to calculate gross domestic product, or GDP.

The control group metric climbed 0.7% monthly in December and is expected to rise 0.3% in January. The data aren't inflation-adjusted, so rising prices in January, especially food, gasoline, and housing, might play in possibly raising sales growth even if consumers didn't add items to their carts.

January's Producer Price Index, or PPI, showed inflation continuing to grip wholesale prices but slightly down from upwardly revised December readings. Headline PPI rose 0.4% above the 0.2% consensus but down from December's 0.5% and Core, which excludes volatile food and energy, rose as expected at 0.3%, down from a revised 0.4% in December.

Service costs were the biggest driver, with wholesale inflation back at early 2023 levels.

On the surface, it looks worrisome given the hotter-than-expected reading for January and the upward revisions for December, said Kevin Gordon, director, senior investment strategist at Schwab. However, the components that map over to PCE were mostly down, only portfolio managements on increase, so it doesn't necessarily translate to a hot PCE print for January.

The January Personal Consumption Expenditures, or PCE, price index, due February 28, is the inflation meter most closely watched by the Federal Reserve, and PPI gave investors hope that PCE might be benign when it comes out. Treasury yields fell across the board, with the biggest drops in longer-term yield.

The 10-year yield dropped a steep 11 basis points to 4.53% and is now below where it was before Wednesday's hot Consumer Price Index, or CPI, report.

The government's upward revision to December PPI readings, which made January's core annual PPI of 3.6% an improvement from 3.7% in December, may have investors thinking the inflationary uptick in January was a brief speed bump, Briefing.com noted.

The CME FedWatch tool now shows March rate cut odds near zero, down from 20% a month ago. Chances for at least one rate cut by the end of the year were still near 80%, taking the target range to 4% to 4.25%. The Fed's latest projection in December was for two cuts this year. Futures trading shows less than a 40% chance of two or more cuts.

Key earnings late Thursday included Roku, Coinbase, Palo Alto Networks, and Applied Materials. Sector-wise, every part of the S&P 500 got a boost yesterday thanks to relatively unthreatening PPI data and hopes that tariffs would continue being put off. President Trump's announcement Thursday that he wants advisors to recommend tariffs by country and that reciprocal tariffs wouldn't start until April apparently sounded less worrisome.

The Magnificent Seven, which rely heavily on international trading, all traded in positive territory by late Thursday, not a common event in a year where most, besides Meta, have struggled. Material stocks led all sectors, helped by easing tariff concerns. Risk-off sectors, like utilities, lagged, but growth areas like infotech, consumer discretionary, and communication services gained ground.

MGM Resorts led all S&P stocks with 17% gains after reporting earnings that impressed investors and hinting at strong travel demand.

Next week, a holiday-shortened one with no trading Monday on President's Day, features minutes from the Federal Reserve's last meeting and a host of housing data. Looming data on housing starts and existing home sales could hint if stubborn mortgage rates kept activity muted.

Walmart is the largest company, reporting next week. Around 77% of S&P 500 companies have surpassed Wall Street's earnings consensus, with fourth-quarter earnings-per-share growth at 11%. The SPX gained 63.10 points Thursday, or 1.04%, to 6,115.07.

The Dow Jones Industrial Average rose 342.87 points, or 0.77%, to 44,711.43. And the Nasdaq Composite climbed 295.69 points, or 1.50%, to 19,945.64. This has been the Schwab Market Update Podcast.

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