Stocks Face PPI Data After Rising on CPI Report
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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 Thursday, March 13th. A day after mild consumer price index, or CPI, helped markets arrest a two-day slide, more inflation data is ahead this morning.

Today brings the Producer Price Index, or PPI, report for February at 8.30 a.m. ET. Analysts expect the headline and core readings to be up 0.3% month over month. January's 0.3% rise in core PPI was considered a positive inflation signal, as many of the elements that filter through to the Federal Reserve's favored Personal Consumption Expenditures, or PCE, price index looked benign.

Goods costs rose 0.6 percent mainly due to fuel, but growth in services prices slowed to 0.3 percent from 0.5 percent in December. Looking back at CPI and Core CPI, which excludes food and energy, each rose 0.2 percent below the 0.3 percent average estimate.

These were good CPI numbers and the market cheered them because it wasn't a surprise to the upside, said Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research. The recent trend is still elevated and the Fed is likely to remain on hold and wait to see how a lot of the policies in Washington play out and impact the economy.

Shelter prices made up half of the monthly CPI increase, the government said, while airfare, new vehicles and gasoline prices fell. Natural gas and food prices rose. Another report to watch today besides PPI is weekly initial jobless claims at 8.30 a.m. Eastern Time. Claims jumped above 240,000 a couple of weeks ago from a long-term average near 220,000, a bearish surprise.

but they calmed last week back toward the 220,000 level. The Briefing.com consensus for today's report is 228,000. Heavy layoffs reported in February and the federal government's job cuts might keep more eyes on these weekly claims reports for any signs of cracking in the labor market.

On Friday, the March preliminary University of Michigan Consumer Sentiment Report could be another key element to watch as recession fears and job cuts raise questions about consumer expectations. The sentiment index fell to 64.7 in the final February reading, down from 76.9 a year earlier and 71.7 in January.

The earnings calendar thinned toward the end of the week, putting more investor focus on geopolitics, the Washington spending showdown, tariffs, and data. Adobe reported late Wednesday and beat analysts' earnings estimates, with Dollar General and Ulta Beauty among companies expected to report today.

The Federal Reserve's Rate Setting Committee also meets again next week and will release its own updated inflation projections. Those will be the first since December, when CorePCE was seen rising 2.5% this year. As of late Wednesday, investors were pricing in a 99% probability of the Fed leaving rates unchanged at the meeting, according to the CME FedWatch tool.

Investors increasingly look like they expect rates to remain on hold in May as well, though odds of a quarter-point cut were at roughly 31.2%. However, the Bank of Canada cut its benchmark interest rate 25 basis points on Wednesday, making it the seventh consecutive cut. The trade war with the U.S. is adding to the country's woes.

The Economic Policy Uncertainty Index for Canada has spiked to unprecedented levels. Manufacturers' confidence about the future fell to its lowest level since April of 2020, and hiring stalled. Bank of Canada Governor Tiff Macklem warned that monetary policy cannot offset the impacts of a trade war.

The risk is that inflation will rise initially in reaction to higher tariffs and then ease back if economic growth slows due to the pressure from higher prices. Finally, Congress was working on a proposal to avoid an expiry of government funding this weekend. The plan would extend funding through September 30th at fiscal 2024 spending levels.

The House passed a spending plan late Tuesday, but it faces an unclear course in the Senate with a Friday midnight deadline. The major stock indexes were mixed on Wednesday, with the S&P 500 and Nasdaq Composite closing higher on the strength from the technology sector. NVIDIA boosted the tech sector by rising 6.42%. However, the Dow Jones Industrial Average closed lower as Procter & Gamble tumbled 2.74%.

The S&P 500 index rose 27.23 points on Wednesday or 0.49% to 5,599.30. The Dow Jones Industrial Average fell 82.55 points or 0.20% to 41,350.93. And the Nasdaq Composite increased 212.36 points or 1.22% to 17,468.45.

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.