CPI, Cisco, Powell Ahead as Stocks Seek Direction
07:56 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 Wednesday, February 12th. January's Consumer Price Index, or CPI, before the open could help set the tone as investors get ready for a second day of monetary policy testimony to Congress by Fed Chairman Jerome Powell.

Trade concerns remain front and center, too, after President Trump imposed higher aluminum and steel tariffs earlier this week. CPI due at 8.30 a.m. ET is expected to show 0.3% headline and core inflation monthly growth in January, with cores stripping out volatile food and energy prices. The figures for December were 0.4% and 0.2%, respectively.

Expectations are for a year-over-year increase of 2.9% for Headline and 3.1% for Core. December Headline CPI was 2.9% and Core was 3.2%. If CPI increases more than expected, I would expect short-term yields to rise, said Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research.

Treasury yields hit one-week highs above 4.55 percent intraday for the 10-year note Tuesday before closing up for basis points at 4.54 percent as Powell pushed back on any ideas of near-term rate cuts. Strong demand for Tuesday's $58 billion three-year note auction might have kept the yield rally in check later in the day, and a 10-year note auction takes place today.

Auction demand, if it's robust, is often bullish for Treasuries, which move the opposite direction of yields. The market keeps dialing down near-term rate cut ideas, with the CME FedWatch tool now showing just 4% odds for March, down from 30% a couple weeks ago. Generally strong economic data, along with government policy uncertainty, will likely keep the Fed on pause next month.

Futures trading still builds in hope for one or two rate cuts later this year. Powell's testimony today in the House might have an impact on those odds, but Powell stuck to previous language in his appearance at the Senate yesterday, saying the balance of risk is about even as the Fed pursues its dual mandate of price stability and maximum employment. Powell also reiterated that there's no hurry to cut rates after 100 basis points in cuts between September and December.

He didn't bite on a question about the Trump administration's tariff policies, though when asked, he stood by his 2018 statement that protectionism is generally not a good recipe for economic growth. Powell reiterated that inflation has eased but remains elevated while the labor market remains solid, Schwab's Howard said. We expect the Fed to continue to cut rates this year, but likely in the second half of the year.

At the same time, stocks pivoted around unchanged most of the session yesterday, still unable to gain traction amid trade concerns. Policy uncertainty, specifically around tariffs, has shot higher, said Lizanne Saunders, chief investment strategist at Schwab. She added that yesterday's NFIB Small Business Optimism Index dropped, coming in below consensus.

NFIB data showed a rolling over in optimistic sentiment that had spiked post-election, she said. CNBC reported yesterday that Ford's CEO said Trump's tariffs and threats are causing chaos for the U.S. auto industry.

Coca-Cola said on a transcript of its earnings call yesterday that it has hedging programs in place to assure supply and price moving forward as tariffs hit aluminum, though most of the company's products consumed in the U.S. are made in the U.S.

Lyft reported late Tuesday with earnings and revenue beating analyst estimates, but shares took a quick dive in post-market trading. It appeared investors might have been disappointed by Lyft's projection for gross bookings growth of 10% to 14% in the first quarter, a sequential decrease from 15% in the fourth quarter and 17% in 2024.

The key earnings to watch this afternoon is Cisco, while Roku, Coinbase, Palo Alto Networks, and Applied Materials gear up for tomorrow. At Cisco, revenue has dropped four straight quarters, with networking revenue under pressure the last time Cisco reported in November. Still, the company lifted its full-year revenue guidance and announced hardware containing NVIDIA's graphics processing units. Look for a possible update on early sales for that product.

Technically, the S&P 500 index is stuck in an intermediate term range between roughly 5,800 and 6,100, apparently in sideways consolidation from the solid gains of 2024. The lower number matches roughly with levels from just before the November U.S. election and held support on a test in early January. The top end is in territory where the S&P 500 set record highs in both December and January.

The 20-day S&P 500 moving average crossed above the 50-day moving average last week, generally a bullish signal, but the index hasn't moved much since then, pivoting just above the 20-day moving average of 6,032.

Fourth quarter earnings growth has been stronger than analysts had expected, but the major indexes entered earnings season with strong results arguably priced in, judging from index valuations being historically high, near a 22 price-to-earnings ratio for the S&P 500.

Sector-wise, housing-related stocks like homebuilders and rate-sensitive stocks like small caps lost ground recently as yields ticked back up. Energy, on the other hand, got a spark from recent crude oil strength that may be associated with trade battles that could choke supplies. Most sectors rose yesterday, but consumer discretionary fell sharply, weighed on by a steep drop in shares of Tesla, which are now down about one-third from their late December peak.

U.S. trading tensions with China, along with aluminum and steel tariffs, may account for some of the weakness, along with disappointing fourth-quarter earnings and revenue results Tesla reported in late January. The Nasdaq composite fell in part on Tesla's weakness, even as other major indexes traded flat Tuesday amid cautious action ahead of the CPI.

The S&P 500 index climbed 2.06 points Tuesday, or 0.03%, to 6,068.50. The Dow Jones Industrial Average added 123.24 points, or 0.28%, to 44,593.65. And the Nasdaq Composite fell 70.41 points, or 0.36%, to 19,643.86.

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.