Data, Earnings Light, Keeping Tariffs in Focus
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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 Tuesday, April 8th.

After a mixed close Monday that featured some investors swooping in to buy heavily discounted tech stocks, investors face another day without much in the way of earnings or data to divert from what appears to be a full-blown trade war. The S&P 500 index is down more than 17% from recent highs, and the Nasdaq Composite entered bear market territory down 20% before rebounding slightly yesterday.

The market is in coiled spring mode, something that became evident early Monday when the S&P 500 rapidly popped 8% on a soon-disproven rumor of a possible 90-day tariff delay. This indicates the headline-driven psychology on Wall Street and how fast things can go up or down based on trade war developments.

Wild intraday swings show how headline-sensitive the market has become, but regardless of what happens near-term with tariffs and negotiations, the business climate will remain highly uncertain, said Lizanne Saunders, chief investment strategist at Schwa.

The negative news Monday was a ramp up in U.S.-China trade tensions as President Trump threatened new 50% tariffs on China unless Beijing lifts its 34% tariffs by today. Beijing's tariffs were in response to Trump's tariffs against China last week. Investors are also on edge wondering how the European Union will hit back on Trump's tariffs.

While the EU is preparing a tariff package, it also appears ready to negotiate, judging from headlines Monday. Delta Airlines kicks off earnings season tomorrow morning. The airline industry had a tough first quarter even before last week's tariff news undercut their shares dramatically. Many have already sliced guidance, but it wouldn't be surprising to hear more bad news not just from airlines, but from railroads and trucking firms set to report soon.

In general, first quarter results might get overlooked as investors focus on outlooks for the rest of the year. Big bank earnings begin Friday and could provide insight on how the broader economy is reacting to the new trade policy, as well as executives' thinking. JPMorgan Chase CEO Jamie Dimon issued a gloomy shareholders' letter yesterday on tariffs.

Though companies aren't likely to be very eager to provide guidance given all the uncertainty, it might be interesting to see if any announce new stock buybacks now that their shares are down so much, so fast. Another less positive earnings season development might be cuts to previous growth estimates based on tariffs or possible slices to dividends as companies try to preserve margins amid rising costs.

Banks specifically may be adding to their loan loss provisions as credit fears rise. The credit spread widened last week, suggesting it could be tougher for companies and consumers to borrow. Banks might face questions about loans they have on their books and whether they have any concerns about defaults from customers in the event of a recession. If loan loss provisions rise, that would likely hurt future bank industry profit growth.

Other things to watch this week are Federal Reserve minutes on Wednesday and the March Consumer Price Index, or CPI, Thursday. University of Michigan Preliminary Consumer Sentiment data on Friday could also be closely scrutinized for inflation expectations. Though the market price is in high chances of Fed easing, Treasury yields made a sharp move higher Monday with the benchmark 10-year note yield up as much as 21 basis points.

The jump in bond yields appears to reflect a scramble for liquidity in a volatile market, said Cathy Jones, chief fixed income strategist at Schwab. For some investors, it may be that they are selling what they can sell.

The Relative Strength Index, or RSI, a momentum tracker, fell below 24 on Monday for the S&P 500 index. That's well into what analysts consider oversold territory, and the lowest RSI has been since the COVID-19 bottom. Sometimes oversold conditions can suggest a turnaround, though that's not guaranteed.

More distressed sellers could be forced out of the market if the downside continues, and there's likely to be heavy activity around opens and closes specifically. The SIBO volatility index popped as high as 60 early Monday, the first time at that level since last August. The 60 mark has only been surpassed a few times in history, including the first month of the 2020 pandemic and the 2007-2009 financial crisis.

The VIX normally averages around 20, and a VIX of 50 or above indicates expected daily up or down moves of 3% in the S&P 500. The VIX eased below 50 by late Monday, and the VIX futures market is in backwardation, indicating much lower levels in coming months. Still, the news-driven volatile market is likely to continue for the interim.

Market technical indicators suffered severe damage last week, especially when the S&P 500 and Nasdaq 100 took out last August's lows, and again on Monday when the S&P 500 dropped intraday into bear market territory down 20% from recent highs. A close below 4,915 would put the S&P 500 into an official bear market.

Odds of a rate cut at the Federal Reserve's May meeting fell to just below 40% on the CME FedWatch tool as of late Monday, down from roughly 50-50 at the start of the day. The market now builds in 100% odds of at least one rate trim by June and 40% odds of two rate cuts by then. Futures trading indicates investors see three to five rate cuts this year.

Several Fed speakers are on the docket this week after Fed Chairman Jerome Powell signaled little enthusiasm for any quick policy changes when he spoke last Friday.

The Dow Jones Industrial Average fell 349.26 points or 0.91% to 37,965.60. The S&P 500 fell 11.83 points or 0.23% to 5,062.25. And the Nasdaq Composite climbed 15.48 points or 0.10% to 15,603.26.

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