Win Streak Ends as Retail Sales, Chip Results Loom
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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 Wednesday, April 16th. Semiconductor earnings and U.S. retail sales are among Wednesday's highlights after a less volatile day of trading yesterday that featured light losses to end a two-day win streak.

For investors weary of dramatic market swings, the last day or two seemed more relaxed and featured generally lighter trader volume. Stocks are attempting to find some stability following massive volatility over the past eight trading days, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. Earnings are trickling in and reports from the big banks look pretty good, but it's really old news in comparison to global trade dynamics.

Retail sales and March housing starts and building permits tomorrow could give investors some real-world data to reinforce or ease worries that U.S. consumers have pulled back. Recent sentiment data raised questions about the impact of the trade war on both consumers and businesses.

However, the March retail sales and housing data were collected before the dramatic market pullback associated with the April 2nd Liberation Day, meaning data investors receive next month could be more indicative.

The retail sales report will be a good indicator of how strong or weak the consumer is, but the data could be skewed a bit as consumers may have pulled forward purchases in anticipation of the tariff, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research.

Analysts expect a large monthly jump of 1.3% in retail sales, perhaps reflecting those forward purchases. However, yesterday's March import prices, which fell 0.1% month-over-month and rose 0.1% excluding oil, were down from February's gains. A major surge of pre-tariff import demand would likely have raised prices.

Prices of imported consumer goods and automobiles were relatively weak in March. Falling airfares in last week's March producer price index and a cautious outlook from Delta Airlines put United Airlines in the hot seat yesterday as it delivered quarterly earnings. Some airlines have been canceling flights from Canada to the U.S. as travel from that key tourist source appears to weaken amid anger over tariffs.

Business travel is another point of possible weakness, with companies confused over uncertain tariff policy likely looking to cut expenses where they can. United Airlines beat analysts' consensus for earnings per share and reported revenues that met consensus and rose 5.4% year-over-year. But again, the first quarter was a time before tariff fears truly took hold.

Today brought results from semiconductor industry firm ASML and Taiwan Semiconductor Manufacturing lined up tomorrow. The White House is expected to put out its tariff policy specifically concerning semiconductors at some point soon. Today also features a Bank of Canada meeting, followed by a European Central Bank interest rate decision Thursday.

The majority of analysts expect a rate pause from Canada, Reuters reported, but many expect the ECB to cut by 25 basis points.

Back home, the 10-year Treasury note yield sank four basis points yesterday to 4.32% and is now down substantially from the peak near 4.6% last week. That topped out the largest one-week rally since 2001 and generated concern that investors might be stepping away from U.S. assets like Treasuries and the dollar amid trade upheaval.

Comments late last week from Boston Fed President Susan Collins, who told Yahoo Finance that financial markets continue to function well and that the Federal Reserve is prepared to intervene if necessary, possibly eased some of the alarm that sent yields skyrocketing, Schwab's Peterson noted.

Technically, the 10-year yield dropped below its 50-day moving average of 4.332% yesterday and is down 27 basis points from last week's peak, Briefing.com noted. Tariff news should be the key driver of movements over the short run, with economic data taking somewhat of a backseat. If the hard data begins to deteriorate like the recent survey data, volatility could pick up, Schwab's Martin said.

Fed rate cut expectations continued to be dialed down. Tariff fears initially pulled forward the expected timing of the next rate cut and number of cuts by year-end, but that has since reversed a bit. Inflation remains high, though the March Consumer Price Index, or CPI, was encouraging, Martin added. He still expects a rate cut or two this year, but not until the second half of the year.

Odds of a rate cut at the Federal Reserve's May meeting fell to around 19% on the CME FedWatch tool late Tuesday. Rate cut odds are close to 73% for June. Despite another round of solid corporate earnings and receding Treasury yields, stocks stepped back Tuesday following two straight higher sessions. Investors kept an eye on China after Bloomberg reported that Beijing told airlines not to accept any Boeing deliveries or U.S. aircraft gear.

Separately, Bloomberg reported Tuesday there's been little trade negotiation progress between Europe and the United States, a news story that might have kept pressure on stocks late yesterday.

Sector-wise Tuesday, most of the market clustered within 0.5% of unchanged on either side of the ledger, led by a mix of defensive and growth names. Financials led the way, helped by strong earnings from Bank of America and Citigroup released early in the day.

Encouraging words about consumer spending from bank CEOs over the past few days helped ease some of the concern over the impact from trade turmoil, though they still see elevated recession risk. Defense of real estate and utilities also were among gainers Tuesday, with Infotech and Energy rounding out positive sector performers despite sinking crude oil prices as the demand outlook fell.

Volume on Wall Street Tuesday was below average through midday, Briefing.com noted, perhaps indicating lack of solid conviction among traders. Technically, the S&P 500 hasn't done much to test resistance at 5,500 and above this week.

The Dow Jones Industrial Average slipped 155.83 points Tuesday, or 0.38%, to 40,368.96. The S&P 500 Index lost 9.34 points, or 0.17%, to 5,396.63. And the Nasdaq Composite fell 8.32 points, or 0.05%, to 16,823.17.

The Russell 2000 small cap index, sometimes seen as a leading indicator for the market, managed a slight gain. This has been the Schwab Market Update Podcast.

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