Schwab Market Update

Published as of: February 11, 2025, 9:22 a.m. ET

(Tuesday market open) Stocks fell and yields ticked up amid tariff worries ahead of Federal Reserve Chairman Jerome Powell's semi-annual monetary testimony to Congress today. Though traders build in almost no chance of a March rate cut, investors want Powell's longer-term thinking because the market still bakes in one or two trims later this year. Last month, Powell said rates were in a good place, balanced between the Fed's dual mandates of maximum employment and price stability.

It's fitting that Powell goes to Capitol Hill today because the Fed must keep congressional policy in mind. "Risks to the labor market are elevated this year, especially if the Trump administration is serious and successful regarding both mass deportations and curbing immigration," said Kevin Gordon, director, senior investment strategist at Schwab. "Taking out a significant chunk of the labor force—especially the portion that has been responsible for much of the post-pandemic recovery—would likely deliver a stagflationary hit to the economy."

Earnings roll on with Lyft (LYFT) and Coca Cola (KO) today. This week's calendar also includes Cisco (CSCO), Roku (ROKU), Coinbase (COIN), Palo Alto Networks (PANW), and Applied Materials (AMAT). Coca Cola shares rose early as investors cheered a better-than-expected quarter, but the market in general appears under pressure from worries about the tariffs Trump raised yesterday on aluminum and steel imports. This policy could increase costs for many U.S. businesses, including soda companies that use aluminum in their cans.

1. D.C. watch on budget, crypto: Tariffs and Powell aren't the only Washington focus for investors this week. Congress is struggling to reach a budget resolution that would provide the framework for the president's ambitious agenda to cut taxes and slash spending. Lawmakers also face a mid-March deadline on government funding, with no agreement in sight and the odds of a government shutdown ticking up. The White House and Congress are more aligned on crafting a regulatory framework for digital assets. The president signed an executive order to create a Presidential Working Group on Digital Asset Markets, while the Senate Banking Committee created a first-ever Subcommittee on Digital Assets, to be chaired by crypto enthusiast Senator Cynthia Lummis of Wyoming. The House Financial Services Committee already has a digital assets subcommittee, and the two are expected to coordinate their efforts with the White House. "All of it is another sign that bipartisan legislation on crypto is going to be a high priority in 2025," said Michael Townsend, managing director of legislative and regulatory affairs at Schwab.
    
2. Treasuries on the block: Several Treasury auctions this week, including a 3-year note auction today and a 10-year note auction tomorrow, could help set direction for yields. However, Powell may also have an impact. Traders keep dialing down near-term rate cut ideas, with the CME FedWatch tool now showing just 6% odds for March, down from 30% a couple of weeks ago. Generally strong economic data, along with government policy uncertainty, likely keep the Fed on pause next month. But Treasury yields have fallen from their January highs, making this week's auctions worth watching to see if demand remains firm at these slightly lower levels. Weak demand might send yields higher, a bearish development for stocks in rate-sensitive sectors including staples, health care, and real estate. "Risks to Treasury yields are tilted towards the upside, with the 10-year Treasury yield possibly retesting the 5% area," said Collin Martin, director, fixed income strategy at the Schwab Center for Financial Research.
    
3. CPI expectations: Tomorrow's CPI, due at 8:30 a.m. ET, is expected to show headline and core consumer inflation growth up 0.3% in January, compared with 0.4% headline and 0.2% core in December. Core excludes volatile food and energy prices. Analysts expect annual 2.9% headline and 3.1% core growth. That compares with 2.9% headline and 3.2% core in December. If the expected minor drop in annual core inflation shows up in the report, it would represent welcome but not dramatic progress, with inflation still well above the Fed's 2% goal. Last month, Powell said the Fed has no intention of moving the goal posts on that 2%. Tomorrow's report is the first to compare against reports from early 2024 when inflation unexpectedly jumped more than expected for three months. The Fed said this might be a seasonal trend, so if CPI tops expectations, seasonal factors might be blamed. However, easy comparisons might raise chances of the annual numbers delivering a positive surprise. Still, tariffs may already be causing some businesses like U.S. steelmakers to raise prices, hurting automotive stocks yesterday.

• Coca Cola added 3.2% in pre-market trading after the company beat analysts' earnings expectations. Revenue also easily topped the average Wall Street estimate. Case volume grew 2% in the fourth quarter after a slip in the previous quarter, and operating margin improved from a year ago. For 2025, the company expects organic revenue growth of 5% to 6% but warned of a currency headwind.
   
• Humana (HUM): climbed 1.5% after fourth quarter revenue topped estimates even as earnings per share fell short of Wall Street's expectations. The company's profit outlook also fell short of expectations, and Humana expects its individual Medicare Advantage annual membership to fall by 550,000 in 2025, Barron's reported.
   
• Tesla (TSLA) fell 0.5% ahead of the open, continuing a long slide. Shares initially jumped after the EV company reported earnings last month, but are now down 13% to date in February, hurt partly by tariff threats against Mexico, where it sources some parts for the Model Y sold in the U.S.
   
• Lyft climbed nearly 7% yesterday and was slightly up ahead of the open as investors awaited quarterly results after the close. Rival Uber's (UBER) earnings last week generated a mixed reaction, initially sending shares down as the gross booking forecast for the current quarter missed Wall Street's expectations. Shares revived the next day, on excitement over Uber's autonomous vehicle opportunity with Alphabet's Google (GOOGL), Briefing.com noted. LYFT is teaming up with Mobileye (MBLY) on robotaxis and plan to launch them as soon as next year.
   
• The Schwab Trading Activity Index^™ (STAX) fell to 49.45 in January, down from its score of 51.16 in December. Schwab clients took a fairly defensive approach last month, and when stocks dipped, there wasn't the same kind of buying behavior seen after a pullback last summer. However, later in the month, many did seem to take advantage of the opportunity to buy AI names at a discount. Clients appear to be taking a selective approach and are in large part proceeding into the new year with caution.

Around the market in 90 seconds: In this week's Weekly Market Outlook, Schwab's Kleintop touched on Friday's scheduled fourth quarter European growth data, noting, "GDP for the Eurozone is expected to have stalled with the region's two largest economies, Germany and France, having contracted during the quarter. Economists currently expect a rebound in growth in 2025."

Trader's view: Earnings to date have been solid, but with most of the mega caps done for now the market might lack a near-term catalyst until Nvidia (NVDA) reports later this month according to Schwab's Weekly Trader's Outlook. The S&P 500 index (SPX) has made several attempts to move above 6,100 over the past couple of weeks but has pulled back each time, meaning that level could represent resistance.

Chip stocks have struggled so far this year, barely rising since December and well below the high they reached during a brief but sharp January rally. The recent drop in late January took the PHLX Semiconductor Index (SOX—candlestick) almost down to lows posted in November, but a recent slight recovery brought the SOX above its 50-day moving average (blue line) last week. The 20-day moving average is now just above the market, and SOX traded above it last month before the DeepSeek news brought stocks down sharply.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap next week.

February 12: January Consumer Price Index (CPI) and expected earnings from CVS Health (CVS) and Cisco (CSCO).
February 13: January Producer Price Index (PPI) and expected earnings from Deere (DE), Applied Materials (AMAT), Coinbase (COIN), Palo Alto Networks (PANW), and Roku (ROKU).
February 14: January retail sales and January industrial production.
February 17: U.S. markets closed for President's Day holiday.
February 18: Expected earnings from Toll Brothers (TOL) and Baidu (BIDU).