Schwab Market Update

(Thursday market open) Stocks retreated as investors grappled with a full plate of data and earnings, including lower-than-expected April retail sales and a sinking Producer Price Index (PPI). "Risk-off" appeared to be the mood early on, with commodity prices and tech stocks sliding while the market absorbed somewhat hawkish remarks from Federal Reserve Chairman Jerome Powell.

The standout number might be PPI, which fell 0.5% when analysts had expected a 0.3% increase. Core PPI, excluding food and energy, fell 0.4%, while annual headline PPI rose 2.4%. Retail sales rose just 0.1%, below the 0.2% consensus and well under March's 1.7% gain. The so-called control group retail sales number, which the government uses in its gross domestic product (GDP) calculation, fell 0.2%. "Retail sales shows there might be initial signs of cracks in the consumer," said Cooper Howard, director, fixed income strategy at the Schwab Center for Financial Research. "There was weakness across the board."

The data came after Walmart (WMT) exceeded earnings expectations partly due to pre-tariff stocking by consumers. Its CFO told CNBC that shoppers could face higher prices as soon as the end of this month. Besides Walmart, most of today's news looked cloudy from an economic standpoint, including two U.S. regional manufacturing surveys that were below levels signifying expansion. However, initial jobless claims remained benign at 229,000. "Overall, the data were positive for the bond market but not a trend changer," said Kathy Jones, chief fixed income strategist at Schwab. "It looks like there was some giveback after pre-tariff stockpiling on the part of consumers."

1. Walmart keeps guidance but higher prices raise red flag: The largest U.S. retailer had a quarter that looked impressive almost across the board, though revenues merely matched Wall Street's expectations. Sales at U.S. stores open a year or more rose 4.5% with strong growth in health, wellness, and groceries, Walmart said. Global e-commerce sales rose 22%, and the company reaffirmed its fiscal 2026 guidance, seeing net sales in the second fiscal quarter up 3.5% to 4.5%. Gross profit also rose. Probably the biggest takeaway for investors at least ahead of the earnings call was that Walmart didn't change its guidance for the fiscal year despite tariffs, saying it's "well positioned" and flexible to navigate the near term. But the prospect of higher prices for customers might raise red flags, as the lower-income customers who flock to Walmart may be more price-sensitive than people shopping at more exclusive stores.
    
2. Yields hit one-month high on prospect of expansive fiscal policy: Treasury yields are up sharply this week amid Washington, D.C. budget negotiations and as influential analysts lowered their odds of a U.S. recession. Fed Chairman Powell today said inflation "could be more volatile going forward" with more frequent supply shocks and warned of the possibility of "higher real rates." Yields had slipped earlier on the data but marched back up as Powell spoke. The benchmark 10-year note yield hit 4.53%, a one-month high that might hint at continued pressure on consumers and businesses looking to borrow. "The budget proposals in Congress suggest expansive fiscal policy will continue to raise deficits and total debt over time, keeping the term premium moving higher," said Schwab's Jones, referring to the extra yield investors demand for holding longer-term bonds. "It is already up by more than 40 basis points in the past six weeks and is at a 20-year high. It suggests markets see risk around the inflation and interest rate outlook longer term."
    
3. Bearish sentiment in check as breadth improves: With news around tariffs dying down and the economic calendar light until today, much of the bearish sentiment that gripped markets over the last two months quickly faded. This helped push the percentage of S&P 500 stocks above the 50-day moving average to 65% and those above the 200-day to 48%. Through midday Wednesday, advancing shares led declining ones by a two-to-one margin this week, but upside may be stalling and the tech rally faded this morning. Technically, the S&P 500 index (SPX) still appears to be consolidating after bumping against a key area of resistance at 5,900 the last two sessions.

• Foot Locker (FL) soared 83% ahead of the open after The Wall Street Journal reported that the footwear company would be bought by Dick's Sporting Goods (DKS) in a $2.4 billion deal. That prices FL's stock at $24 a share, which was about a 90% premium to FL's closing price Wednesday. As CNN noted, FL has been under pressure due to the decline of malls, and retailers face trade-related pressure that may be causing some to band together. Shares of DKS fell nearly 10% on the news.
   
• Berkshire Hathaway (BRK.B) shares are relatively flat early but Warren Buffett's company could be in the news as it's expected to make a regulatory filing today on which stocks it bought and sold in the first quarter. Berkshire is a large holder of Apple (AAPL) and many financial stocks.
   
• Alibaba (BABA) plunged 5.7% in pre-market trading after the Chinese e-commerce firm's earnings missed Wall Street's expectations. The disappointing results put the spotlight back on troubled trade relations between China and the U.S.
   
• Boeing (BA) added 1.75% ahead of the open after climbing yesterday on news that the company won an order from Qatar Airways for 160 aircraft, the largest order in Boeing's history.
   
• Cisco (CSCO) climbed 3.3% after its earnings late Wednesday exceeded analysts' quarterly estimates and its outlook slightly surpassed the average Wall Street forecasts. The company said it hasn't seen any slowdown in demand from customers despite the uncertain trade situation.
   
• Nvidia (NVDA) slipped 0.8% in early trading after rallying sharply earlier this week and seeing its market capitalization climb back above $3 trillion.
   
• Applied Materials (AMAT) slipped about 0.6% in pre-market trading before reporting later today in the middle of a booming week for chip stocks. The company supplies equipment and services for chip manufacturing, and can be a useful barometer for semiconductor demand and could also provide color on recent AI demand.
   
• UnitedHealth (UNH), which already fell sharply earlier this week when its CEO stepped down, dropped another 6.6% ahead of the open after The Wall Street Journal reported that the Justice Department is investigating the company for potential Medicare fraud.
   
• AI cloud-computing firm CoreWeave (CRWV) fell 2% in pre-market hours after better-than-expected revenue but higher-than-expected planned capital spending.
   
• Crude oil (/CL) sank 3.2% to around $61 per barrel early Thursday as media reported on progress on a possible U.S.-Iran nuclear deal. However, ceasefire talks between Russia and Ukraine hit a snag today when Russian leader Putin didn't travel to meet Ukraine leader Zelensky for talks.
   
• Odds of a near-term Fed rate cut look dim, with chances for a June trim below 9%, according to the CME FedWatch Tool. July odds are around 37%. These didn't change much after today's data. "With inflation well above the 2% target and inflation expectations moving higher, the Fed doesn't want to risk fueling more of an increase," Schwab's Jones said. "In addition, the labor market is in good shape, reducing the urgency of rate cuts."

From a technical angle, the so-called death cross that occurred last month when the S&P 500 index's (SPX—candlestick) 50-day moving average (red line) fell below its 200-day moving average (blue line) roughly coincided with the index's massive comeback from the early April lows. That death-cross adjacent rally followed another one that began in late 2023 after the 50-day nearly touched the 200-day. The last time a long period of weakness followed a death cross was in 2022, as this five-year daily chart shows. That's not to say the death cross provides a road map, but it does seem to coincide with times when a lot of selling pressure already happened, at least in recent history, meaning a rebound often follows even if it isn't related specifically to the chart action. The SPX is now above the 50-day moving average of 5,552 and the 200-day of 5,752 but still below all-time highs above 6,100 reached in February.

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

May 16: April housing starts, April building permits, and May preliminary University of Michigan consumer sentiment.
May 19: April leading indicators from the Conference Board
May 20: Expected earnings from Home Depot (HD), Palo Alto Networks (PANW), and Toll Brothers (TOL).
May 21: Expected earnings from Baidu (BIDU), Target (TGT), Lowe's (LOW), Macy's (M), Medtronic (MDT), TJX (TJX), Urban Outfitters (URBN), and Snowflake (SNOW).
May 22: April existing home sales and expected earnings from Analog Devices (ADI), Ralph Lauren (RL), Ross Stores (ROST), Autodesk (ADSK), Deckers Outdoor (DECK), and Intuit (INTU).