I'm Colette Auclair, and here is Schwab's early look at the markets for Monday, April 21st.
Focus turns to a packed earnings schedule and several important Treasury auctions this week. Treasuries and the dollar will be closely watched for demand after investors shied from U.S. assets earlier this month, sending yields to their fastest rally in two decades.
Earnings include Tesla (TSLA) tomorrow and Alphabet (GOOGL) Thursday, but that's just the two biggest firms reporting. By Friday, investors should have a much better sense of how the first quarter went for a host of companies, but more importantly, insight into their outlooks as the trade war rages. Some companies already reporting have either pulled guidance or given wide ranges that account for best- and worst-case scenarios with tariffs.
So far, with just over 10% of S&P companies reporting before Friday's holiday market closure, results have been pretty good. Companies averaged 6.17% revenue growth and 6.35% earnings per share growth. However, "Earnings are taking a back seat to global trade developments," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.
Netflix reported last Thursday and shares initially didn't show much response in post-market trading. That's unusual for a stock that often moves sharply after results, but this is the first time Netflix hasn't reported the popular subscriber growth number. The company beat earnings per share estimates easily but revenue was about as expected. It also guided for second quarter revenue and EPS above consensus views and kept full-year guidance.
Though earnings season is entering its peak, news about the trade situation – either positive or negative – could have a bigger impact on any given day.
"Markets are still waiting on an official trade deal," Schwab's Peterson said. "I’ve said it before I’ll say it again, the longer that any deal takes place the worst it is for the economy and the stock market."
Back on Thursday, major indexes had trouble gaining traction following Wednesday's 3% drop in the Nasdaq Composite ($COMP) amid concerns over the chip sector and trade with China. UnitedHealth (UNH) weighed heavily on the Dow Jones Industrial Average ($DJI) Thursday after cutting guidance, though another health firm, Eli Lilly (LLY), sported double-digit gains after announcing a successful trial of a pill for weight loss.
Anxiety still stalks tech, but booming earnings last Thursday from Taiwan Semiconductor Manufacturing (TSM) soothed worries slightly. Besides Alphabet, other major tech firms reporting this week including Texas Instruments (TXN), IBM (IBM), and Intel (INTC).
Last week, Taiwan Semiconductor beat Wall Street's first quarter earnings expectations and kept previous revenue guidance, a boost to sector confidence after recent trade-related anxiety. First quarter revenue rose 41.6% from a year earlier on solid sales of its AI chips, and the company said it hasn't "seen any changes in our customers' behavior so far" despite uncertainties and risks from tariff policy. TSM is the largest semiconductor foundry in the world.
On the other side of the ledger, UnitedHealth came under pressure from rising care activity in its Medicare Advantage business and from Medicare funding reductions.
Also hurting stocks last week was a gloomy outlook from Federal Reserve Chairman Jerome Powell, who warned of possible inflation related to tariffs and referred to slower first quarter growth.
The benchmark 10-year Treasury note yield crept above 4.3% Thursday after Powell's hawkish words. The market also got rattled by a Wall Street Journal report that President Trump has considered firing Powell. However, Powell has said he wouldn't leave if asked by the president, Politico reported, and that the president has no authority to fire him. Federal law only allows such a move "for cause," according to Politico. Trump's dislike of Powell's hawkish views on rates wouldn't meet that definition.
If Powell were fired and replaced by Kevin Warsh, a former Fed board member whom the Wall Street Journal said Trump was considering for the position, "the market reaction would likely be negative as the independence of the Fed is highly valued," said Kathy Jones, chief fixed income strategist at Schwab.
The week ended with sinking odds for a Fed rate cut in May, according to the CME FedWatch tool. The chance of such a move was 10% late Thursday, down from 27% a week earlier. June rate cut odds have fallen to 65% from 85% over the week ended Thursday.
Though recent inflation data have shown progress, the Fed worries that tariffs could force prices higher. Also, there's no sign yet of any upheaval in the labor market. With those metrics in place and uncertainty around the impact of tariffs, the Fed seems unlikely to make a move anytime soon.
From a data perspective, the end of last week had a little for everyone. Initial weekly jobless claims stayed low at 215,000, a hint that trade uncertainty hasn't yet bled into the labor market. But on the same day that home builder D.R. Horton (DHI) cut guidance and cited weak demand, March housing starts of 1.324 million on a seasonally adjusted annual basis fell far short of expectations—by almost 100,000 and down 11.4% from a month earlier. It was the lowest reading in four months.
While building permits stayed solid, another economic indicator, the Philadelphia Fed Index, which measures manufacturing activity in the mid-Atlantic region, cratered to –26.4 in April, down from 12.5 in March and well below the Briefing.com consensus of 10. Anything below zero indicates contraction, and this was the weakest reading in two years. Manufacturing data has been weak for months, and although it's a smaller portion of the economy than it once was, the soft numbers can suggest companies and consumers cutting back on big purchases.
Today brings March leading indicators from the Conference Board, with new home sales and final April consumer sentiment due later this week. Leading indicators are due shortly after today's open after falling 0.3% in February. Analysts expect another 0.3% drop.
Technically, the week opens with a wide range for the S&P 500® index (SPX) between the recent 13-month low near 4,835 and the mid-March low near 5,500.
The Dow Jones Industrial Average® ($DJI) fell 527.16 points Thursday (-1.33%) to 39,142.23; the SPX added 7.00 points (+0.13%) to 5,282.70, and the Nasdaq Composite® ($COMP) lost 20.71 points (-0.13%) to 16.286.45. For the week, the $DJI fell 2.66%, though much of that reflected weakness in UNH on Thursday, while the SPX fell 1.5% and the $COMP fell 2.62%.
The small-cap Russell 2000 (RUT) beat both the SPX and the Nasdaq last week, rising more than 1%, and small-cap strength is sometimes viewed as a sign of investor optimism.
