Schwab Market Update

(Friday market open) Wall Street starts Friday with its foot still on the accelerator. It's been one of the best weeks in months after tariff concerns eased and inflation turned lower, though trade and recession concerns haven't gone away. The S&P 500 index (SPX) is up more than 4% week to date, getting a fresh lift this morning from falling Treasury yields, with sentiment data awaited.

Though investors generally threw trade cares to the wind the last few days, concerns resurfaced early Friday as Bloomberg reported that the Trump administration would set tariff rates for U.S. trading partners over the next two to three weeks. The 90-day delay on "reciprocal" tariffs expires in early July. Inflation concerns associated with tariffs returned to the spotlight yesterday when Walmart (WMT) indicated it would raise prices. Speaking of which, April import prices, excluding oil, rose 0.4%, the government said Friday. "Excluding petroleum, import prices posted the biggest increase in nearly a year," said Kathy Jones, chief fixed income strategist at Schwab.

Defensive sectors like utilities and consumer staples enjoyed buying interest Thursday, helped partly by soft data and declining Treasury yields. Those two sectors are still near the bottom of the sector scorecard over the last five days but could enjoy fresh strength if tariff concerns escalate. Info tech, communication services, and consumer discretionary led gains earlier this week but took a back seat Thursday in more of a "risk-off" market. Tech shares generally climbed in pre-market trading today, suggesting a possible reversal.

1. Consumer sentiment ahead amid worries about job safety: The latest sentiment data from the University of Michigan drops at 10 a.m. ET and analysts expect a slight decline to 55, historically low. Inflation expectations, another key part of the report, will also be watched after recently hitting 40-year highs. One supportive element for headline sentiment could be a steady U.S. jobs market. However, recent confidence and sector surveys show people more worried about possibly losing their jobs. Checking yesterday's mixed-to-weaker Producer Price Index (PPI), jobless claims, and retail sales data, Schwab Chief Investment Strategist Liz Ann Sonders observed, "Deflationary PPI data is likely not a longer-term signal and was probably trade war-distorted. Jobless claims remain subdued, but that's where to focus in terms of any coming labor market weakness."
    
2. Retailers, housing data may give insight on consumer prices, rates: Next week features fresh retail earnings including Home Depot (HD), Lowe's (LOW), and Target (TGT). They'll be watched for any sign of following Walmart's lead in announcing price hikes, which would likely raise inflation worries. Along with earnings from home improvement firms next week come April existing home sales and new home sales, an intriguing look at housing when consumers appear cautious and mortgage rates remain stubbornly high. April housing starts and building permits data today both came in slightly lower than expectations at a seasonally adjusted annual rate of 1.361 million and 1.412 million, respectively.
    
3. From too much fear to too little? Major indexes start Friday near where they were on January 1 after April's whipsaw, but Schwab's Sonders noted that the rally featured significant outperformance by meme stocks, retail favorites, and non-profitable tech firms. "At early-April lows, the market had overshot in terms of discounting near-term economic weakness," she said. "But at these levels, it may soon overshoot in terms of discounting economic resilience. Tariff de-escalation has lowered recession odds, but not eliminated them."

• Meta Platforms (META) inched up after falling 2% yesterday on a Wall Street Journal report that Meta is delaying a flagship AI model. This may also have hurt chip stocks, as Nvidia (NVDA) and Advanced Micro Devices (AMD) fell late Thursday. However, both NVDA and AMD reversed those losses early this morning, with AMD boosted by the announcement of a $6 billion share buyback plan.
   
• Applied Materials (AMAT) fell 5.4% after earnings beat analysts' average expectations and revenue came in roughly in line with Wall Street analysts' average forecast. Its forecast for current quarter revenue was also roughly as Wall Street had expected. In an interview with Barron's, the company's CEO said he saw "no change" in demand despite volatile trade policy.
   
• Constellation Brands (STZ) climbed 3.5% in pre-market trading after Berkshire Hathaway (BRK.B) said in a regulatory filing that it had increased its position in the company to more than 12 million shares from under 6 million.
   
• Novo Nordisk (NVO) fell 5.7% on news that the company's CEO is stepping down. Shares are off sharply over the last year amid heavy competition in the obesity drug market.
   
• Newmont (NEM) fell 1.8% today as gold prices (/GC) tumbled this week amid hopes for a cooler global trade environment.
   
• UnitedHealth Group (UNH) bounced 3.3% in pre-market trading but has suffered a disappointing week that included the announcement of its CEO departing and a Wall Street Journal report that the Department of Justice is investigating the company for possible Medicare fraud. The struggles of UNH weighed on the Dow Jones Industrial Average ($DJI) this week, which has just 30 stocks and is weighted by share price.
   
• Coinbase (COIN) rebounded 1.6% ahead of the open after falling more than 7% yesterday as most major cryptocurrencies skidded from recent highs. MicroStrategy (MSTR) also had a rough Thursday but rose 1.2%early today. Coinbase was hurt yesterday after a cyber attack and by a New York Times report that the Securities and Exchange Commission still has an open investigation into whether Coinbase misreported user data years ago, Yahoo Finance reported.
   
• Odds of a near-term Fed rate cut look dim, with chances for a June trim under 10%, according to the CME FedWatch Tool. July odds are 37%.
   
• Checking technical factors, the SPX managed to close above 5,900 on Thursday. That level had been seen as a resistance point, so topping it might contribute to positive momentum today. The next levels to watch include the psychological 6,000 benchmark and above that the all-time highs set in February near 6,140.

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Though it feels like stocks are on a fast elevator upward since April's lows, it depends where you look. The S&P Technology Sector Select Index (IXT—blue line) is way ahead of all other parts of the market, up almost 17% through midday Thursday. The S&P 500 Equal Weight Index (SPXEW—purple line), which adjusts for the impact of heavily capitalized stocks by weighing all S&P stocks the same, is up a much more modest 8.4%, which is less than nearly 10% gains for the market cap-weighted S&P 500 index (not shown). Lagging behind all sectors is the S&P Health Sector Select Index (IXV—candlesticks), down more than 6% due partly to troubles at one of its largest companies, UnitedHealth (UNH), and on worries about the Trump administration's efforts to lower drug prices.

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

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).
May 23: April new home sales.