Here is Schwab's early look at the markets for Monday, March 3:
This week builds to a busy Friday featuring February Nonfarm Payrolls and an economic outlook speech by Fed Chairman Jerome Powell. Before that, investors await today's ISM Manufacturing PMI, followed by a host of retail and Broadcom (AVGO) earnings as the week rolls on.
Last Friday wrapped up a losing week and month, with the S&P 500 index (SPX) falling around 1.4%% in February and 1% last week alone amid mega cap weakness. A spirited comeback in the final half hour Friday repaired some of the damage. Six of 11 sectors and the Dow Jones Industrial Average ($DJI) gained last week, led by value and defensive names as investors shifted away from tech and mega caps.
February can be seasonally volatile for stocks, and historically the same is true for the first quarter of any administration. The next policy touchpoint is when expected tariffs targeting imports from Mexico and Canada take effect Tuesday. China will be charged an additional 10% tariff then, as well.
The market is also digesting a rift between the U.S. and Ukraine that appeared to hurt chances of a mineral agreement amid the long war triggered by Russia. A White House meeting Friday between Ukraine and U.S. leaders ended with rancor. European stocks might feel heat from that geopolitical shakiness today after gaining ground last week partly on hopes for progress
Tariffs raised growth and inflation concerns, and the Atlanta Fed's first-quarter GDPNow model dropped into negative territory Friday at -1.5% from the previous 2.3%. That partially reflects pulling forward of imports as companies tried to avoid future tariffs, and imports can hurt gross domestic product (GDP). However, Friday's Personal Spending report showing a 0.2% decline for January was a surprise and followed recent consumer surveys pointing to heightened inflation and job worries. Most Wall Street analysts continue to project GDP growth this quarter.
While there's been weakness in soft data like surveys and hard data like retail sales and Services PMI), earnings strength still shows an economy moving along, albeit slowing down, making it difficult for investors to parse what to follow. Also, the market is arguably near oversold territory, with the Relative Strength Index (RSI) dropping to 33 by late Friday. Traditionally, a reading of 30 or below signals conditions that may sometimes lead to an oversold bounce, though there's no guarantee.
Technically, the SPX saw damage on the charts during its decline last week as it fell below the 50-day and 100-day moving averages before clawing back late Friday to close just above the 100-day of 5,952. Breadth declined, too, with 47% of SPX stocks trading above their 50-day moving averages as of late Friday, down from about 55% earlier last week. The market displays short-to-intermediate-term weakness, but the long-term up-trend on the charts remains intact.
Yields on U.S. Treasuries continued to drop last week, and defensive sectors outpaced growth. . Markets appear to be going through a repricing of risk assets which is driven by growth concerns, with uncertainty around trade and fiscal policy adding to uneasiness.
January's Personal Consumption Expenditures (PCE) price index met expectations at 0.3% monthly for both headline and core. Annual PCE of 2.5% and 2.6% for the two categories (core excludes food and energy) were also as expected and down from 2.6% and 2.8% in December. For headline PCE, it was the first slowdown in four months.
"The good news was that inflation didn't surprise to the upside, considering how inflation expectations have been rising lately," said Collin Martin, director, fixed income strategy at the Schwab Center for Financial Research. "But the 0.3% monthly increase in core PCE was the highest reading since last March, so inflation still appears to a be a bit sticky."
Sector-wise Friday, tech made a nice comeback and rose 1% but was still down more than 5% over the previous five sessions amid weakness from Nvidia (NVDA) and Microsoft (MSFT). Financials led Friday, but all sectors gained amid widespread strength that might have reflected ideas that stocks had come down too far, too fast after a 4% drop from the prior week's record highs.
However, volatility remains elevated with the Cboe Volatility Index (VIX) finishing the week just above 20, a sign of uncertainty. Typically, when both stocks and VIX rise, one tends to give way, usually sooner rather than later. That's why VIX is important to monitor this week.
Retail earnings dominate coming days with Costco (COST), Best Buy (BBY), Foot Locker (FL) and Target (TGT). But tech is in the mix as Broadcom (AVGO), CrowdStrike (CRWD), and Marvell (MRVL) report. The vast majority of S&P 500 companies are done reporting, and 75% have topped analysts' earnings estimates while 63% beat on revenue, FactSet said.
Looking ahead to Friday's Nonfarm Payrolls, January's slightly light jobs growth of 143,000 might have been affected by wildfires and snowstorms, so it will be interesting to see if February bounced back or if companies refrained from hiring amid policy uncertainty.
As of late last Friday, analysts expected the Nonfarm Payrolls report to show jobs growth of 150,000, according to Trading Economics. February is a shorter month than usual, which might affect the data.
Monday's February ISM Manufacturing PMI® data is seen remaining in positive territory above 50 at 50.7, according to Briefing.com.
As of late Friday, the CME FedWatch tool put rate pause odds near 94% for the March Federal Open Market Committee (FOMC) meeting, but chances of a rate cut by the June meeting topped 80%, up from 60% a week earlier.
The SPX added 92.93 points Friday (+1.59%) to 5,954.50, finishing the week down 0.98%; the Dow Jones Industrial Average® ($DJI) climbed 601.41 points (1.39%) to 43,840.91, up 0.95% for the week; and the Nasdaq Composite® ($COMP) added 302.86 points (+1.63%) to 18,847.28, falling 3.47% for the week.