Opening Market Update

Published as of: May 16, 2024, 9:10 a.m. ET 

(Thursday market open) Solid earnings from Walmart (WMT) and slightly lower Treasury yields gave U.S. major indexes a light boost early Thursday, one day after Wall Street rang in new record highs on constructive inflation data.

Yesterday's April Consumer Price Index (CPI) and April Retail Sales reports reinforced impressions of a slower U.S. economy following a recent downturn in jobs growth. CPI rose 0.3% in April while retail sales were flat. The cooler data sent major indexes to fresh all-time highs for the first time since late March amid hopes that rate cuts remain possible this year.

Futures trading still projects nearly one in three chances of a Federal Reserve rate cut in July, though most analysts believe September is likely the earliest date. Another cut might follow in December, the futures market indicates.

Today features a full platter of data, including Weekly Initial Jobless Claims, several Fed speakers, housing starts and building permits, and industrial production. Two short-term Treasury auctions also loom, and investors mull earnings not just from Walmart (see more below) but also Deere (DE) and Applied Materials (AMAT).

So far, today's data, including a drop in jobless claims, isn't lighting any fireworks but generally came in softer than expected for most reports ahead of the open.

The next key data point, one could argue, is earnings this coming Wednesday from chip giant Nvidia (NVDA), the last mega cap to report.  

"If Nvidia can deliver around a $2 billion beat on revenue guidance this would likely be enough to keep AI secular growth story going, sentiment-wise," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

Futures based on the S&P 500^® index (SPX) inched up 0.04% shortly before the close of overnight trading and futures based on the Nasdaq-100^® (NDX) rose 0.02%. Futures based on the Dow Jones Industrial Average^® ($DJI) climbed 0.02%.

• The 10-year U.S. Treasury yield (TNX) fell three basis points to 4.32%, the lowest since early April.
• The U.S. Dollar Index ($DXY) slipped to 104.39, just above its 100-day moving average.
• The Cboe Volatility Index^® (VIX) fell to 12.42, near its 2024 low.
• WTI Crude Oil (/CL) climbed 0.3% to $78.87 per barrel and seems to be in a tight range between $77 and $80.
• Bitcoin (BTC) inched higher to $66,309.

Weekly Initial Jobless Claims for the most recent week were 222,000, after a surprising jump to a revised 232,000 the prior week that was the highest in around eight months. Analysts had expected a reading of 218,000 today, according to Briefing.com. The new figure is slightly higher than the average from earlier this year but not a number that indicates dramatically slower jobs growth.

As always, continuing claims are worth tracking because they speak to how difficult or easy it might be to get a new job once someone is laid off. They rose to 1.794 million in the latest week from 1.781 million the week before, again a mild figure.

Housing starts and building permits both missed analysts' expectations at a seasonally adjusted annual rate of 1.36 million and 1.44 million, respectively. Consensus for starts was for a seasonally adjusted annual rate of 1.44 million units, Briefing.com said, with permits seen at 1.49 million.

In addition, the Philadelphia Fed Index, a measure of manufacturing health in that region, fell to 4.5 in May from 15.5 in April, below the 5.0 consensus.

To summarize, this morning's data were nearly all lighter than expected, continuing the theme of an economy that's slightly slowing. Treasury yields had little reaction to the burst of numbers an hour before the opening bell.

CPI addendum: Wednesday's April CPI readings were refreshing after three months of ugly numbers but represent a single point in time. The Fed would likely need to see several cool readings in a row to feel more comfortable about a possible rate cut. How many is unclear, but two more like yesterday's would mean three decent reports to counter three unpleasant ones. Slower inflation in May, if it comes, would reinforce what some at the Fed said about this year's early price jump being seasonal.

Also, the CPI report wasn't the final word on April inflation. On the last day of May, investors get a look at Personal Consumption Expenditures (PCE) prices, the Fed's favorite inflation meter.

Talking technicals: Piercing all-time highs Wednesday appeared technically bullish. That breakout might draw fresh cash from the sidelines into the market. "The major knock against stocks right now is likely valuation," Schwab's Peterson said. "We’ve priced in a lot which could leave us susceptible to a 'reset' of some sort if we get data points that challenge the bullish narrative."

Leading indicators next: Friday's data schedule is light, but April Leading Indicators from the Conference Board provide one reference point. Analysts expect a 0.3% drop from March, Briefing.com said.

China speaks: There's also a host of data from China due tonight, U.S. time, a day after Japan reported a larger-than-expected drop in first-quarter gross domestic product of –0.5%. The strength of China's economy could affect commodity prices, with copper recently up but steel weak. Industrial production, unemployment, and retail sales are among the metrics to watch when China's data posts.

With several U.S. indexes setting new records this week, check this quick Schwab video for thoughts on how to trade in a market that's at or near all-time highs.

Walmart displayed quarterly earnings per share and revenue today that exceeded analysts' expectations, and shares rose nearly 5% in premarket trading. A company executive told CNBC that the stores are attracting higher-income shoppers, and the grocery and delivery businesses are thriving.

"We’ve got customers that are coming to us more frequently than they have before and newer customers that we haven’t traditionally had, and they’re coming into a Walmart whether it’s a virtual store online, or whether it’s one of our physical stores," Walmart Chief Financial Officer John David Rainey told CNBC in an interview.

Shoppers looking for bargains and people choosing to cook instead of grapple with expensive menu prices helped drive Walmart's quarter, the company said. It expects guidance to meet or exceed the high end of expectations it previously shared.

Other big boxes like Target (TGT), Lowe's (LOW), and Best Buy (BBY) are on the calendar next week and later this month and could provide further insight into consumer trends

Cisco (CSCO) earnings after the close yesterday extended one of the best days for the info tech sector in a while. S&P tech shares rose more than 2% Wednesday, and Cisco shares climbed 5% following its quarterly report. The company beat analysts' EPS and revenue expectations and issued better-than-expected guidance for Cisco's current fiscal Q4, projecting revenue to exceed analysts' projections. This was a 180 from the last time Cisco reported, when it disappointed Wall Street on guidance and referred to cautious customers.

"Customers are consuming the equipment shipped over the last few quarters in line with our expectations and we are seeing stabilization of demand as a result," Cisco said in its earnings release. Generally, Cisco is seen as a barometer for tech, so if it's seeing better demand trends that could bode well for the sector. A strong quarter for Cisco can sometimes attract spillover buying for other tech stocks.

Speaking of tech stocks, Applied Materials (AMAT) is expected to report after today's close and could provide insight into chip demand. Though AI gets most of the headlines, supply overhang and slow demand for certain non-AI chips remain challenges for the industry and AMAT might be able to provide insight. China is another piece of the puzzle, so check for updates on the company's business there.

Stocks on the move:

• Deere (DE) slipped 5% in premarket trading despite a quarter that beat analysts' earnings and revenue estimates. Revenues were down year over year, and the company is wrestling with what it calls "declining agricultural and turf demand" even amid "stability" in the construction business. The company, which cut fiscal 2024 net income guidance when it reported in February, sliced its outlook again this time around, hurt in part by lower agricultural commodity prices.
• Under Armour (UAA) dropped nearly 11% ahead of the open after delivering much lower-than-expected fiscal 2025 guidance. Earnings for the fiscal fourth quarter topped analysts' expectations, while revenue fell nearly 5% year over year but was in line with the average Wall Street estimate. The North American side of the business is struggling, with Under Armour expecting a 15% to 17% decline there in the new fiscal year. The company also announced a restructuring that it said will "pressure" its top and bottom line in the near term.

Wednesday in review: Chipmakers led the way higher Wednesday, lifting the PHLX Semiconductor Index (SOX) almost 3% to a 10-week high. Interest-rate-sensitive sectors like real estate and utilities were also strong, as lower rates can make dividend-paying stocks appear more attractive versus fixed income. The small-cap Russell 2000^® Index (RUT) advanced 1.1% to a seven-week high.

Early today, futures traders place 8% chances of a 25-basis point rate cut at the Federal Open Market Committee's (FOMC's) June 11–12 meeting, rising to roughly 33% for the late-July meeting, based on the CME FedWatch Tool. Investors build in 72% chances of at least one rate cut by September, up from about 65% before the CPI data.

Fixed income focus: The latest Schwab WashingtonWise podcast focuses on the bond market. Listen for Schwab's insight into potential Fed policy and thoughts on how investors can diversify their fixed income portfolios.

Ideas to mull as you trade or invest

Retail and rates: When retail sales level off or decline, it can sometimes indicate inflation easing. That's in part because retail sales aren't adjusted for inflation, meaning slower price growth can show up in the data (overall sales tend to grow less when prices increase less). Also, when people become concerned about their job situation, they tend to spend less. Recent declines in consumer confidence and sentiment suggest the job market isn't quite as healthy, and when people spend less, inflation can ease.

Dual focus for Fed: The Fed's dual mandate means policymakers focus on inflation but also the jobs picture. While yesterday's data didn't cause investors to rethink low odds of a summer rate cut, the one thing that might keep the Fed's July meeting in play could be sluggish employment data. In this case, be careful what you wish for. A slowing economy and less spending might help the inflation picture and speed rate cuts but won't necessarily be the best trends for corporate earnings growth.

Home prices stay hot: The inflation metric many on Wall Street watch for housing is owner's equivalent rent (OER), an aspect of CPI that measures most of the shelter costs people experience. Generally, OER lags other costs, meaning it rises or falls after other items in the CPI basket. But it's taken an unusually long time in this particular cycle. Shelter costs rose 0.4% in April from March, the government said, and are up 5.5% year over year. They've risen 0.4% or more each month since last November.

May 17: April Leading Indicators.

May 20: Expected earnings from Palo Alto Networks (PANW) and Zoom (ZM).

May 21: Expected earnings from AutoZone (AZO), Lowe's (LOW), Macy's (M), and Toll Brothers (TOL).

May 22: Expected earnings from Target (TGT), Petco (WOOF), and Nvidia (NVDA).

May 23: April New Home Sales, and expected earnings from Medtronic (MDT), Ralph Lauren (RL), and Ross Stores (ROST).