Schwab Market Update

Published as of: January 17, 2025, 9:15 a.m. ET

(Note to readers: U.S. markets are closed Monday, January 20, in observance of the birthday of Dr. Martin Luther King, Jr. The Schwab Market Update will return on Tuesday, January 21.)

(Friday market open) Solid housing data kicked off the final session before the long weekend, stocks tracked higher, and Treasury yields retreated as the futures market built in slightly better odds of a mid-year rate cut. The 10-year Treasury note yield (TNX:CGI) fell below 4.6% this morning, still reacting to Wednesday's cooler-than-expected December Consumer Price Index (CPI), but it's unclear if this pullback from the recent 14-month high of 4.8% can last.

"The yield curve is likely to continue to steepen," said Kathy Jones, chief fixed income strategist at Schwab. "The 10-year Treasury yield could trade in the 4.5% to 5% region over the first half of the year." Overall consumer spending doesn't appear to be slowing much because income growth is holding up, Jones added, and the Federal Reserve isn't likely to alter policy based on one CPI report. Chances of a rate pause this month approach 100%, according to the CME FedWatch tool, and odds of any cut in the first quarter are below one in three.

Today's December housing starts and building permits both easily exceeded analysts' expectations at seasonally adjusted annual rates of 1.499 million and 1.483 million, respectively. Analysts had expected a slight rise in starts to 1.318 million and a slight dip in permits to 1.45 million, according to Briefing.com. This suggests the housing market remains robust despite high rates and follows recent strength in home builder stocks after strong earnings from KB Home (KBH). Home builder D.R. Horton (DHI) reports next week.

1. Long weekend includes inauguration: The coming weekend is extended with U.S. markets closed Monday to observe Dr. Martin Luther King, Jr.'s birthday. This could mean lighter volume later today, which can sometimes exacerbate price moves. Monday also brings the inauguration of President Donald Trump, and investors might want to monitor any policy hints, especially on tariffs and immigration. "Expect a series of executive orders on Day 1 of Trump's presidency on immigration and border security, including the launching of a massive deportation effort," said Michael Townsend, managing director, legislative and regulatory affairs at Schwab. Trump and Republican leaders have outlined a massive policy agenda that could have a significant impact on the economy, the markets, and investors.
2. Transports and BoJ decision ahead: Today's earnings calendar is relatively light, but reporting accelerates next week with expected results Tuesday from 3M (MMM), Netflix (NFLX), and United Airlines (UAL). It's a big week for transport reporting, including many airlines and railroads, providing a look at consumer travel trends and demand for goods from companies and consumers. Next week also brings the Bank of Japan's (BoJ) rate decision. "Don't forget about the BoJ's ability to create market volatility next Friday," said Michelle Gibley, director of international research at the Schwab Center for Financial Research. "Policymakers have increasingly hinted at the possibility of a hike, which is better than a 50/50 chance at this point."
3. Big picture thinking on data: It's never smart to put too much emphasis on a single data point, and that goes for both numbers arguably influencing markets most this past week. Wednesday's core December CPI growth of 0.2% improved from November and may indicate a lower core Personal Consumption Expenditures (PCE) price index reading later this month. Treasury yields plunged. "The CPI data was a relief to the market, but the reaction seemed overdone," said Schwab's Jones. "It will take signs that the trend is lower for the Fed to resume rate cuts." The other number, 256,000 jobs growth in December, also requires perspective. The three-month average is 170,000, a relatively moderate pace that doesn't point to overheating, Fed Governor Christopher Waller told CNBC Thursday.

• Apple (AAPL) and Tesla (TSLA) both inched higher in pre-market trading Friday after plummeting yesterday. Their struggles Thursday, with Apple losing 4% and Tesla down 3%,  helped prevent the overall market from gaining much traction. Apple shares were hurt by reports that Chinese smartphone makers may be taking market share. Tesla dropped after a CNBC report that the EV firm is offering Cybertruck discounts. The direction these two mammoth stocks head could help set Wall Street's tone today.
• J.B. Hunt Transport (JBT) dropped 8% after quarterly earnings per share results missed Wall Street's expectations and revenue fell year over year. First quarter operating income guidance was below analysts' average estimate, and the company cited a "still-weak environment."

Talking options: Get the deeper dive on bullish and bearish options trends for individual stocks in Schwab's Options Market Update. Readers learn about notable put and call activity and get a volatility check, as well.

A strong dollar normally weighs on gold and did so in late 2022 when the U.S. dollar index ($DXY—candlesticks) peaked above 114. Gold (/GC—purple line) slumped then to below $1,700 an ounce. Today, the dollar is testing those 2022 highs but gold is also climbing, which may partly reflect worries about global fiscal conditions and geopolitics. Both the dollar and gold are often perceived as safe havens during troubled times, though no investment is safe.

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

January 20: Markets closed for observance of birthday of Dr. Martin Luther King, Jr. 
January 21: Earnings expected from 3M (MMM), D.R. Horton (DHI), Fifth Third (FITB), Netflix (NFLX), Capital One (COF), United Airlines (UAL).
January 22: Leading indicators, and expected earnings from Johnson & Johnson (JNJ) and Procter & Gamble (PG).
January 23: Expected earnings from American Airlines (AAL), Union Pacific (UNP), and CSX (CSX).
January 24: University of Michigan final consumer sentiment for January, expected earnings from American Express (AXP) and Verizon (VZ).