Schwab Market Update
Stocks Up After Trump Keeps Tariff Threats Light
Published as of: January 21, 2025, 9:20 a.m. ET
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| The markets | Last price | Change | % change |
|---|---|---|---|
| S&P 500® index | 5,996.66 | +59.32 | +1% |
| Dow Jones Industrial Average® | 43,487.83 | +334.70 | +0.78% |
| Nasdaq Composite® | 19,630.20 | +291.91 | +1.51% |
| 10-year Treasury yield | 4.56% | -0.05 | -- |
| U.S. Dollar Index | 108.58 | -0.77 | -0.71% |
| Cboe Volatility Index® | 15.73 | -0.24 | -1.5% |
| WTI Crude Oil | $75.95 | -1.93 | -2.5% |
| Bitcoin | $104,615.03 | +$799.05 | +0.77% |
(Tuesday market open) Major indexes began the second Trump administration with light early gains, but down from overnight highs after the new president hinted he might impose tariffs on Mexico and Canada. Still, the absence of executive orders for universal tariffs provided support after a nearly 3% gain for the broader market last week. Treasury yields fell to new three-week lows on hopes for less inflation pressure, as crude oil weakened following Trump's promise to boost U.S. production.
After two weeks of torrential data, investors enter a dry spell in coming days. Initial and continuing weekly jobless claims on Thursday could get a close look considering layoffs announced by several large firms recently, while University of Michigan final consumer sentiment data for January looms Friday along with the Bank of Japan's (BoJ) rate decision. Tomorrow brings December leading indicators from the Conference Board after a rare gain the previous month. Also, be ready for the U.S. Treasury's quarterly buyback announcement later today, which could influence yields.
Today's earnings include D.R. Horton (DHI), United Airlines (UAL), 3M (MMM), and Netflix (NFLX). Last week's Consumer Price Index (CPI) showed air travel prices up sharply in December, which suggests strength for the airlines. Research firm FactSet now sees fourth quarter earnings growth of 11.6% for the S&P 500, which would represent the highest year-over-year growth since the fourth quarter of 2021. Though it's still early, 42 of 500 S&P 500 companies have reported, with average revenue growth of 7.1%. EPS growth is 21.9%. "So far, so good with earnings," said Liz Ann Sonders, chief investment strategist at Schwab.
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Three things to watch
- Netflix, United Airlines after bell: After beating analysts' estimates last time out, Netflix approaches the gate with shares well off recent highs. Subscriber trends, especially "view hours" that the company uses to track engagement, could help investors gauge fourth quarter progress. Netflix recently successfully dipped its toes into live sports broadcasts, so investors might want to check for any announcements of events to come. United Airlines shares stormed higher when it last reported in October, partly on positive fourth quarter guidance. Today investors will learn whether the firm met its $2.50 to $3 per share target, and perhaps get word on any recent progress toward schedule changes designed to keep fares at cruising altitude.
- Market breadth improves: Last week's yield-based rally was broad, as roughly nine out of every 10 S&P 500 stocks advanced. By late Friday, 41% of S&P 500 stocks traded above their respective 50-day moving averages, up from 19% the prior week. "Market breadth improved but remains relatively contracted," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. Typically, broader participation suggests healthy investor sentiment and supportive technicals. Continued breadth improvement could depend to some extent on earnings results. Financials have the best breadth at nearly 90% trading above their 200-day moving average.
- Could fires spark inflation? Aside from the tragic human loss from the Los Angeles fire disaster, there's a chance that inflation could rise as the city rebuilds. Used car prices, for instance, could rise because so many cars were destroyed. Construction material prices also might climb amid potentially growing demand from the Los Angeles area once the fires die down. Even food prices could see an impact, possibly due to people stocking up in preparation for future emergencies. Used car prices had been falling, noted Kathy Jones, chief fixed income strategist at Schwab, but that could reverse partly due to the fires and might be worth checking for impact in near-term inflation data.
Stocks on the move
- 3M shares popped 3.8% in the early going as earnings per share narrowly beat analysts' average estimate. Revenue declined 25% year over year but did edge above the consensus view on Wall Street. The company, in its press release, emphasized "a year of strong results" and "robust free cash flow," along with confidence it can meet 2025 guidance.
- D.R. Horton jumped nearly 3.9% before the opening bell after the homebuilding firm handily beat Wall Street's consensus views on earnings per share and on revenue. It also reaffirmed previous guidance for the fiscal year. Home inventories remain low, especially for homes that are affordable, the company said in its press release. Incentives have helped lower costs and spurred demand.
- Apple (AAPL) dropped 1.8% before the open, continuing its recent struggles after a downgrade to underperform from hold by Jefferies. A Bloomberg report this morning said iPhone sales in China fell 18% in the holiday quarter, and the Jefferies analyst cited recent weak iPhone sales, Bloomberg noted. Apple's March guidance could disappoint, the analyst said. Apple shares are down more than 8% this month, the worst monthly performance in more than a year.
More insights from Schwab
Despite Friday's rally, uncertainty is elevated as investors reassess the potential for rate cuts. "We expect that yields will continue to move higher in the near term as long as the economy looks to be on solid ground and there is policy uncertainty on the horizon," the latest Schwab Market Perspective noted.
" id="body_disclosure--media_disclosure--111271" >Despite Friday's rally, uncertainty is elevated as investors reassess the potential for rate cuts. "We expect that yields will continue to move higher in the near term as long as the economy looks to be on solid ground and there is policy uncertainty on the horizon," the latest Schwab Market Perspective noted.
Climate and munis: While the broader impact of the Los Angeles fires on municipal bonds is likely limited, the tragedy could affect some bond issuers in the area. For investors concerned about the impact of the wildfires, or weather and climate disasters more generally, there are actions they may want to consider taking.
Week ahead: Travelers (TRV) on Wednesday is the first big insurer to report since the Los Angeles fires began. "Commentary from Travelers executives will offer a preview of what other insurers may say in the coming weeks," said Jeffrey Kleintop, chief global investment strategist at Schwab, in his Weekly Market Outlook. "There can be no guarantees, but historically, the stocks of insurers tend to fare well once a disaster has been contained on the expectation that prices for insurance may climb to recover losses and as weaker competitors exit."
Chart of the day
Data source: FTSE Russell. Chart source: thinkorswim® platform.
For illustrative purposes only. Past performance does not guarantee future results.
A six-month chart from last Friday captures the small-cap Russell 2000® Index (RUT—candlesticks) finding support recently at its 200-day simple moving average (white line). Significantly, this level served as support last August and September when it was tested, and small caps caught a break last week from falling Treasury yields. Still, the RUT remains well below its late-November highs.
The week ahead
