Volatile Markets Keep Looking Toward Middle East

0:00Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and look at what's ahead. I'm Keith Lansford and here is Schwab's early look at the markets for Tuesday, March 10. After Monday's roller coaster ride from 2% overnight losses to end of day games, Wall Street eyes and other day of potential volatility driven mainly by events in the Middle East. The stocks initially plunged to near four-month lows Monday, as crude oil soared to almost $120 per barrel. By late in the day, U.S. crude was back under $90 after President Trump told CBS News that the war might soon end and the U.S. could take control of the straight-of-or-muse. It's unclear how long this might take. Although President Trump's remarks late Monday appeared to soothe markets temporarily,

1:03a lot could hinge today on whether group of seven countries including the U.S. agrees to release crude reserves from stockpiles. This would help tide things over from a supply standpoint and could be a bridge to a time of possible improved flows out of the Gulf. Should that happen? Media reports on Monday said no agreement was reached, but ministers were scheduled to regroup and might decide soon. For now, the straight-of-or-muse remains essentially closed and Gulf countries said they planned to ramp down production as they ran out of storage options. Everything is beginning and ending with headlines out of the Middle East, said Alex Coffey, senior trading and derivative strategist Ashwab. Oil is really driving the ship now, then everything will continue to begin and end with crude volatility. The cost of oil and natural gas spills into almost every industry, and once drilling stops, it's not always easy to turn immediately back on.

2:04Several Gulf countries said over the weekend they're turning down production due to lack of storage. The spike in oil prices suggests markets believe the conflict could last longer than initially expected, said Michelle Ghibli, director of international equity research and strategy at the Shwab Center for Financial Research. Saving production going is important, even if the war ends quickly, and if output is shuddy and or wells are capped, ramping output back up could mean the impact of higher energy prices lasts longer than the war. Rising oil lifted U.S. gas prices to $3.47 a gallon on average as of Monday, the highest since last April according to AAA. A 10-year Treasury note yield traded as low as 4.11 percent by late Monday, down from early peaks near 4.17 percent on hopes for a relatively quick end to the war. Treasury yields remain well above last week's lows, lifted by inflation and debt concerns.

3:07Fed policy makers enter their quiet period ahead of next week's meeting with chances of a rate cut virtually nil, according to the CME Fed watch tool. Prices for cuts later this year rise to 40 percent by June and almost 75 percent by September, with the market still pricing in high odds of 1-2 cuts before year end. Key data ahead include tomorrow's February consumer price index and Friday's January Personal Consumption expenditures or PCE prices, the Fed's favorite inflation metric. A hot January producer price index or PPI led to ideas that the PCE might be hot as well. These reports won't include any impact from more related oil rallies as they were compiled before the conflict began. CPI do at 8.30am eastern time Wednesday is seen up 0.3 percent monthly for the headline number and 0.2 percent for core, which excludes food and energy. Annual core and headline inflation are seen at 2.5 percent and 2.4 percent respectively

4:10unchanged from January. However, all these numbers could be discounted by the market to some extent. Thanks to ideas that this month's oil price shock could change the inflation environment dramatically by the time investors get the March report in a month. Encouraging news came Monday from the New York Fed's February survey of consumer expectations which showed inflation expectations little changed in February, though the responses were collected before oil spiked. Looking ahead, three to five years, respondents expect inflation of 3 percent annually down from 3.1 percent a month earlier. The survey also showed consumers expecting a 0.9 percent year ahead drop in the cost of rent. Almost lost in the mix last Friday between the jobs report and more news was a monthly drop in U.S. retail sales. They fell 0.2 percent in January after stalling in December. For vehicle and parts sales and sales at gas stations were among the weakest categories

5:13the government said along with clothing and accessories. Coming days include treasury auctions that could help set direction for yields, a 3-year note auction today and a 10-year note auction tomorrow could be the most influential. They're the first main auction since the war began and weak demand if that's the case might suggest investors expect to be paid higher yields to hold U.S. debt amid rising inflation fears. It's unclear how last week's disappointing U.S. February jobs data might play into auction demand. On the one hand, rising inflation worries could have investors holding out for higher yields, but on the other, evidence of a weakening economy might make them more eager to scoop up debt at current levels. This week's earnings calendar is relatively quiet, but Oracle's report this afternoon could serve as a tech barometer, Oracle's recent heavy spending and willingness to take on debt for its AI build-up came under scrutiny in recent months.

6:14The question is whether the strategy pays off and each earnings report could bring more clarity. Adobe is another important company reporting this week, putting spotlight on struggling software. Having data today, existing home sales are due at 10 a.m. Eastern time. Average mortgage rates have sat below 6.25% for the past two months, and in late February briefly dipped under 6% for the first time in more than three years. Yet in January, existing home sales fell 8.4% from the previous month to 3.91 million units, the lowest level in more than two years. Having weather was likely partly to blame for that, but the briefing dot-com consensus for February existing home sales is worse, 3.8 million units on a seasonally adjusted annual basis. Technically, a test of the November S&P 500 index low near 6,550 seemed probable when the market opened sharply lower yesterday and still can't be ruled out.

7:19That would mean falling below the 200-day moving average of 6,582, allowing the index hasn't dropped under since May. The 200-day got tested late Sunday and overnight trading, but not penetrated. Last week saw the S&P 500 lose grip of its near-term 6,800-7,000 trading range, setting up possible technical weakness. Heaging activity ramped up early this week, sending the C-bow volatility index or VIX above 30 for the first time since last April's tariff fuelled leap. Arising VIX suggests choppy or trading ahead, and there are signs that hedge funds may be betting on further pressure as conflict continued. VIX retreated late yesterday, but remained above 25, a level that can indicate elevated uncertainty. The S&P 500 finished just below 6,800 yesterday, but down only about 1.2% since the war began.

8:20March came in like a lion and out like a lamb, all in one day, Monday, major indexes reversed early losses yesterday to end higher across the board. Infotech and small cap stocks led the charge as yields and crude prices fell, volume exceeded average levels while advancing stocks outpaced to climbers. Nine of 11 S&P 500 sectors finished green yesterday, led by a 1.8% jump for Infotech at a 1.1% rise in communications services. Defense of areas like Staples and healthcare also finished in the top five, energy and financials lost ground as financials may have taken a hit from suddenly lower treasury yields. In individual trading Monday, hymns and hers health catapulted 41% on news that Nova Nordus plans to sell its weight lost drugs on hymns and hers platform, Bloomberg reported. Chip stocks which had been battered and bruised by the wars among other concerns rebounded

9:21firmly Monday with a nearly 4% jump for the PHLX semiconductor or SOX index. Chip leaders included Western Digital, ASML, Advanced Micro Devices, Micron and Broadcom. In video rose 2.7%. Cruise line stocks also hurt severely last week by the war and higher energy costs caught some wind in their sales Monday and mostly rose. Gap fell nearly 2% Monday continuing its descent from earnings related pressure last week. Defense stocks including Lockheed Martin and Northrop Grumman fell 1% yesterday after Trump said the war may be over soon. And Bitcoin which tends to rise and fall with investor sentiment climbed 1.3% Monday but stayed under $70,000. The Dow Jones Industrial Average jumped 239.25 points Monday or 0.50% to 47,740.80.

10:23The S&P 500 index gained 55.97 points or 0.83% to 6,795.99 and the NASDAQ composite rebounded 308.27 points or 1.38% to 2695.95. This has been the Schwab Market Update Podcast. To stay informed visit www.swab.com slash Market Update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow. For important disclosures, see the show notes and Schwab.com slash Market Update Podcast.