Crude Still in Control Ahead of Adobe Results, PCE

Welcome 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 Thursday, March 12.

More inflation and earnings reports await investors before the weekend amid worries that

the war, and its associated impact on global oil prices, could persist longer than initially

thought. Those concerns help keep a lid on stock prices yesterday without stirring any

major selling pressure.

Crude jumped more than 5% to nearly $88 per barrel by late Wednesday, despite the international

energy agency or IEA agreeing to release 400 million barrels of oil from stockpiles

of its member countries. This would likely add about 4 million to 4.5 million barrels a

day of additional supply barons reported. However, around 15 million barrels of oil a day normally

flow through the straight of hormones, and as of late Wednesday remained stuck in place.

Even 4 million barrels a day is a relatively low amount, and possibly explains crude firmness.

Fathers buy gold, oil producers to reroute about 7 million barrels a day might help, but

wouldn't make up the shortfall.

US gasoline prices are up 20% over the last 10 days to near $3.60 on average, according

to AAA, faster than they rose after the invasion of Ukraine in 2020.

The American consumer, things are getting very real, very fast, said Kevin Gordon, head

of macro research and strategy at the Schwab Center for Financial Research.

Longer term impacts include possible pain for trucking and freight firms, which might

pass higher costs along to consumers. This could mean inflation seeping into other areas

of the economy and could cause consumers to reduce spending, hurting many sectors beyond

transports. Food prices could rise if liquefied natural gas exports from the Middle East

used partly to make fertilizer continue being blocked.

Stocks are captive to oil prices in both directions, said Lizzy and Saunders, chief investment

strategist at the Schwab Center for Financial Research. The IEA recommendation on release

of reserves helps on the margin, but that's a stock story more than a flow story.

At the level of major US equity indexes, there's been resilience with the S&P 500 index

still off just 2 percent from January's all-time eyes, but individual stocks have seen far

more volatility. Continue to expect violent at times rotations, given how much short

attention span money there is among traders, Saunders said, adding that margin debt is

at a record high.

The February Consumer Price Index, or CPI yesterday, came in right down the middle,

mid-line monthly CPI of 0.3 percent and core of 0.2 percent excluding food and energy

matched Wall Street's expectations. Annual CPI rose 2.4 percent also as expected.

Dinging into the data, apparel prices rose along with fuel costs in February before the

war, while a light 0.2 percent rise in housing cost increases kept the overall index in

check. CPI was relatively benign, helped by continued easing pressure from owners equivalent

rent, Saunders said. That's a housing category highly weighted in the CPI, but not so much

in tomorrow morning's January personal consumption expenditures or PCE price report, one reason Saunders

thinks PCE may remain elevated.

The CPI didn't appear to change minds about the Federal Reserve's meeting next week,

the market is aggressively pricing out Fed rate cuts this year, Gordon said. Chances

of a rate cut next week are virtually zero, according to the CME Fed Watch tool, and odds

of at least one cut by June stood at 34 percent late Wednesday, down from 40 percent earlier

in the week.

Looking ahead, rate watchers might be inclined to dismiss the CPI data since it was compiled

before the war began. Still, the Fed historically views data in more than one month increments

and might see the oil spike as a temporary impediment to fighting inflation unless the

conflict lasts a while.

The 10-year Treasury note yield climbed sharply Wednesday by seven basis points to near

recent highs just above 4.2 percent. Though CPI wasn't a negative surprise, but the 2.4 percent

annual increase remained above the Fed's 2 percent goal. Rising crude prices also kept

pressure on treasuries amid ideas inflation could worsen.

A 10-year Treasury note auction Wednesday saw light demand according to briefing.com following

a week three-year auction the previous day. This is potentially emblematic of auction participants

stepping aside and waiting for higher yields in a down market for treasuries.

The data before the weekend includes today's weekly initial jobless claims data and tomorrow's

job openings in labor turnover survey or Jolts. The Jolts data is from January so a bit old,

but still could be closely watched for clues about hiring after jobs growth in February

fell 92,000. Consensus is 6.7 million openings, up slightly from 6.54 million in December.

Generally job openings have tracked downward over the past few years from post-pandemic

peaks above 10 million. Before the pandemic a monthly reading of around 6 million was common.

Tomorrow's PCE Price Index, a report the Fed eyes closely for inflation, could show monthly

0.3 percent headline growth and 0.4 percent for core compared with 0.4 percent for both

in December according to briefing.com. Consensus housing starts and building permits for January

along with weekly initial unemployment claims are all due before today's open earnings. Get

a bit more attention today as Adobe Lululemon Dix sporting goods and Lanar prepare to report

Lululemon recently traded at multi-year lows and earnings come amid a proxy battle as

founder Chip Wilson tries to change the company's board, news first reported earlier this

year by the Wall Street Journal. Last time the firm reported it beat expectations, but

its U.S. business remained under pressure and also recently went through a CEO transition.

Adobe shares were on the rise earlier this month from recent one-year lows but remained

down dramatically from the one-year peak brought down with most of the software sector by

AI fears. Adobe has countered with its own AI offerings. Last time out in December, Adobe

narrowly beat consensus views with its result and offered upbeat guidance projecting fiscal

first quarter revenue of between $25.9 billion and $26.1 billion.

In other news, the Schwab Trading Activity Index where stacks rose to $57.32 in February

up from $49.96 in January. The trading behavior seen among Schwab retail clients could suggest

they believe the AI-driven panic that rattled the markets in February was overblown and used

it as an opportunity to pick up some better stocks.

Technically major indexes traded in a relatively tight range yesterday with the S&P 500 index

unable to break above this week's highs on an intraday upward swing but also staying

well above recent lows. Any break below current levels might set up another test of lows

below 6,700 reached last November and again earlier this week. The 200-day moving average

of 6,596 hasn't been broken in almost a year.

200 indexes on Wednesday performed much as they did Tuesday with all lower, save for

light gains and AI-related stocks including Oracle that gave the NASDAQ a slight lift.

Oracle's strong earnings and higher guidance might have given AI investors a bit more confidence

to invest in some of the big chip and hyper-scaler names. The PHLX semiconductor index rose

0.6% yesterday and has almost wiped out its losses for the month.

chip names including Sandisk and Micron helped lead the charge once again. Micron reports

next week.

Most S&P 500 sectors declined Wednesday for the second straight session, though a 2.3%

rally for energy helped the market avoid even sharper losses. Most sectors stayed within

1% of Tuesday's closing levels, indicating perhaps that few participants wanted to take

large new positions either way amid war and oil uncertainty. That said, Staples fell

1.3% both on week earnings from Campbell's and ideas that a longer lasting conflict

keeping gas prices high over an extended period might hit consumer wallets.

In individual trading Wednesday, Oracle climbed 9% after quarterly earnings and revenue

topped consensus and fiscal 4th quarter earnings guidance also exceeded wall streets

thinking. Oracle's results might be another boost for the chip sector which saw some

strength in trading ahead of the open today.

As at management firms such as Aries Management and Apollo Global Management came under pressure

again Wednesday on credit concerns that surfaced several weeks ago, JP Morgan Chase marked

down loans held by private credit firms the financial times reported, targeting software

loans in particular. All this weighed on the financial sector Wednesday and it's the

second worst performing S&P 500 sector over the last week.

And Campbell's tumbled 7%, as the company missed Wall Street's quarterly revenue expectations.

The soup giant also missed analysts' consensus for 1st quarter earnings per share and lowered

its fiscal earnings per share in organic net sales guidance.

This appeared to hurt sales of other package-trude makers too, including Conagra and General

Mills.

The Dow Jones Industrial Average lost another 289.24 points Wednesday or 0.61% to 47,417.27.

The S&P 500 index gave back 5.68 points or 0.08% to 6,0775.80 and the NASDAQ composite

inched up 19.03 points or 0.08% to 2716.13.

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