Schwab Market Update

Published as of: May 9, 2025, 9:06 a.m. ET

(Friday market open) With earnings and data thin, focus shifts to weekend talks between the U.S. and China. Treasury yields also take the spotlight after leaping yesterday, and stocks continue having trouble holding intraday gains. This could hint at investor reluctance to chase higher prices, possibly due to trade uncertainty.

The confusion was evident today as stocks gave back a chunk of their overnight rally. Bloomberg had reported the U.S. might consider a 60% tariff on Chinese goods, down from the current 145%, but then President Trump posted that 80% "seems right," and the market briefly stumbled. Also, the recent rally doesn't mean the U.S. economy is out of the woods. "Barring a more definitive pivot off the extremes of tariffs—both in place, and proposed tariffs that are in delay mode—we believe recession odds are better than even," said Kevin Gordon, director, senior investment strategist at Schwab. He added that market volatility "is and will continue to be driven by day-to-day policy announcements."

Next week features the April Consumer Price Index (CPI) and Producer Price Index (PPI), along with retail sales. Federal Reserve Chairman Jerome Powell said Wednesday the economy is in a good place, but data could shed more light. So could earnings from consumer-focused firms like Walmart (WMT) and Under Armour (UAA) next week. "Look for company-specific insight on navigating the uncertainty," said Alex Coffey, senior trading strategist at Schwab, discussing pending retail results. "Will companies pull earnings guidance or announce hiring freezes? They'll announce plans like these if they have them when they announce quarterly earnings."

1. Fed may choose labor if forced: President Trump criticized Powell this week after the Fed kept rates paused. Trump said lower rates would power the market. However, lower rates would also likely raise inflation risks even as Trump's tariffs threaten to send prices higher, and inflation is already too high so the Fed can't be pre-emptive. The key risk is that the Fed's two mandates of stable prices and maximum employment could conflict, with mounting inflation supporting the case for higher rates but rising unemployment—a worry with tariffs—supporting lower rates. Several Fed speakers take the mic today, giving investors a chance to hear from other policy makers after Powell's remarks Wednesday. "Going forward, the Fed may have to prioritize one of its mandates," said Collin Martin, director, fixed income strategy at the Schwab Center for Financial Research. "If the labor market weakens while inflation remains high, the Fed may choose to prioritize its maximum employment mandate over its price stability mandate."
    
2. Licensing revenue—another way to track AI growth: Investors seeking a "canary in the coal mine" for AI demand often focus on spending by companies like Meta Platforms (META) and Microsoft (MSFT). However, a much smaller company could also be a barometer. UK-based chip design firm Arm Holdings (ARM) shares tumbled Thursday on weak guidance, but in an appearance on CNBC, Arm CEO Rene Haas said Arm's licensing revenue is a good indicator of global AI trends. It climbed 53% year over year during Arm's last quarter, implying plenty of runway ahead for AI growth if Haas is correct. "Most of that licensing demand is AI … a proxy for R&D," Haas said. "People who invest in new chips and new products and new development—that's all AI and we're seeing a very strong tailwind there." Arm’s technology is in a variety of functions including smartphones, PCs, data center, consumer electronics, cloud, and automotive. Though many investors track AI mainly in terms of data center demand, Haas said increasingly all types of devices are running some level of AI workload, whether it's training or inference. Data center is where the huge growth is, but "AI is going to run everywhere," he told CNBC.
    
3. Geopolitics simmer: Though trade and politics never really went away, earnings season blunted some of the impact recently and decent corporate results helped stocks back from their "liberation day" sell-off. Now the bulk of earnings is done, with more than 75% of firms reporting. That means focus likely returns to trade and geopolitical issues nearly full time on Wall Street, perhaps meaning a more volatile market. Today also brings the latest update on an earnings season long in the tooth as FactSet issues analysts' average S&P 500 earnings growth estimates. Though first quarter S&P 500 earnings are up double-digits year over year, earnings projections for later this year have fallen 19 weeks in a row. This means any rally in major indexes potentially raises their price-to-earnings (P/E) ratios, making stocks look more expensive. The two "cures" to that are a rise in earnings or a drop in stock prices. The P/E ratio for the SPX climbed to around 21 this week, well above the 10-year average near 18.

• Lyft (LYFT) rode an 11.7% rally ahead of the open after reporting positive quarterly earnings but a slight miss on analysts' revenue estimate. Rides jumped 16%, better than analysts had expected, and Lyft raised its share buyback plan to $750 million, citing financial strength.
   
• Delta Air Lines (DAL) added another 1% ahead of the open after a 7% climb yesterday as travel stocks in general got a lift from hopes there could be trade progress. Besides Delta, other travel names that jumped Thursday included Norwegian Cruise Line (NCLH), Wynn Resorts (WYNN), and Carnival (CCL).
   
• Coinbase (COIN) fell 1.2% after reporting earnings late yesterday and missing analysts' revenue estimate. Crypto-related stocks including Coinbase and MicroStrategy (MSTR) climbed yesterday as Bitcoin (/BTC) topped $100,000 for the first time since February amid risk-on sentiment. It popped another 1.7% this morning. Bullish pressure appears strong in crypto futures.
   
• Expedia (EXPE) dropped 10% in pre-market trading after the company sliced its full-year revenue and bookings outlooks. The travel firm cited weaker than expected demand in the U.S., missing analysts' revenue expectations.
   
• Pinterest (PINS) soared more than 12% in pre-market trading after its revenue forecast surpassed Wall Street's estimates. The social media company's quarterly revenue beat analysts' forecasts, but earnings per share fell short.
   
• Cloudflare (NET) jumped 10% in pre-market trading on better-than-expected earnings.
   
• Affirm (AFRM) fell 6.7% ahead of the open after the buy-now, pay later loan company's guidance came in below analysts' expectations.
   
• Palantir (PLTR) inched up after a nearly 8% rise yesterday on general enthusiasm over the tech sector that partly reflected U.S. trade deal progress and also may have been keyed by strong earnings from AppLovin (APP). Other tech firms that climbed sharply Thursday besides those two included Intel (INTC), Micron (MU), and Marvell Technology (MRVL).
   
• Chinese exports to the U.S. fell 21% in April amid 145% tariffs, but overall Chinese exports rose 8.1% year over year in April. That was down from 12.4% in March.
   
• The 10-year Treasury note yield inched up nearly two basis points after climbing a hefty 10 basis points to 4.37% yesterday, the highest close since April 23. This appeared to reflect weak demand for a 30-year bond auction as well as hopes for economic strength as trade optimism grew.
   
• On a technical note, the SPX again topped out Thursday about 25 points shy of its 200-day moving average of 5,747, and also failed to improve on last week's high close above 5,680. It's still stuck in a narrow range between the 50-day moving average of 5,555, which it tested earlier this week, and the 200-day.
   
• The Relative Strength Index (RSI), a momentum indicator, is now above 55 for the S&P 500 index after falling to oversold levels below 30 last month. It's still well below overbought territory of 70.

Bonds track D.C.: The stock market was volatile last month based on Washington, D.C., developments, but so was the bond market. In the latest Washington Wise segment, Schwab's Martin and Michael Townsend discuss how tariffs are affecting the bond market, companies, the economy, and the Federal Reserve's decisions.

Bitcoin (BTC—candlesticks) topped $100,000 yesterday for the first time since February, and the S&P 500 (SPX—purple line) has also come back sharply from its April lows. However, bitcoin's better than 32% gain over the last month is more than double the 13% gain of the SPX. This could suggest average investors who don't dabble in crypto continue to be more risk-averse than those who seek alternate investments.

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

May 12: Expected earnings from Hertz (HTZ).
May 13: April CPI and core CPI and expected earnings from JD.com (JD) and Under Armour (UAA).
May 14: Expected earnings from Cisco (CSCO).
May 15: April PPI and core PPI, April industrial production, April retail sales, and expected earnings from Alibaba (BABA), Walmart (WMT), Deere (DE), Applied Materials (AMAT), and Cava Group (CAVA).
May 16: April housing starts, April building permits, and May preliminary University of Michigan consumer sentiment.