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 gains, Wall Street eyes another day of potential volatility driven mainly by events in the Middle East.
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 the war might soon end and the U.S. could take control of the Strait of Hormuz. It's unclear how long this might take.
Though President Trump's remarks late Monday appeared to soothe markets temporarily, a 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 Strait of Hormuz 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 derivatives strategist at Schwab. "Oil is really driving the ship now, and 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. Several 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 Gibley, director of international equity research and strategy at SCFR. "Keeping production going is important. Even if the war ends quickly, if output is shut in 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.
The 10-year Treasury note yield traded as low as 4.11% by late Monday, down from early peaks near 4.17%, 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.
Fed policymakers enter their "quiet period" ahead of next week's meeting, with chances of a rate cut virtually nil, according to the CME FedWatch Tool. Chances for cuts later this year rise to 40% by June and almost 75% by September, with the market still pricing in high odds of one to two 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 favored 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 war-related oil rallies, as they were compiled before the conflict began.
CPI, due at 8:30 a.m. ET Wednesday, is seen up 0.3% monthly for the headline number and 0.2% for core, which excludes food and energy. Annual core and headline inflation are seen at 2.5% and 2.4%, respectively, unchanged 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% annually, down from 3.1% a month earlier. The survey also showed consumers expecting a 0.9% year-ahead drop in the cost of rent.
Almost lost in the mix last Friday between the jobs report and war news was a monthly drop in U.S. retail sales. They fell 0.2% in January after stalling in December. Motor vehicle and parts sales and sales at gas stations were among the weakest categories, the 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 major auctions 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. 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. The 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.
In data today, existing home sales are due at 10 a.m. ET. 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. Extreme weather was likely partly to blame for that, but the Briefing.com consensus for February existing home sales is worse: 3.88 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. That would mean falling below the 200-day moving average of 6,582, a line the index hasn't dropped under since May. The 200-day got tested late Sunday in 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. Hedging activity ramped up early this week, sending the Cboe Volatility Index, or VIX, above 30 for the first time since last April's tariff-fueled leap.
Rising VIX suggests choppier 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.
March 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. Info tech and small cap stocks led the charge as yields and crude prices fell. Volume exceeded average levels while advancing stocks outpaced decliners.
Nine of 11 S&P 500 sectors finished green yesterday, led by a 1.8% jump for info tech and a 1.1% rise in communications services. Defensive areas like staples and health care 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, Hims & Hers Health catapulted 41% on news that Novo Nordisk plans to sell its weight loss drugs on Hims & Hers platform, Bloomberg reported.
Chip stocks, which had been battered and bruised by the war, among other concerns, rebounded firmly 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. Nvidia rose 2.7%.
Cruise line stocks, also hurt severely last week by the war and higher energy costs, caught some wind in their sails 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 Gumman fell 1% yesterday after Trump said the war may be over soon.
Bitcoin, which tends to rise and fall with investor sentiment, climbed 1.3% Monday but stayed under $70,000.
The Dow Jones Industrial Average® ($DJI) jumped 239.25 points Monday (+0.50%) to 47,740.80; the S&P 500 Index (SPX) gained 55.97 points (+0.83%) to 6,795.99, and the Nasdaq Composite® ($COMP) rebounded 308.27 points (+1.38%) to 22,695,95.