Stocks Mixed in Final Trading Session of the Week

U.S. equities ended the day and week mixed ahead of the long holiday weekend. The markets continued to grapple with the possibility of further aggressive Fed measures to try to tamp down inflation pressures after this week's reports showed continued elevated consumer and wholesale prices. Today, the economic calendar showed headline import price inflation declined more than expected in January, though excluding petroleum it unexpectedly rose. Meanwhile, recession uncertainty was preserved by a tenth-straight monthly decline in the Leading Economic Index. Earnings results were positive today, as Deere & Company topped estimates and raised its guidance, while Applied Materials also exceeded expectations and issued a favorable outlook. Treasury yields were lower, and the U.S. dollar was mostly unchanged, while crude oil prices fell, and gold dipped. Asian stocks finished broadly lower to close out the week, and markets in Europe diverged, as the global markets wrestled with uncertainty regarding the ultimate impact of aggressive monetary policies across the world.

The Dow Jones Industrial Average increased 130 points (0.4%) to 33,827, while the S&P 500 Index went down 11 points (0.3%) to 4,079, and the Nasdaq Composite fell 69 points (0.6%) to 11,787. In moderate volume, 3.9 billion shares of NYSE-listed stocks were traded, and 4.9 billion shares also changed hands on the Nasdaq. WTI crude oil lost $2.19 to $76.55 per barrel. Elsewhere, the gold spot price dipped $0.80 to $1,851.00 per ounce, and the Dollar Index was mostly unchanged at 103.88. Markets were mixed for the week, as the DJIA nudged 0.1% lower, and the S&P 500 declined 0.3%, while the Nasdaq Composite gained 0.6%.

Deere & Company (DE $433) reported fiscal Q1 earnings-per-share (EPS) of $6.55, topping the $5.57 FactSet estimate, as revenues grew 32.0% year-over-year (y/y) to $12.65 billion, exceeding the Street's forecast of $11.34 billion. The company said its Q1 performance is a reflection of favorable market fundamentals and healthy demand for its equipment as well as solid execution on the part of its employees, dealers, and suppliers to get products to its customers. DE raised its full-year guidance for net income and operating cash flow. Shares traded solidly to the upside.

Applied Materials Inc. (AMAT $115) posted adjusted fiscal Q1 EPS of $2.03, compared to the expected $1.93, with revenues growing 7.0% y/y to $6.74 billion, versus the projected $6.69 billion. The semiconductor equipment maker noted ongoing supply chain challenges, but it showed resilience due to its strong positions with leading customers at key technology inflections, its large backlog of differentiated products, and its growing service business. AMAT issued full-year earnings and revenue guidance with midpoints that were above analysts' forecasts, even as the economy and semiconductor industry are expected to face challenges in 2023. Shares were a little changed.

Q4 earnings season continued to head down the backstretch this week and of the 407 S&P 500 companies that have reported thus far, about 57% have topped revenue estimates and approximately 68% have exceeded earnings projections, per data compiled by Bloomberg. Results have been mixed, along with guidance as corporations try to determine the ultimate impact of the aggressive Fed monetary policy tightening on the economy and profit margins.

Schwab’s Chief Investment Strategist Liz Ann Sonders notes in her latest article, Beat it (or Don’t): An Update to a Chilly Earnings Season, how in the face of persistent macro headwinds, earnings growth continues to deteriorate, putting the fundamental backdrop for the market at risk. You can follow Liz Ann on Twitter: @LizAnnSonders.

Read all our market commentary on our Insights & Education page, and you can follow us on Twitter at @SchwabResearch.Leading economic indicators continue to slide, import price report mixedThe Conference Board's Leading Economic Index (LEI) for January declined 0.3% month-over-month (m/m), matching the Bloomberg consensus estimate, and compared to December's unrevised 0.8% drop. The index recorded its tenth consecutive monthly loss, as ISM new orders, consumer expectations, yield curve, and credit conditions were the negative contributors, more than offsetting positive contributions from jobless claims and stock prices.

The Conference Board noted in its report, "While the LEI continues to signal a recession in the near term, indicators related to the labor market—including employment and personal income—remain robust so far. Nonetheless, The Conference Board still expects high inflation, rising interest rates, and contracting consumer spending to tip the US economy into recession in 2023."

The Import Price Index declined by 0.2% month-over-month (m/m) for January, versus the Bloomberg consensus estimate calling for it to match last month's negatively adjusted 0.1% decrease. Versus last year, prices were up by 0.8%, lower than December's downwardly revised 3.0% rise, and compared to the expected 1.4% increase. However, import prices excluding petroleum rose 0.2% m/m, compared to the forecasted 0.3% decline, and the prior month's downwardly revised 0.7% gain.

Treasury rates were subdued, as the yields on the 2-year and 10-year notes declined 2 basis points (bps) to 4.61% and 3.82%, respectively, while the 30-year bond rate lost 3 bps to 3.87%.

Treasury yields have been volatile as the markets try to determine if the continued tight labor market and still elevated inflation will keep the Fed on a hawkish path of tighter monetary policy. Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest article, Mind the Gap: Bond Yields Appear Set for a Rebound, how over the next few months, we see room for yields to move higher, especially if the inflation data come in stronger than anticipated. You can follow Kathy on Twitter @KathyJones.

Please note: All U.S. markets will be closed on Monday in observance of the Presidents' Day holiday.

In the holiday-shortened next week, the economic calendar will bring some key data points that could move the markets. Preliminary February Manufacturing and Services PMIs will be released by S&P Global, while January housing will be prominent, courtesy of the releases of existing home sales and new home sales. Other reports worth noting that could be scrutinized include, personal income and spending for last month, the final February University of Michigan Consumer Sentiment Index, initial jobless claims for the week ended February 18, and the first revision (of two) to Q4 GDP. The Fed will also remain in focus as a host of Fedspeak is on the docket, while we will get the release of the minutes from the Central Bank's early February meeting, after which it continued to decelerate rate hikes at a pace of 25 bps. Europe mixed as markets continue to grapple with monetary policy uncertainty Stocks in Europe were mixed as the markets continued to wrestle with uncertainty regarding the ultimate implications of aggressive monetary policy actions on the global economy and financial conditions. The uncertainty was amplified by yesterday's hotter-than-expected read on U.S. wholesale price inflation for January. However, the economic calendar in the region showed German producer price inflation for January continued to fall. In other economic news, U.K. retail sales unexpectedly rose m/m for last month and were down by a smaller amount than anticipated compared to the same period last year.

The markets have seen a strong start for 2023, buoyed by signs that warmer-than-expected winter weather may help the region avoid an energy crisis, as well as China’s reopening, and expectations that the global central bank's aggressive tightening may cool off. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, The Everything Everywhere All at Once Rally, how despite market volatility, inflationary pressures, and a potential earnings recession, a rally involving stocks, bonds, and some commodities started in November still persists. You can follow Jeff on Twitter: @JeffreyKleintop. The euro and the British pound gained ground versus the U.S. dollar, while bond yields in the Eurozone were mostly lower, and rates in the U.K. increased.

The U.K. FTSE 100 Index dipped 0.1%, Germany's DAX Index and France's CAC-40 Index declined 0.3%, and Italy's FTSE MIB Index lost 0.4%, while Switzerland's Swiss Market Index rose 0.6%, and Spain's IBEX 35 Index nudged 0.1% higher.

Asia lower to end the week

Stocks in Asia finished lower as the markets digest another stronger-than-expected U.S. inflation report yesterday, which seemed to bolster uncertainty regarding how aggressive global central banks will remain. Moreover, Reserve Bank of Australia Governor Philip Lowe continued to suggest that persistent inflation could lead to further rate hikes. Uneasiness and volatility in the markets due to the aggressive global monetary policy tightening have been met with heightened geopolitical tensions between the U.S. and China amid the recent spy accusations as unidentified objects over the airspaces of both countries have been reported. Also, China's recent announcement of expanding cooperation with Iran has exacerbated tensions.

Schwab's Jeffrey Kleintop discusses the latest rise in tensions in his latest article, Investors' Guide to Geopolitical Risk, noting that while threats flare up from time to time, it is important to keep in mind that geopolitical risks are an ever-present part of investing. Despite the recent news of geopolitical tensions, the risks are not necessarily higher now than on average in the past. But even when geopolitical risk is "average" it remains an important consideration. "That is one reason why it is important to diversify, which may lessen the volatility that can result."

Japan's Nikkei 225 Index declined 0.7%, with the yen continuing to soften. China's Shanghai Composite Index traded 0.8% lower, and the Hong Kong Hang Seng Index fell 1.3%. Australia's S&P/ASX 200 Index declined 0.9%, South Korea's Kospi Index dropped 1.0%, and India's S&P BSE Sensex 30 Index decreased 0.5%.

Next week's international economic calendar will be dominated by a host of preliminary February Manufacturing and Services PMIs from Australia, Japan, the Eurozone, and the U.K. Other reports that could garner attention include China—1-year and 5-year interest rate decisions. Japan—consumer price inflation figures, and department store sales. Eurozone—consumer price inflation statistics, and construction output, along with German business confidence.

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