Key Takeaways:

  • Nvidia beats expectations on top, bottom lines
  • U.S. charges Huawei with racketeering conspiracy, conspiracy to steal trade secrets
  • January retail sales come in as expected

As Valentine’s Day dawns, investors are giving a bit more love to equities than they did yesterday.

It looks like positive sentiment is creeping back into the market as earnings season continues to be better than previously forecast. In an indication that risk appetite was returning, oil prices were on the rise. But gold prices were steady and Treasury yields were lower, indicating some caution remains in the market from the coronavirus outbreak.

On the positive side, Nvidia (NVDA) shares were up more than 6% in premarket trading after the chipmaker reported better-than-forecast earnings and revenue and issued a revenue outlook that was better than Wall Street was expecting. Meanwhile, travel company Expedia (EXPE) reported above-forecast earnings. Despite not issuing annual guidance because of coronavirus uncertainties, EXPE shares were up more than 11%.

But it seems that worries about the outbreak may be keeping a lid on gains this morning, with U.S. charges of racketeering conspiracy and conspiracy to steal trade secrets against Chinese tech company Huawei also not helping.

In economic news, January retail sales came in as expected, with both the headline figure and ex-auto sales rising 0.3%, in line with Briefing.com consensus expectations. The previous month’s reading was revised lower, from 0.3% growth to 0.2%.

Outbreak Worries Pressure Stocks

A note of somberness returned to Wall Street on Thursday as the coronavirus death toll and infected list rose sharply.

But with the S&P 500 Index (SPX) down just 0.16%, the pace of the selling didn’t indicate panic. Rather, it seemed to reflect a dial-down in risk tolerance that could reverse itself if coronavirus fears start waning again. The dip may have also reflected some profit taking after gains earlier in the week, especially as this weekend is three days long.

Still, there was some fear on Wall Street as the Cboe Volatility Index (VIX), gold prices, and demand for U.S. government debt rose.

Market participants have been worried that the coronavirus will dent profits of corporations with sales and supply chains in the country and harm China’s economy, which has already taken a beating from the protracted trade war.

However, those worries have been somewhat tempered as the U.S. economy seems to be doing pretty well. And that view was bolstered a bit on Thursday with the release of data showing that consumer prices are on the rise. While too much inflation isn’t a good thing and can spark fears of the Fed raising interest rates, some inflation can be an indicator of an economy that is growing at a healthy rate. (See more on consumer prices below)

Looking Ahead to Economic Data, Earnings

Next week, we’ll be getting another look at inflation, in the form of producer prices. Last time around, both the headline and core producer price indices rose 0.1% on the month.

Other economic data investors might want to consider checking out next week include housing starts and building permits and existing home sales. The housing market has been helped by low interest rates and a strong jobs market. It could be interesting to see whether next week’s data indicates those trends are continuing.

Earnings season is set to continue next week with an anticipated opening of the books from Walmart (WMT) before the bell Tuesday morning. Investors may want to tune in to the results to see the giant retailer’s performance on holiday revenue and grocery sales, as well as its ongoing battle to pierce the e-commerce dominance of Amazon (AMZN). After the release of disappointing holiday sales by rival retailer Target (TGT), WMT’s numbers are likely to be closely watched.

With reports that global supply chains are already under pressure from coronavirus, guidance from WMT executives might shed some light on how the virus may impact the consumer economy down the road. Plus, WMT has a substantial footprint in China, where travel has been curtailed in an attempt to stem the spread of the outbreak.

Push and Powell: One theory about why stock indices trimmed their gains late Tuesday has to do with what you might call “body language” from Fed Chair Jerome Powell during his congressional testimony. Some analysts noted Powell’s sunny language on the economy and his endorsement of current monetary policy could hint that he sees no need for a change-of-tack anytime soon. However, the futures market puts odds at nearly 80% of at least one rate cut by the end of the year, and odds at about 50-50 for a cut before the end of July.

 

Election Complication: What throws things off a bit this year is the presidential election. There’s nothing that says the Fed can’t cut rates in the months before November if it needs to, but analysts say Powell and company might want to hold off so it doesn’t look like the Fed is getting political. That raises concerns that the Fed might keep policy easy for most of this year but then start hiking rates after the election, one analyst said on CNBC Wednesday morning. Let’s not get ahead of ourselves, though. The Fed just finished cutting rates by 75 basis points and now it seems to be letting things play out. It would probably take some sort of major change in the economic picture (like solving the case of the missing inflation) for any chance of a rate hike. A cut appears far more likely, at least according to the futures market.

Rising Consumer Prices: On the inflation front, the Labor Department’s consumer price index ticked up 0.1% in January, less than the 0.2% expected in a Briefing.com consensus. The core reading, which strips out volatile food and energy prices rose an as-expected 0.2% for the month and increased 2.3% on a yearly basis. The numbers appear to show that the economy is expanding, but the increases don’t seem to be big enough to stoke worries of the Fed becoming more hawkish in its monetary policy. That’s especially true as the Fed’s preferred inflation gauge, the core personal consumption expenditures price index, has been running stubbornly below the central bank’s 2% target for some time now.

TD Ameritrade® commentary for educational purposes only. Member SIPC.