Schwab Market Update

Published as of: May 21, 2025, 9:09 a.m. ET

(Wednesday market open) Rising yields, Middle East tension, and a soft outlook from Target (TGT) combined to push major indexes lower early today. Magnificent Seven stocks, which often help determine overall direction, were mostly down again this morning after five retreated Tuesday.

The descent follows an "inside day" Tuesday that saw the S&P 500 index (SPX) ricochet between Monday's high and low, possibly reflecting lack of major catalysts and a shift toward more defensive sectors amid deficit and trade worries. Near-term catalysts—other than the bond market's gyrations—could include trade-related developments, Nvidia's (NVDA) earnings next Wednesday, and Personal Consumption Expenditures (PCE) prices late next week, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

A few things sooner than that might keep investors on their toes. First, the bond market continues to ring warning bells as the 10-year yield climbed above 4.5% this morning and the 30-year yield topped 5%. A 20-year bond auction today could hint at demand levels for U.S. debt after Moody's Ratings downgraded it last Friday. Rising yields might reflect deficit worries amid continuing budget negotiations in Washington, D.C. President Trump warned Republicans Tuesday not to reduce Medicaid spending even as the budget extends 2017's tax cuts.  Republicans are closing in on a deal, with a House vote possible before the end of the week. Passage isn't certain.

1. 2025 earnings start firm but tariffs could hurt: With reporting season nearly done, S&P 500 earnings per share (EPS) growth is 13.6%, FactSet said. Beyond that, things get less rosy. Analysts see second quarter S&P 500 EPS growth of 4.8%, FactSet said, down from 8.9% on March 31. For the full year, they expect 9% EPS growth, down from 11.1% in March. So far, 54% of companies providing guidance for the second quarter undercut analysts' consensus. Some of this pessimism may reflect margin worries for firms that decide to eat the cost of tariffs. Yesterday, Home Depot (HD) vowed not to raise prices, saying that it could potentially gain market share for itself and its suppliers by keeping prices steady as competitors raise them. It's a bit of a gamble, however, because without share gains, there's a chance profits could fall due to tariff costs. Though Home Depot didn't say so explicitly, some firms may be negotiating with suppliers so each pays a portion of the tariff. Target said today that prices could rise on some items due to tariffs but is negotiating with vendors and taking other steps to minimize the impact, CNBC reported.
    
2. Trade talks with Europe back in focus: The next important trade milestone for the U.S. is whether terms can be reached with the European Union (EU). The July 8 deadline is several weeks away after President Trump gave countries a 90-day delay on "reciprocal" tariffs back in early April. According to recent Reuters reports, negotiations have taken place, but apparently the EU isn't in a hurry to agree to anything. U.S. stocks have rallied double digits since the White House pushed its deadline back, potentially putting stocks at risk if progress doesn't get made soon. This could be especially evident in areas of the U.S. market traditionally dependent on trade with Europe, including transportation equipment, materials, and pharmaceuticals. "There is still a high level of uncertainty surrounding tariffs and trade, and valuation is historically high," said Schwab's Peterson.
    
3. Middle East worries lift energy prices: Crude oil (/CL) jumped 0.7% in early action after CNN reported that U.S. intelligence has evidence that Israel might be preparing to strike Iranian nuclear facilities. Evidence includes munitions movements and air exercises, CNN reported. U.S. officials told the network that no decision has been made and it's unclear if Israel will act. Energy shares inched higher this morning as crude moved up, but the crude price remains below $63 per barrel, not appreciably up from recent four-year lows and well below highs above $80 seen earlier this year. From a U.S. supply standpoint, there was bearish news as the weekly inventory report from the American Petroleum Institute showed a build of 2.5 million barrels. Official U.S. weekly supply data arrives later this morning after a 3.4 million barrel rise a week ago. U.S. weekly oil production remains near all-time highs.

• Target fell 3.2% ahead of the open following a disappointing earnings report that saw quarterly sales at stores open a year or more fall 3.8%. Overall sales at the retailer fell nearly 3% in its latest quarter from a year ago and customers spent less per visit. It now expects fiscal year earnings per share of $7 to $9, down from the previous range of $8.80 to $9.80. Earnings per share and sales for the most recent quarter both missed average Wall Street estimates.
   
• Lowe's moved the opposite direction of Target, rising 2% before the opening bell as it kept its full-year forecast, beat analysts' earnings expectations, and just missed the average analyst revenue estimate. In its release, the company cited near-term uncertainty and housing market headwinds but said sales to professional remodelers—an important category—stayed strong.
   
• Travel stocks including Delta Airlines (DAL), Norwegian Cruise Line Holdings (NCLH), and Wynn Resorts (WYNN) all were red before the open after a tough Tuesday. Hawkish Fed talk about the need to maintain current tight policy until it's clear if tariffs raise inflation may be hurting travel and other discretionary names. Home builder stocks and some restaurant shares also dipped yesterday.
   
• Toll Brothers (TOL) added 3.8% ahead of the open after the home builder delivered positive earnings and reiterated its guidance for the year, saying long-term demand for its luxury homes remain positive.
• Baidu (BIDU) rose 2.4% in early trading after topping analysts' earnings and revenue expectations. The Chinese tech company said its AI business performed well.
   
• Tesla (TSLA) rose 0.5% after CEO Elon Musk said he'd remain in his position long-term and would cut political spending, Barron's reported.
   
• Palo Alto Networks (PANW) lost more than 4% despite narrowly beating Wall Street's earnings and revenue estimates and guiding for slightly better-than-expected fiscal fourth quarter earnings. The cyber security firm's gross margin for the quarter came in a bit shy of analysts' estimates, however.
   
• Canada Goose Holdings (GOOS) leaped 14.3% after the luxury retailer beat analysts' earnings and revenue estimates. The company said it had "solid" direct-to-consumer comparable sales growth at retail stores open a year or more. However, it didn't provide an outlook for fiscal 2026, citing "macroeconomic uncertainty."
   
• UnitedHealth Group (UNH) fell 6.2% in pre-market trading on a downgrade from HSBC, which said shares of the healthcare company still aren't cheap despite recent downward moves, CNBC reported. The move came after another counter-cyclical session Tuesday that saw the beaten-down health sector outpace many growth sectors like info tech and consumer discretionary in what may represent a return to more defensive trading.
   
• As of early Wednesday, futures trading indicated just a 2% chance of a Fed rate cut in June, and 26% in July, according to the CME FedWatch Tool. The mid-September meeting is the first where futures indicate a better than 50% chance of a cut.

In times when there are concerns about the U.S. economy, the dollar ($DXY—blue line) generally weakens. That's been the case so far this year. When the dollar is weak and uncertainty spikes, investors often trend toward gold (/GC—purple line) so it's no surprise to see it up more than 23% year to date. Bitcoin (/BTC—candlestick) was designed as another alternative that investors might choose in troubled times, and it's up more than 8%. But it's been far choppier than gold so far in 2025 and hasn't always moved counter to stocks and the dollar.

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

May 22: April existing home sales and expected earnings from Analog Devices (ADI), Ralph Lauren (RL), Ross Stores (ROST), Autodesk (ADSK), Deckers Outdoor (DECK), and Intuit (INTU).
May 23: April new home sales.
May 26: Memorial Day, U.S. markets closed.
May 27: April durable orders and April consumer confidence. 
May 28: FOMC minutes and expected earnings from Abercrombie & Fitch (ANF), Dick's Sporting Goods (DKS), Macy's (M), HP (HPQ), Nvidia (NVDA), and Salesforce (CRM).