Home Depot, Housing Starts Due After Weak Monday

**Keith Lansford** (0:05)
Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.
I'm Keith Lansford, and here is Schwab's early look at the markets for Tuesday, August 18th. Home Depot earnings this morning put big orange at the vanguard of the retail earnings season after a disappointing Monday on Wall Street. Rising oil prices and Treasury yields kept markets in check amid little progress resolving the Middle East conflict as the 60-day ceasefire expired. Though it came out after the close yesterday and didn't affect trading, Monday's monthly Treasury International Capital or TIC report has a chance to move markets today. The report tracks flows into and out of US assets. Heading into the data, concerns arose that lower inflows could ultimately lead to a weaker US dollar and higher Treasury yields. Those concerns strengthened Monday when Japan's 10-year yield rose to 2.93%, the highest since September of 1996 Analysts expect a rate hike next month from the Bank of Japan and yields are also up in Europe. This feeds into higher US yields as competing governments chase investors for funds and debt issuance remains heavy on the corporate and government sides. That's one reason there may be no near-term break for US consumers and businesses struggling with borrowing costs. Speaking of which, today brings July housing starts and building permits, often a signal of underlying hardiness. Both readings flattened the last few years after a long rise that accelerated after the pandemic. Starts rose monthly to a seasonally adjusted annual level of $1.427 million in June, helped by multiple unit starts. Building permits, a leading economic indicator, declined in June by 3 percent to $1.367 million. For today's report, due at 8:30 a.m. Eastern Time, analysts expect starts of $1.36 million down from June and permits of $1.39 million up from June, according to briefing.com consensus. The housing data proceeds Federal Reserve Minutes tomorrow afternoon and follow an unexpected drop in retail sales. That could reflect lower gas prices and the changed date of Amazon's Prime Day event. It also suggests that high prices and slowing wage growth kept consumers cautious. Last week's relatively benign consumer and wholesale inflation readings appeared to have little impact on treasure yields, which rose above 4.7% again Monday for the 10-year note and 5.3% for the 30-year bond. Even last week's decent demand for notes and bonds sold at Treasury auctions couldn't arrest the gains. Yields partially reflect rising oil prices and that was the case again Monday, as oil jumped more than 2% to above $84 per barrel following a weekend of little progress on the geopolitical front, whether it was in Iran or Ukraine. Oil remains well below the spring highs, but that's not something to take for granted. China has been a very light buyer, and if that changes, oil might go up again in a hurry. Weak Chinese and Japanese economic data early this week, however, didn't kindle any warning signs. If their economies struggle, oil demand there might stay muted. China's July industrial production and retail sales came in below expectations. Soft inflation and jobs data have pulled down the implied probability of a hike next month to just 30%, said Colin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research. We continue to expect the Fed to remain on hold, but the risk of a hike has not disappeared. The recent data hasn't likely changed the mind of the nine FOMC members who voted for a hold last month, but any hotter-than-expected data over the coming months could still give them a reason to hike. Fed minutes due tomorrow afternoon for the last meeting could provide more clues. As for yields, the 10-year is up more than 75 basis points from its February low, a relatively quick gain historically.
Turning to earnings, Home Depot is at the starting gate. Shares soared last spring when many investors anticipated rate cuts that might shake up the sleepy housing market. The stock flattened this summer as hopes for a cut turned into worries about a hike. Last time out, Home Depot beat expectations and reaffirmed guidance, but said shoppers are cautious about larger projects, CNBC reported at the time. Consensus for earnings per share is $4.73 on revenue of $166.59 billion. Those earnings would be slightly up from the year ago, $4.68.
Any remarks about consumer sentiment on the earnings call might be noted by market participants.
Technically, the S&P 500 index fell under support at $7,755 on Monday. The next technical support level is at an old high of $7,620. The intermediate term uptrend is intact, and the technicals are bullish but on a very short term basis. A modest pullback or digestion period wouldn't surprise at some point this week, said Nathan Peterson, Director of Drivetv Research and Strategy at the Schwab Center for Financial Research.