Warsh to Take Over Fed with Stocks at Record Highs

**Collette Eau Claire** (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 Collette Eau Claire, and here is Schwab's Early Look at the Markets for Friday, May 15th. As Kevin Warsh takes the reins at the Federal Reserve following the end of Chairman Jerome Powell's term today, Wall Street's schedule looks quiet on the earnings and data front. Only industrial production is on the calendar ahead of next week's flurry of retail earnings and the keystone quarterly results next Wednesday from chip giant NVIDIA. Warsh arrives with major indexes at all-time highs, but Treasury yields also near their 2026 peaks thanks to oil prices that show no sign of easing as the Iran conflict persists. The AI-powered tech rally continued Thursday, with chip stocks up a cumulative 65% since the start of April. NVIDIA reached new all-time highs as investors awaited earnings, and Cisco piled on 13% gains after solid quarterly gains. President Trump was still in China, meeting with President Xi, as of late Thursday, and discussion centered on trade and the war. Both sides put a positive spin on the discussions, media reports said, with the US making efforts to open China to chip exports, while China cautioned the US about its Taiwan policy. The war made it into Trump and Xi's conversations Thursday, as both agreed the Strait of Hormuz shouldn't have tolls on it imposed by Iran, an ally and trade partner of China. However, US officials didn't ask China for help reopening the Strait, media reports said. Though crude has been relatively flat the last few days, near $100 per barrel in the US, the supply situation is worsening. With traffic in the Strait of Hormuz restricted for more than 10 weeks now, crude supply losses are depleting global oil inventories at a record pace. Despite rising crude exports from the United States, Brazil, Canada, Kazakhstan, Venezuela and Russia, global oil supply has contracted by 12.8 million barrels per day since February, according to the International Energy Agency or the IEA.
Surging energy prices were the main culprit behind Red Hot April inflation data earlier this week, but rising food prices added to the pain. The closure of the strait has led both fuel and fertilizer prices to spike this spring, pushing food prices higher globally. Dozens of fertilizer plants in the Middle East were damaged or otherwise affected by the conflict, according to corporate fertilizer executives. The high energy prices also showed up in Thursday's US. April retail sales report, but not to the extent some feared. This might have helped ease treasury yields slightly, though they remain close to their 2026 highs and pose possible challenges to the rally continuing next week.
April retail sales rose 0.5 percent, above Briefing.com's consensus of 0.4 percent. The data doesn't adjust for inflation and should be taken in context. Gas station sales rose most, which might not be a big surprise. Excluding gas stations, retail sales climbed only 0.3 percent from March. The closely watched April Control Group retail sales, which strips out food services, auto dealers, building materials stores, and gasoline stations, rose 0.5 percent in April, after a 0.8 percent gain in March. The data is used to help calculate gross domestic product, or GDP. Retail sales showed the consumer is holding up, though spending is turning selective, as households focus more on essentials and value. The report suggests demand has not broken down, but consumers appear to be prioritizing necessities over more discretionary purchases. For markets, that points to an economy that is still growing, though perhaps at a more measured and uneven pace. As of Thursday, second quarter US GDP is seen rising 4 percent annualized, according to the Atlanta Fed's GDP Now calculator, that compares with the prior estimate of 3.7 percent. Treasury yields initially eased after retail sales data. This could reflect relief that retail sales weren't even higher, which would have reflected a larger inflation impact. Still, yields across the curve remain near their 2026 highs and could pose a challenge for the stock market this coming week. Fed rate hikes are now being priced in rather than cuts, said Colin Martin, head of Fixed Income Research and Strategy at the Schwab Center for Financial Research or Skiffer. Checking other data, weekly initial jobless claims Thursday came in at 211,000, a bit above the briefing.com consensus of 208,000, and recent decades-long lows. Still, it's not a number that's likely to cause much concern, as it's low historically. Import and export prices for April climbed 1.9% and 3.3%, respectively, reflecting overall inflation and likely not a surprise after the Hot Consumer Price Index, or CPI, and Producer Price Index, or PPI, earlier this week. The Hot Import and Export Price reports appeared to bring yields back a bit from their lows, and the two-year yield, more directly responsive to near-term Fed policy, rose one basis point by late in the session before finishing flat just below 4%.