After Worst Day in Month, Tech Limps Into Weekend

0:05Welcome 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.

0:17I'm Keith Lansford, and here is Schwab's early look at the markets for Friday, November 14th. Stocks enter Friday struggling with volatility and lower chances of a December Federal Reserve rate cut after their worst session in more than a month. Disney earnings yesterday disappointed, and choppiness may be in the cards next week with NVIDIA due to report and government data possibly on tap now that the shutdown is over. Concerns are escalating over missing government data, Fed policy, and tech market valuations. The tech-dominated Nasdaq composite took the worst blow Thursday in the fourth major sell-off for that index since October 10th, which was also the last day the S &P 500 index fell so much.

1:03The broader market plunged 1.7 % yesterday. The market continues to aggressively move toward pricing out a December Fed rate cut, said Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research. After Boston Fed President Susan Collins sent rate cut odds much lower Wednesday with remarks suggesting rates need to stay where they're at for a while, Cleveland Fed President Beth Hammock said Thursday she's worried about the labor market, but getting inflation back to 2 % is critical. We've got this persistent high inflation that is sticking around, Hammock said. Chances of a rate cut in December now look like a coin flip after starting the week near 66 % and reaching as high as 90 % in late October.

1:50The Fed cut rates two meetings in a row the last two months by a total of 50 basis points, citing softer labor conditions. Though the market is pricing out some odds of a cut next month, the chances of a 25 basis point or greater cut in January are nearly 70 percent, according to the CME FedWatch tool. This suggests the market sees the Fed pausing for a month until it has more clarity on data. Perceptions may change once the data begin to filter in, though. Investors might have to wait until next week to see a trickle of government data, which won't come until the official reopening and may be less than complete.

2:30The September jobs report could be an exception since it was collected before the shutdown. Economists think that it will be the end of 2025 or early 2026 before they start to feel confident again in government data, given the 43 gap in collecting and analyzing information on jobs, inflation, and other key metrics, said Michael Townsend, Managing Director of Legislative and Regulatory Affairs at Schwab. Upcoming reports, if they come out at all, are likely to be based on estimates or partial information, producing a cloudy picture of the economy. After the longest shutdown in American history, the time it takes to get the data collection engines back up and running could make the data less dependable than usual.

3:14Officials are warning that some of the employment and inflation reports for October may not get fully reported, and inflation data that has come out, including higher prices paid in the October ISM services report may be damaging rate cut hopes.

3:33Though the data story remains cloudy, 90 % of S &P 500 companies have now shared third quarter earnings and results have impressed with nearly 83 % exceeding consensus earnings expectations. Corporate America has again cleared a high bar with blended growth at nearly 17 % year-over-year and strong earnings expected to spill into next year, led by tech, said Lizanne Saunders, chief investment strategist at the Schwab Center for Financial Research. Semiconductor equipment maker applied materials reported after Thursday's close and topped consensus expectations, but didn't impress investors with guidance, which it reaffirmed from its previous outlook.

4:13The company indicated it expects demand to improve by the second half of next year. Shares fell about 2 % in immediate post-market action. Earnings season rolls along next week as major retailers like Walmart, Home Depot, and Target report. This comes amid those weak consumer sentiment numbers raising concerns about holiday spending. While third quarter results obviously matter, the fourth quarter guidance will likely be the strongest driver of post-earnings stock moves, and the holiday shopping period will be key to the fourth quarter. NVIDIA's results next Wednesday afternoon are likely the keystone.

4:53It's been a shaky and volatile couple of weeks for NVIDIA and the rest of the AI market, dogged by concerns the valuations may be too high. This week featured a clear rotation into sectors perceived as having more room to run due to lower price-to-earnings or P-E ratios. Materials, health care, and energy are a few of the week's winners. The Fed stays in view today with speeches from Kansas City Fed President Jeff Schmid and Dallas Fed President Lori Logan. The remarks from Schmid could be interesting as he was a dissenter in the Fed's vote last month to cut rates by 25 basis points. Schmid's point of view seems to be getting more traction, and next month's rave vote is starting to look quite interesting with policymakers lining up on either side.

5:44Interest-rate-sensitive sectors sold off on Thursday as the 10-year Treasury note yield climbed five basis points to 4.11%. A weak 10-year note auction yesterday likely created less confidence in demand for U.S. assets. The falling Treasury market was accompanied by a weaker dollar, perhaps reflecting concerns about the path of the U.S. economy. Meanwhile, market volatility continued climbing Thursday as the SIBO Volatility Index, or VIX, clawed back above 20 for the first time in a week. This could reflect worries about market choppiness as government data begins to come in. In sectors Thursday, energy was the only positive group on the S &P 500, rising just about 0.3%.

6:28Staples finished flat and the other nine sectors fell, with Infotech plunging 2.4 % and Consumer Discretionary down 2.7%. The number of S &P 500 companies trading above their 50-day moving average on a steady climb earlier this week dropped sharply Thursday to 44 % from peaks above 50%. Still, it's well above the November low of 34%, suggesting many stocks have strengthened, even with semiconductor shares down a collective 5.7 % since the end of October. The S &P 500 Equal Weight Index, which weighs all stocks in the S &P 500 equally rather than by market capitalization, easily outpaced the S &P 500 Thursday, reinforcing the poor performance of the biggest tech names.

7:19Checking individual stocks Thursday, NVIDIA plunged 3.5 % despite of lack of any major negative news. The entire AI sector, including major chip firms Broadcom, Advanced Microdevices, Intel, and Micron, took it on the chin amid valuation concerns and worries that companies may not be monetizing AI as quickly as some investors had hoped. NVIDIA reports earnings next Wednesday. Other tech firms that have ridden the AI wave this year, including Palantir, Oracle, IBM, Applovin, Supermicrocomputer, and CoreWeave fell somewhere from 5 % to 9 % Thursday, hit by the same turbulence as the big chip makers.

8:04Semiconductors as a sector lost more than 3 % and fell to their lowest level since October 22nd. Cisco climbed more than 4 % as the company narrowly edged above consensus views for both earnings per share and revenue. Guidance also topped Wall Street's thinking. Several analysts raised their price targets on the company, noting networking product strength and firm momentum in its AI business. While Disney tumbled nearly 8 % after quarterly revenue missed analysts' expectations amid struggles in its TV and movie businesses, Streaming and theme parks were both solid, reemphasizing what analysts have said about these divisions leading future growth.

8:49And Tesla fell more than 6 % Thursday, as a more risk-off environment took hold and fears grew of longer waits for interest rate cuts. On the charts, any further dip in the S &P 500 could test support near the 50-day moving average now just below 6 ,700. The 50-day line has held on several tests over the last month and wasn't really tested yesterday.

9:17The Dow Jones Industrial Average plunged 797.60 points Thursday, or 1.65%, to 47 ,457.22. The S &P 500 Index lost 113.43 points, or 1.66%, to 6 ,737.49, and the NASDAQ Composite gave back 536.10 points, or 2.29%, to 22 ,870.35. This has been the Schwab Market Update Podcast. To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. I'll be back with another update Monday.

10:18For important disclosures, see the show notes and schwab.com slash market update podcast.