Apple Results Mulled as Earnings Parade Continues

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.

0:19I'm Colette O 'Claire, and here is Schwab's early look at the markets for Friday, May 1st. May Day dawns after a momentous week on Wall Street, featuring four mega cap earnings and a Federal Reserve rain pause. Focus today turns to manufacturing data and the latest update on S &P earnings growth, while next week brings a full host of employment reports, including April non-farm payrolls. The background drumbeat for all this is the Middle East war, where there's no progress opening the Strait of Hormuz, and crude oil remains well above$100 per barrel. Reports on Thursday suggested the Trump administration might be planning new strikes against Iran, despite the tenuous ceasefire.

1:06Alphabet, Amazon, Meta Platforms, and Microsoft went different ways Thursday, though all reported solid earnings late Wednesday. Spending concerns pulled Meta into the red, while Alphabet shares got propelled higher by sizzling cloud unit growth. In some, the mega-cap earnings were as expected, and nothing about them moved the needle in regards to general bullish AI sentiment. Alphabet delivered the biggest revenue upside surprise of the hyperscalers, helping explain its 10 % rally Thursday. Shares rose more than 30 % in April alone. Meta's revenue climbed dramatically, but shares fell 8 % Thursday because the company raised its spending outlook and doesn't have a cloud business that would immediately show return on investment.

1:56Apple was in the earnings highlight late Thursday, beating analyst estimates on both earnings and revenues, as iPhone revenue growth was close to 20%, though slightly short of estimates. Overall revenue climbed 16%, a sequential improvement from 15 % the prior quarter, and impressive considering the slight iPhone miss. Services revenue topped consensus, helping gross margin rise to 49.3 percent above the high end of Apple's guidance, despite rising memory chip prices that had some analysts concerned. Strength in China was also evident in Apple's revenue, and the company raised its dividend and announced plans to buy back more shares.

2:43Shares of Apple traded about flat initially in post-market action. Beyond the Magnificent Seven, earnings this week continued to impress. Some of the major companies reporting solid results late Wednesday and earlier Thursday included Eli Lilly, Caterpillar, Qualcomm, and Ford, though Ford shares fell on concerns about higher spending. Companies that are beating are doing so soundly, coming in on an average about 6 % above the consensus estimate, CNBC reported. Later today, watch for the weekly fact-set report on S &P 500 quarterly blended earnings growth, which at last pegged at 15.1%. Blended includes both companies that reported already and estimates for those to come.

3:35About one-third of S &P 500 companies shared earnings this week alone, and today's schedule includes ExxonMobil, Chevron, and Colgate-Palmolive. Earnings from Berkshire Hathaway are expected tomorrow, though it's a Saturday, and the company's annual meeting could attract extra attention as new CEO Greg Abel takes the reins from legendary CEO Warren Buffett. Shares of Berkshire have trailed the market over the last year, and investors may be wondering what the company plans to do with nearly$400 billion in cash it has on hand. Tech continues leading the earnings charge. More than 90 % of S &P 500 tech companies surpassed Wall Street's earnings estimates this quarter through April 24, according to FactSet.

4:28Although only 28 % of companies had reported at the time, the blended earnings growth rate for the infotech sector was also very high, at 46.3%. Semiconductor earnings have been particularly strong, driven by aggressive AI spending. Investors appear to be viewing this industry as the safest way to participate in the AI trade and avoid AI disruption in software or overspending in hyperscalers, said Nathan Peterson, Director of Derivatives Research and Strategy at the Schwab Center for Financial Research, or SCIFR.

5:08Looking at economic data due later, the key report, and one that could have an impact on cyclical sectors like industrials and materials, is the April ISM Manufacturing Index, due at 10 a.m. Eastern Time. Analysts expect a rating of 53.1 percent, up from 52.7 percent in March, according to Briefing.com. If it comes in as expected, it would represent the fourth straight month of the index being above the 50 level needed to show expansion. Though data was mixed this week, with lower building permits contrasting with higher housing starts and retail sales, for an instance, generally the economy appears to be holding together despite the war and expensive crude oil.

5:57This week's mega cap earnings might help explain why. The AI CapEx binge appears to be the dominant focus from investors, meaning as long as AI CapEx is on the rise, the ripple effects will provide a foundation to economic stability, Peterson said, referring to heavy capital spending from the mega caps like Meta Platforms and Amazon. Another point of context is that while$100 per barrel oil may sound expensive and certainly is compared to levels around$60 earlier this year, it's not as detrimental to the economy as back in 2008 when it first reached triple digits. Part of it is simply inflation, meaning the 2008 peak of$145 would be over$200 today.

6:46Also, the economy has become less dependent on oil over the years, and the U.S. produces far more of its own oil versus 20 years ago. In data yesterday, the March Personal Consumption Expenditures, or PCE, price index rose 0.7%, a bit above consensus, but core PCE, excluding food and energy, rose 0.3%, as expected. PCE is the Fed's favorite inflation reading. The government also pegged first-quarter gross domestic product, or GDP, growth at 2 % on an annualized basis, below the 2.1 % briefing.com consensus. Annual PCE of 3.5 % for headline and 3.2 % for core were largely in line, but well above the Fed's targets.

7:38I think a higher-for-longer inflationary environment is largely expected, given the spite in energy, Peterson said. He added that a 2 % GDP reading reaffirms the notion of a resilient economy. This follows strong retail sales and ISM manufacturing data, though perhaps some war-induced inventory building is contributing to the strength, Peterson said. Thursday's data did little to change the narrative, but inflation is still running fast enough to keep the Fed cautious, especially with energy raising pressure. GDP growth was softer than expected, but not recessionary, while weekly initial jobless claims of 189 ,000 were the lowest in decades, and employment costs rose 0.9 percent sequentially in the first quarter.

8:32This probably isn't the mix that rate-cut bulls want to see. After all the data, chances for a rate cut in June were around 7 % by late Thursday, according to the CME FedWatch tool, up slightly from earlier in the week. For the full year, futures trading suggests rates will stay at the current level between 3.5 % and 3.75%, with just 15 % chances of a cut and 6 % chances of a hike. The odds of a hike rose from zero before the Fed meeting. Treasury yields relaxed slightly Thursday, in part on the light GDP reading, but remain near recent one-month highs. The 30-year bond yield touched 5 % early Thursday.

9:19Most of the data has been solid, and the Fed appears more hawkish, which could keep yields elevated. Today's ISM manufacturing number could provide more yield support if it's strong. The Fed kept rates on pause this week, and so did every other central bank, including the European Central Bank yesterday. However, the yen climbed sharply against the dollar yesterday on growing ideas the Bank of Japan might intervene to keep the yen from falling too much. The U.S. dollar index dropped sharply to just above 98 by late Thursday, year one-week lows. Major indexes surged to new record highs for the S &P 500 index and the Nasdaq composite on Thursday, putting the week on track to close with gains.

10:08The market is getting fueled by earnings growth and appears to be mostly looking past the geopolitical dynamics. Volatility has trended lower the last few days, approaching pre-war levels. Oil remains elevated but slipped slightly yesterday, another tailwind. 10 of 11 S &P 500 sectors rose Thursday, leaving Infotech as the only outcast. Weakness at NVIDIA and Microsoft dragged tech, as Microsoft's earnings appeared to come in short of the most bullish anticipation, and NVIDIA got hurt by ideas that other companies are increasingly making inroads into the AI chip space it's long dominated. Leading sectors were communication services led by Alphabet, followed by industrials that got a spark from Caterpillar, and healthcare, which was nursed back from recent weakness as Eli Lilly results impressed.

11:06Checking individual movers beyond the mega caps on Thursday, NVIDIA crumbled 4 % despite solid AI spending announced this week by data center giants. The concern appeared to center around chances of more chip competition, particularly from Alphabet. Qualcomm surged 15%. Investors seemed intrigued by the company's release, noting that a leading hyperscaler custom silicon engagement is on track for initial shipments later this calendar year, MarketWatch reported, a sign of the company capitalizing on AI opportunities. Caterpillar climbed 10%. as earnings and revenue topped analysts' average estimates.

11:50In its release, the company cited resilient end markets and a record backlog. Eli Lilly surged 10 percent after quarterly results topped consensus. Sales of diabetes drug Monjoro rose 125 percent year-over-year, and sales of obesity drug ZepBound rose 80 percent. The company raised its guidance for fiscal 2026 to ranges mostly above the FactSet average estimate. The chip sector continued marching back from Tuesday's malaise, with the Philadelphia Semiconductor Index up 2.3 percent. Memory chip firms led the way. The Dow Jones Industrial Average climbed 790.33 points Thursday, or 1.62%, to 49 ,652.14.

12:45The S &P 500 Index rose 73.06 points, or 1.02%, to 7 ,209.01, and the NASDAQ composite surged 219.07 points or 0.89 % to 24 ,892.31. This has been the Schwab Market Update podcast. To stay informed, visit schwab.com slash market update or follow for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or review. It really helps new listeners find the show. Join us for another update Monday.

13:34For important disclosures, see the show notes and schwab.com slash marketupdatepodcast.