As Tech Struggles, Other Sectors Pick up the Pace

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. I'm Colette O 'Claire, and here is Schwab's early look at the markets for Friday, June 26th. The weekend approaches, with investors still digesting a host of earnings and data and awaiting a fresh read on consumer sentiment. Thursday's promising start after Micron's bountiful results turned into another disappointing day for tech market bulls amid concerns about industry margins and new friction in the Strait of Hormuz. However, market breadth appears better, and the S &P 500 index held on to an important technical support level, possibly providing positive vibes.

0:56Other than the University of Michigan's final June consumer sentiment report, today's schedule is light on events. That changes next week as jobs data starts to arrive, highlighted by next Thursday's June non-farm payrolls report. U.S. markets are closed Friday, July 3rd for Independence Day, pushing the jobs report up a day. Consensus on sentiment is for a headline figure of 48.9, Briefing.com said, unchanged from the initial estimate, according to Briefing.com. That would remain near historic lows, while inflation expectations are also worth tracking when the report hits. It's been an eventful 24 hours on Wall Street.

1:38First, Micron's earnings appeared to spread good cheer as shares surged 15 % Thursday and translated into positive performance for other chip stocks after two sessions of struggles. However, good news for the memory chip sector was bad news for other tech firms as Apple and Microsoft announced price increases and saw their shares backtrack. Also, even though Micron's result revived the chip sector after the great chip dip earlier this week that sent chip stocks down 6%, one solid earnings report doesn't necessarily negate factors that drove the recent unwinding of crowded positioning. Concerns remain about returns on massive AI investments, concentration of investor money in chips, hyperscaler and AI-related names, and the possible slowing of compute demand, said Lizanne Saunders, chief investment strategist at the Schwab Center for Financial Research, or SCIFR.

2:36Still, Micron and its competitors keep improving their results thanks to the rising cost of memory chips. These products are widely used in products from phones to laptops to automobiles. Apple shares dove 6 % Thursday in the worst day for the stock this year after it said it's raising prices for several iPad and Mac models, citing higher costs from memory chip shortages. That's expected to persist throughout 2027, and perhaps into 2028, analysts say, driven partly by increasing data center demand. Microsoft followed by saying it's raising Xbox console prices. Apple's decision to raise prices was the first piece of bad news for the Nasdaq composite yesterday.

3:21The second was a reported attack by Iran on a Singapore-flagged ship in the strait, first reported early Thursday afternoon by the Wall Street Journal. Crude oil traded nearly 3 percent higher late yesterday on the news, which came on top of more verbal jousting between the U.S. and Iran around Iran's efforts to impose tolls on shipping traffic in the strait. The U.S. government said Thursday a peace deal would never be accepted with that condition.

3:51Inflation data was another side of the coin Thursday, and it generally reinforced ideas the Federal Reserve could wait on rate decisions. May's personal consumption expenditure, or PCE, prices jumped 0.4 percent monthly, matching consensus and the April increase. Core PCE, which excludes food and energy, rose 0.3 percent, also meeting analysts' expectations. On an annual basis, PCE rose 4.1 percent, the highest since April 2023, and Core PCE rose 3.4 percent, meeting consensus. One report doesn't make a trend, but this likely allows the Fed to be patient as it approaches potential rate hikes, said Colin Martin, head of fixed income research and strategy at Skiffer.

4:38A hotter-than-expected report would have likely raised the likelihood of a hike sooner rather than later, but now the Fed has some time to wait and see how the next few months evolve. In other data yesterday, the third and last government estimate for first-quarter gross domestic product, or GDP, surprisingly jumped to 2.1 percent from 1.6 percent. Analysts had expected no change. In less positive news, the government revised first-quarter personal consumption in the GDP report down to 0.5 percent from the initial 1.4 percent estimate. The 0.5 percent increase was its smallest annualized quarterly increase since the first quarter of 2022.

5:22The upward revision to overall GDP should come with an asterisk, since the consumer tends to be a big driver of the economy, and it's not good news that personal consumption was lower than initially expected, Martin said. GDP was revised up mostly due to a downward revision to imports, which subtract from GDP, Briefing.com noted. Following all that data, the Atlanta Fed's GDP Now estimate for second quarter GDP growth fell to 2.5 percent from the previous estimate of 3 percent. The drop appeared to reflect downwardly revised consumer spending expectations. Treasury note yields, already at one-month lows, extended their decline after the data but reversed course later Thursday to finish down only one basis point for the benchmark 10-year note yield.

6:17The rebound in yields came as oil rallied. The 10-year yield remains near its lowest point since early May, below 4.4 percent. This and lower oil could help support consumer discretionary parts of the stock market, though the narrower yield curve might drag financial stocks. Also, 4.4 percent is still relatively high versus lows below 4 % earlier this year. As of late Thursday, chances for a Fed rate hike as soon as September eased to 62%, down from 70 % earlier in the week, according to the CME FedWatch tool. For the coming July meeting, odds are two and three of another pause. The Fed hasn't changed rates since last December, but last week's hawkish tone from Fed Chairman Kevin Warsh has investors expecting the next move to be upward, not downward.

7:16Major indexes again went separate ways Thursday, with the Nasdaq dropping the S &P 500 steady and minor gains for the Dow Jones Industrial Average and the Russell 2000 Index of Small Caps. The broader market is tracking for losses this week, with the Nasdaq composite down 4.3 percent and the S &P 500 index off 2%. Technically, the S &P 500 managed to claw back in the final minutes of the session to finish just a hair above its 50-day moving average of 7 ,356. It hasn't closed below that line since early April, but has threatened to for three straight sessions. Several successive settlements below the 50-day line would probably be needed to confirm a bearish turn.

8:06Some of the weakness late this month and this quarter could represent consolidation after such a strong rally in April and May. Funds may be trimming some of their exposure to equities in a quarter-end rebalancing move, perhaps adding bond exposure at the same time, judging by the recent upward path of treasuries, which move opposite of yields. Six of 11 S &P 500 sectors rose Thursday, mirroring Wednesday's results with some of the same sectors, like industrials and energy, in the green. Healthcare has rallied amid some rotation into weaker sectors. Consumer discretionary, however, fell to last place as oil prices surged.

8:47One encouraging feature this week is that advancing shares outnumbered decliners in the S &P 500 index even on Tuesday and Wednesday, when the overall index fell. Through midday Thursday, advancers far outpaced decliners on the New York Stock Exchange. This suggests improved breadth, where investors may be gravitating out of tech and into other sectors. Oil's weakness earlier this week, along with lower yields, might be influencing this broadening. The percentage of S &P 500 stocks at or above their 50-day moving average rose above 63 percent Thursday from around 50 percent earlier this month.

9:27Among individual movers Thursday, memory chip stocks including SanDisk and Western Digital followed Micron higher, rising 22 percent and nearly 5 percent respectively. The Philadelphia Semiconductor Index of the Sox came in Thursday down 6 percent for the week but recaptured some losses with a 3.6 percent rise. Qualcomm climbed 3.7 percent after it raised guidance and announced a new partnership with Meta Platforms to produce central processing units for Meta, according to MarketWatch. Microsoft slipped 3.4 percent and is on pace for a sharp June drop of around 19 percent. Other major hyperscaler stocks are also struggling this month, including Oracle, meta-platforms, and Alphabet.

10:15Debt offerings, rising infrastructure prices, and concern about return on investment from their big spending has weighed on the Magnificent Seven for several weeks. With mega caps under pressure, investors appear to steer toward old-fashioned U.S. industrials like Caterpillar and Deere on Thursday. They rose 6.3 percent and 5 percent respectively. Transport names including railroads and airlines also provided some muscle. SpaceX fell almost 1%. This came after it lost about 1 % Wednesday as short sellers added to positions looking for further declines after the company gave up its post-IPO gains.

10:56Shares are hugging the$150 level. Strategy, a crypto-related stock, lost 9 % Thursday as Bitcoin hit new lows for the year, below$58 ,000 at one point. Regarding Bitcoin, there's a historic pattern showing seasonal strength in the final quarter of the year after summer weakness, though past isn't precedent. The Dow Jones Industrial Average climbed 71.72 points or 0.14 % Thursday to 51 ,920.62. The S &P 500 index shed 0.73 points or 0.1 percent to 7 ,357.49, and the Nasdaq composite gave back 118.03 points or 0.46 percent to 25 ,358.60. That followed gains of as much as 2.3 percent for the Nasdaq overnight Wednesday after Micron reported.

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12:27For important disclosures, see the show notes and schwab.com slash market update podcast.