Central Bank Meetings and Mega-Cap Earnings Loom

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 Monday, July 21st. Last week featured a series of fresh highs for the Nasdaq composite and a new record for the S &P 500 index. Early returns from earnings season looked firm and data improved, but not enough to move yields too much. Still, the week ended with stocks struggling to build on those highs, something that could carry through into the coming days as more earnings come down the pike and central bank meetings loom. This week features a rate decision from the European Central Bank and earnings that branch out from banks to include transports, tech, defense contractors, automakers, telecommunications firms, and a couple of Magnificent Seven members, Alphabet and Tesla.

1:07Also, Fed speakers enter their quiet period ahead of the Federal Open Market Committee's July 29th and 30th rate-setting meeting. The ECB is likely to hold but could resume cuts in the fall, said Michelle Gibley, Director of International Research at the Schwab Center for Financial Research. The ECB is on pause given prior progress on inflation and rate cuts. By late Friday, with 12 % of S &P 500 companies having reported 83 % beat analysts' earnings per share estimates, Faxet said. Blended second-quarter earnings growth, which combines actual and projected S &P 500 earnings, is seen at 5.6%, up from the 4.9 % analysts had expected back on June 30.

1:51However, communication services and infotech are the only sectors forecast to grow earnings by double digits, and analysts see flat to declining earnings from the healthcare, staples, materials, consumer discretionary, and energy sectors. Railroad earnings often slip beneath the ties from an investor standpoint, but could cause some clickety-clack this week when Union Pacific reports Thursday. Its earnings come after the Wall Street Journal said Union Pacific is exploring an acquisition of Norfolk Southern, which reports next week. With Alphabet on Wednesday, a focus could turn toward the ad space and regulatory updates as the firm has been fighting government efforts to break it up.

2:38As Tesla reports Wednesday, investors may look for updates on vehicle sales at home and abroad, as well as the latest on the firm's self-driving robo-taxis.

2:52Data-wise, this is the sandwich week between two very important ones. Last week featured inflation and retail sales, while next week brings the July non-farm payrolls report and the Personal Consumption Expenditures, or PCE, price index. That leaves this week a bit light on market-moving reports, though a handful of housing data will hit the tape. June leading indicators from the conference board are due soon after today's open, after falling 0.1 % last time out, but this report doesn't typically have a big impact. Checking back on Friday's numbers, June housing starts rose 4.6 % month-over-month and building permits climbed 0.2%, reaching seasonally adjusted annual rates of 1.321 million and 1.397 million respectively.

3:42However, single unit starts and permits fell 4.6 % and 3.7 % monthly, which could temper enthusiasm, Briefing.com noted. And preliminary University of Michigan July consumer sentiment rose slightly to 61.8, above the June reading of 60.7, and above the Briefing.com consensus of 61.5. Sentiment has been on the recovery path, but remained historically low at 60.7 last month. Year-ahead inflation expectations in the consensus data fell to 4.4 % from 5 % in June. The 10-year Treasury note yield eased slightly after the sentiment data and also on news that foreign holdings of U.S. Treasuries reached$9.05 trillion in May, the second-highest level ever.

4:32This helped soothe concerns that international investors were taking money out of U.S. assets. The 10-year yield climbed one basis point for the week, but fell three basis points Friday to 4.43 % near the middle of its near-term 4.3 % to 4.5 % range. Treasury auctions are sparse this week. On Friday, Fed Governor Christopher Waller argued for a July rate cut, saying the job market is weaker than it appears. However, he's in the minority of this if recent Fed speeches are any indication. Other Fed speakers last week sounded cautious, still waiting to see the impact of tariffs on inflation. Chances of a July Fed rate cut were less than 5 % late Friday, while odds of at least one cut by September were around 60%, according to the CME FedWatch tool.

5:25One argument against near-term rate cuts is relatively strong jobs and consumer spending data in recent reports, including last week's retail sales and jobless claims. Also, inflation data last week showed signs of tariff-related price increases filtering through to consumers and businesses. And the prices paid component of the Philadelphia Fed Manufacturing Index continued to spike in July. The report's six-month outlook for prices paid neared its January 2022 high. On Friday, major indexes failed to develop much traction from Thursday's record highs and once again ran into tariff concerns. Midday weakness followed a Financial Times report that President Trump is pursuing 15-20 % tariffs on the European Union.

6:13Trump has given countries until August 1st to reach agreements threatening higher tariffs if deals can't be made by then. Sector moves on Friday included a leading position for utilities, which far outpaced all other S &P 500 sectors amid strength from Constellation Energy, despite a lack of news. But utilities is a relatively small sector without much impact on the S &P 500. Consumer discretionary climbed Friday ahead of Tesla's earnings this week, while materials and real estate also rose. But every other sector fell, and the S &P 500 couldn't move above Thursday's all-time high close, missing by a fraction.

6:55Weak performances from Netflix, 3M, and American Express all hurt the major indexes, despite all three exceeding earnings expectations. Still, last week was mostly positive for the stock market, with seven sectors moving higher, and the S &P 500 up nearly 0.6%. On a cautious note, this brought the forward price-to-earnings, or P.E., of the S &P 500 to 22.2, according to FactSet, historically high and well above the 10-year average of 18.4. This means if earnings miss expectations, the market might start to look even pricier from a P.E. perspective. Also, major indexes seemed quite sensitive to tariff talk last week, so any headlines could have an impact as the August 1 deadline approaches.

7:46The Dow Jones Industrial Average fell 142.30 points Friday, or 0.32%, to 44 ,342.19. The S &P 500 Index dropped 0.57 points, or 0.01%, to 6 ,296.79, and the NASDAQ Composite added 10.01 points, or 0.05%, to 20 ,895 .66. For the week, the Dow Jones Industrial Average fell 0.07%, the S &P 500 Index rose 0.59%, and the NASDAQ rose 1.51%. 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.

8:46I'll be back with another update Monday.

8:54For important disclosures, see the show notes and schwab.com slash market update podcast.