Consumer in Focus with Uber, McDonald's, Disney

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 Wednesday, August 6th. Trade policy remains front and center as higher U.S. tariffs hit imports from more than 70 countries Thursday, barring any last-minute changes. China's current 30 % tariff rate expires August 12th, but talks continue. Meanwhile, Wall Street awaits results later today from a 10-year Treasury note auction with yields at one-month lows. Demand will likely get a close look considering the lower payout and worries generated last week by President Trump's decision to fire the Bureau of Labor Statistics chief.

0:55That move revived concerns that investors might avoid or cut their exposure to U.S. assets. Three Fed policymakers speak today, including Fed Governor Lisa Cook at 2 p.m. Eastern Time, and they may get questions about Trump's decision. Cook and other Fed officials may also be asked how they interpret last week's disappointing July jobs data and the report's steep downward revisions to prior months. While the report raised hopes for a September rate cut, it's also worth being careful what you hope for. A rate cut might suggest treacherous economic waters ahead, and recent inflation reports showed numbers rising, not falling, which means the Fed might not see a rate cut as a slam dunk.

1:40Consumer firms are also in the spotlight, as Disney, Uber, and McDonald's report.

1:48Monday's recovery from Friday's weak jobs data partly reflected rising hopes of rate cut next month, however. A September rate cut is now likely given the labor market downward revisions, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research. The labor market had seemed somewhat stable with some cracks under the surface, but the large negative revisions to the May and June non-farm payrolls data suggests it was weaker than we thought. Chances for a September rate cut reached 91 % by late Tuesday, according to the CME FedWatch tool. That's up from 65 % a week ago before the jobs report.

2:26Turning to corporate news, McDonald's reported this morning after a gloomy outing Tuesday from competitor Yum! Brands that showed same-store U.S. sales falling for its Pizza Hut and KFC businesses. Same-store sales typically measure revenue when stores open at least a year or more. Taco Bell sales grew, however. Last quarter, McDonald's reported the largest U.S. same-store sales decline since 2020 partly due to weather, but also reflecting what the company said then was economic pressure on middle-income consumers. Things to watch when Disney reports this morning include its Disney Plus streaming service, which is now profitable, and theme parks.

3:07The company's announcement last quarter of a new theme park planned in the United Arab Emirates cheered investors at the time. However, the movie business is slumping, Barron's recently reported, so investors will likely want to hear of any new updates on planned new releases. Disney has a recent track record of topping analysts' earnings estimates, and shares rallied sharply in May after the firm's latest results. Other key earnings to watch today include Uber and Spotify. In data yesterday, July's ISM Services PMI fell to 50.1 % in July from the previous 50.8%. Anything above 50 % indicates expansion, and analysts had expected 51.5%.

3:49Also, the prices index of the report rose to 69.9 % from 67.5 % as employment and new orders fell. None of this looks too promising in the services sector already showing a decline from last year's highs. Separately, in news that could serve as a reminder that the sagging labor market isn't the entire economy, the Atlanta Fed's GDP Now estimate for third-quarter gross domestic product rose to 2.5 % Tuesday from the prior 2.1%. The upward move reflected improved personal spending and private domestic investment growth, the Atlanta Fed said. Still, major indexes on Tuesday seemed to take their cue from the weak services data and President Trump's promise of steep tariffs for imported pharmaceuticals.

4:37The ISM services data reignited stagflationary fears. The data set up the possibility that growth is decelerating while prices are firming. An interesting lineup of sectors finished above water yesterday, even as most S &P 500 sectors went back under the surface following Monday's rally. Materials, consumer discretionary, and real estate made the top three, a mix of defensive and cyclical segments. The homebuilders did well as yields fell, and that might have helped some big-box stores like Lowe's, Best Buy, and Home Depot as well. Amazon stayed on the recovery path following investors' punishment last week for guidance the disappointed.

5:20McDonald's slumped ahead of today's earnings, and semiconductor shares ran into selling after Monday's gains. Infotech as a whole was weak, dragging down the Nasdaq, but small-cap stocks actually rose Tuesday. The 10-year Treasury note yield ended unchanged at 4.2 percent, and the 30-year bond yield fell three basis points even as shorter-term yields climbed following a somewhat disappointing three-year note auction that saw weak interest, according to Briefing.com. Advanced Microdevices reported late Tuesday and shares wavered initially in post-market trading, rising 1 percent. Earnings landed right at the 48 cents analysts had expected, and revenue of$7.69 billion exceeded consensus, but not by a lot.

6:04Guidance, however, looked strong, with a semiconductor firm expecting revenue of$8.4 billion to$9 billion this quarter, slightly above the consensus of$8.32 billion. Earnings today have exceeded the low bar of analysts' expectations, though strength congregates mainly in the communication services and tech arenas. With about two-thirds of the S &P 500 reporting, 82 % of companies have beaten on earnings per share and 79 % have had a positive revenue surprise, according to FactSet. The blended S &P 500 earnings growth rate for the second quarter stood at 10.3 % as of the end of last week, including companies reporting and forecasts for those yet to report.

6:46That's about double the level analysts expected heading into the quarter and helps explain why stocks have been resilient. The buy-the-dip action seen Monday reinforced that, despite some economic data wobbles, there's buying interest when the market sags. Technically, yesterday's close was an ugly one, with the S &P 500 finishing not far above its intraday lows and falling for the fifth session in six. The index finished just below 6 ,300, a major technical point where the open interest is high. It's now below its 20-day moving average of 6 ,311, a line that's provided support since late April when it first breached.

7:26A few days below the 20-day line might increase selling pressure and recharge volatility. Last week's Friday intraday lows of 6 ,212 is another level possibly worth watching on further sell-offs.

7:42The Dow Jones Industrial Average dropped 61.90 points Tuesday, or 0.14%, to 44 ,111.74. The S &P 500 index lost 30.75 points or 0.49 % to 6 ,299.19. And the NASDAQ composite fell 137.03 points or 0.65 % to 20 ,916.55. 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. Join us for another update tomorrow.

8:37For important disclosures, see the show notes and schwab.com slash market update podcast.