Delta and PepsiCo Earnings, Powell Remarks Ahead

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 Thursday, October 9th. After two weeks of ruminating over the government shutdown, lack of data, and possible AI profit concerns, investors received some fresh numbers today, as several closely watched companies report. The new batch of earnings follow Wall Street's leap to new record highs Wednesday, as tech rebounded from a hiccup the day before. Federal Reserve Chairman Jerome Powell is on deck this morning when he delivers opening remarks at a conference at 8.30 a.m. Eastern Time today, but these occasions don't usually feature policy insights.

0:56Jobless claims would normally come out this morning and give investors a quick flash of employment trends, but for the second week in a row, they're unlikely to be released as the shutdown persisted at the time of this recording. Volatility inched higher for stocks this week, possibly a sign of sentiment eroding thanks in part to the D.C. stalemate.

1:19PepsiCo and Delta Airlines both report before the opening bell and might provide hints on consumer and business demand. Airlines are expected to report a solid summer travel season based on heavy passenger numbers tracked by the government, but what they say about pricing power and fourth-quarter demand might swing more weight. Today's results could give investors new insights into tariffs and their impact as PepsiCo and other beverage firms wrestle with the higher costs of materials that go into cans and bottles. Another stock to watch is Applied Digital for details on AI-related demand when it reports after today's close.

1:57Worries about companies' ability to profit from AI dogged the market earlier this week, especially Oracle, before rebound yesterday. Applied Digital deals in AI infrastructure, meaning it potentially offers perspective on the pace of the build-out. Several companies with exposure to AI infrastructure disappointed investors last quarter, but Applied Digital wasn't among them. The market is still buzzing over Tuesday's quick sell-off in several AI names, though blame-centered worries that AI can't make companies the type of profits some bulls expect. The drawdown might have reflected profit-taking on ideas that AI had become overbought.

2:38The PHLX Semiconductor Index, or SOX, reached an RSI, or Relative Strength Index, of 85 on Monday, the highest since 2011. There was a 5 % pullback when it hit that level then, though a high RSI doesn't necessarily correlate with stock market dips. Release of the monthly jobs report once the government shutdown is over, plus earnings season are the next potential catalysts, but near term we are overbought in tech and could see some mean reversion, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. Minutes from the last month's Fed meeting released Wednesday confirmed to investors is that most policymakers support easing policy further this year, though a majority remain concerned about inflation.

3:26Policymakers also didn't expect a rapid slide in employment while acknowledging recent slower jobs growth. The minutes reflect a time well before the government shutdown stopped the data flow. If this gets extended, then they're really flying blind in terms of getting good, accurate data, said Kathy Jones, Chief Fixed Income Strategist at Schwab, and I think that's probably going to make the Fed very uncomfortable. Investors still expect a rate cut at the October 28th and 29th rate meeting, according to the CME FedWatch tool. Futures trading builds in 92 % chances, down from 95 % earlier this week.

4:04Chances of two rate cuts by the end of the year are 77%. Though next week's inflation numbers may be threatened by the government shutdown, if it persists, investors do get some data tomorrow after the open in the form of the University of Michigan's preliminary October consumer sentiment report. Sentiment has been unimpressive for months, wallowing well below historic norms. Sentiment also remains soft in the housing market, where homebuilder stocks descended earlier this week despite lower mortgage rates. The weekly MBA Mortgage Applications Index dropped 4.7 percent last week after falling 12.7 percent a week earlier, another sign of industry challenges.

4:47A set of 10-year U.S. Treasury notes came up for auction yesterday and results looked weak, according to Briefing.com. However, yields hardly moved on any part of the curve and were unchanged Wednesday for the 10-year note at 4.13 percent near the middle of the short-term range. Gold keeps hitting record highs as the Washington impasse continues, inflation stays sticky, and investors anticipate another Fed rate cut. Ironically, the dollar is also staging a rally, which usually isn't the case when gold is on the rise. However, Japan's election last weekend hurt the yen on ideas that a new government there may favor more fiscal stimulus, which in turn is helping the dollar and possibly treasuries.

5:31The yields in Japan had been rising on ideas that future rate hikes would potentially make yields there more competitive with U.S. Treasury yields, but that dynamic might be changing. Though a reversion from overbought conditions can't be ruled out with the market's last 5 % correction now more than five months ago, it didn't start yesterday. Most major indexes hit new records a week after the government shutdown began and gained momentum after release of the Fed minutes. The minutes had something for the hawks and the doves, but because they showed the Fed leaning toward additional rate cuts, the market seemed to welcome the news.

6:11Sector-wise, tech jumped back to the lead yesterday as companies like Dell, CoreWeave, Micron, Super Microcomputer, Marvell Technology, and Taiwan Semiconductor led the way. The PHLX Semiconductor Index stayed on a roll, climbing 3.4 percent. This came as chip giant and NVIDIA rallied 2.2 percent following positive comments on the AI climate from its CEO, Jensen Huang, on CNBC early Wednesday. Those comments seemed to reinvigorate the sector, and even Oracle revived from its Tuesday sputter. FedEx slipped nearly 1 percent Wednesday after getting downgraded to neutral from overweight by JPMorgan Chase.

6:56J.P. Morgan is increasingly concerned the company's full-year earnings guidance is at risk since it embeds a rebound in freight fundamentals. Freeport-McMoran rose more than 5 % Wednesday after an upgrade to buy from Citigroup, which was up from the former neutral rating. The firm has raised its copper prices forecast and expect Freeport-McMoran to benefit. Other mining stocks also rose in part due to the rally in commodities including copper and silver. In other sector action yesterday, there was a reversal from Tuesday as investors pushed defensive areas like staples and real estate toward the bottom of the ladder and embraced growth areas like tech, industrials, and consumer discretionary.

7:41Utilities, which could benefit from the AI data center build-out, were another leader. Technically, the S &P 500 index got a late bounce earlier this week after briefly slipping below 6 ,700, suggesting that round number might represent psychological support. The 20-day moving average is 6 ,650 and has been a regular support point over the last five months.

8:08The Dow Jones Industrial Average finished down 1.2 points Wednesday at 46 ,601.78. The S &P 500 Index added 39.13 points, or 0.58%, to 6 ,753.72. And the Nasdaq Composite climbed 255.01 points, or 1.12%, to 23 ,043.38. Thank you.

9:07This 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.

9:36For important disclosures, see the show notes and schwab.com slash market update podcast.