Earnings Avalanche Ahead, but First Comes Powell

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 Tuesday, July 22nd. Earnings from Mega Caps start tomorrow, preceded by a host of results this morning, including bellwethers like Coca-Cola, General Motors, Lockheed Martin, and Sherwin-Williams. That list doesn't include many in the way of tech, but a dose comes later today when Texas Instruments steps to the plate. Also stay alert for Federal Reserve Chairman Jerome Powell, who delivers opening remarks at 8.30 a.m. Eastern time at a banking conference. He's not expected to discuss policy just eight days ahead of the Federal Open Market Committee meeting, but after last week's drama involving President Trump's renewed threats to fire Powell, any public appearance could raise anxiety on Wall Street.

1:07Federal Reserve independence is important for investor confidence around the globe, in our view, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research. We expect the Fed to lower rates gradually over the next year or so, which seems appropriate if the labor market gradually cools and inflation resumes its disinflationary trend towards 2 percent. But large cuts now, with an unemployment rate of 4.1 % and inflation still above the Fed's 2 % target, risks inflation re-accelerating if it sparks an increase in business and consumer spending. This week also features a rate decision from the European Central Bank on Thursday and earnings from Magnificent Seven members Alphabet and Tesla tomorrow afternoon.

1:53The European Central Bank is expected to hold rates steady after several recent cuts.

2:02Texas Instruments kicks off the chip reporting calendar this afternoon and could provide updates on a plan announced last month to spend$60 billion on U.S. production. The money will be used to build or expand seven U.S. chipmaking facilities, CNBC reported. Texas Instruments makes chips used in smartphones, medical devices, and automobiles, meaning its results could give investors a sense of demand for those items and how it's affecting this part of the chip market. Another question it could help answer is how the development of chips by some of its customers like Apple are affecting business.

2:42With Alphabet on Wednesday, a focus could turn toward advertising demand, but search will also be in the spotlight as some investors grow concerned that AI could supplant Google search in some respects. Tesla's earnings turn the focus to falling vehicle sales and what the company intends to do to arrest the slide. Though overall breadth looks strong, earnings breadth is another story. Faxet expects 14.1 percent quarterly earnings growth from the Magnificent Seven, but just 3.4 percent for the other 493 S &P 500 firms. Leading indicators for June from the conference board on Monday showed a headline move of negative 0.3 percent, worse than the briefing.com consensus of negative 0.1 percent and down from a flat figure in May.

3:34Before June, the leading economic index had fallen by 2.7 percent over the previous six months, a much faster rate of decline than the 1.4 percent contraction over the six months preceding that. The leading index provides an early indication of significant turning points in the business cycle and where the economy is headed near term. The U.S. dollar index slipped and the yen rose early this week after Japan's Prime Minister Shigeru Ishiba vowed to stay in office after his coalition lost its majority in upper house elections Sunday, Reuters reported. U.S. Commerce Secretary Howard Lutnick expressed optimism over the weekend that trade deals would be reached with major partners, but said the August 1st deadline is firm.

4:22June inflation numbers could explain why many at the Fed want more information on tariffs' impact before agreeing to rate cuts. One might say, just looking at the headline, nothing to see here, not a big deal, said Lizanne Saunders, chief investment strategist to Schwab. but you go inside the numbers and you're starting to see the impact. Areas like toys, apparel, sporting goods, and furniture depend heavily on imports and are the areas seeing inflation. The credit backdrop remains positive. Spreads for investment grade and high-yield bonds remain low, making it attractive for issuers to issue or refinance debt, Schwab-Martin said.

5:04That's good for borrowers, but it doesn't provide much of a cushion for investors if the economic outlook deteriorates. Treasury yields provided a tailwind for stocks yesterday, helping the S &P 500 and NASDAQ Composite achieve new record highs. The 10-year Treasury note yield fell about 6 basis points to 4.37%, its lowest close since July 10th, though fundamentally there wasn't a lot to explain the drop. One positive element for Treasuries, which move the opposite direction of yields, might have been Prime Minister Ashiba's decision to stay as leader, despite losses in the weekend election. This kept alive hopes that the U.S.

5:43and Japan might achieve a trade deal with lower tariffs and less inflation impact. It was the fourth straight lower close for the 10-year yield after it brushed against but couldn't take out resistance at 4.5 % last week. There may be short covering taking place in longer-term treasuries, a CNBC analyst noted. Also, this week lacks key treasury auctions that might cause anxiety about demand. Monday saw major indexes roll to fresh all-time highs, but they spent most of the afternoon retracting their big gains to close only slightly higher. This could reflect what Briefing.com called the fragility of the early rally, which came on light volume.

6:28It could also indicate hesitance by investors to lean heavily into new long positions with so many key earnings this week and the Fed meeting next week. Still, the S &P 500 posted its first close above 6 ,300. It's not rare for upward momentum to slow at this time of earnings season when six of the Magnificent Seven are about to report. The Magnificent Seven are up 27 % over the last three months versus just an 11 % gain for the remaining S &P 500 stocks over that period Barron's noted. Several companies kicked off the week with better-than-expected results, including Domino's Pizza and Verizon.

7:09This, along with comments about consumer resilience by big bank executives last week, could reinforce ideas that consumers remain in a spending mood, a theory also supported by last week's robust retail sales report. In Sector Action Monday, energy and health care again stayed soft in a pattern continuing from last week, while communication services and consumer discretionary led. There wasn't a huge amount of volatility either on the downside or upside, with most major stocks trading within 2 % of where they finished Friday. The Magnificent Seven had a mixed day, with strength from Alphabet and Meta platforms, but lack of muscle from NVIDIA and Tesla.

7:53Popular consumer names like Netflix, Nike, Under Armour, Macy's, and Amazon had strong days, possibly reflecting resilient consumer spending seen in companies reporting to date. About 81 percent of companies reporting have beaten the average analyst estimate above the one-year average of 76 percent. The Dow Jones Industrial Average lost 19.12 points Monday, or 0.04 percent, to 44 ,323.07. The S &P 500 index added 8.81 points or 0.14 percent to 6 ,305.60. And the Nasdaq Composite climbed 78.52 points or 0.38 percent to 20 ,974.18. 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.

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9:12For important disclosures, see the show notes and schwab.com slash market update podcast.