Earnings, Sentiment Data In-Focus Amid Tech

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.

0:18I'm Colette O 'Claire, and here is Schwab's early look at the markets for Friday, July 31st. Markets will look to build on Thursday's rally today after strong earnings from Microsoft helped fuel the rotation back into chip and AI-linked stocks. The busy earnings week rolls on with energy giants Chevron and ExxonMobil set to report before the bell, while investors continue to digest Apple and Amazon's results. The week's final major economic report, the July Consumer Sentiment Reading, comes at 10 a.m. Eastern Time after fresh gross domestic product, or GDP, and inflation data painted a mixed picture of the economy.

1:02U.S. economic growth slowed in the second quarter amid a widening trade deficit and a decline in federal government spending. GDP grew at an annual rate of just 1.5 percent between April and June, according to the Bureau of Economic Analyst's first estimate. That was down from the 2.1 percent figure seen in the first quarter and below Wall Street's expectations for 1.8 percent growth. There were some bright spots in the latest GDP report, however. Personal spending rose 2.1 percent from a year ago after posting a gain of just 0.4 % in the first quarter, showing consumers remained resilient in the spring quarter despite stubborn inflation and signs of a softening labor market.

1:51Real final sales to private domestic purchasers, a key metric which measures underlying demand in the economy, also rose by a robust 3.9 % year-over-year. Meanwhile, the Personal Consumption Expenditures, or PCE price index, fell 0.1 % in June on the lack of lower oil prices that month. The year-over-year figure came in roughly in line with forecasts at 3.7%. Core PCE, which excludes more volatile food and energy prices, posted a monthly increase of 0.1%, putting the annual rate at 3.3%. Futures trading priced in a 63 % chance of a rate hike in September after the PCE report, according to the CME FedWatch tool.

2:40That was up from 57 percent on Wednesday. The GDP and inflation reports came after a divided Fed voted 9 to 3 to hold its benchmark rate in a range between 3.5 percent and 3.75 percent on Wednesday. Supply shocks will continue to weigh on the inflation outlook, thus keeping pressure on the Fed to hike, said Kevin Gordon, head of Macro Research and Strategy at the Schwab Center for Financial Research, or SCIFR. The issue is that outside of energy, we already have a wide base of inflation. Gordon noted that both core PCE inflation and so-called supercore PCE inflation, which measures core services inflation excluding housing, are accelerating.

3:31The fact that both of these seem to be averaging above 3 % means it will be very difficult, if not impossible, for the Fed to return to its 2 % target anytime soon, he said. And based on Chair Warsh and other FOMC members' comments around longevity of inflation being above target, the choice to tighten policy seems inevitable if these price pressures don't fade quickly. The 30-year U.S. Treasury yield touched a 19-year high of 5.24 percent on Thursday after the Fed held rates steady and core PCE inflation remained sticky. The yield curve has also steepened sharply in recent trading sessions. Combined, these developments potentially indicate bond market participants are worried the Fed is falling behind in its fight against inflation.

4:27Turning to Thursday's earnings highlights, Apple fell in early after-hours trading despite posting better-than-expected EPS in revenues. Although iPhone sales were strong, services revenue came in below consensus at$30.7 billion compared to expectations for$31.2 billion. Greater China revenue also disappointed, and EPS and gross margins were buoyed by one-time tariffs refunds. Amazon soared in after-hours trading after topping EPS and revenue estimates. Importantly, Amazon Web Services, the company's cloud business, posted second-quarter revenue of$42.4 billion, up 37 % year-over-year and ahead of the expected$40.5 billion.

5:18Amazon's AI and Chips business also exceeded a$25 billion annual revenue run rate, growing triple-digit percentages from a year ago. Looking at today's earnings calendar, the oil majors ExxonMobil and Chevron will be in the spotlight before the bell. Expectations are high after Shell reported standout earnings on Thursday due to rising crude prices in the second quarter, with the company's net profit doubling from a year ago to$9.8 billion. Consensus expects ExxonMobil's earnings per share, or EPS, to surge 119 percent year-over-year to$3.60, while revenues are seen rising 23 percent to$97.8 billion.

6:06It's a similar story for Chevron, with analysts forecasting a 214 % EPS jump and a roughly 40 % revenue increase. A slew of other energy companies will also report earnings this morning, including Enbridge Energy, Dominion Energy, and Imperial Oil. Additionally, investors will be monitoring results from the pharmaceutical company AbbVie, the industrial gas giant Lind, and multiple financial services firms. In economic data today, the final reading of the University of Michigan's Index of Consumer Sentiment for July will be in focus. Consensus expects the index to rise to 54 from 49.5 in June. However, that estimate would represent a 12 % year-over-year drop in sentiment.

6:57Year-ahead inflation expectations will also be closely watched in this report amid elevated oil prices and ongoing tensions between the U.S. and Iran. The second quarter employment cost index will draw attention at 8.30 a.m. Eastern Time, with investors looking to gauge labor inflation trends. Analysts expect quarter-over-quarter growth of 0.8 percent compared to 0.9 percent in the first quarter. Looking at Thursday's market movers, Microsoft jumped 15.5 percent after reporting better-than-expected quarterly APS and revenue figures after the bell on Wednesday. The tech giant also posted Azure cloud growth of 43 percent and maintained its outlook for 2026 capital expenditures at around$175 billion.

7:50Amid Magnificent Seven cash flow concerns, investors seem to celebrate Microsoft's forecast to remain free cash flow positive through fiscal year 2027 as well. Meanwhile, Oracle rose 8.3 % after announcing it will expand a partnership with Google Cloud to bring Gemini AI tools to its enterprise clients. MasterCard popped 2.5 % after posting better-than-expected second-quarter results while lifting its revenue outlook for the year. With investors rotating back into AI-linked stocks following Wednesday's post-Fed meeting sell-off, shares of SanDisk, Western Digital, Lam Research, Micron Technology, and Advanced Micro Devices all rose more than 12 percent.

8:39On the other hand, Meta Platform sank roughly 8 percent after missing Wall Street CPS forecasts in its Wednesday post-close report. The company turned an EPS of just$6.18 versus the expected$7.22. Meta also lifted the lower bound of its full-year capital expenditures guidance to$130 billion, even as its free cash flow plunged 91 % year-over-year to$784 million. Software stocks, including Workday, Adobe, and Intuit, which have rebounded in recent trading sessions, also fell sharply on Thursday. Overall, 6 out of 11 S &P 500 sectors ended the day in the green. Information technology surged more than 5 % amid the risk on rotation back into AI-linked companies.

9:37Defensive sectors, including consumer staples in health care, struggled. Despite the strong market performance on Thursday, breadth weakened for the second straight day. Roughly 63 percent of S &P 500 stocks traded above their 50-day moving average, while around 68 percent traded above their 200-day moving average. The Dow Jones Industrial Average rose 613.92 points, or 1.19 percent Thursday, to 52 ,208.06. The S &P 500 Index jumped 121.48 points, or 1.66 percent, to 7 ,437.63. And the NASDAQ composite spiked 679.24 points, or 2.78%, to 25 ,122.18. This has been the Schwab Market Update podcast.

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11:03For important disclosures, see the show notes and schwab.com slash marketupdatepodcast.