Fed Decision and Microsoft, Meta Earnings In-Focus

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, July 29th. Earnings season kicks into top gear today as Microsoft and Meta prepare to report after the bell. Results come amid a chip sell-off that has put the spotlight on AI spending. Investors will be looking for evidence that hyperscalers are beginning to generate a meaningful return on their AI investments, particularly as concerns mount over circular AI deals. The Federal Reserve will also announce its latest policy decision at 2 p.m. Eastern Time. The central bank is widely expected to leave its benchmark interest rate unchanged in a range between 3.5 % and 3.75%.

1:01However, Bloomberg reported late Monday that Citadel Securities is forecasting a surprise rate hike. Either way, investors will be listening closely to Fed Chair Kevin Warsh's press conference and reading the tea leaves of the policy statement to find clues about the policy path ahead. At their last meeting, Fed officials struck a decidedly hawkish tone, emphasizing their commitment to price stability even as they issued a brief 130-word policy statement and omitted some traditional forward guidance. Half of all officials also projected at least one rate hike this year in their quarterly dot plot amid the risk of persistent inflation from rising energy prices and geopolitical tensions.

1:46As of Tuesday afternoon, the futures market priced in a roughly 32 % chance of a rate hike at today's meeting, according to the CME Group's FedWatch tool. That was down from a 38 % chance of a hike on Monday, but still up from 25 % odds seen a week ago. While the Fed meeting will likely draw headlines today, many investors will be focused squarely on earnings, which have impressed thus far. Microsoft is expected to report$4.24 in earnings per share on revenues of$87.6 billion. That would mark a 16 % Euro-over-year earnings per share jump and a 14 % Euro-over-year revenue increase. Both figures represent a growth slowdown for the company.

2:30However, guidance, free cash flow, and capital expenditures may end up moving the needle more than earnings per share in revenue metrics this quarter. Alphabet shares plunged after the company posted negative free cash flow and guided for roughly$200 billion in capital expenditures this year in its second quarter earnings report, showing investors may be beginning to question hyperscalers' AI spending splurge. Consensus expects Meta's earnings per share to rise just 1 % year-over-year to$7.22 this quarter, while revenues are seen rising 26.6 % to$60.2 billion. Once again, guidance, free cash flows, and capital expenditures will be closely watched amid the growth slowdown.

3:16While Microsoft and Meta will be in focus this afternoon, today's packed earnings calendar kicks off with Procter & Gamble, Anpanol, General Dynamics, Automatic Data Processing, and Johnson Controls International before the bell. After the market closes, investors will be closely watching Lamb Research, Arm Holdings, and Qualcomm for fresh insight into demand across the AI ecosystem. Earnings from Starbucks, Fortinet, and HSBC Holdings will also garner attention. Looking ahead, Apple, Amazon, MasterCard, and Shell highlight another crowded day of earnings reports tomorrow. Investors will also get some insight into the health of the economy and inflation's trajectory when the latest gross domestic product and personal consumption expenditures price index reports are released at 8.30 a.m.

4:05ET.

4:10In Economic Data Tuesday, the conference board revealed its consumer confidence index sank to 90.8 this month from 92.2 in June. Consensus had expected a figure above 92, but households' perceptions of the labor market were weaker than anticipated. Meanwhile, the S &P cotality case-shiller home price index showed home prices jumping 1.6 % year-over-year in May compared to the 1.3 % consensus forecast. The data represents another challenge to the Fed's inflation fight, given that shelter prices make up roughly one-third of the Consumer Price Index, or CPI. Treasury yields fell across the curve on Tuesday, however, as U.S.-Iran de-escalation hopes led oil prices to fall sharply ahead of today's Fed meeting.

5:00Looking at individual market movers and earnings standouts on Tuesday, Boeing rose 4.8 percent after topping Wall Street's revenue estimates. Rising jet deliveries helped push the aircraft manufacturer's free cash flow into positive territory. Boeing missed earnings per share estimates after taking a$280 million loss on Air Force One aircraft, but managed to narrow its net loss to$428 million from$612 million in the same period a year ago. Coca-Cola surged 5 % after surpassing both earnings per share and revenue estimates due to higher drink demand. Coke also hiked its full-year guidance and is now projecting earnings per share growth of 9 % to 10%, along with organic revenue growth of roughly 5%.

5:51SanDisk and Micron Technology plummeted 14.3 % and 8.9%, respectively. The memory makers continued their slide amid fears of rising competition from China and a rotation out of once high-flying AI-linked stocks. United Parcel Service tumbled 6.4 % despite beating earnings per share and revenue estimates and raising its whole-year guidance. Investors continued to be concerned about a falling delivery volume growth as the company winds down its operations with Amazon. Corning plunged 12.2 percent despite topping earnings and revenue estimates as the glass and fiber optic makers mixed outlook spooked investors.

6:34Corning said it expects to post a sales compound annual growth rate of 19 percent between the fourth quarter of this year and year end of 2030. But Wall Street was expecting more from the company, which has benefited from the AI data center boom. Seagate Technologies surged in early after-hours trading after reporting better-than-expected earnings per share and revenue growth. Revenues surged 48 % from a year ago, and free cash flow came in at a record$3.1 billion. The data storage firm, which has skyrocketed amid the AI boom, is seen as a barometer for the broader AI infrastructure investment cycle.

7:17Visa fell in after-hours trading even after beating consensus earnings and revenue estimates as its outlook disappointed investors. The company also announced prior to its earnings report that it will cut 7 % of its workforce as part of an ongoing efficiency push. Overall, 7 out of 11 S &P 500 sectors ended Tuesday in the grain. Consumer staples and healthcare led the pack as many investors opted for a defensive approach. Energy and infotech struggled as oil prices retreated and investors continued to rotate out of semiconductor stocks. Despite the tech sector's woes, the S &P has remained resilient of late and breadth has steadily improved in recent trading sessions.

8:05Roughly 72 % of S &P 500 stocks traded above their 50-day moving average, while 71 % traded above their 200-day moving average. However, Casey McCurdy, chief portfolio strategist at Schwab Wealth Advisory, noted that the S &P 500 can look calm even when the market isn't. The index hasn't moved much recently, but beneath the surface, we've seen sharp rotations across sectors, factors, and individual stocks. set. Investors shouldn't mistake a quiet index for a quiet market.

8:43Summing things up, the Dow Jones Industrial Average jumped 537.24 points or 1.03 % Tuesday to 52 ,747.32. The S &P 500 index rose 15.60 points or 0.21 % to 7 ,428.78, and the NASDAQ composite sank 55.17 points or 0.22 % to 24 ,876.91. 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.

9:44For important disclosures, see the show notes and schwab.com slash market update podcast.