Industrial Earnings Next as Crude, Yields Weigh

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 21st. About 15 % of S &P 500 firms report this week, and the green flag waved this morning after a quiet reporting day Monday. Some of the names to watch before the open include 3M, Northrop Grumman, and General Motors. Investors also can't take their focus off the Middle East, where headlines kept oil prices volatile and snuffed out an early rally attempt on Monday. Tomorrow is an especially crowded day with Alphabet and Tesla following Wednesday's close. Alphabet especially could get a close look as investors fret about AI spending plans.

1:01There's a mixed view with some worry that so-called hyperscalers are taking on too much debt to build their data centers and others concerned that spending could slow. Either way, it's a tough audience to please, as many tech companies learned when they reported first quarter results. And the PHLX Semiconductor Index, or SOX, recently plunged 20 % from June highs into bear market territory on worries chip spending could slow. That makes Alphabet's capital expenditure plans a key metric to watch. Any sign of flagging might upset the chip market further, especially with memory chip firms on tenterhooks after media reports that South Korean giant Samsung had laid off some employees.

1:46Recent announcements from China on success-building competitive AI models also have weighed on chips.

1:56Looking beyond chips, Tesla's results tomorrow loom large for a stock that's down sharply this year. Second quarter vehicle deliveries of 480 ,000 topped Wall Street's estimates and were up 25 % from a year earlier but didn't move the needle much for shares. Today's earnings center on large U.S. industrial firms. General Motors reported a 4 % second quarter sales decline as EV demand waned, but the company called demand resilient, especially for trucks and SUVs. As GM reports, market participants could have an eye on pricing trends amid fears that high prices are hurting new car demand. Northrop Grumman also reports this morning amid strong demand for its aerospace and defense products.

2:45Through Monday, about 10 % of S &P 500 companies have reported, with 93 % surpassing analysts' earnings expectations. Faxat's earnings growth estimate is 24.7%. Second quarter results have been tracking exceptionally well, although it is early, said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research. Normally, earnings would be center stage, but that's not necessarily the case this time around. The week began with hopes for Middle East de-escalation after nine straight days of U.S. bombing. Oil found on reports that Iran might be ready to resume talks and consider a 10-day ceasefire, and Axios reported later Monday that talks were ongoing.

3:34Oil then resumed its climb on reports that Yemen's Houthi rebels might embargo Saudi Arabian oil. With the Strait of Hormuz virtually closed, Saudi Arabia has been sending oil by pipeline to the Red Sea for export, a passage the Houthis have interfered with in the past. Also playing into crude's rally was President Trump's threat Monday to retaliate against Iran for U.S. service members' deaths over the weekend. In data Monday, June leading economic indicators fell 0.2 percent from May, ending a two-month winning streak and below the 0.1 percent briefing.com consensus. Very few market-moving reports are scheduled this week.

4:18Data to watch include new home sales and S &P Global U.S. Manufacturing and Service Economy reports. However, the S &P reports aren't typically as influential as monthly ISM manufacturing data. Odds of a July Fed rate hike were 17 % by late Monday, according to the CME FedWatch tool, down from 42 % a week ago but up from 13 % Friday. Chances of a hike by September climbed to 63 percent by late Monday from 58 percent on Friday. Treasury yields followed crude higher Monday, rising back to 4.6 percent for the benchmark 10-year note as rate hike odds inched up. Fiscal policy and Treasury issuance continued to pressure longer maturities, said Cooper Howard, Director of Fixed Income Research and Strategy at the Schwab Center for Financial Research.

5:11Large federal deficits and sustained Treasury borrowing needs have contributed to a steeper term premium.

5:22Major indexes started strong out of the gate on Monday only to temper their pace on CNN's late morning report that President Trump is considering widening the war by sending more aircraft. The S &P 500 index is down three straight sessions. Only three of 11 S &P 500 sectors gained Monday, and two were tech and communication services. Many chip and AI stocks that cratered last week rebounded Monday, including Lumentum, Marvell Technology, Palantir Intel, and SanDisk. Healthcare performed worst, slumping after recent strength. Materials and industrials, both under the weather recently, continued struggling.

6:05The tech-heavy Nasdaq remained above water almost the entire session, even as the broader S &P 500 index struggled. By day's end, about 61 % of S &P 500 stocks traded above their 50-day moving averages, a slight dip in breadth from recent highs near 70%, and perhaps a sign that market strength is turning narrower. were. Among individual movers Monday, Alphabet climbed 1.5 percent on plans to introduce a more efficient AI chip. The new chip would permanently embed parts of Gemini's architecture into the silicon, Alphabet said. Chinese stocks rose Monday on continued support from Friday's release of an AI model from Moonshot AI, which contributed to last Friday's global AI market pressure.

6:55China's Kimi K3 large language model could outperform cutting-edge U.S. systems, the Wall Street Journal reported. Alibaba climbed almost 5 percent. The Chinese firm unveiled a preview version of its flagship large language model. Consumer stocks, including package deliverers, home device makers, clothing retailers, automakers, home builders and restaurants slumped Monday as yields and oil rose, raising concerns about demand. Crypto-related shares, including Circle Internet Group and Strategy, rose as Bitcoin futures edged up to start the week. And AMC Entertainment soared 26 percent after a blockbuster opening weekend for the Odyssey and quarterly earnings that beat estimates.

7:46The Dow Jones Industrial Average plunged 307.16 points or 0.59 % Monday to 51 ,839.26. The S &P 500 Index shed 14.41 points or 0.19 % to 7 ,443.28. And the NASDAQ composite dropped 12.17 points or 0.05 % to 25 ,508.07. 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.

8:45For important disclosures, see the show notes and schwab.com slash market update podcast.