Inflation, Apple Assessed Before Shutdown Deadline

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. I'm Colette O 'Claire, and here is Schwab's early look at the markets for Friday, January 30th. The final session of January kicks off with investors digesting results from Apple and awaiting inflation data ahead of a possible shutdown. That said, there's hope for progress in D.C., and major indexes clawed back from early lows Thursday, despite a rough day for Infotech, as earnings across other sectors generally impressed. Today's 8.30 a.m. Eastern Time December Producer Price Index, or PPI, is expected to show wholesale price growth, remaining stubborn last month at 0.2 % for headline and 0.3 % for core, which excludes food and energy.

1:02The core number would be up from a flat reading in November, though readings that month were possibly affected by data collection issues during the government shutdown. A stubborn year-over-year PPI that stays at the November level of 3 % might be seen as another barrier for rate cuts. The Fed's goal is 2%. As of late Thursday, market participants saw two rate cuts later this year, with chances of the first one less than 50 % until the June Fed meeting, according to the CME FedWatch tool. Turning to Washington, the White House is reportedly closing in on a deal with Senate Democrats to separate funding for homeland security from a massive bill that provides funding for the Pentagon, the Labor Department, and a half dozen other cabinet agencies, said Michael Townsend, Managing Director of Legislative and Regulatory Affairs at Schwab, noting developments as of late Thursday afternoon.

1:58But a possible deal is complicated by the fact that both the large appropriations bill and any agreement on homeland security will both have to be voted on by the House, which is currently on recess and won't be back in Washington until Monday after the January 30th shutdown deadline. That may mean a brief shutdown that is mostly ignored pending the House vote next week, Townsend said. Any prolonged shutdown could once again affect the release of inflation data, jobs reports, and other economic information as the Bureau of Labor Statistics is one of the agencies dependent on this massive bill passing Congress before today's deadline.

2:39While there's a chance of a last-minute solution, investors might want to prepare for volatility if it appears the data flow might get interrupted. Last autumn, a long shutdown through data collection into chaos, and the market is just starting to grow confident in the government's numbers again. Numbers in focus today are from Apple, the mega cap tech firm that reported late Thursday to cap a full week of magnificent seven results. Two more, Amazon and Alphabet, are on tap next week. Apple climbed almost two percent in the immediate aftermath of its earnings release, which showed earnings per share of$2.84 versus the consensus of$2.67 and revenue of$143.76 billion versus consensus of$138.39 billion.

3:28Healthy beats nearly across the board, though services revenue was a slight miss, and we know services has been one of the growth drivers of total sales, said Nathan Peterson, Director of Derivatives Research and Strategy at the Schwab Center for Financial Research, or SCIFR. Margins also came in better than expected, which is encouraging, giving the ramp up in memory prices. However, Apple hadn't delivered guidance yet as of publishing time, and that could influence the stock. Results from Apple followed a mixed bag late Wednesday from meta-platforms Microsoft and Tesla. Microsoft's cloud growth disappointed, leading to thoughts that its heavy spending on AI isn't delivering a rapid enough payoff.

4:15Meta, on the other hand, appear to be doing a decent job of monetizing AI as it continues its heavy spending. Investors appear less concerned about AI spending if they see it leading to better profit margins in the near term, but may be tired of waiting for a pot of gold at the end of the rainbow. A host of other companies also reported this week bringing the total to nearly 150. To date, 78 % of S &P 500 companies have beaten earnings expectations, and 58 % have surpassed consensus on revenue, Bloomberg said. About 20 % of the S &P 500 reported this week, and a similar number of companies are due next week.

4:58If the government finds a way to stay open, next week could be a constructive one for investors trying to get a handle on jobs. Even with a shutdown, there will be some private labor data to ponder. The mother load is next Friday with the government's January nonfarm payrolls report. Before that, investors await December's Job Openings and Labor Turnover Survey, or JOLTS, report, layoff data, and ADP employment growth for January. The Federal Reserve statement Wednesday accompanying its rate pause featured cheerier language about the unemployment situation, and Fed Chairman Jerome Powell said downside risks to employment have eased.

5:38The unemployment rate remains low, though hiring has been anemic lately, and several major firms announced job cuts this week. With so much data, earnings, and a potential shutdown ahead, it wouldn't be surprising to see market volatility tick up in coming days. The SIBO Volatility Index, or VIX, has pulled back to below 17 from recent highs above 20, but hasn't shown any sign of returning to early January lows under 15. The futures market is in contango with prices of later months above spot levels, signaling investor concern about choppier markets ahead. Other sources of concern include the falling dollar and rising oil prices, which to some extent are related since oil is priced in dollars.

6:28This means oil prices go up when the dollar falls. But much of the recent oil strength reflects a perfect storm of winter chill and snow in the U.S. that hurt production and simmering tensions between Iran and the U.S. Crude oil has been cheap for months, so the stronger market likely could help companies like ExxonMobil and Chevron that report later this morning. Their outlook for production is also awaited. Entreating Thursday, the S &P 500 index and NASDAQ couldn't overcome dramatic selling in Microsoft and the software sector after earnings failed to impress. Even so, they engineered an impressive recovery from early weakness, with the S &P 500 and NASDAQ ending slightly to moderately lower after dramatic drops out of the gate.

7:18Big gains in the travel group after robust guidance from Southwest Airlines, solid earnings from IBM, AT &T, and Caterpillar, hopes a long shutdown could be avoided and momentum in the oil patch, fueled by rising crude oil prices, all helped prevent a complete washout. A slight dip in Treasury yields across the curve might have also provided a tailwind for equities despite a soft seven-year note auction. The earnings season has been healthy, with blended year-over-year growth of around 8.5%, even companies like Microsoft and ServiceNow that beat estimates are getting hit for other reasons and misses are being punished even more.

8:01By some estimates, this is the harshest earnings season since 2000 in terms of stocks getting sold off for failing to impress. Still, there's a sense that when stocks get pushed down, buyers show up. The drop below 6 ,900 early Thursday for the S &P 500 index didn't last long, as participants didn't seem in the mood to test the 50-day moving average for the index near 6 ,850. Retail traders are playing their buy-the-dip game with post-earnings drawdowns at an individual stock level, said Lizanne Saunders, chief investment strategist at Skiffer. Even so, the sell-America vibe hasn't vanished. Recent data show significant flows out of U.S.

8:49large-cap ETFs, with a pickup of flows into emerging market and developed international ETFs. Another cautionary signal Thursday was a surge in volatility, as the SIBO volatility index of the VIX jumped more than 8 % to above 18 at times, before fading below 17. Even at its highs yesterday, VIX was down from last week's peaks above 20 and below the long-term average, but up significantly from December. The VIX futures complex hints at more choppiness ahead for stocks in coming months. On days when VIX rises, investors might want to look out for possible selling in stocks. Despite the weaker index performance, 7 of 11 S &P sectors rose yesterday, reflecting how much of the softness occurred in the heavily capitalized tech part of the market.

9:43Communication services led all sectors, thanks to Meta, while a mix of cyclical and defensive sectors followed, including real estate, financials, energy, and industrials. Infotech fell 1.86 percent and was the only sector with worse than 1 percent losses Thursday. In individual trading Thursday, MasterCard rose more than 4 percent as earnings beat estimates amid strong consumer spending. Visa reported late Thursday and American Express today. The Fed said yesterday that consumer spending appears resilient. MetaPlatforms gained 10 percent on its positive earnings results issued late Wednesday.

10:24Microsoft fell 10 percent despite better-than-expected results as slower cloud growth and bigger spending pushed down shares. Southwest Airlines' shares surged 19 percent after it forecast solid 2026 profits that topped analysts' expectations. Earnings in revenue last quarter were roughly as expected. Royal Caribbean cruised to 18 percent gains after strong earnings, helping shares of Norwegian Cruise and Carnival. Travel company gains also reflected the solid results from MasterCard and what they indicated about consumers. IBM soared 5 percent as earnings and revenue topped Wall Street's expectations.

11:06Double-digit software performance and infrastructure revenue growth were highlights. The company expects free cash flow to rise by about$1 billion year over year. ServiceNow tumbled nearly 10 percent, despite the software company surpassing analysts' earnings and revenue expectations and offering slightly higher guidance. The company has been spending heavily on AI and security capabilities, CNBC reported, but software as a subsector continues to slump on concerns of AI competition. Even before Thursday's sell-off, Software as a subsector has plunged roughly 18 % since its late September highs.

11:49Bitcoin slid 5 % Thursday, falling below$85 ,000 for the first time in two months and hitting the lowest intraday level since November 21st. For spot front month futures, it was the lowest close since April. The risk-off trade that's lifting precious metals is having the opposite effect on Bitcoin, Bloomberg reported. Shares of companies associated with crypto also suffered sharp losses. The Dow Jones Industrial Average added 55.96 points Thursday, or 0.11%, to 49 ,071.56. The S &P 500 Index lost 9.02 points, or 0.13%, to 6 ,969.01. And the NASDAQ composite gave back 172.33 points or 0.72 % to 23 ,685.12.

12:51This has been the Schwab Market Update podcast. To stay informed, visit schwab.com slash market update or follow for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or review. It really helps new listeners find the show. Join us for another update Monday.

13:17For important disclosures, see the show notes and schwab.com slash marketupdatepodcast.