Mag 7 Earnings, GDP, and Inflation 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. I'm Keith Lansford, and here is Schwab's early look at the markets for Thursday, April 30th. The final day of the month could see trading dominated by investor reaction to four magnificent seven earnings reports that came after yesterday's close. The Fed's rate pause late Wednesday, which was heavily telegraphed, may play a lesser role, while the market awaits Apple's results later today. Alphabet, Amazon, Meta Platforms, and Microsoft all reported Wednesday afternoon, and the results were mixed, with three names slumping into the red shortly after the close, while only Alphabet moved higher.

0:53While the results were mostly strong, especially in cloud metrics, the post-earnings reaction to the Fab Four shows the results were largely expected by investors, said Nathan Peterson, director of derivative research and strategy at the Schwab Center for Financial Research. Also, inline guidance from both meta platforms and Amazon is not going to impress the street when you have increasingly higher CapEx budgets, so a post-earnings sell-off for inline guidance is an easy explanation. Out of the four, Alphabet's results were the strongest, but most market participants had expected that given the relative outperformance over the past year.

1:34Microsoft edged up 1.4 % initially in post-market trading before pairing its gains after beating consensus on earnings and revenue. In a metric closely watched by investors, Azure cloud revenue grew 40 % euro-over-year in the latest quarter, or 39 % on a constant currency basis. That exceeded the firm's guidance for 37 % to 38 % constant currency growth and may reassure investors who worried about cloud performance the prior quarter. Total revenue rose 18 % annually, and the AI business looked solid. Amazon fell in early after-hours trading despite topping consensus earnings and revenue estimates.

2:15The closely watched cloud business performed well, with revenues rising 28 % year-over-year to$37.6 billion, but it might not have been enough for investors who were expecting higher growth figures according to whisper numbers. Free cash flow also declined significantly amid rising AI investments, and net income guidance came in slightly below the midpoint of the consensus estimate. MetaPlatforms issued first-quarter earnings that easily topped consensus estimates, and revenue rose more than 33 % year-over-year to edge past analysts' expectations, The stock quickly dropped almost 6 % in initial post-market action, however, as investors could be zeroing in on the company's increased full-year estimate for capital expenditures.

3:02The social media giant recently announced plans to trim its workforce by about 10 % while eliminating other open roles as it prioritizes investments in AI infrastructure. Google parent Alphabet easily beat expectations, reporting earnings of$5.11 per share versus a consensus estimate of$2.62 on revenue of$109.9 billion, a 22 % increase year-over-year. Google Cloud revenue rose 63 % to$20 billion after Alphabet committed up to$185 billion to its artificial intelligence capital spending program. Alphabet shares jumped nearly 4 % soon after the results were released.

3:51Apple is the final behemoth for the week when it reports after today's close. Before that, investors also face possibly influential data at 8.30 a.m. Eastern Time when the government reports March personal consumption expenditures, or PCE, prices, the Fed's favorite inflation indicator. Heading in, analysts expect a sharp 0.6 % increase in headline PCE, but only 0.3 % in core, which excludes food and energy. Magnificent Seven earnings arrive amid AI concerns fueled by a Wall Street Journal report earlier this week that claimed chat GPT developer OpenAI missed its internal projections for revenue and usage.

4:34This raised questions about overall AI demand and whether alleged problems at OpenAI are isolated to it or industry-wide. OpenAI said the article was inaccurate, but it's not publicly traded, so investors have little way of knowing what's going on beneath the surface. Reports of AI demand concerns at OpenAI highlight the risk in markets concentrating bets on one theme, said Michelle Gibley, Director of International Equity Research and Strategy for the Schwab Center for Financial Research, noting that semiconductors have led market rebounds globally, with emerging markets having the most concentrated bet.

5:15Beyond the Magnificent Seven, earnings this week continued to impress. Seagate, a data storage firm, saw its shares soar yesterday due to a positive outlook. While away from chips, investors seem impressed with results from Visa, Starbucks, and T-Mobile. Key earnings this morning include MasterCard, industrial bellwether Caterpillar, and oil heavyweight ConocoPhillips, along with healthcare giants Merck, Eli Lilly, and Pfizer. The surging memory and data storage firms SanDisk and Western Digital will be in focus after the bell, along with Apple. The iPhone maker remains one of the largest stocks on Wall Street, even if the major AI players may currently have more influence on sentiment.

6:01Apple approaches earnings after announcing earlier this month that longtime CEO Tim Cook will step down later this year and be replaced by John Ternus. One question is whether the Apple hardware chief will join the company's earnings call later today, Reuters reported. A CEO change announcement fueled ideas that Apple would report a strong quarter, especially after analysts noted signs of solid iPhone demand in the key China market. For the quarter, analysts expect Apple to report earnings per share of$1.95, up from$1.65 a year earlier, and revenue of$109.7 billion, topping$95.4 billion in the same quarter last year.

6:41The latter represents a 15 % year-over-year increase and would mark the second straight quarter of double-digit annual revenue gains after a 16 % rise last timeout, a sign that growth might be picking up again in Cupertino. The Fed's decision to hold rates steady Wednesday came as little surprise, as the market had long baked in no chance of a rate move this month. It was the third straight meeting to see the Fed's target range stay between 3.5 % and 3.75%. However, the divided vote was unexpected. Four Fed policymakers dissented, the most since late 1992. Three opposed the easing bias in the policy statement.

7:25while the typically dovish Governor Stephen Myron favored lower rates. At his final press conference as Fed Chair, Powell emphasized that the economic outlook remains highly uncertain and said he expects the conflict in the Middle East to put pressure on inflation in the near term. Beyond that, the scope and duration of potential effects on the economy remain unclear, as does the future course of the conflict itself, he explained. We will continue to monitor the risks to both sides of our dual mandate. Powell, who has been relatively hawkish in recent meetings, also noted that he will remain on the Fed's board even after his term as chair ends.

8:07The decision pushes back the potential for the committee to run a bit more dovish, said Colin Martin, head of Fixed Income Research and Strategy at the Schwab Center for Financial Research. the Trump administration would prefer to replace him if and when the opportunity arises with someone who prefers lower rates. But that's likely a moot point for now, given the hawkish dissents. Powell has spent the last 15 months under harsh criticism from President Trump and a criminal investigation by Trump's Justice Department that only closed last week with no charges. The Senate Banking Committee voted to advance the nomination of Powell's potential replacement, Kevin Warsh, on Wednesday, just hours before the Fed's rate decision.

8:51The full Senate is now expected to vote on Warsh's confirmation the week of May 11. The European Central Bank follows the Fed today with a decision expected before the open. Analysts expect to pause, but one to two ECB rate hikes could come later this year as crude prices threaten to ignite inflation across the continent. It's Central Bank Week, but policymakers are in wait-and-see mode, said Ghibli. The impact on energy prices from the Middle East conflict and effective closure of the Strait of Hormuz is still not resolved. The longer the duration of closure, the bigger the negative impact on GDP and the upside to inflation.

9:34Looking at economic data on the docket today, the government releases its first estimate of first-quarter U.S. gross domestic product, or GDP, growth at 8.30 a.m. ET. Analysts expect 2.1 percent growth on a seasonally adjusted annual basis, up from 0.5 percent in the fourth quarter, according to consensus from Briefing.com. While economic growth and inflation data will be in the spotlight amid the surge in oil prices, investors will also be tracking initial jobless claims early this morning and the Chicago Business Barometer at 9.45 a.m. ET. In data yesterday, housing starts rose to$1.502 million in March, up from$1.356 million in February on a seasonally adjusted annual basis and a 15-month high.

10:22However, building permits, a signal of future demand, fell to 1.372 million from 1.538 million. Durable goods orders rose 0.8 % month-over-month in March, well above the 0.5 % briefing.com consensus, with strength seen in computers and electronic products. Checking Middle East developments, crude oil again jumped above$105 per barrel in the U.S. after Axios reported that President Trump rejected Iran's latest peace proposal and will extend his shipping blockade of the country. With crude's rise contributing to inflation and the Fed showing a slightly hawkish tilt at their Wednesday meeting, the futures market priced in a roughly 3 % chance of a rate cut in 2026 as of Wednesday afternoon.

11:12One month ago, futures traders saw more than 25 % odds of at least one rate cut this year, according to the CME FedWatch tool. Major indexes had a mixed showing on Wednesday before the highly anticipated Magnificent Seven earnings reports. The Dow Jones and S &P 500 both fell slightly while the Nasdaq composite eked out again. Nine of 11 S &P 500 sectors ended the day in the red. Rising oil prices lifted energy but pulled down industrials and materials as investors largely took a risk-off approach. Checking individual movers on Wednesday, Seagate Technology climbed 11.1 % on its earnings results, lifting other memory chip stocks like Western Digital and Micron Technology.

11:58Seagate raised its annual revenue growth target amid strong AI-related demand. nxp semiconductors soared 25 and a half percent on solid quarterly results from the dutch chip maker that surpassed analyst estimates while nxp specializes in making chips for cars and less on ai chips its results point to a strong industrial chip demand after texas instruments said last week that its quarterly industrial sales surged visa surged more than eight percent after the company surpassed analysts' earnings and revenue estimates, with 17 % revenue growth representing the biggest increase since 2022. Consumer spending remained resilient, Visa said in its statement.

12:41This followed similar observations from competitor American Express when it reported recently. Meanwhile, GE Healthcare plummeted 13.2 % after missing analysts' earnings estimates and slashing its profit outlook. The medical technology company faced pressure in the first quarter from rising memory chip, oil and freight costs, according to its CEO. Antiridine also sank 19.4 percent, despite topping Wall Street's earnings forecasts and posting record revenue and margins in the first quarter. Relatively weak guidance seemingly spooked investors in the highly valued semiconductor testing equipment maker.

13:23The Dow Jones Industrial Average fell 280.12 points Wednesday, or 0.57%, to 48 ,861.81. The S &P 500 Index sank 2.85 points, or 0.04%, to 7 ,135.95. And the Nasdaq Composite rose 9.44 points, or 0.04%, to 24 ,673.24. 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.

14:21For important disclosures, see the show notes and schwab.com slash market update podcast.