Magnificent Seven Earnings, Fed Meeting Loom

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, April 29th. Today is back-loaded. Four magnificent seven names report after the close, and those follow the Federal Reserve's rate decision at 2 p.m. Eastern time. No change is expected in what's likely to be Fed Chairman Jerome Powell's last meeting as chair, but what he says in the post-decision press conference about the economy could carry weight. Alphabet, Amazon, Meta Platforms, and Microsoft all report today, meaning market participants might want to consider tracking where those stocks head in overnight trading for clues into Thursday's action on Wall Street.

1:01Key items to monitor include whether these companies keep up the drumbeat on AI spending and if other metrics like advertising sales are holding together. Company executives may also be asked where they're seeing return on investment from the big spending they're doing. The earnings come at an auspicious time following a report by the Wall Street Journal yesterday that chat GPT developer OpenAI missed its internal projections for revenue and usage. This raised questions about overall AI demand and whether alleged problems at OpenAI are isolated to it or industry-wide. Questions also arose about the report's accuracy after OpenAI CEO Sam Altman told CNBC the Wall Street Journal's article was ridiculous and an OpenAI spokesman told Bloomberg the company is firing on all cylinders.

1:59Chip stocks sold off Tuesday after climbing nearly 50 percent from their March lows in a parabolic 18-session rally that ended Monday. Whether the parabola dips further from Tuesday's 3.4 percent losses depends in part on what the Big Four say later today about their data center spending plans. Executives will likely face close questioning from analysts on their earnings call as Wall Street tries to glean more about OpenAI's perceived struggles and if there's any need to worry about data center spending or demand. Most analysts who study the chip sector have said recently they still believe AI is in the early innings, meaning it has a long way to go.

2:44OpenAI has struggled with infrastructure needed to support users so the report Tuesday could simply mean the developer is losing demand to competitors like Anthropic and Alphabet's Gemini. Regarding the PHLX Semiconductor Index, or SOX, context is important, and the introduction of this WSJ story at a time when the SOX was on pace to continue a historic run is going to obviously kill momentum, at least for the next couple of weeks in my view, said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research. Technically, this will create overhead supply, meaning everyone who bought these chip stocks at all-time highs on Friday and Monday, which is bearish near term.

3:32Traders need to be really careful here, in my view.

3:38Earnings yesterday continued the trend of major S &P 500 companies beating analysts' expectations. Some of the ones doing so included United Parcel Service, General Motors and Coca-Cola, with many executives reporting resilient consumer demand. However, companies seem somewhat cautious. Relatively few raised guidance, despite mostly solid results, perhaps due to oil and geopolitics. After Tuesday's close, Starbucks shares climbed 6 % in initial post-market trading as the coffee firm beat analysts' consensus for earnings and revenue and sees fiscal 2026 earnings above levels expected by Wall Street.

4:22Other companies saying earnings-related post-market bounces included Visa and Seagate. Solid results from Seagate, a data storage company, might ease some of the AI concerns that sprouted early Tuesday. The Fed's rate decision today may be a bit of an afterthought as the market has long baked in no chance of a rate move. If there's none, it would be the Fed's third straight meeting to pause rates in the current 3.5 % to 3.75 % range. Powell's press conference could be intriguing for what he might say about his plans. Powell's term as governor doesn't end until early 2028, meaning he could stay on the Fed if he chooses.

5:06Few Fed chairs have done so in the past, but 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. It's possible Powell will decide to remain, denying Trump another seat pick for the time being. In overseas central bank news, the Bank of Japan kept rates paused early Tuesday, though it sent a hawkish message by raising its inflation outlook. Three policymakers voted for a rate hike, and analysts say that's possible in the not-too-distant future, considering oil-fueled inflation concerns there.

5:48U.S. Treasury yields rose Tuesday following the Japan news, and two tepid U.S. Treasury auctions Monday that raised fresh demand concerns. The European Central Bank follows the Fed tomorrow, also with a pause factored into the markets. One to two ECB rate hikes could come later this year, analysts told media outlets recently. This week also features important data, though much of it is backloaded. Thursday brings the government's first look at first-quarter gross domestic product, or GDP, and the Fed's favorite inflation reading, personal consumption expenditures, or PCE prices. Energy inflation is expected to lift March headline PCE by almost 0.6%, according to Briefing.com, while core PCE, excluding food and energy, rises 0.3%, down from 0.4 % in February.

6:42Any deviation on that toward higher prices would likely keep the Fed more cautious about future rate cuts, though the data comes after today's meeting. For GDP, another important item, since it's the first estimate, analysts expect 2.1 % on a seasonally adjusted annual basis, up from 0.5 % in the fourth quarter, according to consensus from briefing.com. Before that, stay tuned this morning for durable goods orders, housing starts, and building permits. In data yesterday, April consumer confidence of 92.8 from the conference board was better than expected and the highest reading since late last year.

7:24Expectations had been for 89.2. The reading likely played into selling of treasuries Tuesday, with short-term yields rising more than longer-term ones. The 10-year note yield is at three-week highs, also burdened by a weak seven-year note auction on Tuesday. Major indexes fell across the board Tuesday, though the NASDAQ and Russell 2000 small cap index struggled most. Rising yields have hurt small caps this week. Interestingly, volatility eased Tuesday, with the SIBO volatility index dropping below 18. There was little progress reported Tuesday toward ending the Iran conflict, and crude oil again flirted with$100 per barrel in the U.S.

8:10This followed a Reuters report that President Trump was disappointed by Iran's latest peace proposal, which would have involved Iran opening the Strait of Hormuz in return for an end to the U.S. blockade. The proposal would delay nuclear negotiations, something Trump objects to putting off, Reuters said. Sector-wise, Tuesday's showing was mixed. Five of the more traditionally defensive sectors gained despite the S &P 500's drop, and utilities finished unchanged. Infotech fell only 1.2%, even as chips lost 3%, as some traditional tech names like IBM and Apple rose, while Adobe and Microsoft led software gains.

8:55Checking individual movers Tuesday, the PHLX Semiconductor Index fell about 3.4 % after the OpenAI story. Profit-taking might have played a role considering the chip sector had risen 47 % during an 18-day win streak that ended Monday. Investors might have grown cautious ahead of Magnificent Seven earnings even without the OpenAI news. One of the worst performing chip stocks was CoreWeave, which dropped 4.6 % and has close business ties with OpenAI. Oracle is also in that category and fell 3.7%. Memory chip names like SanDisk and Micron fell sharply, as did AI chip makers like Broadcom and Advanced Micro Devices and chip designer ARM Holdings.

9:45NVIDIA escaped the worst of the selling, falling 1.45 % from Monday's all-time peak. Coca-Cola gained 3.6 % after topping Wall Street's earnings and revenue forecasts. Unit case volume grew 3%, led by China, the U.S., and India. And Coca-Cola Zero Sugar made double-digit gains. Steelmaker Nucor climbed more than 4 % on an earnings beat. General Motors edged up 1 % as the company raised guidance and easily topped Wall Street's earnings and revenue expectations. Earlier, shares rose as much as 5%, but paired gains before the open. Revenue fell 0.9 % year-over-year, but was in line with estimates.

10:32Spotify dropped 12 % after reporting softer-than-expected operating income guidance for the current quarter, CNBC reported. Second quarter revenue guidance met expectations, however, and quarterly earnings surpassed consensus. Corning plunged 9 percent despite beating analysts' revenue and earnings expectations and keeping its guidance in line, with expected revenue for the second quarter slightly below the FACSAT consensus. And United Parcel Service shares fell 4 percent despite the shipping firm beating Wall Street's earnings and revenue estimates. UPS kept its financial outlook unchanged. changed.

11:11Volume in the company's U.S. segment fell, but that was expected as UPS leaves some of its low-profit business with Amazon, Barron's noted.

11:24The Dow Jones Industrial Average lost 25.86 points Tuesday, or 0.05 percent, to 49 ,141.93. The S &P 500 index fell 35.11 points, or 0.49 percent, to 7 ,138.80, and the NASDAQ composite dropped 223.30 points or 0.90 % to 24 ,633.80. 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.

12:23For important disclosures, see the show notes and schwab.com slash market update podcast.