Market Mulls Chip Results, Awaits Alphabet, Tesla

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 23rd. While plenty of earnings loom this morning, most of the drama comes after the close, as investors prepare for mega caps Tesla and Alphabet. Shares have both climbed into earnings, but neither is among the top performers of the Magnificent Seven so far this year. With Alphabet, focus could turn toward advertising demand, but the company's hallmark search platform could also be in the spotlight as some investors grow concerned that AI could supplant it for some search functions. Cloud growth is another factor with Alphabet as it came in up 28 % last time out, not quite reaching analysts' average estimate.

1:04Investors likely want to know, too, if Alphabet and other cloud firms plan to keep up their heavy spending on AI chips, an important question for NVIDIA and other chip firms supplying those products. Tesla's earnings turn the focus to falling vehicle sales, CEO Elon Musk's future political plans, if any, and what the company intends to do to reverse the slide in demand for its cars, especially overseas. Before Tesla and Alphabet this morning brings AT &T, General Dynamics, GE Vernova, and Hasbro.

1:42Investors also brace for a rate decision from the European Central Bank early Thursday. The ECB is expected to hold rates steady after several recent cuts. And trade talks continue as U.S. Commerce Secretary Howard Lutnick said he's confident the U.S. can secure a deal with the European Union, according to Reuters. And Treasury Secretary Scott Besson told Fox Business he expects a rash of trade deals in coming days. The U.S. announced an agreement with Indonesia late Tuesday. Though some claim that foreign countries are paying the U.S. in tariffs, it's important to remember that it's U.S. companies that pay the tariffs, not the targeted country.

2:24Yesterday featured remarks at a conference from Federal Reserve Chairman Jerome Powell, but the Fed goes silent from here ahead of next week's Federal Open Market Committee meeting. No rate change is expected, according to the CME FedWatch tool, and odds of a September rate cut are edging lower after relatively solid data recently. Today brings June existing home sales, with analysts expecting a seasonally adjusted annual rate of$4 million, according to Briefing.com. That would be almost unchanged from$4.03 million in May. High mortgage rates continued to hurt existing home sales volume, which was down 0.7 % in May from a year earlier.

3:05After Powell's remarks yesterday, Besant soothed some worries about the Fed chair's status by saying there's no need for Powell to resign. However, President Trump has threatened to fire him, though now he says he won't. Texas Instruments kicked off the U.S. chip reporting calendar late Tuesday, with investors ready for updates on a plan announced last month to spend$60 billion on U.S. production. Texas Instruments makes chips used in smartphones, medical devices, and automobiles. Shares initially dipped in post-market trading despite the company beating quarterly estimates. The disappointment appeared to reflect its third-quarter outlook, which at the low end of the range was below Wall Street's average consensus of$1.51.

3:53Texas Instruments said it expects$1.36 to$1.60, roughly in line with consensus at its midpoint. The revenue outlook had a midpoint above consensus, however. Tuesday saw a host of earnings from classic 20th century firms, including Coca-Cola, Lockheed Martin, Philip Morris, and General Motors. All four lost ground as investors poured over their reports and found things to dislike in each, including the continued negative impact of tariffs. Earnings misses are being punished more than earnings beats are being rewarded, said Lizanne Saunders, chief investment strategist at Schwab. Earnings season so far is in line with past quarter's averages in terms of beat rate and the percentage of companies that have beaten analyst estimates.

4:44Though major earnings mostly disappointed Tuesday, the positive news is that S &P 500 12-month forward profit margin rose to nearly 14%, a new all-time high, said Kevin Gordon, director and senior investment strategist at Schwab. A 10-year Treasury note yield fell for the fifth straight session Tuesday, again under pressure from upbeat comments on U.S. trade progress with allies. Agreements to keep tariffs lower by the August 1 deadline would potentially ease inflation concerns. There's also a growing sense that whoever takes over for Powell when his term expires next May could have a more hawkish view.

5:24The 10-year yield finished yesterday at 4.34%, a three-week low. Interestingly, shorter-term yields, which are more dependent on near-term Fed policy, fell less than long-term yields Tuesday. That's opposite of the longer-term pattern, where the yield curve has steepened amid worries about growing budget deficits and potentially heavy Treasury supplies. But news that international investors kept buying U.S. fixed-income assets in May eased fears about foreign buyers abandoning the U.S. market. News that the U.S. House of Representatives would shut down early for summer recess and not return until September didn't seem to phase the markets much Tuesday, as major indexes rose following the headline.

6:10Congress still needs to pass 12 appropriations bills before the new fiscal year begins on October 1st. If they don't, and they aren't likely to, It raises the possibility of a government shutdown, said Michael Townsend, managing director of legislative and regulatory affairs at Schwab. In trading Tuesday, major indexes held their own. The exception was the tech-heavy Nasdaq composite, which dropped after a seven-session win streak. The S &P 500 index set another new high, closing above 6 ,300 for the second time. The rally since the early April lows has retail traders' fingerprints all over it, with baskets like non-profitable tech heavily shorted and retail favorites leading the way, Saunders said.

6:59Baskets like bond proxies and defensives have been significant laggards. Sector-wise Tuesday, homebuilder stocks roared to huge gains, keying off strong results from D.R. Horton and Pulte Group. Those two companies saw shares rise double digits, while Lenar and Toll Brothers weren't far behind. Falling treasury yields helped that segment of the market, as well as small caps, as the Russell 2000 led on the index side. Smaller companies tend to be more rate-sensitive. Other big firms that rely on customer financing to buy their products also did well Tuesday, including Best Buy, Whirlpool, Deer, and Lowe's.

7:41Another stock that popped on Tuesday was retailer Kohl's, but there was no news to explain the move. Instead, it appeared to stem from chatter on social media, CNBC reported. Chipmakers, meanwhile, had a gloomy day after disappointing guidance from NXP Semiconductors, which makes chips for consumer products and isn't usually associated with the AI part of the sector. But AI-related chip stocks, including NVIDIA, slid nevertheless, perhaps as investors pulled back ahead of earnings. Almost every sector besides Infotech gained yesterday, led by healthcare, which had been a laggard recently. Other defensive sectors, real estate and utilities, made up the top three.

8:26The S &P 500 Equal Weight Index outpaced the S &P 500 Index, a sign that many stocks did well below the surface. Major indexes have climbed a wall of worry so far this year, but breadth has generally held up. Broad leadership, especially among cyclical segments of the market, suggests a resilient economy, but policy-related instability remains a risk, said Schwab's Saunders. The Dow Jones Industrial Average added 179.37 points Tuesday, or 0.40%, to 44 ,502.44. The S &P 500 index inched up 4.02 points or 0.06 % to 6 ,309.62. And the NASDAQ composite slipped 81.49 points or 0.39 % to 20 ,892.68.

9:23This 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.

9:52For important disclosures, see the show notes and schwab.com slash market update podcast.