Markets Eye Mag 7, Fed Decision Amid Iran Tensions

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 Monday, July 27th. Investors won't have much time to catch their breath this week, with a packed slate of earnings, economic data, and policy decisions all competing for attention. Four of the magnificent seven, Microsoft, Meta, Apple, and Amazon, will headline the earnings calendar. The multiple leading AI infrastructure companies, consumer staples firms, and oil and gas giants will also report results. The key macro events will mostly come midweek, starting with the Federal Reserve's policy decision and economic projections on Wednesday.

0:57Gross domestic product, or GDP, datum, and the personal consumption expenditures, or PCE price index, will be the highlights on Thursday. The stakes are high this week for these reports. Markets are already grappling with a wave of new U.S. tariffs on 60 countries, rising oil prices amid renewed U.S.-Iran tensions and elevated rate hike expectations. However, despite last week's semiconductor-led pullback, earnings have remained a bright spot, and Wall Street's earnings outlook is still decidedly optimistic. Underpinning the market's resilience this year and keeping drawdowns short-lived has been the fact that earnings growth remains stellar, said Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research.

1:44I think it's worth emphasizing that we are in a unique position when it comes to earnings estimates and revisions. Normally, at this stage of the business cycle, we do not see forward earnings growth as strong as it is today. Gordon noted that the year-over-year change in forward earnings per share, or EPS estimates for the S &P 500 has surged to 32%. Markets have only seen growth estimates that high twice in their history, once in the aftermath of the 2008 global financial crisis and again following the 2020 pandemic. However, those rebounds came after a significant plunge in forward EPS. That is not the case today, said Gordon.

2:27This AI investment cycle has biased earnings higher by a significant degree, helping support the argument that if there is a bubble, it's not in valuations but in earnings expectations.

2:42This week's crowded earnings calendar kicks off this morning with the UK-based drugmaker AstraZeneca, which has struggled this year amid a trial setback for its heart disease drug, Wayanua. Investors will then be closely watching earnings from Cadence Design Systems after the bell for a read on the AI infrastructure trade. For investors looking for evidence that the AI boom still has room to run, this week's earnings will provide plenty to parse. Tuesday will bring reports from the semiconductor equipment firm KLA Corporation, as well as the red-hot data storage giant Seagate Technology. Visa, Coca-Cola, and Boeing will also be in the spotlight that day.

3:25Microsoft and Meta will be the main act for Wednesday's heavy earnings slate. After investors punished Alphabet for raising its 2026 capital expenditures guidance to roughly$200 billion in its earnings report last week, Microsoft and Meta will face pressure to justify their AI investments. Even 82 % year-over-year growth in Alphabet's cloud business wasn't enough to ease investors' concerns about the company's capital spending splurge, underscoring the challenge other hyperscalers face this week. The semiconductor equipment company Lamb Research and the chip designer Arm Holdings will also be heavily scrutinized Wednesday alongside Qualcomm and Procter & Gamble.

4:07On Thursday, Apple, Amazon and MasterCard will be in focus, while the oil and gas giants Chevron and ExxonMobil will cap off the earnings frenzy on Friday.

4:22Turning to economic data this week, the only major report on the calendar today is durable goods orders. This will likely leave investors looking ahead to Wednesday's interest rate decision. As of Friday afternoon, futures trading priced in roughly 38 % odds of a rate hike at the July meeting and more than 90 % odds of at least one hike by year-end, according to the CME's FedWatch tool. We don't expect the Fed to hike rates this week, but the likelihood of a hike this year has clearly increased with the price of Brent crude back near$100, said Colin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research.

5:00With a likely hold this week, the Fed can see a few more months of inflation data before acting. Any hot inflation prince would make a hike more likely. Martin also noted that higher energy prices could cause inflation's recent cooling trend to reverse in July's inflation reports. That means Thursday's June PCE data, while still important, may not carry as much weight as it typically does. Consensus expects a 3.4 % Eurovia rise in core PCE, which excludes more volatile food and energy prices. Investors will be closely monitoring the first estimate of second-quarter GDP growth on Thursday, however.

5:41With recent economic data showing consumer resilience, consensus expects 2.1 % euro-over-year GDP growth. Anything below that could put the Fed in a tough spot as it aims to tame inflation without weakening the economy. Treasury yields have climbed in recent weeks as investors priced in higher odds of a Fed rate hike amid rising oil prices. and ongoing U.S.-Iran tensions. The 10-year yield reached 4.7 percent on Thursday, its highest level in more than 18 months. However, reports that Pakistan and China were pushing for U.S.-Iran peace talks sent yields lower across most of the curve on Friday.

6:22We continue to see more risks to the upside than the downside, but 5 percent could be a soft ceiling for the 10-year treasury yield, said Martin. In Economic Data Friday, June new home sales picked up despite affordability challenges, coming in at$628 ,000 versus the expected$606 ,000. The results could put a spotlight on May's S &P cotality Case-Shiller Home Price Index due tomorrow at 9 a.m. ET. Consensus expects a 1.1 % year-over-year jump in home prices, which would only serve to exacerbate affordability issues. Meanwhile, July's S &P Purchasing Managers Indexes painted a mixed picture on Friday.

7:07Services outperformed, coming in at 53.6 compared to the expected 51.5. The manufacturing disappointed, falling to 53.8 versus the expected 54.4. Looking at market movers on Friday, Shares of American Express sank 4.3 % after the company missed Wall Street's second quarter revenue estimates and kept its profit outlook steady. Intel stock plummeted 7.9%, despite reporting its fastest revenue growth in 15 years and issuing guidance that topped expectations. Verizon Communications stock rose 5.8 % after the company reported an earnings beat and guidance boost, which offset a slight revenue miss. And Digital Realty Trust stock surged 10.9 % as data-centered demand led the company to report a 29 % Eurovia revenue jump in its second-quarter earnings report.

8:05Semiconductor and Memory stocks continued their pullback, however, with shares of Astera Labs, Sandisk, CoreWeave, and Nebius Group all falling more than 10%. The PHLX Semiconductor Index is now down roughly 19 % from its mid-June record high, but still up more than 65 % year-to-date. Overall, 10 of 11 S &P 500 sectors ended Friday in the green. Real estate and materials led the pack, while Infotech lagged as investors continued to rotate away from semiconductors. Market breadth remained resilient. Roughly 65 % of S &P 500 stocks traded above their 50-day and 200-day moving averages.

8:51But now Jones & Us real average gained 235.60 points or 0.46 % Friday to 51 ,947.25. The S &P 500 index added 3.68 points or 0.05 % to 7 ,411.98. and the Nasdaq Composite lost 161.87 points or 0.64 % to 24 ,975.82. For the week, the Dow Jones fell 0.38%, the S &P 500 sank 0.61%, and the Nasdaq Composite tumbled 2.13%. 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.

9:52Join us for another update tomorrow.

10:00For important disclosures, see the show notes and schwab.com slash market update podcast.