Mega-Cap Earnings, ADP Jobs In-Focus Post Tech Dip

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, February 4th. A heavy diet of mega-cap earnings continues with Alphabet due after the close, following jobs data this morning and last night's earnings beat from advanced micro-devices. In another closely tracked story, Washington moved closer to reopening the government late Tuesday after the House narrowly passed a bill to end the three-day partial shutdown, sending the measure to President Trump, who has said he will immediately sign it. The progress, which wasn't complete as of publication, couldn't lift markets, however.

0:56All three major market indexes fell sharply Tuesday as investors continued to rotate out of the highly valued tech sector, especially software names. Though the partial government shutdown may still delay official jobs releases this week, investors will get a couple of glances at the labor market starting this morning with the ADP monthly employment report for January. Tomorrow morning will feature the Challenger job cuts report. Analysts anticipate ADP jobs growth of close to 50 ,000, up from 41 ,000 in December, but still not robust by historical standards. The report, due at 8.15 a.m. ET, showed hiring gains dominated by the education, health services, and leisure and hospitality industries last time out, and none of these are traditionally high-paying positions.

1:48Also, the last report showed most of the gains at medium-sized companies, not large or small. Investors will examine today's data for signs of any of those trends persisting. It's unclear when critical official data, like the January non-farm payrolls report originally scheduled for this Friday, will surface. If the delay isn't long, it may not have a huge impact. Investors appeared to shrug off the shutdown early this week, with earnings remaining in focus. U.S. Treasury yields were relatively flat Tuesday after rising across most of the curve on Monday. However, the 10-year Treasury note yield still flirted with recent five-month highs Tuesday near 4.3 % at their intraday peak, a level that appeared to alarm investors when the market traded there late last month and may have contributed to some of yesterday's unease.

2:42To some extent, investors appear to be giving yields the benefit of the doubt, meaning they could reflect underlying economic strength rather than pressure in the Treasury market related to the Sell America trade seen a couple of weeks ago. Solid manufacturing data earlier this week, and the Fed's recent rosier economic growth forecasts likely play into recent yield strength. That said, any move toward 4.5 % in the 10-year yield might draw concern on Wall Street, especially for rate-sensitive sectors like real estate, utilities, homebuilders, and small caps.

3:19After the dismal outing for tech stocks on Tuesday, advanced microdevices' earnings were in focus after the bell. The chipmaker topped analysts' forecasts, reporting a 40 % euro-over-year jump in earnings and a 34 % euro-over-year revenue surge. Data center revenues, which have been closely watched lately, rose 39 % from a year ago compared to 22 % last quarter. The figures, which also included solid guidance, weren't enough to lift shares in early after-hours trading. AMD's results follow upbeat earnings from Palantir late Monday that sent markets higher initially amid easing fears over AI demand before investors pulled out of the tech sector en masse.

4:02As Barron's pointed out, Palantir is a typically good AI barometer because its business consists of helping large organizations Organizations sort through data and make sense of it using AI. But the company's strong results weren't enough to buoy markets Tuesday. Investors will be closely monitoring Alphabet earnings this afternoon and Amazon's results tomorrow afternoon with tech under pressure. Eli Lilly is another major firm to watch first thing today, putting the latest weight loss sector trends into focus. Tuesday turned into a data desert thanks to the partial government shutdown, which cancelled the December job openings and labor turnover survey, or jolts.

4:45Perhaps not surprisingly, amid the data uncertainty, metals raised their rally flags again Tuesday, while still licking their moons from last Friday's historic sell-off. Volatility also spiked, with the SIBO Volatility Index, or VIX, rising 10 % to 17.99. Looking ahead to Alphabet's earnings this afternoon and Amazon tomorrow after the close, it will be critical for investors to monitor whether these hyperscalers remain committed to their aggressive AI infrastructure spending. That said, the spending must accompany signs of progress integrating AI and monetizing it, as meta-platforms appeared to in its recent earnings.

5:27Bet has found ways to use AI to boost its advertising metrics, and investors will likely want to see a similar result from Alphabet in terms of search and advertising. Investors will also want to see an update on the company's Gemini 3 AI model, a competitor to models from OpenAI and Anthropic that was released in November. Going into earnings, analysts expect Alphabet to report earnings per share of$2.63 on revenue of$111.4 billion, increases of more than 22 % and 15 % year-over-year, respectively. With Amazon, cloud growth might be under scrutiny after Microsoft's cloud business results slightly disappointed last week.

6:11Through Monday, with just under 40 % of S &P 500 companies having reported earnings, earnings per share beats were around 74%, while revenue beats were near 62%. Blended earnings growth was around 11%. These numbers are solid B if you want to apply a grade, but are below recent levels, showing declining momentum from the last three quarters. Expectations are still high, especially with many AI companies recently raising the bar. Investors want to see AI spending justified by associated revenue growth. Although it declined on Tuesday, market breadth remains solid, with roughly 62 % of S &P 500 stocks trading above their respective 50-day and 200-day moving averages.

6:59Today also brings ISM Services PMI soon after the open, following Monday's eye-opening gains in manufacturing PMI that reinforced the Federal Reserve's more upbeat economic outlook delivered last week. Analysts expect Services PMI to remain in expansion above the 50 level at 53.7%. Turning to market action on Tuesday, it was a rough day on Wall Street, with all three major market indexes plunging. The tech sector drove the decline despite the robust earnings from AI darling Palantir before the market opened. Investors continued to rotate out of tech and into a mix of defensive and cyclical sectors.

7:42Software stocks were hit particularly hard after the release of a new AI automation tool from Anthropic exacerbated fears about risks to their core businesses. Just five of 11 S &P 500 sectors ended Tuesday in the green. The ongoing rotation away from tech was evident, with energy, consumer staples, utilities, and materials all surging, while information technology sank nearly 2.5%. The energy sector was buoyed by rising oil prices after the U.S. Navy shut down an Iranian drone as it approached an aircraft carrier in the Arabian Sea. In Individual Trading Tuesday, Walmart's shares surged 2.94 % amid a boom in its e-commerce marketplace, leading the retail giant to become the first retailer ever to hit a$1 trillion market cap.

8:36Tesla stock paired early gains to end the day up just 0.01 % following announcement that CEO Elon Musk's rocket company SpaceX had acquired Musk's AI company XAI. Investors expect a mid-year public offering of SpaceX stocks, Barron reported. The combination is worth about$1 trillion, and Tesla owns about 2%. While Disney followed a similar path, erasing early gains to fall 0.22%, despite the company announcing that Josh DeMauro, former theme parks and cruises chief, will replace Bob Iger as CEO. Shares of Disney are down nearly 50 % from their 2021 highs. PayPal crumbled 20 % after earnings and revenue were weaker than expected and guidance disappointed.

9:28The company said in a release that its execution, quote, has not been where it needs to be, end quote. It also announced a new CEO. And most of the Magnificent Seven sank on Tuesday as investors rushed out of tech, including NVIDIA, which sank more than 2.8 percent amid questions about its stalled OpenAI investment plans. Reuters also reported that OpenAI is looking for alternatives to some of NVIDIA's AI chips. But OpenAI CEO Sam Altman said in a post that his firm loves working with NVIDIA.

10:06The Dow Jones Industrial Average fell 166.67 points Tuesday, or 0.34%, to 49 ,240.99. The S &P 500 Index sank 58.63 points, or 0.84%, to 6 ,917.81. and the NASDAQ composite plummeted 336.92 points or 1.43 % to 23 ,255.19. 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.

11:04For important disclosures, see the show notes and schwab.com slash market update podcast.