Mulling Microsoft, Meta, and Fed Ahead of PCE Data

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, July 31st. After yesterday's Fed meeting and mega-cap earnings, investors brace for June personal consumption expenditures, or PCE, prices, the Fed's favored inflation indicator. Apple and Amazon report after the close today, and tomorrow morning features the key July non-farm payrolls report. PCE at 8.30 a.m. Eastern Time is expected to reinforce ideas that prices are rising due partly to tariffs.

0:50Analysts expect 0.3 % increases in both PCE and core PCE, which excludes volatile food and energy prices. The May increases were 0.1 % and 0.2%. Today's monthly Challenger Jobs Cut report could offer details on how quickly companies are letting go of workers. If job losses mount, it might help convince the Fed that it could cut rates without triggering an inflation surge. Earnings from Microsoft and Meta Platforms late Wednesday both topped analysts' average expectations, with Microsoft's closely watched intelligent cloud revenue popping 26 % to exceed Wall Street's expectations. Meta forecast better-than-expected third-quarter revenues and kept its capital spending forecast roughly the same as last quarter.

1:39This may disappoint chip market investors after Alphabet raised CapEx last week. Meta's revenue got support from a 9 % average price per ad increase from a year earlier. Shares of Meta and Microsoft surged in post-market trading initially. Chip stocks, including NVIDIA and Advanced Microdevices, climbed slightly.

2:04The Fed kept rates unchanged yesterday, meeting the market's expectations. but appeared to disappoint bulls who hoped Fed Chairman Jerome Powell might hint at a September rate cut. Instead, Powell noted that inflation remains above the Fed's 2 % goal and has been affected by tariffs. Though he said a good case can be made that tariffs will have only a one-time effect on inflation, not a lasting one, he cautioned that as far as the tariff impact, quote, it's still quite early days, end quote. Higher tariffs have begun to show more clearly in the prices of some goods, but the overall effect remains to be seen, Powell said in his press conference.

2:44Asked about the chance of a September rate cut, he replied that the Federal Open Market Committee doesn't make such decisions in advance and that the Fed's current stance, which she called moderately restrictive, guards against the risk of inflation. The danger, he said, is moving too quickly to lower rates and letting inflation reignite, ignite, but there's also a danger of waiting too long and hurting the labor market. For now, he said, the labor market looks relatively balanced and the Fed's current rates don't appear to be holding back the economy. Inflation is moving in the right direction, but it's still above target, so the Fed can be patient as it approaches potential rate cuts, said the Schwab Center for Financial Research in a post-meeting analysis.

3:26Schwab's experts added that the labor market has been relatively stable, but with a few cracks showing. Chances for a September rate cut fell moderately as Powell spoke and were at just 44 % by late in Wednesday's session, down from around 64 % a day earlier, according to the CME FedWatch tool. Treasury yields climbed in part on reaction to Powell's slightly hawkish stance, with a benchmark 10-year yield up five basis points to 4.38 % by Wednesday's close, with underlying treasuries hurt by the Fed and a strong gross domestic product or GDP growth reading. That's still right in the heart of the recent range.

4:05The Fed's last projections had its target range finishing the year at 3.9 percent, below the current 4.25 percent to 4.5 percent, and implying two rate cuts in 2025. The market now sees 88 percent chances of at least one cut, but less than 50 % chances of two. Looking ahead to later today, Amazon is a major player in the cloud space and could offer an update on demand for the key economic component as well as consumer demand shaping its retail business. Results out of Amazon's retail offerings could help shape investor expectations for big-box store earnings due next month. Apple's earnings put the focus on how tariffs have affected the company with recent lack of progress on U.S.

4:54trade deals with India and China possible challenges. In data yesterday, second quarter GDP growth was 3 percent on an annualized basis, above the consensus 2.5 percent and up from negative 0.5 percent in the first quarter. The earlier number was pulled down by high imports before tariffs took effect, and the second quarter rebound likely reflected slowing import pressure as businesses had already stocked up. The other key data yesterday was a surprise jump to$104 ,000 for the July ADP employment change. Analysts had expected$78 ,000, according to Briefing.com. Note that the month-to-month correlation is low, with the government's non-farm payroll report due Friday, said Kathy Jones, Chief Fixed Income Strategist at Schwab.

5:42However, it may make traders more cautious about Friday's payroll figures. Friday's nonfarm payrolls report is expected to show jobs growth of 102 ,000, down from 147 ,000 in June. The June report got a lift from heavy public sector hiring and education, a surge not likely repeated in July. Estimates for Friday ranged from 0 to 170 ,000. This could reflect analysts and companies struggling to grasp the economic roadmap amid so much geopolitical and tariff uncertainty. Major indexes aside from the tech-heavy NASDAQ composite fell for the second straight session Wednesday, the first back-to-back decline for the S &P 500 index in more than three weeks.

6:29Shares of more rate-sensitive companies like homebuilders, delivery services, retailers, and travel-oriented businesses led the way down. Tech stocks were resilient for the most part, but the magnificent seven fell nearly across the board. Only a handful of sectors, including the defensive utilities, along with tech-managed gains. Investors seemed gloomy about Powell's press briefing, with the S &P 500 descending steadily as he spoke. Looking at individual performers, Starbucks initially jumped Wednesday but fell later, after the coffee firm reported better-than-expected revenue in its latest quarter.

7:07Still, the company continues to struggle in some respects as same-store sales, or as stores open a year or more declined for the sixth quarter in a row. Humana climbed double digits as earnings surpassed analysts' expectations, and the insurance firm raised its 2025 earnings and revenue outlook. Palo Alto Networks, however, fell sharply on news it intends to buy cybersecurity firm CyberArk in a$25 billion deal. The SIBO Volatility Index, or VIX, continued climbing Wednesday from recent five-month lows, possibly hinting at anxiety heading into earnings and data. The VIX futures complex is in contango, meaning contracts later this year are priced well above the spot level, rising above 20 by late October.

7:53Anything under 20 is considered low. Elsewhere, the U.S. dollar index was already scampering to gains before the Fed meeting and added to those after the Fed confirmed its relatively hawkish views. The dollar index climbed as high as 99.91 intraday Wednesday, challenging the 100 level it hasn't touched since late May. A stronger dollar might be one curb on inflation if it lasts, but tariffs on imports could blunt some of the impact. President Trump announced a 25 % tariff plus a penalty on trading with Russia. Crude prices touched$70 per barrel Wednesday for the first time in a month, hurt by geopolitical worries after Trump gave Russia a two-week deadline to end fighting in the Ukraine.

8:38If crude continues moving higher, it might also play into the Fed's inflation calculations. The Dow Jones Industrial Average fell 171.71 points Wednesday, or 0.38%, to 44 ,461.28. The S &P 500 index dropped 7.96 points or 0.12 % to 6 ,362.90, and the Nasdaq composite rose 31.38 points or 0.15 % to 21 ,129 .67. 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.

9:36Join us for another update tomorrow.

9:44For important disclosures, see the show notes and schwab.com slash market update podcast.