Packed Earnings Slate In-Focus Before Fed Decision

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 Tuesday, July 28th. With President Trump pausing a 13-day bombing campaign over the weekend to allow for diplomacy with Iran, markets may be getting a break from the geopolitical headlines that have dominated recent weeks. Attention now shifts to a busy earnings calendar, as well as fresh reports on consumer confidence and home prices due this morning. Still, investors may be more focused on what's to come, with multiple major market catalysts looming. Tomorrow's Federal Reserve decision remains the marquee event of the week.

0:56Investors have spent much of the year reassessing the outlook for interest rates, with inflation remaining stubbornly high amid a surge in energy and commodity prices. Although oil prices tumbled Monday as tensions between the U.S. and Iran eased, they're still up roughly 40 percent year-to-date, reinforcing concerns that higher energy costs could complicate the Fed's fight against inflation. Futures trading now implies a 38 percent chance of a rate hike at tomorrow's meeting and a more than 90 percent chance of at least one rate hike by year-end, according to the CME Group's FedWatch tool. Markets may be getting a temporary reprieve from geopolitical headlines this week, but central banks are still closely watching the conflict's impact on inflation.

1:43Last week, the European Central Bank noted the war's full inflationary impact has yet to play out. The cycle has been escalation leading to de-escalation, but it is difficult to forecast how the war will evolve, said Michelle Gibley, Director of International Equity Research and Strategy at the Schwab Center for Financial Research. In the meantime, inflation has stayed elevated and more central banks are hiking rates, which tends to result in slower economic growth in the future. This week's biggest economic reports will arrive Thursday with the release of the Personal Consumption Expenditures, or PCE, Price Index and Gross Domestic Product, or GDP data.

2:26Together, these reports will help answer two of the market's biggest questions. Is inflation still cooling and is the economy beginning to weaken? Consensus expects second quarter GDP growth of 2.1 percent, which would be in line with the first quarter's figure. June headline PCE is seen cooling to 3.7 percent versus the 4.1 percent seen in May.

2:52Meanwhile, earnings results from Microsoft and Meta tomorrow, followed by Amazon and Apple on Thursday, could help determine whether investors can regain confidence in the AI trade. Earnings call commentary, cloud revenue growth, and capital spending plans will be in the spotlight as investors look for signals that record AI spending is beginning to generate meaningful returns. The tech sector is expected to contribute 50 % or more of earnings growth for the S &P 500, MSCI Japan, and MSCI emerging markets this year. A large reliance by markets on AI creates a potential risk, said Ghibli. Negative reactions to earnings beats in tech suggest some wavering of conviction.

3:39If AI investment disappoints, either because we don't need as many models or open-source models from China make more inroads, markets could struggle to post gains given the increased concentration. Looking to the earnings lineup today, investors will be focused on Coca-Cola, Boeing, S &P Global, Corning Incorporated, GSK, United Parcel Service, and Barclays before the bell. Then, after markets close, Visa, KLA Corporation, Seagate Technology, and Waste Management will be closely watched. The packed earnings slate should provide a read on both AI demand and consumer spending. Data storage and semiconductor equipment companies could offer clues about the pace of AI infrastructure investment moving forward, while companies like UPS, Visa, and Coca-Cola may shed light on the health of the consumer.

4:35In economic data today, the Conference Board's July Consumer Confidence Index, due at 10 a.m. Eastern Time, is in focus. Consumer confidence rebounded in the past two reports amid easing gasoline prices, but a softening labor market and persistent inflation continue to weigh on sentiment. Consensus expects a slight bump in the Consumer Confidence Index to 92.5 from 91.2 last month. With inflation in the spotlight, the May S &P quotality Case-Shiller Home Price Index will also be closely monitored this morning. Because shelter prices account for roughly one-third of the Consumer Price Index, any acceleration in home price growth could complicate the inflation outlook.

5:19Consensus expects a 1.3 % euro-over-year jump in home prices, making a slight increase versus the 1.1 % seen in April. In economic news on Monday, durable goods orders, which are widely viewed as a leading indicator of industrial activity, disappointed, rising just 0.3 percent compared to the expected 2.1 percent. Supply chain issues and broader economic uncertainty may be limiting the pace of growth in new orders, but one month does not make a trend. On the earnings front, shares of AstraZeneca rose slightly after the UK-based drugmaker topped Wall Street's earnings estimates on strong oncology sales.

6:02Investors also got a look at the health of the AI infrastructure trade from Cadence Design Systems. A semiconductor design firm topped earnings per share estimates and raised its 2026 outlook across the board, leading its shares to rise sharply in early after-hours trading. Looking at individual market movers on Monday, shares of ASML sank 5.8 percent after The Information reported that China has begun manufacturing deep ultraviolet lithography machines, which could challenge the company's dominance in that market. SanDisk shares plunged 11 percent after a blockbuster IPO from Chinese memory maker Cheng Xin Memory Technologies intensified fears of heightened competition.

6:50China has been moving up the value chain in recent years and has government backing to invest in tech self-sufficiency, said Ghibli. China is not far behind the U.S. in the race for AI dominance, but still needs to invest in the capital equipment to manufacture semis to catch up to the West longer term. The PHLX Semiconductor Index continued its recent decline on Monday amid the news of new Chinese competition. falling 2.2 % as investors rotated out of the once-high-flying sector. Shares of advanced microdevices, Lamb Research, KLA Corporation, and Micron Technology all fell sharply to start the week.

7:33Meanwhile, software stocks, which have been plagued by investor concerns about AI disruption, rebounded. Shares of Workday and Salesforce rose 9 % and 6.1 % respectively. Overall, 7 out of 11 S &P 500 sectors ended Monday in the green. Communication services and consumer staples were the biggest gainers as investors largely took risk-off approach, while energy lagged amid falling oil prices. Despite the drop in tech and energy stocks on Monday, breadth remained strong. Roughly 69 % of S &P 500 stocks traded above their 50 - and 200-day moving averages.

8:17The Dow Jones Industrial Average rose 262.83 points or 0.51 % Monday to 52 ,210.08. The S &P 500 Index added 1.20 points or 0.02 % to 7 ,413.18. And the Nasdaq composite fell 43.74 points or 0.18 % to 24 ,932.08.

9:07This 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.

9:36For important disclosures, see the show notes and schwab.com slash market update podcast.