Stocks on Pace for Another Solid Week, Led by Tech

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.

0:19I'm Colette O 'Claire, and here is Schwab's early look at the markets for Friday, May 29. Today's calendar is a relative blank, meaning investors can spend their pre-weekend hours digesting Thursday's flood of data and earnings and keeping tabs on developments in the Middle East. Yesterday's numbers from the government and companies presented a rather mixed picture, and Wall Street initially seemed unclear how to react. Weakness at the start of the day faded as buyers bought the dip, especially in the chip sector, though the market didn't move dramatically. Major indexes are on pace for another positive week and continue forging record highs, with strong results from Dell late Thursday, another potential tailwind.

1:05Dell shares jumped 13 % initially in post-market trading Thursday after easily topping earnings consensus and issuing better-than-expected guidance. Quarterly revenue grew 88 % year-over-year. The company booked$24.4 billion in AI orders and raised its AI server revenue expectations for fiscal 2027 to$60 billion. dollars. Dell's results appear to reinforce AI demand growth, possibly supportive for Friday's tech trade. Beyond that, crude oil and yields could take the spotlight amid the lack of data and earnings today, and while both are down this week, they remain at levels that could put a break on stocks.

1:54Yields are likely to remain elevated across the curve, said Cooper Howard, director of Fixed Income Research and Strategy at the Schwab Center for Financial Research, or SCIFR. The long end of the curve is approaching multi-year highs, reflecting ongoing concerns about U.S. fiscal sustainability, term premium repricing, and concerns that inflation will stay elevated. Next week brings several critical earnings, arguably none bigger than Broadcom late Wednesday. A member of Wall Street's trillion-dollar club, shares flattened over the last month after an epic April rally. Like other major chip firms, Broadcom's results can give investors insight into the pace of hyperscaler AI spending.

2:42The coming week is also critical from a jobs perspective, offering several reports, including May non-farm payrolls next Friday. That's preceded by job openings on Tuesday and the ADP private sector jobs report on Wednesday. Layoffs data arrive early Thursday. Yesterday's April Personal Consumption Expenditures, or PCE, price index was slightly below expectations at 0.4 % for headline and 0.2 % for core, which strips out food and energy. Consensus from Briefing.com was 0.5 % for headline and 0.3 % for core. Annual core PCE rose 3.3 % as expected and up from 3.2 % in March, while headline PCE rose 3.8%.

3:34Inflation is still elevated and rising more than the Fed wants, but it was better than expected, Howard said. Though PCE seemed relatively benign, the government's second estimate, first quarter GDP estimate of 1.6 % annualized, down from the first estimate of 2%, might have disappointed those looking for a stronger economy. The data does point backward, but it's in the realm of analysts' current estimates for second quarter annualized GDP growth, too, and well below levels that economists would deem robust. Perhaps the bright side of weaker GDP growth is that it might mean less inflation pressure, though the question is how it might affect jobs.

4:21A weak main on-farm payrolls results following the slower economic growth figure might get investors concerned about consumer spending and how long it can keep up current resilience. Speaking of which, Thursday's data showed personal income was flat in April, while personal spending rose a large 0.5%. This points to consumers staying resilient in the face of high gas prices, though the question is, how long can it last with income not climbing? A concern from these numbers is that it shows investors are tapping into their savings to keep up with spending, and the longer the situation in Iran lasts, the more likely we continue to see higher energy costs further hurting consumers on the low end of the K, Howard said, referring to the so-called K-shaped economy featuring big spending from high-income consumers and weakness at the lower end of the income scale.

5:22Soft income growth also suggests wages might be stagnant, though one report isn't a trend. It puts additional focus on the wages metric of non-farm payrolls and suggests the low-fire, low-hire economy that tends to suppress wage growth may have continued last month. Current heavy borrowing costs also apparently didn't hurt spending in April, though some measures of consumer health, including mortgage applications and auto sales, are down recently. On a brighter note, the GDP report's inflation monitor, the GDP chain deflator, came in at 3.5%, down a touch from 3.6 % in a prior report and well under expectations of near 4.5%, while April durable goods, excluding transportation, rose 1.1%, solid monthly growth contrasting with the dip in GDP.

6:23All this could factor into expectations for the Fed's next meeting the week after next. As of late Thursday, futures trading pegged virtually no odds of a rate move, according to the CME FedWatch tool. The tool pegged chances of a hike any time this year at roughly 50-50. We expect a continued pause by the Fed, with the next move likely to be a hike, Howard said. What would likely shift the outlook for the Fed to move toward a cutting cycle is sustained weakness in the labor market and signs that inflation is moving towards the 2 % target. In other data yesterday, initial weekly jobless claims of 215 ,000 roughly met expectations, while new home sales for April stumbled 6.2 % from March and 11.3 % from a year ago.

7:16Median sales prices keep rising. Turning to the host of earnings outleek Wednesday and Thursday, retailers generally impressed while software firms held their own. Snowflake's parabolic rally following a guidance increase from the software company gave that sector a lift, while software giant Salesforce also managed light gains on earnings. On Thursday, major indexes finished higher across the board in a relatively broad move extending beyond the tech sector. Small caps were among the leaders and volatility continued to slide, suggesting participants feel less uncertain. War news continues to inspire knee-jerk reactions in crude and yields, but there's a sense it's taken a back seat, at least for now, barring a near-term resolution or a major reignition of the conflict.

8:11CNBC reported late yesterday that negotiations had reached terms of a deal to extend the ceasefire that President Trump hadn't signed off yet. Any further developments here Friday could be influential on Wall Street, naturally. Treasury yields were stable much of Thursday, with the 10-year note pivoting around 4.45 percent after the flood of mixed morning data. That's down sharply from peaks near 4.7 % earlier this month, but well above what had been short-term resistance until recently near 4.4%. A seven-year Treasury auction Thursday saw decent demand. The tech rally looks rather extended, meaning major indexes could be vulnerable to a pullback in that sector.

8:58The vulnerability would likely be less if other sectors squashed some muscle, and there were signs of that this week as breadth improved. Still, only 15 % of S &P 500 stocks outperformed the index over the last two months, down sharply from 60 % that had in the two months leading up to the worst start in late February. Thursday saw 5 of 11 S &P 500 sectors climb in generally risk-on trading, where defensive areas like stables, real estate, and utilities brought up the rear. Healthcare, sometimes seen as defensive, was the runaway leader most of the day, however, followed by tech and discretionary.

9:40Healthcare got a boost from Agilent's 18 % gain following strong earnings, while Eli Lilly benefited from CBS restoring coverage of obesity drug Zetbound, according to media reports. Checking other individual movers Thursday, Snowflake, a cloud-based software company, spiked 38 % on earnings and revenue that beat consensus and higher-than-expected guidance. Snowflake announced it expanded its collaboration with Amazon Web Services, a division of Amazon. Several software company stocks followed Snowflake higher, including ServiceNow, Palantir, Palo Alto Networks, and Datadog. Chip and AI-related names resumed their rally after Wednesday's pause.

10:28Big gains Thursday came from the likes of Arm Holdings, Supermicro Computer, Oracle, Applovin, and Qualcomm. Dollar Tree jumped 6.3 percent as quarterly results topped expectations for earnings per share. The company also guided for above consensus earnings. Best Buy soared 18%, bolstered by earnings that topped Wall Street's expectations and reaffirmation of its fiscal 2027 guidance. Sales at stores open a year or more rose 2 % annually in the quarter. Kohl's jumped 20%, earnings beat expectations, and revenues roughly matched consensus, while the company reaffirmed guidance and reported sales at stores open a year or more fell 1.1 percent.

11:16It was a tough day on the railroad. Shares of Norfolk Southern and Union Pacific fell 5 percent and 4 percent respectively, as a key regulator paused its review of the firm's planned$72 billion merger, Bloomberg reported. The Dow Jones Industrial Average gained 24.69 points Thursday, or 0.05%, to 50 ,668.97. The S &P 500 Index rose 43.27 points, or 0.58%, to 7 ,563.63. and the NASDAQ composite surged 242.73 points or 0.91 % to 26 ,917.47. This has been the Schwab Market Update podcast. To stay informed, visit schwab.com slash market update or follow for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or review.

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12:36For important disclosures, see the show notes and schwab.com slash marketupdatepodcast.