Tesla, Alphabet Results Digested with ECB Awaited

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 Thursday, July 24th. Results from Tesla and Alphabet are under a microscope this morning after major indexes enjoyed another record-setting session Wednesday. The Nasdaq Composite closed above 21 ,000 for the first time, and the Dow Jones Industrial Average climbed above 45 ,000. The Dow Jones Industrial Average finished just a few points below its all-time peak close achieved last December 4th. Alphabet's second quarter results of$2.31 per share for earnings and$96.43 billion in revenue easily beat the fact-set consensus for both metrics.

1:00Analysts had expected earnings per share of$2.18 and revenue of$93.96 billion. YouTube ad revenue and Google cloud revenue both topped analysts' forecasts, but shares initially edged lower in post-market action. Alphabet also raised its capital expenditures projection to$85 billion from$75 billion. That could help semiconductor stocks, especially AI-related ones like NVIDIA, Broadcom, and Advanced Microdevices. Tesla's earnings and revenue met analysts' expectations of$0.40 per share and$22.5 billion, respectively. Vehicle deliveries fell 13 % from a year earlier, no surprise since investors already knew about dropping deliveries.

1:47A slide in gross margin of 71 basis points year over year to 17.2 % caught investors' eyes, though gross margin rose 90 basis points sequentially. Shares inched higher after the report. Investors also await a rate decision from the European Central Bank early today. The ECB is on pause given prior progress on inflation and rate cuts, said Michelle Gibley, Director of International Research at the Schwab Center for Financial Research. However, if inflation eases further either due to excess goods destined for the U.S. ending up in Europe or to the extent tariffs on the EU rise and retaliation happens and creates risks to growth.

2:30The ECB could resume cuts in the autumn.

2:37Yesterday's big news was a trade agreement between Japan and the U.S. that set U.S. tariffs at 15 % on that country's products. While the level is far above where it was in recent years, it's below some worst-case scenarios that the market had sniffed out. As often seen in markets, better bad news can lift spirits. And the close of a deal eases some uncertainty. President Trump said Wednesday a deal with the EU may be close, but the tariff levels in that one, if it comes, will likely be eyed closely. So far, earnings season looks relatively positive, though analysts set the bar for success rather low, partly for that reason companies that fail to meet estimates or that deliver even the slightest miss on guidance are taking it on the chin.

3:27Earnings misses are being punished more than earnings beats are being rewarded, said Lizanne Saunders, chief investment strategist at Schwab. Earnings season so far is in line with past quarter's averages in terms of beat rate and the percent of companies that have beaten analysts' estimates. So far, 88 % of S &P 500 companies that have reported posted earnings per share above the consensus estimate, while 67 percent beat on revenue. Earnings per share growth so far is 8.8 percent, with 115 S &P companies reporting. The S &P 500 12-month forward profit margin recently rose to nearly 14 percent, a new all-time high, said Kevin Gordon, director and senior investment strategist at Schwab.

4:13Margins are under scrutiny in part because of tariffs, though industrial equipment and automotive companies with traditionally narrower margins may suffer more than high-margin businesses like chipmakers. Widening margins are one key component of earnings growth and could reflect improved productivity linked to AI and other technical advances. Speaking of AI, power deals designed to power energy-hungry data centers and other businesses continue to ramp up. The latest involved nuclear startup Oklo and data center infrastructure provider Vertiv, and shares of both companies spiked yesterday. In addition, GE Vernova, another company in the power field, saw shares rally Wednesday on strong earnings and guidance.

4:59The AI Power's secular growth story continued to be supportive for the bulls, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. Peterson sees a push-pull in the markets, where they currently trade near all-time highs. On the one hand, the economy has been resilient, earnings are strong, and trade deals are a net benefit, at least so far. Technicals also remain bullish, he said. Bearish factors include upward momentum stalling, selling on the news reactions to popular companies reporting earnings, and weak seasonal factors. Also, based on trade deals to date, tariffs appear to be in the 15-20 % range, not the 10 % some bulls had desired.

5:45Data is light this week, but yesterday featured June existing home sales. The headline of$3.93 million on a seasonally adjusted annual basis missed the briefing.com average estimate of$4 million and was down slightly from May. Stubbornly high mortgage rates continue to keep supplies down and prices up. In perhaps an attempt to break the logjam, President Trump earlier this week suggested removing capital gains taxes on home sales, and that appeared to propel homebuilder shares. Today brings weekly initial jobless claims, which have been steadily falling since a brief surge in June. Continuing claims remain near three-year highs, possibly a sign of slow hiring.

6:30Treasury yields rose across the curve yesterday. This could reflect rising international yields, particularly in Japan, where the trade agreement raised growth prospects and inflation worries. A U.S. $13 billion 20-year bond auction generated good demand, Wednesday Briefing.com reported. The next Fed meeting is less than a week away and looms Wednesday. Investors anticipate less than 3 % odds of a rate cut according to the CME FedWatch tool, but the market builds in 62 % odds of at least one cut by September. On Wednesday, major indexes again raced to new all-time highs in a broad rally that included almost every S &P 500 sector except for a few defensive ones like staples and utilities.

7:19Excitement around the trade deal and hopes for another soon with the EU, along with earnings news, sent stocks higher. Large industrial firms like Boeing, Lockheed Martin, General Motors, Toyota and Whirlpool enjoyed gains Wednesday after GE Vernova reported strong earnings and guidance. GE Vernova shares rose double digits. Industrials ended up a leading sector, but health care and energy also competed for the brass ring. For health care, it was the second strong day as investors piled into Eli Lilly, Baxter, Moderna, and Humana. The rallies in energy and health care could reflect a turn toward value stocks after they spent much of the year lagging, though a couple of days isn't a trend.

8:05The meme craze from a few years ago is back, meaning investors might want to be extra cautious about trading in high-flying but low-market cap stocks. Kohl's earlier this week was an example, and Krispy Kreme is another. The stocks are making sharp moves not based on fundamentals, perhaps due to social media chatter about short interest. The Dow Jones Industrial Average soared 507.85 points Wednesday, or 1.14%, to 45 ,010.29. The S &P 500 index climbed 49.29 points, or 0.78%, to 6 ,358.91, and the NASDAQ composite rose 127.33 points, or 0.61%, to 21 ,020.02. The Russell 2000 index climbed 1.5%, and strength in small caps is sometimes seen correlating with U.S.

9:05economic rigor. 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.

9:35For important disclosures, see the show notes and schwab.com slash market update podcast.