Tesla Posts Mixed Results, Speculative Fervor Ebbs

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, October 23rd. On Wednesday, weak results from Netflix catalyzed a market retreat. Today, investors warily eye a mixed earnings report from Tesla and await key inflation data as China trade concerns continue to bubble. Tesla's third-quarter earnings per share missed the fact-set consensus by six cents, but revenue climbed nearly 12 percent from a year ago to$28.09 billion, topping consensus of$26.54 billion as total automotive revenue rose 6 percent. In its release, Tesla touted increased vehicle deliveries and growth in energy generation and storage, but it noted a 40 percent year-over-year drop in operating income as expenses rose.

1:08Initially, investors didn't seem sure what to make of the report, and shares of Tesla wavered in post-market trading falling about 1%. Tesla is the first mega cap to report, with five more expected next week. This comes as tech stocks struggle following soft guidance from Texas Instruments that hurt much of the semiconductor sector on Wednesday. Many of the most speculative tech names have taken it on the chin this week, and small caps are also hurting as investors seem more averse to the riskier side of the field.

1:44Treasuries edged higher Wednesday, and the 10-year yield remains near recent six-month lows of around 3.95%, possibly a signal of market caution and a flight toward perceived safety. The flight to safety also shows up in this week's gold, silver, and crypto sell-off, which occurred as the dollar posted light gains. This is in some ways opposite of what investors might expect less than a week before an expected Federal Reserve rate cut, but may reflect growing concerns about lack of government data with the shutdown now three weeks old. Estimates for Friday's Consumer Price Index, or CPI, indicate little chance of any relief for stubborn U.S.

2:27inflation. Analysts see year-over-year core CPI growth of 3.1%, well above the Fed's 2 % target. Core excludes food and energy. Monthly headline and core inflation growth are seen at 0.4 % and 0.3%, respectively, briefing.com. Those are both the same as in August. The government is publishing CPI because it needs the data to adjust Social Security payments, but no other data are expected so long as the shutdown lasts. Futures trading builds in 97 % chances of at least a 25 basis point rate cut by the Fed next Wednesday, according to the CME FedWatch tool. Investors expect another cut in December, but that's less certain, especially if inflation remains elevated.

3:15There hasn't been much of a catalyst behind the recent downturn in Treasury yields, given the lack of government data, but the drop below 4 % is noteworthy. We're not convinced it will move meaningfully lower from here given sticky inflation and budget concerns, said Colin Martin, Director of Fixed Income Strategy at the Schwab Center for Financial Research. Unless the labor market weakens significantly or economic growth slows considerably, we think the 10-year yield will stay near 4 % or higher, even in the face of Fed rate cuts. After last week's sudden credit scare, it's probably a good idea for investors to keep an eye on spreads.

3:54If the spread widens between Treasury yields and corporate yields, it might indicate more caution by lenders, which could slow economic growth. Headline-grabbing corporate defaults have not stopped the momentum in the credit markets, Martin said. Credit spreads for both investment-grade and high-yield corporates remain very low despite those headlines. Gold fell again Wednesday, but not as dramatically as earlier this week, when it fell 5.7 % Tuesday for its worst day in 12 years, according to Barron's. While central bank buying helped drive gold's year-long rally, the parabolic move of the past two months has been driven largely by retail buyers piling into gold and exchange-traded funds, or ETFs.

4:40This had pushed gold well into overbought territory, where it had been for some time before Tuesday's sharp sell-off. The pullback of the last two days is part of a rolling correction in frothy, speculative areas of the markets, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research, with traders taking profits wherever possible to offset losses in other areas. Major indexes wobbled Wednesday, falling more than 1 % at the midday lows as semiconductors lost ground following disappointing results from Texas Instruments. The soft Netflix earnings report and trade worries also hurt sentiment, and the S &P 500 struggled to stay above the key support level of 6 ,683, the 20-day moving average.

5:28It had closed below the 20-day average, six straight sessions heading into this week, before clawing back above it Monday. In its struggles Wednesday, the index dipped below that level again, but managed to come back by late in the session to post a third straight close above it, just below$6 ,700. There's not really a clear catalyst, but it seems like a combo of Texas Instruments and Netflix earnings disappointments combined with more negative China and Trump administration trade headlines, said Alex Coffey, senior manager of trading and derivatives at Schwab. Coffey cited Wednesday's Reuters report that the Trump administration is considering a plan to curb software exports to China to retaliate against China's latest round of rare-earth export restrictions.

6:17The plan follows through on Trump's threat to bar critical software exports to China by restricting global shipments of items that contain U.S. software or were produced using U.S. software, Reuters said. Sector-wise, defensive areas led yesterday with energy, health care, staples, real estate, and utilities all rising, despite the overall lower action in the S &P 500. Energy got a bid as crude oil prices rose on more tensions between Russia and Ukraine. Falling U.S. crude and energy product supplies contributed to energy's strength and came at an unusual time of year, considering this is when the industry typically builds stockpiles.

7:01Possible finalization of a trade deal between India and the U.S. that would force India to cut imports of Russian oil also lifted crude. Checking individual stocks Wednesday, Netflix fell 10 % after the streaming giant missed consensus earnings per share by more than$1 as operating margins slid. Revenue came in basically as expected, and the company stressed solid customer engagement and a healthy ad climate. The earnings miss came as Netflix paid more than$600 million to settle a tax dispute with Brazilian authorities. Alphabet climbed 0.5 % after Bloomberg reported that Anthropic and Google are in talks about a multibillion-dollar cloud deal.

7:45Shares of Amazon, which also supplies Anthropic, fell almost 2%. Intuitive Surgical posted 13 % gains Wednesday, lifted by earnings that beat analysts' estimates and reflected growing demand for its surgical robots, Reuters reported. Near-term technicals remain relatively bullish for the S &P 500 as long as the index stays above the 50-day simple moving average near 6 ,570. Of course, we could get some chop as froth gets taken out of some areas of the market, Schwab's Peterson noted. And the S &P 500's Relative Strength Index, or RSI, a momentum indicator, doesn't show any signs of the market leaning toward overbought territory.

8:31RSI was recently just below 55, and 70 would signal overbought.

8:40The Dow Jones Industrial Average gave back 334.33 points Wednesday, or 0.71%, to 46 ,590.41. The S &P 500 Index dropped 35.95 points, or 0.53%, to 6 ,699.40. and the NASDAQ composite slipped 213.27 points or 0.93 % to 22 ,740.39. 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.

9:39For important disclosures, see the show notes and schwab.com slash market update podcast.