Trade, D.C., Keep Stocks on Edge Despite Earnings

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 16th. Several major Federal Reserve speeches dominate today's calendar, along with more financial and semiconductor earnings reports. But government data is still missing in action, with the shutdown now past its two-week anniversary. This raised concerns ahead of the Fed meeting in less than two weeks, with Chairman Jerome Powell noting earlier this week that the Fed's job will be, quote-unquote, more challenging without data. One possible shutdown touchpoint could be the November 1st start date for open enrollment in healthcare.gov, said Michael Townsend, Managing Director of Legislative and Regulatory Affairs at Schwab.

1:01That's when health care rate increases for 2026 could start to hit home for many Americans as Obamacare-enhanced premium tax credits are set to expire at the end of this year without congressional action. In shutdown-related developments yesterday, the Senate failed again to pass a temporary funding measure and a federal judge blocked further layoffs of government employees. For now, however, earnings compete with trade and Washington for attention, and the season is off to a solid start. Although it's early in earnings season, so far, so good, said Lizanne Saunders, chief investment strategist at Schwab.

1:44There's been an uptick in consensus to more than 9 % year-over-year growth. Morgan Stanley and Bank of America both climbed Wednesday after easily topping analysts' earnings and revenue estimates helped by solid trading activity and investment banking. This follows better-than-expected results Tuesday from several other large banks. Bank of America's quarter was propelled in part by a 43 % jump in quarterly investment banking revenue. The strong stock market this summer and easing U.S. regulations have fueled the market for initial public offerings and mergers, while a steepening U.S. yield curve has helped net interest income for Bank of America and other major financial firms.

2:27The early part of earnings season is dominated by financial firms, but there's a sprinkling of other results as well. United Airlines reported late Wednesday and saw shares inch higher initially in post-market action as earnings per share topped estimates and revenue came in as expected. The company also guided for above-consensus fourth-quarter revenue. Another transport firm, J.B. Hunt Transport Services, saw shares rise double digits in post-market trading after reporting better-than-expected results, though revenue did fall slightly from a year earlier. And today brought earnings from Taiwan Semiconductor Manufacturing, which makes chips for many key players, including NVIDIA.

3:09Wednesday's solid guidance from chip manufacturing equipment maker ASML cheered investors and lent strength across the sector. Though ASML missed quarterly revenue expectations, the focus seemed mainly on guidance. ASML said it doesn't expect sales to fall in 2026 from 2025 and forecast sales to rise 15 % this year, citing continued positive momentum around investments in AI. With trade still in focus after the last several days of charges and counter-charges between Washington and Beijing, shares of agriculture giants Archer Daniels Midland and Bungie Global climbed Wednesday. This followed President Trump's threat to end imports of Chinese cooking oil in response to China not buying U.S.

3:59soybeans. China and the U.S. are in talks to de-escalate trade tensions, Treasury Secretary Scott Besant said this week on Fox Business. More dialogue could occur with Chinese officials in Washington for annual fall meetings of the World Bank and the International Monetary Fund, Besant added. However, in a CNBC interview Wednesday, Besant said the U.S. won't change its trade negotiating stance on China based on U.S. market volatility. With the government shutdown two weeks old as of this recording, reports that won't come out today as scheduled include producer prices, retail sales, and weekly jobless claims.

4:37In data Wednesday, the MBA Mortgage Applications Index dropped 1.8 percent from the prior week, and the Empire State Manufacturing Index came in at 10.7, above the briefing.com consensus for a drop of negative 1.8. The headline figure was in positive territory above zero and well above the prior reading of negative 8.7. Today brings more data with the Philadelphia Fed Index and the NAHB Housing Market Index. Investors still expect a rate cut at the Fed's meeting October 28th and 29th and another one in December, according to the CME FedWatch tool. Futures trading builds in nearly 98 % chances of one rate cut and 95 % chances of two before year-end as of late Wednesday.

5:26We believe a rate cut at this month's meeting is likely, but we're less confident in another cut in December than the Fed Funds Futures Market implies, given the high inflation rate, said Colin Martin, Director of Fixed Income Strategy at the Schwab Center for Financial Research. Fed speeches are scheduled throughout the day, including this morning from Fed Governors Christopher Waller, Michael Barr and Stephen Myron. Major indexes had a roaring start Wednesday, but couldn't hold on to their biggest gains. By midday, the S &P 500 index was back below its 20-day moving average of near 6 ,674, once again unable to gain traction above 6 ,700.

6:10It closed just below the 20-day, up 0.4 percent, but well below where it was a week ago. It was the fourth straight close below the 20-day, the first time it's happened since April and a possible sign of technical wobbling. The market initially got boosted yesterday by Treasury Secretary Scott Besson's comments about easing tensions with China, but then took a blow when he told CNBC the Trump administration would set price floors across a range of industries to combat what he believes is market manipulation by China. This raised the scepter of additional trade tensions and appeared to heighten anxiety.

6:50For the S &P 500, the 50-day moving average near 6 ,550, a level that roughly matches last Friday's lows, is now critical support, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. That level got retested and held on Tuesday, but caution is up from a week ago. The fact that the SIBO Volatility Index, or VIX, has stayed buoyant above 20 is another possible signal, Peterson said. There are a lot of orange flags you could point to in terms of near term caution, so maybe October delivers the bearish seasonality we missed in September, Peterson said.

7:30Earnings look good so far, and the AI secular growth story is intact, but near-term trading is a different lens. In individual stock action Wednesday, semiconductor shares other than NVIDIA rose after the ASML news, including Broadcom, Marvell Technology, Micron, and Intel. NVIDIA, however, couldn't hold early gains and lost ground for the second day in a row. NVIDIA is off sharply from recent record highs amid concerns about competition, including from advanced microdevices, which has been on a roll lately. Shares of AMD rose another 9 % yesterday, still finding traction from news earlier this week about its partnerships with Oracle and OpenAI.

8:16AMD is up 46 percent since the end of September, while NVIDIA is down slightly since then. Defense companies Lockheed Martin and Northrop Grumman both fell Wednesday after Treasury Secretary Besant said they should prioritize research and development over buybacks. From a sector perspective, defensive areas like real estate and utilities led the way Wednesday, but the growth-oriented communication services and tech sectors performed well even without help from NVIDIA. Materials and industrials brought up the rear as the trade dispute continued, and discretionary stocks also retreated on concerns about consumer health.

8:57Recent auto company bankruptcies were cited Tuesday by JPMorgan Chase CEO Jamie Dimon as a warning of possible lax lending standards. The U.S. Treasury market was closed Monday for Columbus Day, but a few days later, there's not much action to indicate it's back open. Without data, there's no major drivers to push Treasury yields up or down, keeping bond market volatility low, Martin said. That might not last, as the longer the shutdown goes on and more time passes before we get official data on the labor market and inflation, the more uncertain the outlook becomes. Meanwhile, the benchmark 10-year Treasury yield trades just above one-year lows near 4 % and has generally held in a tight 15-basis point range since the shutdown began.

9:49The Dow Jones Industrial Average dropped 17.15 points Wednesday, or 0.04%, to 46 ,253.31. The S &P 500 index climbed 26.75 points or 0.40 % to 6 ,671.06. And the NASDAQ composite rose 148.38 points or 0.66 % to 22 ,670.08. 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.

10:48For important disclosures, see the show notes and schwab.com slash market update podcast.