Amazon, Apple Results Eyed After Risk-off Session

Welcome 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. I'm Colette Eau Claire, and here is Schwab's early look at the markets for Friday, October 31. Amazon and Apple wrapped up the week's packed schedule of megacap results with solid results that sent their shares up initially, after yesterday's close. In sum, all five magnificent seven stocks were reporting over the last two days surpassed expectations, but market outcomes didn't line up. Today would normally feature the personal consumption expenditures or PCE price index data, but with the government closed, the numbers vacuum continues to build. Investors now have almost no official U.S. economic data for the last two months. PCE is the Fed's preferred inflation meter and is likely up 2.8 percent year-over-year, Fed Chairman Jerome Powell said yesterday. "There has been no shutdown progress this week, and tomorrow is when funding for the Supplemental Nutrition Assistance Program, or SNAP, which provides food stamps and other assistance for about 40-million Americans, is expected to run out." Even with the DC outage, Next Week offers some breadcrumbs for investors, including the ISM Manufacturing PMI for October on Monday, the ADP Monthly Employment Report on Wednesday, and University of Michigan Preliminary November Consumer Sentiment on Friday. Thursday's meeting between Presidents Trump and Xi ended on a positive note, with the U.S. cutting fentanyl-related tariffs to 10 percent from 20 percent, and China easing restrictions on rare Earth exports. However, U.S. tariffs on imports from China remain at 47 percent, well above the level of a year ago and down from 57 percent before Thursday. The semiconductor sector, including Nvidia, slumped yesterday as no major chip-related announcements came out of Trump's meeting with Xi. Some of this week's massive rally in Nvidia, which rose nearly 15 percent from last Wednesday to this Wednesday, reflected ideas that the U.S. would ease restrictions on chip exports, which are costing the industry heavily. Nvidia last quarter guided for no chip sales to China this year, and investors will now watch to see if that changes when it reports later this month. Trump said his talks with Xi didn't involve Nvidia's advanced Blackwell chips and that Nvidia would continue conversations with China, Bloomberg reported. Since Wednesday from Alphabet, Meta and Microsoft highlighted their collective $78 billion in capital expenditures just last quarter, an 89 percent year-over-year increase, with notable focus on data center construction and graphics processing units or GPUs. All three companies increased forecasts for forward spending. All this could bode well for chip companies, but Thursday might have featured some sell-the-news trading after the sharp rally earlier this week along with pain from lack of a China deal. The U.S. and China agreement takes the temperature down, allowing resumption of soybean sales and rare earth flows, but did not allow China to access Nvidia's Blackwell chips, said Lizanne Saunders, chief investment strategist at Schwab. But these do not yet represent structural changes, and the agreement could just be a short-term pause in a longer-term supremacy struggle. Chips got the spotlight as five mega-caps reported this week with several forecasting heavier spending on AI in coming quarters. Turning to Thursday's Magnificent Seven results, Amazon shares initially climbed more than 8 percent as earnings per share of $1.95 easily outpaced expectations of $1.57 and revenue of $180.17 billion topped consensus of $177.8 billion. Amazon Web Services, the leading cloud platform, sought 20 percent growth, a sequential improvement from 18 percent the prior quarter, and one likely appreciated by bulls who have worried about market share intrusions by Alphabet and Microsoft. Amazon's guidance for the current quarter was in line with expectations, and the company said AWS is growing at its fastest pace since 2022. We continue to see strong demand in AI and core infrastructure, and we've been focused on accelerating capacity, the company said in its earnings release. Apple shares rose slightly after the company reported slightly better-than-expected earnings per share and revenues in line with consensus, along with better-than-expected guidance for its first quarter. iPhone sales came in a bit below estimates, but up from a year ago. The US 10-year note yield climbed three bases points Thursday to 4.1 percent, still getting a tailwind from Wednesday's hawkish rate cut by the Fed. This came as investors dialed back odds of a December cut to just under 73 percent by late Thursday, according to the CME FedWatch tool. That was down from 90 percent earlier in the week, before Powell made it clear that investors shouldn't necessarily expect a December cut. Powell's words shouldn't have been a big surprise, though they appeared to catch some investors leaning the wrong way. The market appeared to have gotten ahead of itself, expecting a continued series of cuts, Schwab Saunders said. In Central Bank Action Overseas, the European Central Bank, or ECB, and the Bank of Japan, or BOJ, both kept rates unchanged at their Thursday meetings. And economic strength kept the ECB from cutting further, and BOJ stood pat after a new prime minister just took office. The BOJ is likely on hold until there is more visibility on fiscal policy, said Michelle Ghibli, director of international research at the Schwab Center for Financial Research. This is potentially positive news for US treasuries, because rate hikes in Japan would likely send yields higher there, causing more competition that could weigh on US treasury values. In that scenario, yields here might go up. Yields move opposite from treasuries. Stocks had a choppy session Thursday. At one point, the Dow Jones industrial average rose more than 300 points, led by names like Visa, McDonald's, and Walt Disney, as investors appeared to turn away from tech stocks, following trade truce with China. Those gains mostly melted away by late in the day, as the market appeared to enter a more risk-off mode. The S&P 500 fell nearly 1 percent, and the Nasdaq Composite, home of the biggest tech names, capsized nearly 1.6 percent. In individual stock trading Thursday, Meta plunged more than 11 percent Thursday, even as earnings surpassed expectations, despite an unexpected $16 billion charge. The company gave fourth-quarter guidance in line with Wall Street's consensus, but higher spending plans rattled investors. Alphabet climbed 2.5 percent Thursday as earnings and revenue far surpassed Wall Street's thinking. It raised capital expenditures guidance, and cloud revenue rose 34 percent in the quarter, up sequentially from 32 percent the previous quarter. Microsoft fell nearly 3 percent, as it's better than expected earnings and revenue failed to impress investors. Eli Lilly rose 3.8 percent after earnings per share and revenue easily topped consensus views, and the company raised its full-year guidance. Sales of diabetes treatment, Monjaro rose 109 percent year-over-year, and Obesity drug Zep bound sales climbed 184 percent. Netflix jumped more than 2 percent in post-market trading yesterday, after announcing a 10-for-one stock split CNBC reported. Financials were among the top three S&P sector gainers Thursday, along with defensive elements like real estate, staples, and health care, as risk on sentiment eased. It had sold off earlier this week, and appeared to find some buying interest Thursday, briefing.com reported. The three sector is most reflective of the Magnificent 7, technology, communication services, and discretionary, and it at the bottom of the sector scorecard Thursday, all down one percent or more, and hurt by Meta and Microsoft. Checking the charts, there's plenty of room below the S&P 500's current levels before it would hit the 20-day moving average of 6,733, but that might represent a major support point. The index dipped under the 20-day several sessions earlier this month before recovering. Market momentum, measured by the Relative Strength Index for the S&P 500, dipped slightly Thursday to just below 62, but had improved substantially from under 50 just two weeks ago. The SIBO Volatility Indexer VIX inched higher this week following the Fed meeting, but remained relatively low late Thursday, just above 17. A big jump in the VIX back toward 20 or a dip in the RSI back toward 50 both could suggest more stock market weakness ahead. Another metric to watch is breadth, which narrowed substantially Thursday after climbing earlier in the week. By late Thursday, only 41% of all S&P 500 stocks traded above their 50-day moving average, and only 54% were above their 200-day moving average, the lowest since October 10. Weakening breadth implies fewer stocks participating in the rally, perhaps putting even more pressure on mega caps to keep plowing higher for the long surge to last. All this sounds rather bearish, but keep in mind that even at Thursday's lows, the S&P 500 was up more than 2% this month and 16% year-to-date and remains only 1% below the all-time intraday high of 6,920, posted as recently as Wednesday. Technically, it may be a bearish sign that the S&P 500 index closed near its low for the day. But today, investors will see if buy-the-dip sentiment becomes a factor, as it often has on recent pullbacks. The Dow Jones industrial average dropped 109.88 points Thursday or 0.23% to 47,522.12. The S&P 500 index fell 68.25 points or 0.99% to 6,822.34 and the Nasdaq Composite gave back 377.33 points or 1.58% to 23,581.14. This has been the Schwab Market Update Podcast. To stay informed, visit Schwab.com/MarketUpdate 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. It really helps new listeners find the show. Join us for another update Monday. For important disclosures, see the show notes and Schwab.com/MarketUpdatePodcast.