I'm Colette Auclair, and here is Schwab's early look at the markets for Friday, October 30:
Halloween approaches after a spooky month for the AI sector that sent technology stocks down, up and then down again. The weakness continued after the close yesterday as Intel plummeted 16% on disappointing guidance and Amazon flopped 10% after its quarterly results came up short.
Weak results from Alphabet and forecasts for slower AI-related spending growth from both Oracle and Microsoft ganged up on the tech sector yesterday before the Intel and Amazon news.
Intel's revenue guidance for the fourth quarter was a range of $15 billion to $16 billion, below the $17.29 billion FactSet consensus. The chip giant blamed "near-term headwinds across the PC industry." Demand for central processing units, or CPUs, remained "robust," Intel said. Data center and AI revenue rose 78% annually to $7.3 billion.
Amazon's third quarter growth was hurt partly because it switched its Prime Day event to the second quarter in 2026 from the third quarter in 2025, meaning a tough comparison. Overall revenue rose 12.1% annually to $201.94 billion, just below the $202.22 billion consensus. Earnings per share of $1.89 fell short of $1.96 consensus.
Sales in the Amazon Web Services cloud business rose 39% annually, up from 37% the prior quarter. Additionally, Amazon kept its forecast for 2026 capital expenditures unchanged at approximately $220 billion. Other guidance was in line for the fourth quarter.
Amazon and Intel followed a dramatic miss from Alphabet late Wednesday as earnings per share fell well short of consensus and Search revenue also missed. The Search weakness—with more queries directed to "AI mode"--raised concerns about AI hurting Alphabet's key product. Shares of Alphabet plunged 13%.
Spending on AI remains extremely heavy. But Oracle and Microsoft both suggested there could be limits, and recent sharp increases in borrowing costs make it harder for neocloud firms like Nebius and CoreWeave to raise capital. Microsoft announced plans Thursday to raise $25 billion through a bond sale. However, Amazon's decision not to raise spending also raised worries about AI demand.
All this comes ahead of Tuesday's U.S. mid-term election, where there's bipartisan anger over data centers and concerns that regulations could tighten.
Data Thursday painted a picture of heightened inflation even as U.S. economic growth looked robust. Though the Federal Reserve declined Wednesday to raise rates after September's hike, investors widely expect another upward adjustment at December's meeting. As of late Thursday, odds were 78% of a December hike, according to the CME FedWatch Tool.
The September Personal Consumption Expenditures (PCE) price index came in just as Wall Street expected Thursday at 3.6% on an annual basis and 3.1% for core excluding food and energy.
"This is still elevated and too high for the Fed's liking," said Cooper Howard, director of fixed income research and strategy at the Schwab Center for Financial Research (SCFR). "For the Fed, I think it means that December is very much in play. The economy is strong, the labor market is resilient, and inflation is high, which all point to the Fed needing to tighten further."
Digging in, PCE rose 0.5% and core PCE rose 0.3% monthly, both meeting analysts' estimates. Core growth was the same as in August, but headline rose from August's 0.3%, while annual numbers rose from August's 3.4% and 3%.
Energy prices drove headline PCE growth, no surprise considering crude's strength. On an annual basis, goods PCE rose 3.9% year over year and services rose 3.5%. Under the surface, about 48% of the subcomponents of PCE are still rising at 3% or more.
Also yesterday, the government delivered its first estimate of third quarter gross domestic product (GDP) growth, pegging it at 3.4% on a seasonally adjusted annual basis. The consensus was 3.2%, and the second quarter's was 2.2%.
"GDP was the bright spot, driven mostly by personal consumption," Howard said.
Overseas Thursday, the European Central Bank (ECB) kept rates unchanged at 2.5%, as expected, and announced the resignation of President Christine Lagarde, effective next February. The ECB warned of energy-related inflation and lower growth, Bloomberg reported. Markets price in another 70 basis points of tightening by the end of 2027. The Bank of Japan (BOJ) met earlier today and was expected to also keep rates unchanged.
Though today is light, there's a traffic jam of energy firms reporting this morning including ExxonMobil, Chevron, and BP. The energy sector is expected to post strong bottom line results thanks to steadily rising crude oil prices.
The earnings highlight next week is Apple late Monday. That almost rounds out the Magnificent Seven reports, leaving only Nvidia later next month.
Apple initially slid following July earnings on disappointing guidance, though iPhone revenue exceeded expectations. Rising costs, especially for memory chips, remain a concern. However, Apple posted a record high Thursday above $350 a share.
Next week spotlights U.S. labor, culminating a week from today with the October nonfarm payrolls report.
Major indexes fell moderately to sharply Thursday, mainly on tech weakness. A quick look at the indexes belied underlying positive trends as the S&P 500 Equal Weight Index surged 1.2% even as the S&P 500 fell 0.3%.
That showed up in breadth, where eight of 11 S&P 500 sectors finished flat to higher. Communication services, home to Alphabet, fell almost 7%, and defensive sectors like real estate, health care, and staples topped the scorecard. That said, cyclical areas including financials, materials, and industrials posted gains, possibly more evidence of the solid economy Fed Chairman Kevin Warsh referred to on Wednesday.
This surge in cyclicals came as crude remained above $100 per barrel but fell slightly and the 10-year Treasury yield dropped below 5%. While that could reverse quickly if geopolitical drama resumes, it suggests the market is responsive when underlying pressure retreats even slightly.
Market breadth improved Thursday with 58% of S&P 500 stocks above their 50-day moving average, up from 20% early this month. Momentum appears to be middle of the road with the S&P 500's Relative Strength Index (RSI) just below 50. It topped 60 earlier in October.
Technically, the S&P 500 Index managed to close above its 50-day moving average of 7,698 after briefly trading below it.
Checking individual movers Thursday, Marvell Technology skidded 15% and Lumentum rose less than 1% after Bloomberg reported late Wednesday that Marvell is in advanced talks to buy Lumentum, a data center optics maker.
ServiceNow tumbled 28% after missing analysts' estimates for earnings per share, though quarterly revenue met expectations.
Other software shares also fell in the wake results from ServiceNow and on renewed concerns about competition from AI. Crowdstrike and Palo Alto Networks each fell and Snowflake lost 6%.
Neocloud firms CoreWeave and Nebius slipped 8% and 4% on concerns about tight financial conditions for companies spending heavily on the data center buildout.
Caterpillar toppled 9% despite topping consensus on earnings per share and hitting analysts' revenue estimates. However, it kept its annual revenue growth forecast unchanged, disappointing investors grown used to major gains driven by AI-related construction needs.
Chipotle rallied 9% even though it missed Wall Street's earnings estimates. Sales at stores open a year or more rose for the third straight quarter.
Eli Lilly added 6.6% after earnings and revenue easily surpassed analysts' consensus, led by demand for weight-loss drug Zepbound and diabetes drug Mounjaro. The company also raised its 2026 revenue guidance.
Norwegian Cruise Line climbed 12% as earnings and revenue both beat consensus, though its guidance for fourth quarter earnings per share was below estimates.
The Dow Jones Industrial Average® ($DJI) dropped 132.54 points (-0.25%) Thursday to 52,342.56; the S&P 500 Index ($SPX) fell 23.59 points (-0.30%) to 7,720.39, and the Nasdaq Composite® ($COMP) gave back 365.12 points (-1.38%) to 26,184.72.