Here is Schwab's early look at the markets for Thursday, October 29:
Investors are navigating a tricky stretch. It involves digesting earnings from Alphabet and Microsoft yesterday, awaiting results from Amazon later today, absorbing lessons from the Federal Reserve's rate pause Wednesday, and looking ahead to key gross domestic product and inflation data before the open.
The Fed's rate meeting yesterday proved anti-climactic and markets had little reaction, though longer-term yields rose slightly after the Fed said growth is strong, up from solid in its previous statement. Fed Chairman Kevin Warsh declined to make any comments about where rates are headed but noted it's an "information rich" environment.
That's likely a reference to data between now and the Fed's December meeting, when the market widely expects it to hike rates considering no inflation improvement to date. Today's 8:30 a.m. ET Personal Consumption Expenditures (PCE) price index is from September and reflects old news, so coming attractions like the October Consumer Price Index (CPI) in mid-November and two jobs reports between now and mid-December hold weight.
So might the election next Tuesday, though Warsh said it wasn't discussed at the policy meeting. Schwab experts expect Democrats to win the House and possibly the Senate, which could have ramifications for inflation-sensitive policy including the war in Iran and tariffs.
The Federal Open Market Committee (FOMC) voted 10-2 to keep rates paused at the current range between 3.75% and 4% despite September's hotter-than-expected inflation. The Fed raised rates in September for the first time in three years. After the meeting, futures trading put odds of a 25-basis point rate hike in December at 85%, up from 78% the day before the policy statement.
"With at least one more hike widely expected this cycle, the question now is how soon the Fed will move again, and how far it is willing to go to secure price stability amid signs the labor market is softening," said Cooper Howard, director of fixed income research and strategy at the Schwab Center for Financial Research (SCFR). "Schwab expects two more rate hikes this cycle, depending on the pace and breadth of inflation."
That set the stage for Alphabet and Microsoft after the close. Results looked very different at first glance, with Microsoft initially impressing and Alphabet falling well short of expectations.
Microsoft—already in the news this week for a buyout package it offered to more than one-quarter of its employees—topped analysts' expectations for both earnings per share and revenue. Diving deeper, the software giant's cloud revenue rose 30%, edging past the Street's estimate, while Azure revenue surged 48%, well above expectations. The initial reaction was positive, with shares gaining 4.7% shortly after results were posted.
It was a tough quarter for Alphabet as earnings per share of $2.12 fell well short of the Bloomberg consensus of $3.01 and search and YouTube ad revenue both missed estimates. Google Cloud revenue of $30.7 billion was up 103% from a year earlier, beating estimates, and capital expenditures fell short of estimates. Overall revenue met consensus views and search growth climbed to a five-year high.
Shares of Alphabet initially fell 7% in initial post-market trading. The earnings report appeared to make investors question Alphabet's return on invested capital, while Microsoft's initial move appeared to reflect positive thinking by investors on that same metric.
AI demand and monetization will likely be in focus once again when Amazon delivers results after today's close, rounding out the biggest three cloud firms. Earnings per share are expected to be $1.96 on revenue of $202.3 billion, up 12.29% year-over-year.
Company-specific factors to watch with Amazon include advertising revenue growth, which jumped 26% annually last quarter custom AI chip adoption as Amazon expands its chip business, and core e-commerce growth. Online store net sales rose 15% year over year the previous quarter, up from 10% growth in the same period a year earlier.
Amazon remains the cloud leader, but over the past few years both Microsoft and Alphabet have made market-share gains. Amazon Web Services sales—the cloud unit--rose 37% year-over-year in the second quarter, its fastest growth since 2021, and Amazon said then it expects capital spending to hit $220 billion this year, CNBC reported. Any rise in that figure might draw concern as AI spending worries continue to embroil Wall Street.
Investors still seem intent on finding a sweet spot for spending that indicates the AI buildout continues but not at a rate that would cause undue financial stress for the companies involved.
That appeared top of mind Wednesday as shares of Oracle—a company under pressure over the last year due to AI-related debt accumulation—rose 11%. The rally came after Oracle said in its investor day meeting that it plans to limit additional capital expenditure increases through fiscal year 2030 to $20 billion, excluding refinancing of existing debt, Barron's reported. Oracle also said it plans to be cash flow positive during the second half of fiscal 2028.
Third-quarter earnings have been strong, with about 81% of S&P companies reporting so far beating expectations for earnings per share and 36% overall annual earnings growth.
Looking ahead to today's PCE and GDP reports, analysts expect monthly headline PCE of 0.5% and core PCE, excluding food and energy, at 0.3%, up from 0.3% and 0.2% in August, respectively. On an annual basis, consensus is for 3.6% growth in headline PCE and 3.1% in core, compared with 3.4% and 3.3%, respectively, in August.
With GDP, analysts expect a seasonally adjusted annual rise of 3%, up from 2.2% in the second quarter, according to Briefing.com. That's a solid number, and anything above that has a chance of pushing Treasury yields higher.
The benchmark 10-year note yield is down almost 35 basis points from recent multi-decade highs as rate hike odds fall, but solid economic data tends to support higher yields by underpinning inflation fears. New home sales and consumer confidence both topped expectations earlier this week.
Looking ahead, a 7-year Treasury note auction takes place later today, with results available before the close of trading. Separate 2-year note and 5-year note auctions earlier this week met poor demand, a bearish sign for the Treasury market.
Major indexes mostly edged higher Wednesday, maintaining gains even as Warsh spoke and long-term yields rose. The technology sector led, helped by Oracle's investor day meeting and solid earnings from memory chip maker SK Hynix.
The AI and chip market has been on the comeback trail so far this week, with the PHLX Semiconductor Index (SOX) up another 1.75% Wednesday. This could reflect "risk-on" trading as Anthropic's Form S1 filing for an initial public offering (IPO) earlier this week improved AI sentiment.
Eight of 11 S&P 500 sectors rose Wednesday, keeping action relatively broad. Energy finished second as crude rose on worries the U.S. might attack Iran again after next Tuesday's U.S. election. Financials climbed as the yield curve steepened following the Fed meeting. Defensive areas including staples, real estate, and utility rounded out the bottom of the sector list.
Checking individual movers Wednesday, chip and AI-related stocks rose after SK Hynix reported firmer-than-expected quarterly revenue that rose 327.9% year-over-year. The company expects memory demand to exceed supply through 2030. Shares rose almost 8%. SK Hynix shares rose 13%.
Shares of SK Hynix's memory competitors rose in its wake, including Sandisk and Micron. Sandisk reports later today and rose 6.8% yesterday.
Shares of so-called neoclouds CoreWeave and Nebius both rose about 7% after sagging earlier this week on worries about access to capital. Other firms benefitting from the AI buildout also rose, including Bloom Energy, Lumentum, and Applied Digital.
F5, a technology firm, fell 20% on a downgrade to neutral from overweight by Piper Sandler.
Enphase Energy tumbled 16% after the company missed quarterly consensus and guided well below consensus.
Vertiv jumped 16% after the data center infrastructure provider reported better-than-expected earnings and raised guidance. The company said the infrastructure build-out is accelerating and revenue rose more than 61% year over year.
Wendy's climbed 15% as the Wall Street Journal reported that Trian Fund Management offered to acquire the fast-food giant for $1.4 billion.
The Dow Jones Industrial Average® ($DJI) added 97.53 points (+0.19%) Wednesday to 52,475.10; the S&P 500 Index ($SPX) climbed 21.38 points (+0.28%) to 7,743.98, and the Nasdaq Composite® ($COMP) gained 72.04 points (+0.27%) to 26,549.85.