Here is Schwab's early look at the markets for Wednesday, May 20.
Nvidia's earnings loom this afternoon, meaning the market may trade in an undistinguished manner most of the day barring any major geopolitical developments.
The other main event today—if two are allowed—is release of minutes at 2 p.m. ET from the Federal Reserve's last meeting. These could give insight into the rate path ahead as market participants bake in higher odds of a rate hike by the end of the year.
Stocks enter Wednesday on a three-day losing streak thanks to rising yields as the war stretched on with no apparent resolution in sight and crude oil remained near recent highs. Rate hike concerns likely play a role.
"The probability of economic deterioration is rising the longer higher oil and higher yields persist," said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research, or SCFR. "The ending of first quarter earnings and more bearish seasonality is another factor that has created a shift in sentiment over the past several days."
Analysts expect Nvidia to report earnings per share of $1.76 on revenue of $78.9 billion. Those would be up 117% and 79%, respectively, on an annual basis.
However, the rub for Nvidia is that merely matching the market's expectations likely wouldn't be enough to get bulls excited. The stock recently hit all-time highs and could be vulnerable to a pullback if either earnings or guidance disappoint. And Nvidia shares often fall after earnings, however good they might be.
"Nvidia could reignite some dip buying, but whether that occurs will probable depend on where yields and oil are," Peterson said.
Nvidia's gross margin is another metric to check, coming in at 75% the prior quarter. Any slip there or decline in margin guidance could raise concerns that growing competition across might be hurting Nvidia's pricing power. Nvidia faces a chip sector where its graphics processing units, or GPUs, compete with other companies' central processing units, or CPUs, across the AI space.
Intel and Advanced Micro Devices are leaders in the CPU space, but Nvidia's next-generation AI platform combining GPU and CPU, the Vera Rubin, is in production. Nvidia has a deal with Meta Platforms for large-scale deployment, the companies announced earlier this year.
More insight into the details behind that partnership are one of many things investors look to learn in today's Nvidia earnings call. They'll also check for any updates on chip sales to China after CEO Jensen Huang told Bloomberg earlier this week he didn't talk to Chinese officials on his visit there last week about Nvidia's less advanced H200 chip, which the U.S. has allowed Nvidia to sell in China.
Hyperscalers have committed to spending about $700 billion this year, a boon for Nvidia's business and for many other chip and chip infrastructure firms. Any sign of caution surfacing in Nvidia's guidance might raise concerns. Huang typically provides an update on market demand for chips, and has been enthusiastic for many quarters.
One thing getting some attention this quarter is what Nvidia might do with all the cash pouring in from hyperscaler spending, other than invest in deals or infrastructure. One idea is that Nvidia might consider raising its share buybacks and hopes for that could be one factor behind the recent stock rally.
In earnings news Tuesday, Home Depot got the retail portion of reporting season off to a positive start, posting earnings per share slightly above consensus and revenue that met expectations. Demand in the fiscal first quarter was similar to demand in the previous fiscal year, Home Depot's CEO said in the press release, though he cited "consumer uncertainty and housing affordability pressure."
Shares of Home Depot rose just slightly, though, as investors digested a small 0.6% annual rise in sales at stores open a year or more and the volume of transactions at those stores falling 1.3%. The company kept its prior guidance despite rising gas prices.
Speaking of which, gasoline now costs more than $4.50 a gallon across the U.S., the highest level heading into Memorial Day weekend since 2022. This weekend historically represents the start of U.S. "driving season" extending to Labor Day in early September.
The biggest retailer, Walmart, reports Thursday morning and, while also facing inflation pressure, might benefit from shoppers seeking lower prices. Next week's May Consumer Confidence reading from the Conference Board and earnings today from Target and Lowe's could also offer insight on consumer demand. Target disappointed investors last time out as revenue and store traffic slipped during its holiday quarter.
Though corporate news dominates outside of geopolitics and oil, there's monetary policy news today, as well.
Minutes from the Fed's April meeting could outline behind-the-scenes discussion at the last gathering chaired by Jerome Powell before Kevin Warsh gets sworn in this week. It appeared contentious, as four Fed policymakers dissented from the committee's decision to pause—the biggest set of dissenters at any meeting since 1992.
Three of the dissenters protested what they feel is the Fed's "easing bias," meaning they feel more hawkish. The main thing to look for in the minutes is how much policymakers seemed to lean toward possible rate hikes later this year.
Futures trading now bakes in a nearly 60% chance of at least one hike this year, according to the CME FedWatch Tool. There's even a 14% chance of a hike as soon as the July meeting.
Other data is light ahead of the three-day U.S. holiday weekend. Data picks up next week after Monday's holiday with an updated first quarter gross domestic product (GDP) estimate and April Personal Consumption Expenditure (PCE) prices a week from Thursday.
Major indexes dropped a third straight session Tuesday as the descent from last Thursday's all-time highs continued despite a midday turn-around in the chip sector. Heavier-than-normal volume characterized a session that featured declining stocks outpacing advancing ones.
Treasury yields, meanwhile, set new one-year highs for the benchmark 10-year note, nearing peaks last seen in early 2025. The 10-year yield topped 4.65%, up from under 4% at the start of the war. The 30-year yield is now above 5.15% and at levels last seen in mid-2007 before the financial crisis.
"Higher yields reflect not just higher oil prices and a longer expected timeframe for the Iran conflict, but also hotter inflation data, global yields moving higher, and the new incoming Fed chair," Peterson said.
So-called "bond vigilantes" may be causing some of this decline in Treasuries, which move the opposite way of yields. This is often seen in the market when bond holders fear unrestrained inflation and sell bonds vigorously. Sometimes, such action can light a fire under the Fed, hastening rate hikes as policymakers hustle to show they're alert to inflation concerns.
The weakness in Treasuries also could reflect less interest in U.S. assets by international investors now able to find decent yields in their own markets. The latest data, from March, showed foreign residents decreasing their holdings of U.S. Treasury bills by $16.8 billion, the U.S. Treasury Department said Monday.
Despite weakness in the S&P 500 Index, five of 11 S&P 500 sectors ended higher Tuesday, led by energy. Most of the stronger sectors were defensive in nature, including healthcare, utilities and staples.
Cyclical sectors dependent on a strong economy including materials, financials, and industrials all fell 1% or more. Info tech finished down about 0.8% and is now lower on a weekly basis but up almost 10% over the last month. Magnificent 7 stocks had a mostly rough day.
In individual action Tuesday, chip stocks dove early in the day and revived later to finish flat overall, while software went the other direction from higher to lower. Lately, software has generally risen when chips fall, and vice versa. Several key software names report in the next week or two, including Salesforce. "Software versus semis is finally seeing some mean reversion," Peterson said, before chips began their midday comeback.
"Buy the dip" sentiment apparently remains a factor for stocks like Micron and SanDisk, both of which reversed sharp early losses.
Blackstone and Alphabet fell 4% and 2%, respectively, after the two companies announced a joint venture to create a new AI cloud company using Google's specialized chips, The Wall Street Journal reported. This would likely compete with CoreWeave, shares of which tumbled 4%. The unnamed company would be launched with $5 billion in equity capital from Blackstone.
Coca-Cola set a new all-time high Tuesday, rising amid continued momentum from its solid late-April earnings report. Other consumer-related stocks including Best Buy, Macy's, and Target rose ahead of earnings today from Target and Lowe's. Shake Shack rose about 6% after disclosing insider purchases.
Many inflation-sensitive names in airlines, cruise lines, resorts, and home building fell Tuesday as yields rose.
Mining stocks got clipped by falling metals prices as yields rose, though crude finished flat.
The Dow Jones Industrial Average® ($DJI) tumbled 322.24 points Tuesday (-0.65%) to 49,363.88; the S&P 500 Index (SPX) gave back 49.44 points (-0.67%) to 7,353.61, and the Nasdaq Composite® ($COMP) fell 220.02 points (-0.84%) to 25,870.71.