I'm Colette Auclair, and here is Schwab's early look at the markets for Friday, July 24.
Strong earnings from Intel late Thursday hit the market right after one of Wall Street's worst days of the year. Investors are grappling with intensified Middle East fighting that sent crude oil to one-month highs and U.S. Treasury yields to their loftiest levels since early 2025. Rate hike odds climbed on inflation concerns ahead of next week's Federal Reserve meeting.
Attacks on Saudi tankers in the Red Sea expanded the war's scope and posed a new threat to oil, which surged above $90 per barrel in a spiral that's been unrelenting all week. At the same time, concerns that mega-cap "hyperscalers" are overspending on AI dragged tech stocks Thursday, hurting the Magnificent Seven even as chip shares moved higher.
The benchmark 10-year note yield posted a new 2026 high above 4.7% on Thursday as President Trump issued new threats against Iran following the Red Sea attacks on Saudi ships by Iran's Houthi allies. The yield peaked at nearly 5% in late 2023 and is now at its highest since early 2025. A move above 4.8% might cause more choppiness in stocks.
Fears rose Thursday that the Fed might have to hike rates next week to address oil's inflationary impact. Chances of a 25-basis point hike reached 36% by late Thursday, according to the CME FedWatch Tool. That’s up from 12% a week ago. The decision is next Wednesday.
The surge in oil and yields accompanied investor worries about heavy capital spending by the largest tech firms after Alphabet and Tesla reinforced their need to heavily invest in AI and got punished by the market. Three more so-called "hyperscalers" report next week, keeping AI spending in focus.
Alphabet expects to spend even more next year after raising its projected capital spending for 2026 by about $15 billion to near $200 billion.
Intel, a chip maker, could be a beneficiary of this spending. Shares popped 4% in initial post-market trading soon after it reported late yesterday. Revenue of $16.1 billion topped its own forecast for between $13.8 billion and $14.8 billion. Earnings per share of $0.42 nearly doubled consensus of $0.22, and guidance for third quarter revenue came in above the FactSet consensus. Frenzied demand for central processing units (CPUs) helped send data center revenue up by 59% year over year.
Microsoft, Amazon, and Alphabet report next week. Investors are likely going to look for return on investment from AI that shows spending is paying off with revenue growth, user adoption, or other measurable returns.
"The volatility in prices of tech stocks this month, signs of elevated speculation and reactions to earnings reports suggest conviction may be wavering and many investors may be positioned similarly," said Michelle Gibley, director of international equity research and strategy at the Schwab Center for Financial Research (SCFR). "If AI spending slows or it is determined that we don’t need as many AI models, stocks could struggle to post gains."
Returning to monetary policy, the European Central Bank, or ECB, kept rates steady Thursday, though a hike appears more likely in September, Reuters reported.
U.S. rate hike chances appear to be tracking oil prices. Oil surged above $90 per barrel for U.S. futures Thursday. The price had fallen below $70 a few weeks ago when the Middle East looked more peaceful.
Hopes rose early this week for negotiations, but U.S. officials cast doubt on that Wednesday. The U.S. has now struck Iran daily for nearly two weeks trying to degrade its ability to interfere with oil shipping in the Strait of Hormuz. Iran had resumed its attacks on ships even after signing a memorandum of understanding meant to allow peaceful passage.
New Fed Chairman Kevin Warsh told Congress earlier this month he's committed to the Fed's 2% inflation goal, but next week's Personal Consumption Expenditures (PCE) for June is likely to show core PCE at above 3%, according to early analyst estimates, with headline inflation above 4%. Core excludes food and energy.
Weekly initial jobless claims Thursday fell to a new cycle low of 187,000, well below the recent average. While just one report, it might reinforce hawkish views at the Fed. The July nonfarm payrolls report is due Friday, August 7, more than a week after the Fed's decision.
June new home sales are due at 10 a.m. ET today, and analysts expect a seasonally adjusted annual rate of 620,000, according to Briefing.com. That's up from 580,000 in May. Home builder stocks might move on the news.
The Cboe Volatility Index (VIX) surged double digits Thursday to above 19 amid the Middle East unrest and rate hike fears. A higher VIX typically suggests bigger daily moves in the S&P 500 Index. VIX hasn't been above 20 since June 26, and peaked above 35 in March.
Major indexes fell sharply Thursday, with the tech-heavy Nasdaq plunging more than 2% for its worst day in more than a month. Checking under the hood, margin debt remains elevated, which could add to pressure if markets continue sagging.
Four of 11 S&P 500 sectors managed to rise Thursday, led by industrials. That sector caught a bid on strong earnings from Lockheed Martin, which rose more than 10% after the company raised its outlook. Other industrial earnings reports also looked solid. Health care stocks were next, led by Eli Lilly after it announced positive obesity trial results.
Communication services and consumer discretionary slid more than 5% Thursday on pressure from Alphabet and Tesla, which fell roughly 7% and 13%, respectively. It was Tesla's worst day in more than a year, losing about $200 billion in market cap, and its worst post-earnings performance since 2019.
Among other individual movers Thursday, Rollins toppled 9% after the pest control firm missed analysts' estimates in its latest quarter. Sales fell short due to slower growth in the residential business.
Cleveland-Cliffs soared 17% despite quarterly revenue slightly missing the FactSet consensus. Earnings beat estimates and the company kept its steel shipment volume forecast for the fiscal year unchanged.
CSX rang up 6% gains after the railway company topped earnings estimates and reported improved demand leading to better volume growth.
Honeywell climbed 5% on stronger-than-expected quarterly results.
The PHLX Semiconductor Index, or SOX, managed to keep its head almost above water Thursday despite the heavy selling across mega-cap stocks. It finished down just about 0.5%. Microsoft, Meta, and Amazon all fell sharply as investors grew concerned they could get punished for their AI spending when they report.
The Dow Jones Industrial Average® ($DJI) plunged 506.93 points (-0.97%) Thursday to 51,711.65; the S&P 500 Index (SPX) gave up 90.66 points (-1.21%) to 7,408.30, and the Nasdaq Composite® ($COMP) lost 553.21 points (-2.15%) to 25,137.69.