Here is Schwab's early look at the markets for Tuesday, October 20:
On an earnings day dominated by companies less connected to AI, one technology firm stands out as SpaceX reports after the close. Its results, followed tomorrow by Meta Platforms and Tesla, could set the tone along with crude oil and yields.
Actual quarterly tallies from firms like Meta and Tesla may be less informative than what they say about future plans.
"Watch capital expenditure guidance closely," said Liz Ann Sonders, chief investment strategist at the Schwab Center for Financial Research (SCFR).
This week's earnings will likely test the durability of the AI trade. Margins, demand, AI monetization, spending, and guidance matter most.
Heading into the heart of earnings season, chip stocks fell eight straight sessions through last Friday and entered correction mode down 10% from recent highs. Monday's rebound doesn't necessarily reverse that. A durable low likely requires multiple positive sessions, broader participation, and supportive guidance.
Though more than 80% of S&P companies reporting to date topped analysts' earnings estimates, the average margin of victory hasn't impressed and earnings season is only 10% over with 70 S&P 500 firms reporting this week.
The current FactSet blended annual earnings growth estimate of 29% is down slightly from 29.2% a week ago. Blended combines earnings from companies already reporting with estimates for those to come.
Without SpaceX, today might be more about earnings in traditional industrial firms and consumer giants as GE Aerospace, 3M, General Motors, and Netflix report.
Netflix could be interesting considering a sharp slide in its shares this year, recent layoffs, and corporate leadership changes. Customer engagement is the key element after Netflix reassured in its July earnings report that engagement was "healthy." When it last reported, shares fell as guidance disappointed.
With SpaceX, investors will likely focus on any AI spending updates and anything the company has to say about a report from Barclays that SpaceX and Elon Musk's other firm, Tesla, might be considering a merger.
Another question concerns Starlink, the company's satellite internet. Controversy arose last week when Ukraine temporarily lost access to a military version of Starlink, The Hill reported. Service is still spotty there, according to the publication, raising concerns about Ukraine's ability to protect itself from Russian attacks.
Speaking of that region, the heavily traded December CME crude futures contract dipped 2% Monday on ideas that more Russian product might become available. That said, crude flowing through the Strait of Hormuz fell to just 8.5 million barrels a day last week, down from more than 20 million the week before, Reuters reported. Vessels continued to face Iranian attacks.
Turning to interest rates and credit concerns that hurt tech stocks last week, Treasury yields rebounded Monday but remained down sharply from a week ago. The 10-year note yield finished near 5.14%, down about 20 basis points from last week's highs but up 10 from last week's low.
The Federal Reserve meeting looms a week from tomorrow and the Fed is now in its "quiet period," meaning less prognostication from policymakers, who've sounded hawkish lately. As of late Monday, chances of an October rate hike fell to 17% from as high as 45% earlier in the week despite hot inflation, according to the CME FedWatch Tool.
For the full year, odds of another hike remain near 90%. However, there's some doubt that higher rates can necessarily blunt price growth.
"This is not a typical rate-hiking campaign triggered solely by excess demand," Schwab experts noted last week, adding that while the U.S. economy remains resilient, inflation pressure comes from supply constraints, especially in energy. "Higher rates cannot produce more oil, repair disrupted supply chains, build more semiconductors, or generate more electricity."
Housing dominates data early this week, starting with September housing starts and building permits before today's open. Analysts expect relatively steady results compared with August at 1.305 million for starts on a seasonally adjusted annual basis and 1.39 million for permits. That compares with 1.275 million and 1.39 million, respectively, in August.
Major indexes mostly climbed Monday but closed well below intraday highs in a session marked by narrow leadership. At midday, nearly two of every three S&P 500 stocks were lower and only three sectors were up, but the S&P 500 Index was up more than 0.6%. That underscores the heavy influence of tech stocks, which make up about 40% of the index's value.
Only four of 11 S&P 500 sectors climbed Monday, with consumer discretionary leading thanks to strength from Amazon and Tesla. Info tech got boosted by a rebound in chip stocks. Some of last week's leaders including energy and health care fell into the red, while defensive utilities suffered 2% losses.
Technically, the S&P 500 Index has traded in a near-term range between 7,600 to 7,800. This has the 50-day moving average slowly rising to around 7,706, but cracks have appeared in the armor of that long-term support point as the index closed below that key level on Monday for the second straight session. The S&P 500 briefly traded above the 50-day earlier Monday, and its close below that was technically a weak sign.
Among individual movers Monday, Intel climbed 2.8% on a JPMorgan Chase upgrade to neutral from underweight. The firm cited improvement in Intel's execution along with competitiveness in its core data center compute market. Intel's gains, along with better performance from Nvidia, helped break an eight-day losing streak for the PHLX Semiconductor Index (SOX).
Cloud computing firm CoreWeave fell after earlier gains despite an upgrade to buy from neutral at Goldman Sachs. The stock, has become a poster child for AI-related debt worries. CoreWeave fell 25% last week.
Oracle rose 1%. The company faces concerns its debt could be downgraded, analysts told Barron's. A downgrade to junk status might alarm the rest of the AI market.
Other AI-related shares rising Monday included Applied Digital, Marvell Technology, SK Hynix, and Lumentum , most of which fell sharply last week. Memory chip stocks and so-called AI "pick and shovel" makers did well to start the week, possibly reflecting optimism ahead of spending updates from mega-caps.
Datadog (DDOG) climbed 5% after getting upgraded to outperform from market perform by Bernstein, which said enterprise token consumption appears to have grown at least 50% sequentially.
Cleveland-Cliffs spiked 16% after reporting better-than-expected third-quarter results, helped by higher prices caused by tariffs, Barron's reported. Benchmark steel prices averaged roughly $1,250 per metric ton in the quarter, up from $850 a year ago.
Amazon (AMZN) surged 5% after an upbeat note from Morgan Stanley, which named the stock one of its top picks. The analyst had positive thoughts on Amazon Web Services (AWS), Amazon's cloud platform.
Tesla had another strong day, rising 3.8% ahead of earnings Wednesday and amid excitement from last week's Roadster preview.
The Dow Jones Industrial Average® ($DJI) slipped 36.38 points (-0.07%) Monday to 51,966.03; the S&P 500 Index ($SPX) added 31.29 points (+0.41%) to 7,690.73, and the Nasdaq Composite® ($COMP) rose 290.85 points (+1.11%) to 26,430.89.