After Rally to Highs, SpaceX, AMD Results in Focus

**Keith Lansford** (0:05)
Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.
I'm Keith Lansford, and here is Schwab's early look at the markets for Wednesday, August 5th. Investors arrive at midweek digesting a full-fledged Wall Street rally record highs thanks to growing hopes for Middle East progress and continued earnings power. More results come this afternoon as two large memory chip firms report, and the countdown is on to Friday's July non-farm payrolls report. Advanced Micro Devices and SpaceX made Tuesday afternoon busy. An insider lockup expiration this Thursday that launches more SpaceX shares into the market is the next challenge for Elon Musk's company and helps explain why the stock entered Tuesday down sharply from its initial public offering or IPO price. SpaceX shares, which rose 9% into earnings Tuesday, didn't get much benefit in post-market trading from narrower than expected quarterly losses and better than expected revenue. Initially, the stock fell about 6%.
Launch revenue drove quarterly gains, but AI revenue rose sharply from the prior quarter. Advanced Micro Devices also failed to impress investors initially with earnings that slightly surpassed consensus and revenue that jumped 50% year-over-year to $11.54 billion, also slightly above consensus. Its guidance for third-quarter revenue also just managed to top the consensus view. Though all the numbers look solid, it's possible there were whisper numbers on Wall Street that led investors to expect an even better outing and shares had risen about 7% on Tuesday. On most days, earnings from a $1 trillion US company might top the news, but today Eli Lilly may get second billing thanks to AMD and SpaceX. Lilly, which reports this morning, is expected to show earnings per share of $6.00 and a penny down about 4.8% from a year ago despite what's expected to be revenue growth of 33.2% to $20.7 billion. Shares have hit a roadblock since June and recently dropped below the 50-day moving average as the health care sector continues to slump. After the close, investors await earnings from memory chipmakers Sandisk and Western Digital. One question is how long they think the industry-wide memory shortage might last. It's driven up prices, hurting companies like Apple that rely heavily on these products.
In Data Tuesday, the June Job Openings and Labor Turnover Survey or JOLTS Report showed 7.3 million jobs open compared with expectations of around 7.45 million and 7.59 million in May. Monthly quits, which can provide insight into competition for new employees, rose slightly to 3.23 million. Back in May, just over 3 million people left their old jobs seeking greener pastures. The report basically met expectations and didn't seem to have much market impact. The July ADP Monthly Jobs Report is due after today's open, tracking private sector employment. Consensus is 70,000 new jobs, down from 98,000 in June, but still a relatively solid showing. The ADP report doesn't tend to correlate closely with the government's data. Jobs data crescendos with Friday's 8:30 a.m. Eastern time July payrolls report. Analysts expect 86,000 jobs created, up from 57,000 in June. Though light historically, such a figure would likely get a positive view from a macroeconomic perspective, especially combined with record low initial jobless claims in recent weeks. Potential tightness in the services sector could spark wage growth, something to monitor in Friday's payrolls report. Any sign of labor market tightness could exacerbate the market's focus on the Fed's inflation-fighting credibility, noted Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research.
In Tuesday's action on Wall Street, indexes rocketed to new all-time highs fueled by hopes for progress on the Iran front. Treasury Secretary Scott Besson said the Strait of Hormuz could open to more traffic within the next day or two, and Qatar reported progress toward a deal to resume negotiations between the US and Iran, Bloomberg reported. Crude oil continued falling and Treasury yields eased, though both remain elevated from earlier this year. The Treasury yield story is multi-pronged, while recent yield gains likely reflect growing inflation caused by the war, they also might reflect strong numbers in the underlying economy that could benefit stocks. Though gross domestic product growth of 1.5% in the second quarter disappointed, jobs and retail sales growth have been solid recently. The Atlanta Fed's GDP Now Indicator, which admittedly only takes into account data as they come in, is at 6.2% for third quarter GDP growth, with a long way to go before anything is certain. Analysts are generally more around 2%.
Only 6 of 11 S&P 500 sectors ended higher Tuesday, despite the nearly 2% rally for the index, led by 4% gains in tech and a nearly 2% jump for industrials. For the second day in a row, defensive sectors brought up the rear, suggesting bullish sentiment. From a technical perspective, the S&P 500's drop below its 50-day moving average last week, followed by this week's solid breakout above the moving average, is likely constructive and could be driving some short covering that adds to the rally. The index had been hugging the 50-day line for most of June and July and is now higher above it than it had been since early June. This comes amid healthy breadth with nearly 68% of S&P 500 stocks trading above their respective 50-day moving averages, up from around 50% in early June when the market last peaked. This is a sign that a broader slice of the market is moving higher, not just the chip stocks that propelled the market back in May.