As Tech Struggles, Other Sectors Pick up the Pace

**Colette Auclair** (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 Collette Eau Claire, and here is Schwab's Early Look at the Markets for Friday, June 26th. The weekend approaches with investors still digesting a host of earnings and data and awaiting a fresh read on consumer sentiment. Thursday's promising start after Micron's bountiful results turned into another disappointing day for tech market bulls amid concerns about industry margins and new friction in the Strait of Hormuz. However, market breadth appears better and the S&P 500 Index held onto an important technical support level, possibly providing positive vibes. Other than the University of Michigan's final June consumer sentiment report, today's schedule is light on events. That changes next week as jobs data starts to arrive, highlighted by next Thursday's June non-farm payrolls report. US markets are closed Friday, July 3 for Independence Day, pushing the jobs report up a day. Consensus on sentiment is for a headline figure of 48.9, briefing.com said, unchanged from the initial estimate according to briefing.com. That would remain near historic lows, while inflation expectations are also worth tracking when the report hits. It's been an eventful 24 hours on Wall Street. First, Micron's earnings appeared to spread good cheer as shares surged 15 percent Thursday and translated into positive performance for other chip stocks after two sessions of struggles. However, good news for the memory chip sector was bad news for other tech firms, as Apple and Microsoft announced price increases and saw their shares backtrack. Also, even though Micron's results revived the chip sector after the Great Chip Dip earlier this week that sent chip stocks down 6 percent, one solid earnings report doesn't necessarily negate factors that drove the recent unwinding of crowded positioning. Concerns remain about returns on massive AI investments, concentration of investor money in chip, hyperscaler and AI-related names, and the possible slowing of compute demand, said Lizanne Saunders, Chief Investment Strategist at the Schwab Center for Financial Research or Skiffer. Still, Micron and its competitors keep improving their results thanks to the rising cost of memory chips. These products are widely used in products from phones to laptops to automobiles. Apple shares dove 6 percent Thursday in the worst day for the stock this year, after it said it's raising prices for several iPad and Mac models, citing higher costs from memory chip shortages. That's expected to persist throughout 2027 and perhaps into 2028, analysts say, driven partly by increasing data center demand. Microsoft followed by saying it's raising Xbox console prices. Apple's decision to raise prices was the first piece of bad news for the Nasdaq composite yesterday. The second was a reported attack by Iran on a Singapore-flagged ship in the Strait, first reported early Thursday afternoon by The Wall Street Journal. Crude oil traded nearly 3 percent higher late yesterday on the news, which came on top of more verbal jousting between the US and Iran around Iran's efforts to impose tolls on shipping traffic in the Strait. The US government said Thursday a peace deal would never be accepted with that condition.
Inflation data was another side of the coin Thursday, and it generally reinforced ideas the Federal Reserve could wait on rate decisions. May's personal consumption expenditure, or PCE, prices jumped 0.4 percent monthly, matching consensus and the April increase. Core PCE, which excludes food and energy, rose 0.3 percent, also meeting analysts' expectations. On an annual basis, PCE rose 4.1 percent, the highest since April 2023, and Core PCE rose 3.4 percent, meeting consensus. One report doesn't make a trend, but this likely allows the Fed to be patient as it approaches potential rate hikes, said Colin Martin, head of fixed income research and strategy at Skiffer. A hotter than expected report would have likely raised the likelihood of a hike sooner rather than later, but now the Fed has some time to wait and see how the next few months evolve. In other data yesterday, the third and last government estimate for first quarter gross domestic product or GDP surprisingly jumped to 2.1 percent from 1.6 percent. Analysts had expected no change. In less positive news, the government revised first quarter personal consumption in the GDP report down to 0.5 percent from the initial 1.4 percent estimate. The 0.5 percent increase was its smallest annualized quarterly increase since the first quarter of 2022 The upward revision to overall GDP should come with an asterisk, since the consumer tends to be a big driver of the economy, and it's not good news that personal consumption was lower than initially expected, Martin said.
GDP was revised up mostly due to a downward revision to imports, which subtract from GDP, briefing.com noted. Following all that data, the Atlanta Fed's GDP Now estimate for second quarter GDP growth fell to 2.5 percent from the previous estimate of 3 percent. The drop appeared to reflect downwardly revised consumer spending expectations. Treasury note yields already at one month lows extended their decline after the data, but reversed course later Thursday to finish down only one basis point for the benchmark 10-year note yield. The rebound in yields came as oil rallied. The 10-year yield remains near its lowest point since early May below 4.4 percent. This and lower oil could help support consumer discretionary parts of the stock market, though the narrower yield curve might drag financial stocks. Also, 4.4 percent is still relatively high versus lows below 4 percent earlier this year. As of late Thursday, chances for a Fed rate hike as soon as September eased to 62 percent, down from 70 percent earlier in the week, according to the CME FedWatch tool. For the coming July meeting, odds are two and three of another pause. The Fed hasn't changed rates since last December, but last week's hawkish tone from Fed Chairman Kevin Warsh has investors expecting the next move to be upward, not downward.