Fed Minutes Up Next After Chips Flag in Reversal

**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 Lanceford, and here is Schwab's early look at the markets for Wednesday, July 8th. Minutes from the Federal Reserve's June meeting later today could set the stage for treasure yields now near the top of their recent range. At the same time, investors may have sore necks from watching the recent back-and-forth chip market moves that seem well-timed for the tennis matches at Wimbledon. In terms of the minutes due at 2 p.m. Eastern time, it may be a new ball game with Chairman Kevin Warsh now in charge. What's going to be interesting here is whether the length of the minutes is cut down at all because this was the first meeting under Kevin Warsh, said Kevin Gordon, head of Macro Research and Strategy at the Schwab Center for Financial Research. And then, beyond that, what the debate and the discussion looked like around inflation and how the Fed is thinking about getting back to price stability in the future. More important for yields and the broader market might be next week's semi-annual congressional testimony by Warsh. He's talked about the Fed communicating less, but it's uncertain how the Chairman will make that happen when he faces elected officials demanding his point of view on live television next Tuesday. As of late yesterday, futures trading put chances of a rate hike at this month's Fed meeting relatively low near 27 percent. The odds strengthened by September to around 62 percent. Still, Schwab's experts don't see a rate hike as very likely in coming months, noting that falling energy prices and last month's relatively light jobs growth may give the Fed room to keep rates paused. June inflation data next week is the next major input.
Aside from the minutes, which don't often have much impact on trading, the market appears caught in a pre-Earnings season tug-of-war between the volatile semiconductor sector and just about everything else. The non-tech team won yesterday's battle despite more signs of heavy AI demand from Samsung, which fell sharply in South Korean trading Tuesday despite solid earnings. US chip stocks picked up on Samsung's weakness, which seemed predicated on ideas that demand momentum can't keep up, though investors have heard that for months by now, and hyperscalers' spending hasn't shown signs of stalling. These regime shifts that cause these rapid-fire rotations make for a difficult trading environment and could continue, said Lizanne Saunders, chief investment strategist at the Schwab Center for Financial Research, in an interview with CNBC Tuesday. It reinforces the benefits of diversification, with small caps outperforming the S&P 500 index for two years now. Earnings season could help determine if tech and AI can redevelop their leadership, Saunders added. Samsung's swings and the impact on the broader tech sector is something to keep in mind ahead of results from chip infrastructure maker ASML and giant chip producer Taiwan Semiconductor Manufacturing next week. Judging from Samsung's descent, despite a 19-fold annual rise in operating profits, investors might not be patient with companies that can't meet expectations either for results or guidance. Even those that do could be punished, as Broadcom investors learned a few weeks ago when the company failed to raise annual revenue guidance, which was already quite firm. Shares tanked on that news in early June and haven't recovered yet. This could reflect companies not meeting whisper numbers from the buy sign. SpaceX joined the NASDAQ 100 on Tuesday, but the impact wasn't galactic, as shares plunged 6% and are now down 29% from their peak. Tomorrow morning brings PepsiCo, which volatility-weary investors might welcome. The approach of earnings can sometimes serve as ballast for a market uncertain of direction. The last time PepsiCo reported, it beat earnings and revenue expectations and saw snack sales in North America revive, thanks in part to price cuts CNBC reported at the time. It also reiterated its full-year forecast, besided volatility and uncertainty related to the Iran situation. Pepsi shares rose Tuesday ahead of its report, and analysts expect adjusted earnings growth of 4.1% from a year ago to $2.21 per share. Delta follows on Friday morning in an airline market that's appeared to weather high oil prices relatively well in terms of demand. Stocks in the sector soared over the last few weeks as oil prices descended. This week's reports from Consumer Names follow news earlier this week that Walmart lowered prices for summer picnic and grill items from beef to potato chips. Investors might be interested to learn if other consumer firms are making similar moves, which could weigh on margins but also could get customers in the door. Falling gas prices mean inflation could retreat from recent peaks, according to New York Fed President John Williams, who said that in an interview Tuesday with Fox News. He also sees labor market stability and stable gross domestic product or GDP growth near 2%.