Markets Brace for Packed Earnings Week, Jobs Data

**Colette O'Clair** (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 Colette O'Clair and here is Schwab's Early Look at the Markets for Monday, August 3rd. Earnings remain front and center this week with AI darling Palantir headlining today's calendar, while results from space exploration technologies and advanced micro devices will be in focus tomorrow. Investors will spend this morning parsing fresh manufacturing and construction spending data, though Friday's jobs report is likely to be the week's most closely watched economic release. Markets are coming off a volatile week that featured mixed results from four of the Magnificent Seven, a Federal Reserve interest rate decision, and escalating US-Iran tensions. After a divided Fed voted 9-3 to keep rates unchanged at its July meeting last Wednesday, Treasury yields rose sharply, while the yield curve steepened. The 30-year yield ended Friday at 5.25 percent, a 19-year high. That's a trend investors will be closely following this week and beyond, as it could weigh on markets. Still, earnings season continues to take the spotlight for now. Palantir is expected to report a 116 percent surge in earnings per share, or EPS, and an 80 percent spike in revenues in its second quarter report after the bell. With AI-linked stocks wavering this summer, the bellwether's results will be closely watched. Expectations are high amid valuation concerns from some Wall Street analysts. Investors will also be monitoring earnings from Marriott International and Mitsubishi UFJ Financial Group before markets open, while Vertex Pharmaceuticals and On Semiconductor will draw attention after the close. However, some investors will be looking ahead to Space Exploration Technologies' first earnings report due tomorrow post-market close, after its June initial public offering, or IPO, raised a record $75 billion. SpaceX shares have struggled after a brief post-IPO surge, falling roughly 50% from their record high. Consensus expects the company to report revenues of $6.7 billion in the second quarter and a loss of $0.26 per share. With a market cap of over $1.4 trillion, some analysts have expressed valuation concerns, and short sellers have targeted the company since its debut. Earnings from advanced micro-devices will also garner attention tomorrow, with investors looking for evidence that record hyperscaler AI spending can continue translating into strong revenue growth for the chipmaker. Results from Caterpillar, Merck, and Arista Networks are on deck as well. In economic data today, the July ISM Manufacturing Purchasing Managers Index is expected to slip to 53 from 53.3 in June. That would extend a dip from May's bounce to 54, which was the highest level seen since May of 2022 Any level above 50 indicates the sector is expanding. June construction spending is also on the menu this morning. Consensus expects month-over-month growth of 0.2 percent, up slightly from May's 0.1 percent figure. Record data center constructing spending and rising input prices have helped mask weakness in this figure in recent months.
Looking ahead, Wednesday's ADP National Employment Report and Friday's non-farm payrolls data will be meticulously reviewed as investors look for signs the labor market is beginning to soften, which could impact the path of interest rates this year. On Friday, futures trading priced in a 65 percent chance of a September Fed rate hike and a nearly 90 percent chance of at least one rate hike by year end, according to the CME FedWatch tool. The Fed isn't the only central bank that may need to raise rates, however, although the Bank of Japan maintained its policy rate at 1 percent on Friday, it warned that underlying inflation could exceed its 2 percent target in hawkish commentary. The decision came after Tokyo reportedly spent an estimated $59 billion on a massive currency intervention to defend the weakening yen last week. Turning to Friday's key earnings results, oil majors Chevron and ExxonMobil reported surging profits amid rising oil prices in the second quarter. Chevron's net income spiked nearly 400 percent from a year ago to $12 billion, and its adjusted EPS came in at $6.06 versus the expected $5.56. Exxon's net income hit the $14.5 billion, more than double what it was a year ago. However, the company missed analysts' adjusted EPS estimates due to issues with the refining business.
In Economic Data Friday, the University of Michigan's final reading of July consumer sentiment came in ahead of expectations at 55.2. The figure marked a roughly 12 percent jump from June's level. Consumers seemed to brush off rising gas prices and tensions in the Middle East last month, although sentiment remained 11 percent below year-ago levels and long-run inflation expectations held steady at 3.3 percent. Meanwhile, the Employment Cost Index came in slightly ahead of expectations, rising 0.9 percent quarter over quarter and 3.4 percent from a year ago. The upside surprise suggests wage pressures may be easing more slowly than anticipated, which could complicate the Fed's fight to tame inflation.