Micron Earnings In Focus, Inflation Data on Deck

**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, June 24th. Two events over the next 24 hours or so could have a major impact on stocks and treasuries in coming days following yesterday's tax sell-off. First, memory chip giant Micron, which got hammered Tuesday losing about 13 percent, reports quarterly results after today's close. That will be followed by the release of personal consumption expenditures or PCE price data for May at 8:30 a.m. Eastern time tomorrow. A lot will be riding on Micron's results. Any disappointment could trigger another wave of selling in the chip sector, while an upside surprise could draw buyers back into the space. Micron has helped lead tech to dramatic gains since the company last reported earnings, but its shares have fallen the day after it reported earnings in five of the past six quarters, though past isn't precedent. Trapidation about a possible post-earnings slide could have played into Tuesday's chip sector weakness, though Micron shares surged on Monday. Regardless, it's a volatile stock that's up around 300 percent so far this year, even after Tuesday's losses. This means any disappointment, especially in guidance, could trigger heavy selling. The rally was triggered by a shortage of memory chips and heavy data center demand that caused soaring prices for Micron's products. There's some hope in the analyst community that the shortage might ease next year or the year after. Last time out, Micron reported that revenues nearly tripled in the prior quarter. At the time, Micron said it expected revenue for the quarter now being reported to reach $33.5 billion, up from $9.3 billion in the same quarter a year earlier. That's reminiscent of NVIDIA's surge in revenue three years ago that propelled that stock during the early days of the AI rally. Micron said in March it expected earnings per share of $19.15 for the quarter reports later today. Analysts have now raised their projection for Micron's earnings to $20.72, though there may be whisper numbers above that, meaning that shares may come under pressure even if the company meets that figure, judging by the way other large tech stocks recently reacted to earnings reports. The ultimate arbiter of Micron shares could be guidance, however. Any sign of the company getting more conservative about the AI demand buildout could hurt the entire tech sector. However, analysts have been raising their price targets for Micron shares recently, citing signs of memory market strength and stronger long-term fundamentals.
For PCE due at 8:30 a.m. Eastern time tomorrow, analysts expect headline monthly growth of 0.5 percent and annual growth of 4 percent. Monthly core PCE, which excludes volatile food and energy, is expected to rise 0.3 percent. Components of last month's producer price index or PPI that map over to the May PCE price report, the Fed's favorite inflation gauge, suggest a firm print. Only the air transport component declined. Interest rate expectations have flipped since the start of the war in Iran in late February. As of Tuesday afternoon, chances of a rate hike by the Fed's September meeting had risen to 70 percent, while chances of a hike by year end had reached 86 percent, according to the CME FedWatch tool. Also at 8:30 a.m. Eastern time tomorrow, first quarter gross domestic product or GDP is due. Tomorrow also brings weekly initial jobless claims at 8:30 a.m. Eastern time expected to be 225,000 in line with recent readings.
Treasury yields could be influenced by the inflation and GDP news tomorrow. As of late Tuesday, the benchmark 10-year Treasury note yield was 4.5 percent, down roughly 10 basis points from its mid-May high. Tuesday's $69 billion auction for two-year Treasury notes attracted slightly above average demand, leading the two-year Treasury yield to sink slightly to end Tuesday at 4.2 percent. Today features a five-year note auction. FedEx shares lost more than 3 percent Tuesday ahead of its earnings report after the bell, its first after a significant restructuring. The stock fell more than nearly 2 percent immediately after the close, despite reporting earnings that beat estimates. Data due today includes May new home sales at 10 a.m. Eastern time. They are expected to total a seasonally adjusted annual rate of 627,000, up slightly from 622,000 in April, according to briefing.com. New home sales fell 6.2 percent in April from the prior month, hurt by rising mortgage rates. Sales were down 11.3 percent year-over-year.
On Tuesday, both the NASDAQ and S&P 500 index closed sharply lower, while the Dow Jones Industrial Average fell only slightly. The selling appeared to lack any single catalyst, and news was light. It looked less like a broad macro panic and more like a crowded leadership group finally getting stress tested after an extended run. It could also represent a reset after a strong AI and memory-led advance. It's not necessarily the start of a full-marked breakdown unless selling broadens. For perspective, keep in mind that even after falling by more than 7 percent on Tuesday, the Philadelphia Semiconductor Index or SOX remains well above its 21-day simple moving average. Technically, support for the S&P 500 index begins at the 7,370 to 7,380 gap-filled area, then 7,300 as a psychological level followed by roughly 7,200. Only five of 11 S&P 500 sectors closed lower Tuesday. Information technology took the biggest hit, falling more than 3 percent on the day, while industrials lost about 2 percent. Consumer staples led gainers, rising nearly 2 percent.