SpaceX, Samsung in Spotlight After Chips Revive

**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 Tuesday, July 7th. SpaceX joins the NASDAQ 100 today, and investors also get a look at earnings from South Korean chip giant Samsung Electronics. Results from Samsung, where analysts expected operating income to rock at 18-fold from a year ago, might send a signal flare for the broader tech market after it wobbled in recent days. Monday saw semiconductors revive to lead the path on Wall Street, while tech in general advanced aside from weakness in the software realm after Microsoft announced layoffs. One day isn't a trend and it's unclear if chips can hold Monday's gains, but it could be constructive that the Nasdaq Composite, which late last week dipped below its 50-day moving average, bounced back Monday to close above it. One possible tailwind is earnings as the new season looms starting later this week. Second quarter S&P 500 earnings growth is seen at 23.3% year-over-year, according to FactSet. Some of Monday's strength might reflect investors returning to tech before that, with key names like ASML and Taiwan Semiconductor Manufacturing reporting next week. Last quarter's earnings season saw chip and chip-related companies post massive earnings beats for the most part, so there might be some fear of missing out or FOMO at play. Something to keep in mind, however, is that expectations are high. Companies that fail to raise guidance might get punished as they did last quarter. Though SpaceX joining the NASDAQ 100 might raise concerns about investors and funds selling other shares to fit the newcomer into their portfolios, that's likely not a huge concern. SpaceX has a relatively small float or percentage of shares eligible for trading in the public market. Most shares remain locked up.
Aside from possible chip and SpaceX fireworks, the first week of earnings season starts with a relatively slow flow. Highlights include consumer names PepsiCo and Delta Airlines Thursday and Friday. Tomorrow brings a look at minutes from the hawkish June Federal Reserve meeting, the first one chaired by Kevin Warsh. The old quarter ended with persistent concerns about narrow market leadership concentrated among the biggest chip stocks, but some of those worries calmed over the last few days. Chips continued to retreat last week even as buyers stepped into other sectors, suggesting a rotation might be underway. Reports from consumer names later this week and big banks next week could offer more insight into the broader economy beyond tech, perhaps lending more assistance to the rotation. Consumer discretionary is the only S&P sector posting losses year to date while tech is surprisingly just third on the chart behind industrials and energy. The industrial strength, however, partially reflects the AI infrastructure buildout so could be called tech-related.
Federal Reserve Minutes due tomorrow could help investors glean thinking behind the latest rate pause. Last week's jobs report came in well below expectations, which likely takes some pressure off policy makers to consider a near-term rate hike. However, as of late Monday, futures trading pointed to 55% chances of a hike as soon as September, according to the CME FedWatch tool. The minutes may show how close of a call it was to keep rates unchanged versus hiking at Warsh's first meeting at the Helms, said Cooper Howard, Director of Fixed Income Research and Strategy at the Schwab Center for Financial Research. Going forward, we believe the Fed will remain on hold for the remainder of the year as it waits to see how the risks to inflation develop. We would not be surprised if the Fed pairs back its communication strategy. Minutes could affect the Treasury market, where the benchmark 10-year note yield dipped under 4.4 percent a week ago and then stormed back toward nearly 4.5 percent. Heavy issuance could continue weighing on Treasuries. Today features a three-year note auction followed by a 10-year note auction tomorrow. Results typically come out before the close and any sign of easing demand might send yields even higher. Still, they're not expected to move much above current levels, barring dramatic changes in the financial picture. We expect the 10-year Treasury to remain range-bound between 4 percent and 4.5 percent over the rest of the year, Howard said. However, there's likely more of a chance it moves higher than that range than lower.
Technically, this week began with some vulnerability in both the NASDAQ composite and the PHLX Semiconductor Index, or SOX. The SOX firmly broke its uptrend last week, falling below support at the 20-day moving average. Profit-taking appeared to be a source of chip pressure. July is seasonally a stronger month than June, historically, but with chip stocks forming a large share of indexes by market capitalization, further wobbling in that sector could be a headwind, even if the recent rotation out of chips and into a broader sampling of stocks continues. While market participants generally stepped away from tech last week, retail investors tracked by the Schwab Trading Activity Index, or STACs, continued to be net buyers of major chip stocks in June. The STACs rose 7.33 percent from May to 59.12 last month, a new multi-year high, with information technology leading the sector net buy list, followed by communication services. The STACs rose every week of the month after a slight retreat the very first week of June. Buyers outpaced sellers by a 2 to 1 margin among clients tracked by STACs above the typical 1.5 to 1 range.