Taiwan Semiconductor, Netflix, Retail Sales Ahead

**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 Lansford, and here is Schwab's early look at the markets for Thursday, July 16th. Taiwan Semiconductor Manufacturing and Netflix report today as investors mull a fresh set of US retail sales data. Strong earnings and improving inflation data are at the market in a positive frame of mind by mid-week, but gains are limited due to rising crude prices as attacks and threats continue to rattle the Middle East. The fresh earnings follow two days of congressional testimony from Federal Reserve Chairman Kevin Warsh and encouraging words yesterday from influential New York Fed President John Williams, who said there are encouraging reasons to expect that inflation has peaked and should edge down in coming quarters. Warsh testifying before the Senate Wednesday didn't say anything that appeared market-moving.
Yesterday's June producer price index or PPI followed a tame consumer price index or CPI and appeared to reinforce what Williams said. Headline PPI dropped 0.3% and core PPI excluding food and energy rose 0.2%, undercutting consensus of 0.1% and 0.4% respectively. Odds of a July rate hike fell to 10% by late Wednesday, according to the CME FedWatch tool, down from 31% a week ago. Chances of a hike by September eased to 48%, down from 67% a week ago. We continue to expect the Fed to take a wait-and-see approach, and these reports by the committee some time, said Colin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research. Falling energy prices were a key driver of the monthly drop in headline PPI, but a look under the hood suggests the underlying trend could be slowing. Some components of PPI factor in to the personal consumption expenditures or PCE price index the Fed's favored reading on inflation due July 30th and several rows in June. Treasury yields backtracked yesterday but didn't fall meaningfully from recent highs. Yields cooled slightly after the tame PPI data and weaker than forecast Chinese second quarter GDP growth of 4.3 percent. Crude didn't provide much refreshment for hot yields, staying near $80 per barrel amid continued clashes in the Middle East.
The next data point is June retail sales due at 8:30 a.m. Eastern time today. With these, it's important to check beyond the headline for the closely watched control group, which excludes items like gas station sales and factors into the government's gross domestic product or GDP figures. brafing.com consensus is 0.3 percent. Retail sales don't adjust for inflation, so large growth might reflect higher prices to some extent, not rising demand. Initial jobless claims are also due this morning and seen at 219,000, not changed much from 215,000 a week ago. Next week is extremely light on data. That should give investors more time to focus on earnings and they've impressed. It's still early in the season, however, and Taiwan Semiconductor Manufacturing this morning and Netflix this afternoon capped the week. TSM pre-announced 36% quarterly revenue growth, so its results are somewhat telegraphed. There's always a chance for surprises in the guidance, however. TSM's strong revenue might give its guidance a higher bar to clear. For Netflix, analysts expect earnings per share of 79 cents, up 9.6% annually, according to data gathered by Schwab. Expected revenue of $12.6 billion would be up 13.6% from a year ago. Shares of Netflix have fallen after its last four reports, CNBC noted, but the options tone was bullish heading into today's results. Analysts told CNBC that Netflix hasn't had a breakout hit this year.
Late Wednesday, United Airlines posted earnings per share that beat estimates and revenue that met consensus, but issued negative guidance for the third quarter as fuel costs climb. Shares initially tumbled nearly 4% in post-market trading. Earlier Wednesday, Morgan Stanley's earnings and revenue easily surpassed consensus thanks to a 69% surge in equity trading. This rounded out a big bank earnings season in which all the major Wall Street banks blew past expectations, Bloomberg noted.
Major US indexes spent much of Wednesday narrowly in the grain but not challenging recent peaks. Relatively benign inflation data this week, along with solid earnings from banks and ASML, provided some lift, though investors seemed a little more cautious Wednesday, backing away from the chip sector. Volume remained below average, a trend lately that could suggest conviction is lacking, while advancing stocks outpaced declining ones through midday quite easily. Chip equipment maker ASML climbed 1.6% Wednesday after quarterly results exceeded consensus, and the company provided better than expected revenue and margin guidance for the third quarter and full year. ASML's news didn't translate into the rest of the chip sector, which suffered a 2% retreat for the PHLX Semiconductor Index, or SOX. Some of the worst performers included memory chip makers SK Hynix, Micron and Western Digital, after Barron's reported that a Chinese memory chip rival, Changxing Memory Technologies, is preparing an initial public offering in China. Funds from the IPO could help make the Chinese company more competitive. With the chips down, Magnificent 7 stocks picked up the pace ahead of their earnings starting next week, led by Apple, Amazon, Alphabet and Meta. Apple appeared to gain traction after The Information reported the company could be mulling AI chip acquisitions. Apple is also raising subscription prices for its Customer Care Service, Bloomberg reported. The most recent in a series of price increases by the company that could be followed by iPhone price increases this fall.