Bank of Japan, Verizon, American Express in Focus
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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'Clare, and here is Schwab's early look at the markets for Friday, January 24th.

A Bank of Japan rate decision and earnings from Verizon and American Express dominate proceedings today after Wall Street set a new record high Thursday amid general economic and earnings enthusiasm. Next week features a Federal Reserve meeting and pivotal U.S. inflation data, along with the start of earnings from mega caps and other large tech firms.

Major U.S. indexes have rebounded from mid-month lows, but before Thursday it hadn't been a broad rally. Wednesday was a good example when the S&P 500 index rose 0.6 percent, even though nine of 11 sectors fell.

The bounce in participation has been lackluster thus far, said Kevin Gordon, director, senior investment strategist at Schwab. As of Wednesday's close, only 49% of members were trading above their 50-day moving average. As long as interest rate volatility remains subdued, the bull market can continue to advance. But a lack of participation down the cap spectrum would raise the risk of a much slower advance from here.

For now, he added, the upside is that the recent bout of volatility wrung out a good portion of speculative froth. However, a return to optimism with weaker breadth would not bode well.

Futures trading at the CME Group builds in nearly 100% odds that the Fed pauses after lowering rates by a collective 100 basis points in its last three meetings. This next meeting looks like it might be a placeholder, with no move expected and no fresh projections scheduled. But the Bank of Japan, or BOJ, announced its latest rate decision early Friday, which could have an impact on U.S. trading in treasuries and equities later today.

The last time the BOJ raised rates, in July, it caused an unwinding of the so-called yen carry trade that resulted in selling of high-growth U.S. stocks purchased using lower rates in Japan. Past is in precedent, though, and market positioning doesn't resemble the lead-up back in July that triggered the heavy selling.

Treasury yields mostly climbed Thursday, but gains were more dramatic on the longer end of the curve, with the 10-year Treasury note yield up 4 basis points to 4.64 percent and the 30-year bond up 6 basis points to 4.87 percent. The 2-year note went the opposite direction, down 2 basis points.

Some of the moves in longer-term yields could reflect positioning ahead of the BOJ decision, as well as general optimism around potential U.S. economic growth. The balance of risks suggests that yields could continue to move higher, said Cooper Howard, director, Fixed Income Strategy at the Schwab Center for Financial Research. Although the 10-year yield has pulled back from its recent high, we would not be surprised if it moves higher from here.

Next week kicks off big tech and mega cap earnings with names like Microsoft, Tesla, Apple, and meta platforms expected to report. These companies arguably put the market on their collective broad shoulders over the last year as their shares rose nearly 65% combined. U.S. jobless claims data yesterday appeared to support treasuries, which move the opposite direction of yields.

Initial weekly claims rose to 223,000, not a large number historically, but above recent lows near 200,000. Continuing claims jumped to 1.899 million, not far from recent three-year highs. While it's unfortunate to see more people unemployed, any sign of labor market weakness could help cap Treasury yields as the Federal Reserve keeps a close eye on job trends.

American Express is a benchmark earnings report for those tracking spending by businesses and higher-end consumers. Verizon missed analysts' consensus on revenue the last time it shared results and also spooked investors with heavy spending to build its high-speed internet business, CNBC reported then. Consumer spending on phone upgrades lagged in the third quarter, hurting revenue, so investors might have an eye on how Verizon fared in that metric last quarter.

Sector-wise, Thursday delivered a much broader positive move across sectors than the day before, when only tech and communication services rose. A mix of sectors led the way yesterday, including health care, industrials, utilities, and real estate, which indicated slightly more defensive positioning than earlier in the week.

Solid earnings from non-tech companies like Union Pacific, GE Aerospace, and Abbott Laboratories helped the broader market, even as several mega-caps struggled, including Nvidia, Tesla, and Apple. Falling crude oil prices lent a hand to yesterday's rally, as front-month U.S. crude futures set a nearly two-week low below $75 per barrel.

On a technical note, the Relative Strength Index, or RSI, a momentum indicator, has climbed from below 40 to above 60 for the S&P 500 index in just over a week. An RSI of 70 or above can indicate overbought conditions, and that's where the S&P 500 topped out last month.

The S&P 500 added 32.34 points Thursday, or 0.53%, to 6,118.71, a new record high close. The Dow Jones Industrial Average rose 408.34 points, or 0.92%, to 44,565.07, and the Nasdaq Composite climbed 44.34 points, or 0.22%, to 20,000.

53.68. This has been the Schwab Market Update podcast. To stay informed, visit schwab.com slash market update or follow for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or review. It really helps new listeners find the show. Keith Lansford will be back with another update Monday.

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