Microsoft, Meta Impress and Apple, Amazon Loom
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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 Keith Lansford, and here is Schwab's early look at the markets for Thursday, May 1st. The day starts with investors mulling solid results from meta-platforms and Microsoft and anticipating earnings from Apple and Amazon.

Tomorrow morning brings non-farm payrolls after yesterday's first government estimate for gross domestic product showed the U.S. economy contracting at an annual rate of 0.3 percent, well below the 0.4 percent gain expected by Wall Street. Disappointment over the GDP data didn't prevent a seventh straight winning session yesterday for the S&P 500 index. The slide in economic growth was attributed to trade as imports surged in the first quarter ahead of possible tariffs.

It was the first GDP drop since the first quarter of 2022 and down from 2.4% GDP growth in the fourth quarter of 2024. Net exports subtracted nearly five percentage points from first quarter GDP, the most in history. Perhaps more damaging, at least in the early going yesterday when Wall Street indexes fell more than 2%, was the GDP report's personal consumption expenditures or PCE component, which was way above expectations.

The 3.5% annualized quarterly increase in the core PCE price index likely has investors worried about stagflation, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research. Business investment soared, but consumption eased, the GDP report showed. The business investment increase might have represented pull-forward demand ahead of tariffs.

The government's March PCE prices data came out shortly after GDP yesterday morning. Headline and core PCE, which excludes food and energy prices, rose 2.3% and 2.6% annually in March, compared with consensus for 2.2% and 2.6%, respectively. On a monthly basis, PCE was flat and so was core. Analysts had expected them to be flat and up 0.1%, respectively.

In the near term, labor market data is key as Friday's non-farm payrolls report approaches. Analysts expect a big drop in non-farm payrolls to 130,000 from 228,000 in March. However, some predict much weaker and perhaps even negative growth, partly reflecting a big drop in federal government employment. The monthly Challenger jobs cut report before today's open could also be telling after layoffs surged in March.

Microsoft and Meta Platform shares initially surged late yesterday after the two giants reported earnings. Both easily exceeded analysts' expectations, and Meta bumped up its guidance for capital spending. That's conceivably good news for semiconductor shares that build the AI chips Meta is stockpiling. NVIDIA shares climbed 2% in post-market trading immediately after Meta's report.

The closely watched Microsoft Azure cloud platform rebounded to 33% growth in its latest quarter from 31% the previous period, cheering investors who worried about a slowdown. Microsoft's more personal computing segment outpaced Wall Street's revenue growth expectations, and so did its intelligent cloud segment. However, some might question if such large gains can continue in coming quarters if the trade war doesn't quiet down.

Meta doesn't seem worried about that, at least for now. It guided for second quarter revenue of between $42.5 billion and $45.5 billion, near the fact-set consensus of $43.84 billion. Meta also cheered investors by slightly lowering its fiscal 2025 expense guidance. Revenues last quarter rose 16.1% from a year earlier.

Apple and Amazon report after the close today. Amazon Web Services, the company's market-leading cloud business, is likely in focus for any signs of growth stalling as tariff worries mounted. However, on the consumer side of the business, it's possible that pull-ahead buying ahead of tariffs contributed some zip. That, unfortunately, could mean weaker demand in coming quarters, especially with Chinese goods apparently seeing weak demand if recent shipping data is accurate.

Investors might want to monitor what Amazon says about the supply chain amid reports that stores are worried about empty shelves this coming holiday season. Amazon's shelves are virtual, but it's a leading consumer products firm and its results could have ramifications for big box retailers reporting later this month like Walmart and Target. Also, there could be more insight into AI spending with ramifications for companies like Advanced Microdevices and Nvidia.

There have been reports in the media that AI spending could slow. Additionally, data today includes the ISM Manufacturing Index for April and initial weekly jobless claims. Analysts expect ISM manufacturing of 47.9 down from 49 in March and below the 50 level that is the line between contraction and expansion.

Initial job disclaims due before the open are seen at 225,000, according to Briefing.com, up from 222,000 last week, but not far off the long-term average. Earnings besides Apple and Amazon today include an assortment of large companies, including Eli Lilly, MasterCard, McDonald's, MicroStrategy, and CVS Health.

The Fed is in its quiet period with no speakers ahead of next week's meeting. Futures trading reveals less than a 5% chance of a May rate cut after numerous Fed policymakers made clear they're not ready to adjust rates with possible inflation from tariffs still unclear. Odds of a June rate cut were 67% late Wednesday, according to the CME FedWatch tool.

The Bank of Japan's overnight rate decision may also be on investors' radars this morning. Analysts had approached the meeting expecting no rate change, but another rate hike may still be on the way later this year, said Jeffrey Kleintop, chief global investment strategist at Schwab. The yen has risen about 10 percent against the dollar this year.

In trading yesterday, stocks executed a late comeback on the last day of the month. This type of trading around month-end has occurred several times recently and could reflect portfolio rebalancing, corporations closing their books, and inflows from monthly salary investments. Still, the rally only embraced about half of S&P 500 sectors, and investors gravitated toward defensive areas like staples and health care.

Materials also finished relatively high on the leaderboard despite large drops in gold, silver, and copper prices. Energy fell more than 2% as crude oil futures rounded out their worst month since 2021 amid demand worries and ahead of tomorrow's earnings from ExxonMobil and Chevron, while Infotech finished mid-pack. Treasury yields continued to bob around near three-week lows amid weak U.S. data, while the dollar stayed in its recent trading range.

Technically, the early move down toward support near 5,400 on the S&P 500 yesterday appeared to find buyers, which could also help explain the rebound and reinforces ideas that technical support is relatively solid near that level.

The Dow Jones Industrial Average rose 141.74 points Wednesday or 0.35% to 40,669.36. The S&P 500 Index climbed 8.23 points or 0.15% to 5,569.06. And the Nasdaq Composite fell 14.98 points or 0.09% to 17,446.34.

For the month of April, the Dow Jones Industrial Average fell 3.17%, the S&P 500 Index fell 0.76%, and the Nasdaq Composite rose 0.85%. This has been the Schwab Market Update Podcast.

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