Win Streak Ends, Fed Meeting Starts and AMD Next
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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 Tuesday, May 6th.

As earnings and data lighten this week, focus turns to the Federal Reserve ahead of tomorrow's rate decision. This meeting likely won't move markets much, with no rate trim expected and no updates scheduled of the Fed's economic projections. But it could provide a helpful read of Fed Chairman Jerome Powell's mindset after the April market turmoil.

We don't expect a change in rates or a change to balance sheet policies, said Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research. The Fed will likely try to signal they are on hold for the time being and want to wait for more clarity about how tariffs will or won't impact the economy. The market's projecting three cuts this year, which has been pared back from earlier expectations.

Even before the Fed meeting, yields are under scrutiny as a $42 billion 10-year Treasury note auction looms today. Yesterday's $58 billion 3-year note auction drew decent demand, Briefing.com noted.

Auctions are drawing more attention after last month's decline in U.S. asset values sparked fear that overseas investors might turn their backs on the U.S. market, though Japan eased those concerns recently by saying it won't threaten Treasury sales. Yields rise when Treasuries decline, raising borrowing costs and often slowing economic growth.

Also on the decline is crude oil, which hit nearly four-year intraday lows near $55 per barrel Monday before recovering slightly to $57. It was still the lowest close since 2021 and reflects rising supplies as OPEC and allies prepare to raise output.

The drop from $80 earlier this year puts energy last among S&P sectors over the last month. However, all sectors are in the green since a month ago, even energy, on hopes that the White House will soon start announcing trade deals. Information technology and communication services lead the sector gains, but cyclical sectors like industrials, financials, and consumer discretionary are high on the list, too.

These sectors tend to do better when investors see an improving economy. Investors may be more hopeful, but many on Wall Street aren't optimistic, judging from Barron's survey of money managers published over the weekend. 32% described themselves as bearish on the outlook for U.S. equities over the next year, the highest since 1997.

Of those surveyed, 80% disapproved of the administration's tariff policy and 58% said they believe the U.S. stock market is overvalued. That bearish outlook could reflect the earnings outlook. Though first quarter results generally impress, the average analyst estimate for 2025 S&P 500 earnings has fallen 19 consecutive weeks from around 15% at the end of last year to around 9.5% now, according to FactSet.

Consumer confidence measures are down, too, though last Friday's April jobs report suggests that the job market is still stable. At the same time, the trade war with China hasn't gone away, and container tonnage from China to the United States is really plunging to a significant degree, said Lizanne Saunders, chief investment strategist at Schwab.

Even a quick resolution to that trade battle would be unlikely to immediately get ships back on schedule, meaning consumers could soon face challenges getting some of the products they need. Earnings and data slow this week after a frantic April, but Ford and AI-centric Palantir reported after the close yesterday, and advanced microdevices and Super Microcomputer are due later today, followed by Walt Disney tomorrow.

Advanced Microdevices, a large AI chip firm, follows last week's mega-cap earnings that saw so-called hyperscaler tech companies not retreating on their AI spending plans despite tariff policies. But demand for other types of chips, like those used in cars and phones, might suffer if the world economy slows. Netflix, Paramount and Disney dropped sharply Monday after President Trump threatened to slap 100% tariffs on movies produced overseas.

A major portion of U.S. movies are made overseas to take advantage of tax and other incentives, Behrens noted, and this could hurt profitability for studios. But the policy details aren't clear yet. Also yesterday, Ford suspended its 2025 guidance, citing a $1.5 billion full-year tariff impact. Shares initially fell in post-market trading, despite Ford beating analysts' consensus for earnings.

Berkshire Hathaway shares also fell yesterday after legendary and longtime CEO Warren Buffett announced his plans to step down by the end of the year. In other trading Monday, a nine-day winning streak ended for the S&P 500 index. It was the longest positive stretch since 2004 and likely reflected hopes for trade progress along with what have been decent corporate earnings.

Lack of any trade news yesterday, along with renewed inflation fears, likely weighed on sentiment. However, Treasury Secretary Scott Besson said he thinks deals are close. Eight of 11 S&P sectors fell yesterday, with some of the magnificent seven and other tech stocks taking it on the chin.

The benchmark 10-year Treasury note yield rose slightly yesterday and is close to 4.35 percent, up about 20 basis points from recent lows despite the decent auction demand yesterday. The boost might reflect last Friday's jobs data and Monday's better-than-expected ISM services PMI for April. The index rose to 51.6 when that compared with a consensus estimate of 50.2 and the March headline of 50.8.

Anything over 50 signals expansion. More alarming, perhaps, from a yield perspective, was a rise in prices paid to 65.1 versus the previous 60.9, another signal that inflation doesn't appear tamed. Recent sentiment surveys showed consumers expecting inflation to soar in the coming year, something the Fed has doubtless noted.

One interesting aspect of tomorrow's press conference by Fed Chairman Powell will be if he still believes inflation expectations are well anchored, as he likes to say. Any sign of the boat drifting away would likely make him and other policymakers more hawkish. As of late Wednesday, odds of a rate cut this week were down near 2 percent, according to the CME FedWatch tool. That means it almost certainly won't happen.

The Fed's June meeting, once viewed as a likely spot for the first rate cut since December, now looks more like another pause with chances of any rate movement down below 30%. Investors still see 75% chances of the Fed issuing a 25 basis point rate cut at its late July meeting and cutting a couple more times after that before the end of the year.

Technically, yesterday's close looked gloomy as the market indexes lost significant ground from intraday highs in the final minutes. The S&P 500 remained well above its 50-day moving average of 55.75 but didn't make much attempt to challenge its 200-day at 57.46.

The Dow Jones Industrial Average fell 98.60 points Monday or 0.24% to 41,218.83. The S&P 500 Index dropped 36.29 points or 0.64% to 5,650.38. And the Nasdaq Composite lost 133.49 points or 0.74% to 17,844.24.

This has been the Schwab Market Update podcast. To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow. For important disclosures, see the show notes and schwab.com slash market update podcast.