Microsoft, Meta, PCE and GDP Ahead as April Closes
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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 Wednesday, April 30th. Inflation and growth data kick off a packed last day of April on Wall Street that also features earnings from Microsoft and meta-platforms after the close.

The market has nearly dug itself out of its early April hole, entering today with the S&P 500 index down less than 1% for the month after falling more than 11% between March 31st and April 8th. The S&P 500 is now up six sessions in a row for the first time since last November.

The government's first look at U.S. first quarter gross domestic product, or GDP, looms this morning, along with the key March personal consumption expenditures, or PCE, price index. Analysts expect a light GDP reading with an annual rate of 0.4%, down from 2.4% in the fourth quarter. The report has inflation elements, too, including the GDP price deflator and the PCE price index, both of which will be closely watched.

Any weakness in GDP could cause markets to potentially stumble as investors are intensely focused on potential growth impacts from the trade war. PCE is an inflation metric closely watched by the Federal Reserve. Headline and core PCE, which excludes volatile food and energy, are seen flat and up 0.1% respectively month over month. At the same time, investors receive March personal spending data, which analysts see rising 0.4% monthly.

This data may reflect people buying major items like cars and furniture ahead of expected tariffs. As Meta and Microsoft report, investors eagerly await any insight into their spending on AI. All the major hyperscaler companies boosted AI spending dramatically over the last year, but there have been reports that this could be slowing. Alphabet, which reported last week, said it remains committed to those capital expenditures.

Meta and Microsoft go after AI for different applications, with AI driving digital ad improvement for Meta and cloud capabilities for Microsoft. Guidance for both those categories will be watched for any clues into the possible demand impacts of recession fears. Typically, investors closely track Microsoft's Azure cloud computing growth, which climbed 31% in the prior quarter. That was down sequentially from 33%.

The company guided for 31% to 32% constant currency Azure growth in the quarter it reports today. Microsoft guided for overall fiscal third quarter revenue of between $67.7 billion and $68.7 billion after growing revenue 12.3% in its fiscal second quarter. Shares fell after Microsoft's last earnings report with investors disappointed by guidance.

Metashares rose on its last earnings report as the company beat analysts' consensus for revenue. It guided for first quarter revenue of between $39.5 billion and $41.8 billion. It said at the time it would invest between $60 billion and $65 billion in AI strategy this year. Any change from that would likely grab attention. Other earnings to watch for today include Caterpillar, Allstate, and Qualcomm.

The final day of the month could mean extra volatility due to portfolio rebalancing and other factors that sometimes come into play. However, the extreme volatility of early April has retreated, with the SIBO Volatility Index, or VIX, sinking below 25 yesterday from heights near 60 earlier in the month. The long-term average is 20.

Markets continue in a calmer mode, said Lizanne Saunders, chief investment strategist at Schwab. Earnings season is better than expected so far. The guidance looking ahead continues to be murky at best, alongside an increasing number of companies withdrawing guidance. Labor market data is key in the near term, Saunders added, noting a surge last week in the University of Michigan Consumer Sentiments Report category of consumers expecting higher unemployment.

This could signal weak payrolls data at some point, but not necessarily for this Friday's nonfarm payrolls report. Analysts do expect a big drop in April payroll growth to 130,000 from 228,000 in March.

The Fed is now in its quiet period, with no speakers ahead of next week's meeting. Futures trading reveals less than an 8% 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 65% late Tuesday, according to the CME FedWatch tool.

In data Tuesday, March job openings fell to a six-month low of 7.19 million, according to the Job Openings and Labor Turnover Survey, or JOLTS, report. That compared with 7.568 million in February and expectations on Wall Street for around 7.5 million. One month isn't a trend, but fewer job openings often point to a slower economy.

April consumer confidence from the conference board came in worse than expected at a headline of 86 versus analysts' consensus for 87.5 and down from 93.9 in March. It was the fifth straight lower month and down near levels last seen during the pandemic. Average 12-month inflation expectations reached 7%, the highest since November of 2022.

The report's expectations index fell to 54.4 from 66.9 in March, the worst level since 2011. Treasury yields continued to slide across the curve after Tuesday's soft U.S. economic data. The 10-year yield hit its lowest level since April 8th, below 4.18%, down from this month's peak near 4.6%.

The dollar index has arrested its long March and April drop, but continues to muddle along below 100, not far above the three-year low it posted on April 21st. Weak U.S. data worries about tariff-related inflation and rising chances in the futures market of three to four Fed rate cuts this year all weigh on the dollar.

The tech-heavy Nasdaq rallied yesterday along with the S&P 500. It had sagged Monday as investors shied away from mega caps ahead of the four magnificent seven names reporting today and tomorrow. A CNBC interview at midday yesterday with Commerce Secretary Howard Lutnick fired up a market that had been lackluster to that point. Lutnick hinted at a trade deal but didn't name the country.

Markets got an additional boost Tuesday from President Trump relaxing some tariffs that would affect U.S. automakers. General Motors holds its earnings conference call Thursday and may have observations on the tariff impact. Despite the market's rise on that development, companies may need more clarity around the shape and size of tariffs, even if deals are announced.

By going a country at a time over months, as seems to be the case, uncertainty will likely remain elevated, complicating business plans. Month to date, a growth trio of consumer discretionary, communication services, and technology are the outperforming sectors, Schwab-Saunders noted. She sees signs of an ongoing buy-the-dip mentality among retail investors and traders.

The cyclical financial sector led on Tuesday, typically a sign of better economic expectations, though one day is just a snapshot. The bulk of sector leaders yesterday were defensive areas like staples, real estate, and utilities.

The Dow Jones Industrial Average climbed 300.03 points Tuesday, or 0.75%, to 40,527.62. The S&P 500 Index added 32.08 points, or 0.58%, to 5,560.83. And the Nasdaq Composite climbed 95.18 points, or 0.55%, to 17,461.32.

The Nasdaq enters the last day of the month up almost 1% for April and up 14% from its April low. It's still down 9.6% year-to-date. This has been the Schwab Market Update Podcast.

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