Schwab Market Update: Stocks Posting Lackluster Session But Up Solidly This Week

As of 8:53 a.m. ET, the September S&P 500 Index future is 3 points below fair value, the DJIA future is 17 points above fair value, and the Nasdaq Index future is 38 points south of fair value. WTI crude oil is dropping $0.99 to $95.36 per barrel and Brent crude oil is falling $0.71 to $98.77 per barrel. The gold spot price is up $9.80 to $1,723.20 per ounce. Elsewhere, the Dollar Index is dipping 0.1% to 106.84.

Snap Inc. (SNAP $16) reported and adjusted Q2 loss of $0.02 per share, compared to the FactSet estimate of a $0.21 shortfall, as revenues grew 13.0% year-over-year (y/y) to $1.11 billion, versus the Street's forecast of $1.14 billion. The social media company said its daily average users came in above expectations but given the uncertainties related to the operating environment, it is not providing its expectations for revenue or adjusted operating profits for Q3. SNAP said it is not satisfied with its results, which were impacted by macroeconomic headwinds, platform policy changes, and increased competition that have limited advertising spending. SNAP added that its Q3 revenues so far are flat y/y, and its share repurchase program, which it announced today may repurchase up to $500 million, could be modified, suspended, or terminated at any time.

Dow component American Express Company (AXP $150) posted Q2 earnings-per-share (EPS) of $2.57, above the expected $2.42, as revenues rose 31.0% y/y to $13.40 billion, north of the forecasted $12.51 billion. The company said cardmember spending was up 30.0% y/y, driven by the robust rebound in global travel and entertainment spending, which surpassed pre-pandemic levels for the first time. AXP reaffirmed its full-year guidance.

Dow member Verizon Communications Inc. (VZ $48) announced adjusted Q2 EPS of 1.31, one penny below the Street's expectations, as revenues were relatively flat y/y to $33.80 billion, above the estimated $33.74 billion. VZ lowered its full-year earnings and revenue outlooks. The company noted a "very competitive industry," and due to recent actions, including recent pricing actions, it is being deliberate in its decisions to improve its profitable growth opportunities. VZ added that although recent performance did not meet its expectations, it remains confident in its long-term strategy.

Q2 earnings season has kicked into a higher gear and the markets are paying close attention to the health of profit margins and economic activity amid consistent inflationary pressures that has the Fed getting aggressive with its monetary policy tightening amid a backdrop of signs of slowing economic growth.

Schwab's Chief Investment Strategist, Liz Ann Sonders discusses the economy in her latest article, What's Going On…With Jobs, how the June jobs report was cheered by economic bulls given its strength in level terms, but rates of change among leading indicators don't favor a soft-landing outcome for the economy.

July preliminary business activity reports set to cap off the week's economic calendar

Treasuries are higher with the economic calendar void of any major releases before the opening bell. The inversion of the 2-year and 10-year notes remains intact—but has narrowed—with the markets grappling with an aggressive Fed to fight high inflation and what the ultimate impact will be on the economy.

Schwab's Chief Fixed Income Strategist Kathy Jones discusses this in her latest article, Fed Rate Hikes: Why Are Bond Yields Falling?, noting that the Federal Reserve's pledge to curb inflation appears to have resonated with the market. She adds that if the central bank raises rates as much as recent projections indicate, the risk of recession rises. Kathy concludes that consequently, bond yields have been pulling back from recent highs and the yield curve has flattened. You can follow Kathy on Twitter: @KathyJones.

The yield on the 2-year Treasury note is down 8 basis points (bps) to 3.01%, the yield on the 10-year Treasury note is declining 10 bps to 2.81%, and the 30-year bond rate is decreasing 7 bps to 3.00%.

After the opening bell, the economic calendar will bring the releases of S&P Global's preliminary July Manufacturing and Services PMIs. The former is expected to decline to 52.0 from June's 52.7 reading, and the latter is forecasted to remain at the prior month's reading of 52.7, with 50 the demarcation point between expansion and contraction for both indexes.

The business activity reports will cap off the week and set the stage for next week that will see some key data and events, headlined by the Federal Open Market Committee's (FOMC) monetary policy decision on July 27. The FOMC is expected to raise its target for the fed funds rate by 75 bps for a second-straight meeting, but there is speculation that it could go larger to try to stomp out persistently high inflation. The decision will not have updated economic projections but will offer the customary press conference from Fed Chairman Jerome Powell, which will likely be highly scrutinized.

In addition to the FOMC's monetary policy decision, next week will deliver the first look (of three) at Q2 GDP, personal income and spending figures for June, initial jobless claims for the week ended July 23, July Consumer Confidence, preliminary June durable goods orders, and new home sales for last month.

Europe ticking higher despite data, on the heels of yesterday's ECB rate hike

European equities are mostly higher in afternoon trading as the dust continues to settle from yesterday's monetary policy decision from the European Central Bank (ECB) to raise rates by a larger amount than expected. The ECB's decision comes as global inflation remains high and is persisting, and despite the risk of recession and the ensuing energy crisis in the region due to the ongoing war in Ukraine. This was the first rate increase in 11 years and the biggest since 2000, and the central bank unveiled a tool to try to combat fragmentation in bond yields across the region. The markets are also showing some resiliency in the face of some preliminary July manufacturing and services sector reports out of the Eurozone and the U.K. Eurozone manufacturing output unexpectedly fell into contraction territory, and the region's services sector growth slowed by a larger amount than anticipated. In the U.K., manufacturing and services sector growth both decelerated but by smaller amounts than anticipated. In other economic news, U.K. retail sales came in mostly better than anticipated for June. The euro and British pound are lower versus the U.S. dollar, and bond yields in the Eurozone and U.K. are trading lower.

With inflation being a main driver of tighter monetary policies, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, Shortages Have Led to Gluts, noting how inventory gluts have been bad news for the stocks of companies experiencing them, but could also be indicating an inflation peak, which tends to be an ingredient for market bottoms. You can follow Jeff on Twitter: @JeffreyKleintop.

The U.K. FTSE 100 Index and Switzerland's Swiss Market Index are up 0.3%, Germany's DAX Index is gaining 0.5%, France's CAC-40 Index and Spain's IBEX 35 Index are rising 0.4%, and Italy's FTSE MIB Index is advancing 0.6%

Asia mixed to close out the week

Stocks in Asia were mixed in the final session of the week, with the markets continuing to react to yesterday's unchanged monetary policy decision from the Bank of Japan (BoJ), which was followed by a larger-than-expected rate hike by the European Central Bank. Additionally, some preliminary July manufacturing and services sector data around the globe was in focus, along with inflation data out of Japan. Manufacturing and services sector output out of Australia and Japan both showed decelerations, but continued to grow. Meanwhile, Japan's June core consumer price inflation accelerated more than expected. The Japanese yen strengthened versus the U.S. dollar. The impact of the COVID-induced lockdowns in China continued to be in focus, which has hampered economic growth in the region, and Schwab's Jeffrey Kleintop notes in his article, China's Yo-Yo Economy, that although an economic rebound in China is underway according to government and private sector data, its economy and stock market may remain volatile.

Japan's Nikkei 225 Index rose 0.4%, following the data and amid the yen's rebound. The yen has fallen to multi-decade lows since March as the Fed gets aggressive with its monetary policy while the BoJ has abstained from tightening its policy aimed at meeting its target for its 10-year bond rate. China's Shanghai Composite Index dipped 0.1%, and the Hong Kong Hang Seng Index gained 0.2%. South Korea's Kospi Index decreased 0.7%, and India's S&P BSE Sensex 30 Index moved 0.7% to the upside, while Australia's S&P/ASX 200 Index finished little changed.

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