I'm Colette Auclair, and here is Schwab's early look at the markets for Thursday, November 12.
Another round of tech earnings greets investors today after AI cloud platform CoreWeave's solid earnings and guidance eased concerns about AI, giving markets a mid-week lift.
Cisco and Applied Materials report after the close following Nebius this morning, and investors await tomorrow's October Producer Price Index (PPI) as rate hike odds continue to rise on stubborn inflation.
Tuesday's hotter-than-expected Consumer Price Index (CPI) retreated from focus yesterday as chip stocks rallied and the bond market was closed for Veteran's Day. Bond trading returns today, possibly a headwind for stocks after Tuesday's sharp yield rally brought the benchmark 10-year note yield back to 5% from lows near 4.84% earlier in the week.
The dollar is another possible headwind after posting nearly one-month highs. Hawkish talk by Federal Reserve officials drove gains. A stronger dollar can make life harder for large U.S. firm selling goods overseas, weighing on margins.
The Briefing.com consensus for tomorrow's 8:30 a.m. ET PPI is 0.4% for headline and 0.3% for core, down from September's parabolic 1.3% headline and 0.7% core rise. Core excludes food and energy.
Chicago Fed President Austan Goolsbee called CPI "another distressing report, borderline disturbing," in an interview with PBS. He's worried about consumer inflation expectations.
Dallas Fed President Lorie Logan said the Fed might need to deliver two more rate hikes at a more rapid pace. That followed Fed Gov. Christopher Waller, who said earlier this week he could envision the case for a 50-basis point hike in December instead of the normal 25 basis points.
The Fed left rates unchanged in October, but two policymakers voted to tighten. Futures trading now factors in 13% odds of a 50-basis point December hike, according to the CME FedWatch Tool.
A range of 4.5% to 4.75% by next June is the most likely scenario in futures trading, implying 75 basis points of tightening between now and mid-year.
Today features a 30-year Treasury bond auction to follow up 10-year and 3-year auctions earlier this week that saw soft demand. Investors could be reluctant to jump into the bond market with new signs of inflation being stubborn.
Investors appeared to welcome CoreWeave's bullish operating income forecast, heavy backlog, and narrower-than-expected loss, but the firm remains at the center of concerns about AI borrowing thanks to its heavy spending and debt load. One quarter's results and outlook don't mean those concerns vanish.
However, CoreWeave's "strong operational" Q3 brings reassurance around its debt and data center issues, Citi said in an analyst note raising its price target. Neoclouds provide computing power to AI developers, and Nebius is another one.
"CoreWeave delivered a 'beat and raise quarter' and beat on incrementally improving margins, which sends the signal that there's still excess demand for compute," said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research (SCFR). "CoreWeave was a symbol of the AI financing concerns, AI economic viability and circular financing concerns, all rolled up in one, and as long as AI demand remains robust, it's tough to hold a strong bearish thesis."
In another potential sign of chip health, South Korea's exports the first 10 days of November more than doubled annually, with semiconductor exports up four-fold, BusinessKorea reported.
Applied Materials reports after the close. Shares dropped initially last time the semiconductor equipment supplier reported, despite strong sales guidance, possibly because of high investor expectations, Reuters reported at the time. The company's fortunes depend heavily on the AI infrastructure buildout, making it a good spot barometer.
Cisco, a giant networking company with tentacles into all sorts of global tech businesses, forecast strong revenue last time it reported in August, but shares dropped despite that and solid results. The company said then it saw its highest productivity metrics in 30 years, a factor that might be worth watching today for signs of AI's impact. It guided then for fiscal first quarter revenue between $18 billion and $18.2 billion.
Analysts expect Cisco to report earnings per share of $1.33, up 32.6% annually, and revenue of $18.1 billion, up 21.8%.
The highlight next week is likely Nvidia's earnings report late Tuesday. Shares rebounded slightly on Wednesday after plunging 10% to start the week on its CEO controversy. Investors might hope for more insight when Jensen Huang speaks on the earnings call, but it could be weeks or months before anyone knows the full story.
Baird downgraded Nvidia to neutral from outperform this week, citing supply issues and potential demand softening as AI hyperscaler spending growth possibly scales back.
Nvidia's rivals and CoreWeave continued to set the pace as Nvidia struggled, though shares of Nvidia rebounded about 3% Wednesday. That lackluster gain trailed the PHLX Semiconductor Index (SOX) and its 5.7% rise.
In data Wednesday, the weekly MBA Mortgage Applications Index bounced 6.2% from a week earlier. It had fallen 1.2% the prior week. Today brings initial weekly jobless claims at 8:30 a.m. ET. The Briefing.com consensus is 195,000, still historically light.
From a geopolitical standpoint, crude climbed Wednesday despite hopes for progress on Iran as media reports surfaced of new attacks on Gulf shipping. Vice President JD Vance is considering direct talks with an Iranian security official, the Wall Street Journal reported.
On Wall Street Wednesday, major indexes climbed broadly but finished off highs. Tech led thanks to chips while consumer stocks were subdued after Tuesday's huge yield rally.
Ten of 11 S&P sectors rose Wednesday, including solid gains for industrials and financials. Technically, bulls won a victory as the S&P 500 Index regained old support at 7,600. That level could continue being one to defend.
Despite recent turmoil, the S&P 500 remains just 2.6% below all-time highs but has been stuck between roughly 7,400 and 7,800 since early August, thanks mainly to tech's summer and fall struggles.
The S&P 500 Equal Weight Index, which dilutes the impact of chip and AI names, continues to outpace the SPX, and market breadth reclaimed 70% in terms of stocks above their 50-day moving average. It was 20% in early October, and the improvement owes a lot to underlying churn as investors seek sectors outside of tech. Health care, up 10% over the last month, has led the way, followed by staples and financials, with info tech down 10%.
From an individual stock standpoint, CoreWeave spiked almost 26% on earnings. Nebius was right behind with 17% gains ahead of its results.
Other chip and AI-related stocks leading the charge included Sandisk, Arm Holdings, Micron, Lumentum, SK Hynix, Super Micro Computer, Dell, and Marvell Technology, all up 10% or more. Oracle rose 9%, helped by CoreWeave results. Intel, which fell 50% from highs earlier this month, rose 7% but remains far off peaks. Bloom Energy, a company seen benefitting from AI, climbed more than 12%.
Magnificent Seven members Meta, Microsoft and Amazon wilted Wednesday, possibly on concerns that the strong demand cited by CoreWeave could keep chip and AI component prices elevated. Microsoft continued to face pressure amid concerns it could suffer competition from Anthropic.
Consumer stocks under pressure Wednesday included a score of household names like McDonald's, United Airlines, and Gap.
The Dow Jones Industrial Average® ($DJI) gained 254.60 points (+0.49%) Wednesday to 52,486.49; the S&P 500 Index ($SPX) rose 98.45 points (+1.31%) to 7,619.38, and the Nasdaq Composite® ($COMP) advanced 400.31 points (+1.60%) to 25,466.19.