Here is Schwab's early look at the markets for Monday, November 2.
Investors return for a new week dragging their tails between their legs after Friday's tech sell-off. There's little time to spend rehashing the news, however, because Apple reports after today's close and tomorrow features the U.S. mid-term elections. Volatility, which climbed Friday after Amazon and Intel led a dramatic sell-off, is likely to stay elevated.
With Democrats expected to gain in Tuesday's vote but outcomes uncertain, election-related market moves can't be ruled out. Some of the recent ups and downs, while mostly due to AI, might reflect investor nerves before the polls open.
Typically, stocks tend to rebound after mid-term elections as uncertainty fades, but past isn't precedent, and one big exception wasn't long ago in 2018 when stocks fell sharply following the mid-terms. That also was a year when the Federal Reserve was in a rate-hiking cycle. The central bank paused its rate hikes last week but is widely expected to raise them again in December.
This week also features a host of jobs data starting tomorrow with the September Job Openings and Labor Turnover Survey (JOLTS). ADP's October National Employment Report will follow on Wednesday, but the highlight is Friday's October nonfarm payrolls report. Consensus expects 65,000 job additions, up from September's weak showing of 29,000. The unemployment rate is expected to stay near the 4.2% seen in September.
Apple almost rounds out the Magnificent Seven reports this quarter, leaving only Nvidia later this month.
Apple initially slid following its July earnings report on disappointing guidance, though iPhone revenue exceeded expectations. Rising costs, especially for memory and data storage, remain a concern. As always, iPhone demand is likely to be in the spotlight, as well as spending and margins considering the company's recent warnings about costs.
For the quarter, analysts expect Apple to report earnings of $1.99 per share, up 7.41% from a year earlier. Revenue is seen at $113.4 billion, up 10.6% from a year ago. Shares approach earnings after a strong showing that sent them to record highs late last month. Apple easily beat earnings per share estimates in the company's previous quarter.
Other earnings today include Palantir, also after the close and following last week's positive comments from JPMorgan Chase analysts. The stock surged in early August after its last earnings report showed a 93% annual revenue advance and better-than-expected earnings, led by commercial revenue growth. Government revenue—once its main growth engine—also soared that quarter.
Apple and Palantir both represent a tech sector that's on its heels after several mega-cap firms forecast slower AI-related spending growth or steady capital expenditures. This included Alphabet, Microsoft, and Amazon, and led to concerns that the steady tailwind of AI cash might level off.
There's now a lot more focus on companies that are able to keep their free cash flow positive as they build AI capacity. Those that didn't, including Alphabet, Meta Platforms, and Amazon, saw their stocks punished in October.
All that said, some of the weakness in mega-caps and Intel last week didn't reflect issues with AI. Cloud performance was strong across the board, possibly reflecting AI return on investment for those businesses. Also, the troubles seen by Amazon and Intel were in non-AI businesses, for the most part, with Amazon's retail hurt by tough comparisons and Intel suffering from a lack of PC demand. That said, there is concern that AI could be cannibalizing Alphabet's search business.
Amazon and Intel got crushed in Friday's trading, with Intel dropping 28.6% on its worst day in more than 50 years.
All this could make it a tough environment for tech firms reporting this week even beyond today's Apple and Palantir results. Some important earnings to watch include Advanced Micro Devices on Tuesday afternoon and Arm Holdings and Qualcomm on Wednesday afternoon.
Even as tech suffered, cyclical sectors like financials, materials, industrials, and consumer discretionary showed life last week. Investors appeared to gravitate toward non-AI parts of the economy, and market breadth improved until Friday's drop. The S&P 500 Equal Weight Index, which weighs all components the same rather than by market capitalization, has been outpacing the S&P 500 Index dominated by mega-cap tech.
That might come as little relief to anyone with the courage to look over their portfolios after last week's sell-off. Those who own funds tracking the major indexes likely had a rough October, as the S&P 500 Index slipped roughly 1%, and the tech-packed Nasdaq 100 fell nearly 7% for the month.
The PHLX Semiconductor Index finished October down roughly 15%, and nearly 30% off its June highs. A late-October rally was dashed in the final two trading days of the month.
Despite the pressure on tech, third quarter earnings data continue to paint a positive picture. The blended year-over-year earnings growth rate for the S&P 500 was 30.2% as of Friday, according to FactSet.
"I wouldn't expect the negative headlines to stop, but generally speaking, we think corporate fundamentals are relatively healthy," said Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research (SCFR).
Still, selectivity matters. Investors should understand concentration risk and focus on diversification.
Pulling back, if AI spending does level off, that's obviously a challenge for chip makers and AI infrastructure names. On a positive note, slower AI spending growth might help ease yields if it means falling competition for debt. It could even slow inflation, as much of the recent economic growth reflects the AI build-out.
Major indexes were certainly spooked Friday by results and guidance from Amazon and Intel. Amazon's earnings and revenue missed expectations, and Intel's outlook fell short, putting Wall Street into another tailspin after Alphabet's poor showing slammed AI stocks Thursday.
Despite the carnage in tech, five out of 11 S&P 500 sectors ended Friday in the green. Defensive sectors, including consumer staples and utilities, popped as investors looked for safety. Energy also had a strong showing as crude prices rose. Information technology plunged more than 4% as investors abandoned the AI trade.
After rising throughout the week, market breadth retreated Friday. Roughly 59% of S&P 500 stocks traded above their 200-day moving average, down from a multi-month high of 63.6% on Thursday.
Checking individual movers Friday, chip and AI-related names capsized after a triple-play of disappointing results from Amazon, Intel, and Alphabet. Even Sandisk, a memory chip firm that reported solid results late Thursday that included a 61% data center revenue gain, got caught in the wave, falling 13.5%.
Neocloud firms CoreWeave and Nebius continued their pull back on concerns about tight financial conditions for companies spending heavily on the data center buildout.
Other poor performers included companies seen benefiting from the AI buildout. Dell dropped almost 10.8%, Bloom Energy lost 8.7%, and Hewlett Packard Enterprises sank almost 6.4%.
Chip infrastructure names were also slammed. Arm Holdings fell roughly 10%, while Lumentum sank 8.6%. Applied Digital and ASML Holding retreated 8.2% and 6.6%, respectively.
Chipmakers came under pressure as well, with Nvidia off 4.2% and Advanced Micro Devices down 10.9%. Memory chip stocks Western Digital and Micron Technology fell 7.4% and 6.7%, respectively.
The PHLX Semiconductor Index fell 7.2% to 10,688, below its 200-day moving average of 10,766.
Investors appeared to gravitate toward non-AI and tech names. Eli Lilly climbed 3.0%, PepsiCo advanced 2.7%, Costco added 1.8%, Coca-Cola rose nearly 1.4%, and Walmart advanced 1.9%.
ExxonMobil advanced 2.2% following earnings that topped consensus. The company raised its dividend and reported $20 billion in share repurchases planned for next year. Chevron, which also beat expectations, climbed 1.8%.
SpaceX sank 6.4% to near its IPO price of $135.
EV maker Rivian climbed 6.2% after its third quarter earnings and revenue both beat consensus.
Bitcoin slipped 1.2% to lows last seen in mid-September after the cryptocurrency exchange Binance suffered the largest crypto hack in history, losing an estimated $6.3 billion. The risk-off sentiment pulled down related stocks. Strategy dropped 7.8%, Circle Internet Group fell 9.3%, and Coinbase fell 10.6%.
The Dow Jones Industrial Average® ($DJI) sank 572.25 points (-1.09%) Friday to 51,770.31; the S&P 500 Index ($SPX) fell 140.32 points (-1.82%) to 7,580.07, and the Nasdaq Composite® ($COMP) surrendered 747.73 points (-2.86%) to 25,436.99.
For the week, the Dow Jones fell 0.85%, the S&P 500 dropped 0.57%, and the Nasdaq Composite plunged 2%.