Can markets survive big tech earnings, Fed rate call, Iran fears today?
It’s one of the biggest days of the year for markets, and Wall Street remains on edge as several potential pitfalls lie ahead.
The stakes are high with the S&P 500 on pace for its second consecutive negative month, an index of the so-called Magnificent Seven tech giants slipping into correction territory, and Treasury bond yields holding near the highest levels in two years.
Traders are pricing in a surprisingly high 30% chance of a Federal Reserve rate hike, with the odds of a move in September pegged at 78%, heading into Wednesday’s meeting.
Commentary from Chairman Kevin Warsh, who has eschewed the traditional practice of guiding markets toward a particular Fed decision, will be key to determining the market’s next moves.
Updates after the closing bell from Meta Platforms and Microsoft, two of the world’s biggest tech companies and leading spenders in the global data-center race, will help define the pace of an AI trade that has slowed notably over the past month.
Another leap higher in global oil prices further complicates the picture.
Brent crude futures jumped more than 3% overnight following an Iranian missile attack on a U.S. airbase in Jordan, while Tehran-backed Popular Mobilisation Forces in Iraq hit targets in Saudi Arabia.
Stock volatility readings are elevated, but not flashing red, heading into the Wednesday session, with the Cboe Group’s VIX index trading south of the 20-point mark that would suggest extreme market moves.
Frayed investor nerves, however, are a different matter—and with South Korea’s KOSPI index down nearly 38% over the past month, despite a massive earnings beat from chip maker SK Hynix last night, those jitters are likely to remain in place until late in the session.
The fallout from a crucial 24 hours for markets could last a lot longer than a day.
—Martin Baccardax
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Oil Prices Rise After U.S. Says Iran Tried to Attack
Iran launched missile strikes at U.S. forces on Tuesday disrupting what has been a four-day truce between the U.S. and Iran sending oil prices up. U.S. Central Command said it had successfully intercepted multiple ballistic missiles launched by the Islamic Revolutionary Guard Corps in an attempted surprise attack.
The U.S. forces remain vigilant, Central Command said in a post on X late Tuesday. Fighting between the two sides had been paused since Friday while talks proceeded, though on Tuesday, Iran said it had rejected an Omani plan about control of the Strait of Hormuz.Oil had been floating lower as prospects for peace improved before Tuesday’s escalation. Brent crude had settled earlier on Tuesday at $82.08 a barrel, their lowest levels in more than two weeks despite talk of $150 a barrel oil bubbling up again. Prices climbed back above $85 early Wednesday.RBC Capital Markets’ Helima Croft says there’s been an “optimism bias” keeping oil in check despite some warning signals. For one, the Strategic Petroleum Reserves is down to about 308 million barrels, getting close to its 300 million barrel functional floor. The current drawdown is five million barrels a week.
What’s Next: Despite the market’s “optimism bias,” RBC’s Croft remains “exceedingly skeptical” that a major diplomatic breakthrough is close. And now that the fighting has begun again, the question remains how soon normal maritime traffic can be restored in the Strait of Hormuz.
—Anita Hamilton and Liz Moyer
SK Hynix Earnings Drag Down Red-Hot KOSPI Index
Memory-chip makers have been on a wild ride lately, and the turbulence doesn’t look set to end soon. South Korea’s SK Hynix posted a record quarterly profit late Tuesday, but its second-quarter results still fell well short of analysts’ expectations.
The company reported operating income of 61 trillion Korean won ($42 billion), as revenue soared 257% from a year ago to 79 trillion won. Analysts were looking for operating income of 64 trillion won on revenue of 84 trillion won, according to a FactSet poll.SK Hynix’s South Korean shares closed 9.6% lower, having been down by almost 20% at one point during Wednesday’s Korean trading. Rival Samsung Electronics dropped 5.2%, and the flagship KOSPI Composite Index fell 6%.It’s another chapter in the wild ride SK Hynix and its competitors Micron and Samsung have been on, as investors try to figure out when the end of the memory shortage will come. Memory is a commoditized business with inventories and prices having regular sharp cycles.The old rule of thumb for cyclical chip industries is that the best time to sell is when gross margins are peaking, and many are interpreting the current environment as that.
What’s Next: South Korean stocks could be set for a rally, after a 32% slump for the KOSPI over the past month. Exchange-traded and hedge funds are nearly done deleveraging and stocks look attractive thanks to cheap valuations and earnings growth, J.P. Morgan strategists said in a research note.
—Adam Levine and George Glover
Visa Is Streamlining After Beating Earnings Forecasts
Visa beat expectations for its fiscal third quarter just hours after announcing plans to slash roughly 7% of its workforce in a streamlining effort aimed largely at its technology and product groups. CEO Ryan McInerney says artificial intelligence is shaping how work gets done at Visa.
The payments giant reported net revenue of $11.6 billion, up 14% from a year ago, and adjusted earnings of $3.32 a share. Payments volume rose 10%, cross-border volume increased 13%, and the volume of processed transactions rose 10%.McInerney said consumer and business spending remains resilient. In a memo viewed by Barron’s, the CEO said Visa was entering a new era in commerce with a business that has real momentum and “must continue evolving how we work.”Technology is likely one factor behind the layoffs, allowing the company to automate tasks while cutting personnel costs. Major tech firms like Intel, Cisco, and Meta Platforms have explicitly linked job cuts in recent months to increased spending on the technology.But AI likely isn’t the sole driver. Visa has been focusing on new initiatives, such as expanding its geographic footprint and entering new businesses such as stablecoins. McInerney referenced choices the company has made over the past few years in his letter to staff.
What’s Next: On a conference call, Visa said it expects fourth-quarter adjusted revenue growth on the high end of low double digits, and it sees earnings growth in the low end of the midteens.
—Mackenzie Tatananni, Janet H. Cho, and Liz Moyer
Corning Has Worst Day in Four Months After In-Line Guidance
Corning beat expectations for second-quarter earnings but its outlook, which was mostly in-line with Wall Street’s numbers, didn’t cut it with investors. They gave the optical networking company its worst day in four months, pushing shares 12% lower.
The company posted adjusted earnings of 78 cents a share and sales of $4.74 billion, up 17%. Its optical communications segment generated net sales of $2.07 billion, up 32% from a year ago and a 12% increase from the first quarter, narrowly topping analyst expectations.CEO Wendell Weeks said that Corning is entering a new phase of accelerating growth and expects to deliver a sales compounded annual growth rate of 19% from the fourth quarter through the fourth quarter 2030. Management still believes Corning can capture strong growth as AI data center cluster size increases.Corning and other optical networking companies have become a major part of the AI trade, but this has faltered recently. Corning, like many other companies, is deeply tied to the AI infrastructure buildout and Big Tech’s capital spending plans.In June, Corning struck an agreement with Amazon to produce optical fiber for data centers. Nvidia is investing up to $3.2 billion to boost optical networking manufacturing capacity in Texas and North Carolina. And it will supply Meta Platforms cabling, optical fiber, and connectivity solutions for data centers.
What’s Next: For the current quarter, Corning is forecasting adjusted earnings of 85 cents to 89 cents a share on core sales of $4.9 billion to $5 billion. Wall Street expects third-quarter earnings of 85 cents a share with sales totaling $4.99 billion, according to FactSet.
—Kit Norton
Lucid Gets a Vote of Confidence From the Arabian Warren Buffett
A seeming vote of confidence in the electric vehicle maker Lucid comes at an interesting time for the company and the EV industry. Saudi Arabia’s Prince Alwaleed bin Talal, widely considered the Arabian Warren Buffett, disclosed a 19.5 million stake acquired for about $129 million.
Lucid’s stock was battered after an earlier July report—which it quickly denied—that it was considering bankruptcy. The stock has since recovered and on Tuesday jumped 20% on news of the Prince’s 5% stake. But it’s still down roughly 30% this year and 70% over the past 12 months.It’s been tough for money-losing EV start-ups. U.S. EV sales have stalled ever since the Trump administration allowed a $7,500 federal EV purchase tax credit to expire last September. Higher interest rates have also made it more costly to finance operations.Lucid is majority-owned by entities connected with the Saudi government. The company confirmed the stake was new and not affiliated with the government. “We don’t comment on individual investments, but we are aware and appreciate the independent vote of confidence,” Lucid said in an emailed statement.Fellow auto maker Ford Motor reported an operating profit of $2.5 billion from sales of $48.3 billion for the second quarter, though there was a GAAP net loss of $1.3 billion. The difference between the adjusted and GAAP numbers was largely a previously announced $3.6 billion EV-related charge.
What’s Next: Ford’s EV business lost about $1.3 billion in the second quarter. Ford is expected to have a full-year loss of about $4 billion, including a $1 billion investment in its universal EV, or UEV, platform, which is intended to lower production costs. UEV sales should start around 2027.
—Al Root and Liz Moyer
Dear Quentin,
Two of my husband’s siblings have recently set up trusts for valid reasons. The first sibling’s trust was established to protect the interests of both his second wife and the children from his first marriage.
The second sibling’s trust was created to address long-term medical-care concerns. I have been educating myself to determine whether a trust would be a good idea for our estate. The more I read, the more uncertain I become.
We are in our mid-to-late 60s and are both retired federal employees. My husband retired under the Civil Service Retirement System, while I retired under the Federal Employees Retirement System.
Together, we receive pensions totaling $120,000 annually. I have $1 million in my Thrift Savings Plan account, while my husband has $200,000. I will begin collecting Social Security in five years, at 70, with an estimated monthly benefit of $4,000.
My husband will begin Social Security at the same time, based on my employment record, with an estimated monthly benefit of $2,000. I also have approximately $350,000 in inherited IRAs. One IRA is a stretch IRA.
The other three are subject to the SECURE II Act, and I have six years remaining to empty those accounts. I also have a small life-insurance policy, and we both carry long-term care insurance.
We have wills and powers of attorney naming our daughter for both financial and healthcare matters. I also maintain a letter to our executor (our daughter), which I update and share at least annually, detailing our financial and digital lives.
Our two adult children are equal beneficiaries on their father’s TSP account, my life-insurance policy, and my inherited IRAs. My husband and our children are named as beneficiaries on my TSP account: 50% to my husband and 25% to each child.
The only assets remaining in our estate for the wills to cover are our house (currently valued at $400,000), vehicles, bank accounts and personal belongings. All of these assets are jointly held with rights of survivorship.
Our wills state that, after both of our deaths, these items are to be sold after our children have had the opportunity to address any sentimental belongings. Our son understands that there will be costs associated with probating our wills.
I realize that probate can be lengthy, public and expensive. I have been through the process myself as the administrator of my late sister’s estate. Personally, I found probate less onerous than settling her estate without a will.
Is there anything I have missed or neglected? Or are we adequately covered? I understand that our situation could change in the future. But at this point, is there any reason for us to establish a trust?
—A Couple in Our 60s
Read the Moneyist’s response here.
—Quentin Fottrell
—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner