Several headwinds pushed indexes lower, including an initial jump in crude, disappointing earnings and guidance from key firms, and no progress ending the war. Intel reports later. Joe Mazzola, Head Trading & Derivatives Strategist at Charles Schwab, shares his insights.
(Thursday market open) Steadily rising crude prices finally got the market’s attention this morning—along with increasingly bellicose words from President Trump—and stocks retreated from Wednesday’s gains. It also didn’t help that shares of Tesla (TSLA), IBM (IBM), and ServiceNow (NOW) descended in the wake of their earnings reports. ServiceNow took the hardest blow, falling nearly 14% and putting a negative spotlight back on the software sector following a firm rebound from early 2026 lows.
Crude oil climbed another 1% to nearly $94 per barrel earlier today before slipping just before the open. It’s up almost $10 from last Friday’s lows that occurred on optimism the Strait of Hormuz would re-open. That hasn’t happened, jet fuel supplies in Europe are sliding, and a shaky ceasefire between the U.S. and Iran keeps getting tested. And although 81% of S&P 500 firms reporting to date have topped Wall Street’s earnings expectations, the war’s impact showed up in results and commentary from some firms reporting yesterday and today. That, combined with perceived profit taking after Wednesday’s rally, added weight to major indexes early.
Major indexes charged higher Wednesday, though action was bifurcated and volume was below normal. Checking data, there were positive notes today as weekly mortgage applications jumped and initial weekly jobless claims of 214,000 remained low. Still, Treasury yields ticked up this morning, another potential headwind for stocks.
Three things to watch
- Fed balance sheet under scrutiny ahead of Warsh: One item that drew few headlines after the Senate Banking Committee’s hearing for Kevin Warsh earlier this week is the Fed’s balance sheet. Perhaps it deserves more attention. Warsh—President Trump’s nominee to replace current Chairman Jerome Powell when Powell’s term ends May 15—has long advocated reducing the Fed’s $6.7 trillion balance sheet, which it built up after the Great Recession and then again during and after the pandemic in an attempt to keep a lid on borrowing costs and stimulate a slow-growing economy. In his hearing Tuesday, he said the Fed’s recurring use of its balance sheet is “quite unhelpful” and blurs the line with politics, Barron’s reported. Still, the market could be wary of any quick attempt by Warsh to push the balance sheet lower, and he acknowledged the delicacy. “On the balance sheet, Warsh said any changes would need to be clearly communicated and would take time,” said Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research. “We agree, since an abrupt shrinking of the balance sheet would likely pull up long-term yields, which is the opposite of what the administration wants.” Separately, but also Fed-related, investors await a Supreme Court decision on whether President Trump can fire Fed Gov. Lisa Cook. The ruling could come any day. “But at oral arguments in January, the court seemed quite skeptical about Cook’s firing,” said Michael Townsend, managing director of legislative and regulatory affairs, Schwab.
- Threats seen beneath a cheery surface: With the war now viewed by many investors as less of a threat for stocks, judging by the recent rally to record highs, a look under the surface tells a somewhat different story. Volatility, as measured by the Cboe Volatility Index (VIX), remains moderate, just below the 20 level that typically marks the divide between lower and higher uncertainty. Looking ahead, futures trading shows little sign of that uncertainty dimming over coming months. VIX futures trade at 21 by June and above 22 by August, staying above 22 the rest of the year. That’s not a big spike, but it’s well above the mid-teens prevalent late last year when geopolitics were quieter. It also suggests the stock market might not be taking the risk of rising uncertainty seriously enough. Separately, CME crude oil futures show declines over the course of the year but not to anywhere near pre-war levels below $65 per barrel. Crude for September trades above $80 while December crude is just below $76. Even these prices hint at hopes for resolution to the conflict, as they’re down sharply from today’s $94. The current VIX contango, with prices higher for coming months, shows at least some investor concern about the war and oil having a longer-term impact on trading.
- Breadth check: The percentage of S&P 500 stocks trading above their 50-day moving average slipped to around 52% by late Wednesday, down from above 60% earlier this week and representing a slide in market breadth. The Russell 2000 (RUT) index of small caps, the Magnificent Seven, and chip stocks have accelerated lately, while many other names haven’t kept up. The largest and smallest stocks performed best yesterday, but the S&P 500 Equal Weight Index (SPXEW) that weighs all components equally rather than by market capitalization lagged the S&P 500 Index dramatically, ending flat compared with a 1% gain for its better-known relative. This implies a less balanced market.
On the move
Tesla lost 3% despite beating analysts’ earnings expectations and roughly matching consensus for revenue. Tesla reported that robotaxi miles doubled during the quarter, but energy generation and storage revenue fell 12% year over year. Also, the company expects a “significant increase” in capital expenditures and “gross margin compression,” two factors pulling shares down this morning. The increased spending is for robotics and self-driving technology.
ServiceNow plunged 14%, though revenue and earnings per share were roughly in line with expectations. Subscription revenues rose 22% year over year in the first quarter, exceeding consensus but lower than expected due to deals delayed by the Middle East war.
The software sector weakened this morning following earnings from ServiceNow and IBM (IBM). Shares of IBM sank 7% this morning despite topping analysts’ quarterly earnings and revenue expectations, as guidance apparently failed to impress. Other software stocks taking heat early included Adobe (ADBE), Microsoft (MSFT), and Salesforce (CRM), the last of which fell 5%.
Texas Instruments (TXN) soared 10% after impressing with earnings and got upgraded by two Wall Street firms. Earnings far exceeded expectations and revenue also topped consensus, while the company issued better-than-expected guidance. Strength for TXN could indicate strong consumer spending, as its chips are used in many personal electronic and automotive products.
CSX (CSX) rose 5% in early trading following better-than-expected earnings and revenue. The railroad also raised its full-year revenue growth outlook, assuming fuel and diesel prices follow the current forward curve.
Honeywell (HON) plunged 6% on mixed earnings. While revenue fell slightly short of expectations, earnings per share topped consensus. Second quarter guidance failed to impress, falling short of Wall Street’s estimates, as expected operating cash flow got reduced. In its release, Honeywell noted “a challenging geopolitical environment.”
Intel (INTC) is up nearly 2% this morning. The chip maker reports after the close and has soared this year thanks to improved AI offerings, partnerships, and advances in its fabrication business. There was good news for the company yesterday when Tesla said it planned to use Intel’s 14A manufacturing technology, Barron’s reported.
Super Micro Computer (SMCI) shares toppled 10% early today. According to Yahoo Finance, there are reports that the company lost a significant contract with Oracle (ORCL).
Lockheed Martin (LMT) slipped 2.4% in early action after earnings per share for the defense giant missed analysts’ estimates. Revenue also fell short of consensus, and the company’s outlook also appeared to disappoint investors despite heavy U.S. military spending. Quarterly sales in the key aeronautics division fell from a year earlier.
American Airlines (AAL) climbed nearly 2% despite cutting its 2026 earnings forecast. Like other airlines, it faces much higher fuel costs. However, the quarterly loss it estimated today was narrower than some analysts had expected, possibly lifting shares.
Freeport McMoRan (FCX) tumbled 6% this morning despite beating analysts’ earnings and revenue expectations. The stock had climbed sharply yesterday on a rise in copper prices and is up sharply over the last month, suggesting “buy the rumor, sell the fact” trading. Copper and gold sales during the first quarter exceeded the company’s January estimates.
Lululemon (LULU) fell 5% after announcing that it would appoint ex-Nike (NKE) executive Heidi O’Neill as CEO.
The PHLX Semiconductor Index (SOX) made another new all-time high Wednesday, carried along by Arm Holdings (ARM) rising 11%, Taiwan Semiconductor Manufacturing (TSM) gaining 5%, and a nearly 5% rally for Broadcom (AVGO). Reuters reported that TSM on Wednesday showed its newest generation of chip technology that the company says won’t rely on an expensive tool from ASML (ASML).
The Dow Jones Transportation Average ($DJT) took a dramatic dive Wednesday, down 8.4%, hurt by airline weakness and by a 30% drop in shares of car rental company Avis (CAR), which appeared to reflect technical trading, rather than fundamentals. The stock had been up more than 300% this month, largely thanks to a short squeeze, per the Wall Street Journal.
