Earnings Grow, Bitcoin Drops, Volatility Contrasts

Every morning before the opening bell, the Schwab Market Update sets the stage for the day ahead, covering key market movers, economic developments, and emerging themes. Each edition includes "Three things to watch" and every Thursday features a weekly section, "Crypto currents." This recap revisits select items for those who may have missed them, helping traders head into the weekend better informed.  

Dell's (DELL) massive earnings beat in late May helped cap a reporting season that featured S&P 500^® Index firms reporting almost 29% annual earnings per share growth. That's the highest in more than four years and more than double the 13.1% analysts were predicting back on March 31. Profit growth momentum could last, judging from Wall Street's estimates for 20% year-over-year earnings this quarter and in the second half of 2026, per FactSet. If most investors were asked the main potential impediment, they'd likely point to chances of slowing demand—whether it's from inflation-weary consumers or from technology firms with thin pocketbooks after all their AI spending. That's one possible stumbling block. The other is on the supply side, especially if the war continues. Several prominent CEOs in various industries have mentioned difficulty obtaining raw materials, a factor that could slow earnings growth. Companies can't sell and make profit from goods they're unable to manufacture.

It's been brutal for bitcoin lately. A 23% drop since May 14. As of Wednesday, about $4.5 billion in net withdrawals from spot exchange-traded products (ETP) across 15 straight days of net outflows—a record—according to Glassnode data. Adding insult to injury, at least for crypto evangelists: The apparent defiance of gravity by AI-related stocks, which have sucked the oxygen out of the room as well as, perhaps, money out of ETPs. Now, more than six months into the current bear market, the Crypto Fear & Greed Index is flashing "extreme fear." But perhaps the worst is almost over. Bitcoin will likely find support around $60,000, a level which roughly coincides with the cost of production for efficient miners and the 200-week moving average, said Jim Ferraioli, director of digital currencies research and strategy at the Schwab Center for Financial Research, or SCFR. Those levels have provided support in all past bear markets, including in February this year, Ferraioli said. Bitcoin (/BTC) futures fell again this morning to about $61,000, just above February's intraday low around $60,000.

More than 100 days into the war, 170 ships remain locked in the Persian Gulf. Reopening the Strait of Hormuz won't magically get things back to normal for the oil market. "Even in a more constructive scenario where there's an obvious resolution in the Middle East, we still don't think oil prices would necessarily move sustainably lower right away," said Cooper Howard, director of fixed income research and strategy at SCFR. "It takes time to restore production." Missiles damaged many Persian Gulf crude oil and liquefied natural gas installations, which could take months or years to repair and add another piece to the puzzle. About 15 million barrels of oil a day have disappeared from supply, The Wall Street Journal noted, and inventories are shrinking. It'd take up to six months to return to 80% of precrisis supply, The Journal said, citing S&P Global, meaning it's unlikely U.S. crude prices would drop to anywhere near the $65 per barrel level they were before the war.

Global economic growth appears to be improving, led by manufacturing. "The growth is tied to the AI capex boom, and earnings estimates are rising as a result," said Michelle Gibley, director of international equity research and strategy at SCFR. South Korea's market gains this year put its market capitalization above Canada, India, and the United Kingdom in that category as earnings expectations soared on rising memory prices. However, foreign investors have sold for eight straight weeks, Gibley added. China, she said, is a strong contender for AI leadership, but computing shortages create frequent service disruptions. China may have to make bigger advances in chipmaking and chip equipment technology to reach AI leadership goals but lacks access to advanced U.S. chips. Across the Atlantic, annual inflation in the Euro area rose to 3.2% in May, the fourth straight gain. Financial markets there price in a 25-basis point rate hike at the June 11 European Central Bank (ECB) meeting, Reuters reported. An ECB hike could put more pressure on U.S. Treasuries and raise yields here.

Stock market volatility fell last week to levels last seen before the war, as measured by the Cboe Volatility Index (VIX). That doesn't mean all is calm because VIX only measures the S&P 500 Index as whole, not individual stocks within the market. For that, one needs to check single-stock volatility measured by the Cboe's VIXEQ Index (VIXEQ), which is boiling hot. The VIXEQ jumped more than four points last week to reach a nearly one-year high of 45%, the Cboe said Monday. Another way to measure this phenomenon is the Cboe S&P 500 Dispersion Index (DSPX), which measures the expected dispersion in the S&P 500 Index over the next 30 days. The DSPX hit one-year highs earlier this week. A high DSPX means individual stocks are expected to move more independently and a low DSPX means they're expected to move closely together (similar to the index). The reason higher stock volatility hasn't translated to higher index volatility, the CBOE added, is due to historically low correlation levels. Stocks are moving, but in different directions, so index volume stayed muted. The contrast of VIX to VIXEQ tells investors that although index waters appear placid, those who buy individual stocks should likely expect turbulence.