As Jobs Report Looms, Market Visits McDonald's

0:05Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.

0:18I'm Colette O 'Claire, and here is Schwab's early look at the markets for Thursday, May 7th. Two days of fierce rallies have the market at record highs, heading into key jobs data tomorrow. First, investors need to navigate earnings from McDonald's and U.S. layoffs and initial jobless claims data early today. Investors also continue tracking the latest Middle East developments and the price of oil. Iran and the U.S. moved closer to restarting talks, the Wall Street Journal reported late Thursday, though issues remain thorny and there's no guarantee of progress. Hope for progress drove down oil about 7 percent yesterday and back to $95 per barrel, though Wednesday's intraday lows were well under that before optimism slipped later in the session.

1:06Wall Street, which has been less correlated with ups and downs in crude lately, took its cue from crude Wednesday but also from Advanced Micro Devices, or AMD, Walt Disney, and several other solid earnings reports that kept alive the resilient corporate momentum fueling the rally for more than a month. Results and positive guidance from AMD keyed another leg up for chips, but two of the largest sector giants wait in the wings and won't report for weeks, namely NVIDIA and Broadcom. So far, chip companies exceeding expectations have seen their stocks well rewarded by investors. Data Wednesday included ADP employment, which showed private sector job growth of 109 ,000 in April.

1:52That's slightly below the 120 ,000 that Bloomberg expected, but almost double the 61 ,000 in March and the most in more than a year, led by service-producing jobs. This may lend some positive vibes ahead of Friday's April non-farm payrolls report, expected to show relatively light jobs growth near 60 ,000. Still, data took a backseat to AMD earnings and crude's dissent, which followed reports that Iran is reviewing a U.S. proposal and the two sides are closer to an agreement than in a while. There's no guarantee, of course, and the Strait of Hormuz remains sealed. Today brings more jobs data with the Challenger monthly layoff report and weekly initial jobless claims.

2:38Last week, claims fell to their lowest weekly level in decades. This may reflect fewer workers due to tighter immigration policy or an aging population. Labor participation has fallen recently in non-farm payrolls reports, something to check tomorrow when that report bows at 8.30 a.m. ET. Layoffs in April are seen at the 60 ,000 recorded in March, a month when technology layoffs led the pack with more than 18 ,000. Last time out, AI was cited as the biggest reason for job cuts. The March job openings report earlier this week didn't appear to show much AI impact as finance job openings rose. That's a sector where AI is expected to have an impact.

3:26One month isn't a trend, however, and that report can be volatile. Estimates for April job growth in Friday's report have been falling and are now around 60 ,000, well below the 178 ,000 jobs created in March. Revisions to previous reports may also be worth checking tomorrow morning. The government has a recent history of pulling back not just the prior month's numbers, but numbers for months before that as well. Service-producing jobs dominated the ADP growth number, and these tend to pay less than goods-producing ones. Tomorrow's government report might be checked for wage growth, which has generally been solid.

4:06Back on the earnings front, results from major firms continue to impress at midweek, and even Arista Networks, shares of which tumbled after its report, topped consensus. While Disney results topped analysts' estimates and revenue rose 7 percent to above$25 billion, also domestic theme park attendance fell 1 percent last quarter, though international theme parks and cruise ship revenue climbed 2 percent. In earnings after the close Wednesday, Arm Holdings became the latest chip-related firm to see double-digit post-results gains, climbing 12.6 percent in initial post-market trading as results surpassed consensus views.

4:49At its investor day in March, Arm shared a strategic pivot in which it plans to go from being a chip licensor to a direct silicon provider. It also issued strong guidance. Applovin, a mobile technology firm, saw shares rise 5 % in post-market trading late yesterday, following earnings that topped expectations. Earnings slow a bit as the weekend approaches, though investors approach the drive-thru, as McDonald's reports this morning. The restaurant sector has had its struggles lately, hurt in part by rising prices and the popularity of appetite-sapping obesity drugs. McDonald's, which has trailed the broader market over the last month, is expected to report earnings per share of$2.74 and revenue of$6.5 billion, up 8.6 % from a year ago.

5:39Comparable sales at stores open a year or more will be a key figure to watch as some analysts expect weakness. Biotech stocks haven't kept up with the broader markets rally, setting the stage for Gilead Sciences' results later today. Last time out, the company beat analysts' earnings and revenue estimates and provided guidance in line with expectations. The product to watch is Biktarvi, an HIV treatment that saw a 5 % year-over-year sales gain in the December quarter to around$4 billion. Treasury yields slipped Wednesday on hopes for peace progress. The benchmark 10-year yield fell 6 basis points to 4.36 percent, about the same move as other yields across the curve, and the 30-year came down from highs near 5 percent earlier this week.

6:30As of late Wednesday, the CME FedWatch tool put odds of a rate cut this year at 13 percent, and odds of a hike fell to 15 from nearly 30 percent earlier in the week as inflation worries eased slightly on hopes for peace. Still, chances remain near three out of four that rates will remain right where they are, between 3.5 percent and 3.75 percent all this year, the Fed last cut in December. The situation in Iran will continue to drive the outlook for rates, said Cooper Howard, director of fixed income research and strategy at the Schwab Center for Financial Research, or Skiffer. So far, the situation in Iran hasn't dramatically altered the outlook for the economy, but the longer it lingers, the greater the likelihood that it will.

7:17We look for rates to drift modestly higher this year, assuming the economy remains resilient and inflation expectations stay anchored. On Wednesday, major indexes showed no signs of slowing down, posting their second straight day of record highs for the S &P 500 index, the Nasdaq composite, and the Russell 2000. The Dow Jones Industrial Average has lagged slightly but clawed back about 50 ,000 briefly late in the session before easing from that level. Volatility lightened and the dollar fell almost 0.5 percent, another sign of the market's easing war fears. From a sector standpoint, Wall Street fell short of repeating Tuesday's neat trick of all 11 finishing green.

8:03Still, only two sectors ended lower Wednesday, and one of them was energy, which stands to reason given crude oil's tumble. The other was the defensive utility sector. Industrials powered the market higher Wednesday, rising 2.6 percent amid strength from stocks like Deere, Honeywell, Caterpillar, and Boeing, though Uber took a starring role after its earnings. Other sectors, up 1.75 % or more, included infotech, materials, and communication services. The Philadelphia Semiconductor Index climbed another 4.5%, led by AMD, but with help from CoreWeave, NVIDIA, and Arm Holdings. Another big tech gainer Wednesday was Dell, up more than 10 % on ideas that demand for its servers could remain firm so long as the AI race continues.

8:54Elsewhere in tech, software stocks went back to their old ways, as ServiceNow, Salesforce, and Adobe all slid. Salesforce reports later this month. Checking other individual movers yesterday, Supermicro computers soared 23 percent as earnings from the data center infrastructure provider topped expectations, though revenues missed. Guidance was stronger than expected. NVIDIA climbed 5.7 percent and Corning soared 12 percent, as NVIDIA announced the two companies are in a long-term partnership to strengthen U.S. manufacturing for AI infrastructure. The deal includes three new manufacturing plants that will create 3 ,000 U.S.

9:36jobs. These plants will focus on advanced optical connectivity manufacturing. Uber Technologies popped 9 percent, even though its 14 percent annual revenue climbed to$13.2 billion slightly missed consensus. Earnings per share topped analyst estimates while gross bookings, trip volume, and active users kept growing during the quarter. Guidance for the current quarter was toward the low end of the consensus range. Walt Disney climbed 7 percent as earnings were better than expected amid strong showings from theme parks and streaming. Advanced micro-devices soared nearly 18 percent as earnings showed strong data center growth.

10:19CVS Health added 7.7 percent after easily beating analysts' earnings and revenue estimates and seeing better-than-expected growth in every business segment. CVS also raised guidance for the full year. Airline and cruise shares racked up gains on falling oil prices and hopes for an end to the war. Meanwhile, the dollar fell to pre-war levels and metal prices rose. Energy-related shares mostly fell. Arista Networks tumbled 13.6 percent, despite earnings and revenue that topped consensus views. The company also shared guidance above Wall Street's expectations. The company's slightly lower-than-expected forecast for second-quarter adjusted operating margin may have disappointed investors, Barron's reported.

11:09The Dow Jones Industrial Average climbed 612.34 points Wednesday, or 1.24%, to 49 ,910.59. The S &P 500 Index rose 105.90 points, or 1.46%, to 7 ,365.12. and the NASDAQ Composite gained 512.82 points or 2.03 % to 25 ,838.94. This has been the Schwab Market Update podcast. To stay informed, visit schwab.com slash market update or follow for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or review. It really helps new listeners find the show. Join us for another update tomorrow.

12:09For important disclosures, see the show notes and schwab.com slash marketupdatepodcast.