Awaiting Jobs Data, Tech Results After New Highs

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.

0:17I'm Keith Lansford, and here is Schwab's early look at the markets for Tuesday, June 2nd. The tech rally tangled with war news early this week, and their epic struggle could help shape trading again today. Nvidia's announcement Monday of a new PC chip with AI capabilities brought more money into semiconductors yesterday, only to see an early rally temporarily blocked, literally, by Iran's announcement it plans to completely close the Strait of Hormuz and stop negotiating with the U.S. President Trump said in a post later Monday that both sides in the skirmish between Israel and Hezbollah will stop attacks and that talks continue between U.S.

0:58and Iranian negotiators, the Wall Street Journal reported. Crude oil, which fell 17 % in May, began June on the upswing, back above$90 per barrel, but quickly dropped from midday peaks after the news on Israel and Hezbollah. The benchmark 10-year Treasury note yield quickly rolled up slight gains to above 4.5 % on the Iran news. By later Monday, it was up less sharply at 4.47%. More unrest and confusion in the Middle East, if it lasts, comes with the stock market at record highs in a low-volume, narrow climb. Major indexes appear overbought by some measures, and although index volatility remains relatively low, individual stock volatility is quite high.

1:46Looking ahead, jobs data and tech earnings take center stage this week. Friday's main on-farm payrolls report follows two straight months of gains, the first time that's happened in a year. Consensus for job growth fell to around 85 ,000 on Monday from 96 ,000 late last week. Where estimates go from here could depend on reports like today's April job openings and labor turnover survey or JOLTS and Wednesday's ADP monthly employment data. Jobs openings could provide clues into why consumer sentiment remains dim. Openings have generally declined over the past year, dropping below$6.9 million in March.

2:27Analysts expect a similar reading for April when the report comes out at 10 a.m. ET. Investors received an update on U.S. manufacturing conditions Monday. The ISM manufacturing PMI for May was 54%, above consensus of 52.6%, and continuing a string of impressive headline data in this report. A 50 % level is needed for expansion. Supplier deliveries, part of the ISM report, stayed elevated at the same 60.6 level as in April. Usually, an improvement in supplier deliveries is seen as positive, meaning demand is outstripping supply. Recent movement in this category, however, might reflect supply constraints given the closure of the Strait of Hormuz.

3:14Earlier Monday, S &P Global's final reading for U.S. May manufacturing PMI fell to 55.1 from 55.3 initially, still a strong number. This week doesn't include many big treasury auctions, so the yield path could depend on war developments and jobs data ahead of next week's inflation reports. Even if yields retest their May highs, it's unclear how much impact that might have on stocks, which often get weighed down by rising yields. Last week, the running 20-day correlation between the two-year Treasury note yield and the S &P 500 index fell to its lowest or most negative level on record, noted Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research.

3:59The labor market has been showing some signs of strengthening, and further strength would support the case. The yields may not have much downside from here, said Cooper Howard, director of fixed income research and strategy at the Schwab Center for Financial Research. We believe rates could drift somewhat higher because inflation is still elevated. Credit spreads remain tight, typically a sign that the economy is relatively healthy. Credit spreads sometimes rise before the stock market begins to show signs of cracking, so they can be an important indicator for stock investors to watch. As of late Monday, futures trading predicted the Fed to keep rates paused at its June 17th meeting, according to the CME FedWatch tool.

4:41Chances of a policy move this year remained roughly 50-50 early this week, slightly leaning toward a hike, not a pause. This week brings several critical earnings reports, none bigger than Broadcom, late tomorrow. Like other major chip firms, Broadcom's results can give investors insight into the pace of hyperscaler AI spending. Last time out, Broadcom said it expected more than$100 billion in AI chip revenue next year. Guidance from Broadcom could be closely watched for any signs of that demand growing. Even an outlook that simply reaffirms the previous number might get a rude greeting from Wall Street, considering bullish spirits for chip market growth.

5:26Broadcom, with its$2 trillion market capitalization, could swing some weight from the NASDAQ 100 and the S &P 500 index, depending which way the stock travels after it reports. Cybersecurity firm Palo Alto Networks precedes Broadcom this afternoon, and its competitor CrowdStrike reports late Wednesday. The space is interesting to watch as the software sector forges its way back from a steep drop earlier this year. Companies like Palo Alto and CrowdStrike emphasize their incorporation of AI, which could help shield them from AI competition. Last time out, Palo Alto sank when investors seemed disappointed by the company's outlook for fiscal third-quarter earnings, the quarter it reports later today.

6:12Its forecast then was for earnings of$0.78 to$0.80 per share. The Wall Street consensus is for earnings of$0.80. On Monday, the S &P 500 index and NASDAQ climbed slightly to new record highs again, despite Middle East headlines in rising oil. Once again, it wasn't a broad move. By late in the session, around 300 S &P stocks were down for the day versus 200 that were higher. Tech and energy were the only sectors in the green late Monday. The second straight session where most sectors finished lower even as the index rose. The small-cap Russell 2000 index also fell. The S &P technology sector is up more than 17 % over the last month, while no other sector has climbed even 2 % in that stretch.

7:00Year-to-date, it's far more even. Every sector is in the green except health care and financials since December 31st, and energy is up more than 26 % just ahead of tech. Energy stocks caught a lift Monday from oil's near 6 % gain. Only 52.6 % of S &P 500 stocks traded above their 50-day moving average by late Monday, historically soft breadth for an index at record highs. Back in January, when there was a large rotation out of tech and mega caps into other sectors, almost 75 % of stocks traded above their 50-day moving average. In individual moves Monday, NVIDIA climbed more than 6%. CEO Jensen Huang said that Anthropic and OpenAI are among users of NVIDIA's new chip for microprocessors, Bloomberg reported.

7:53NVIDIA is partnering with Microsoft on what Huang called the largest PC reinvention in 40 years. Shares of Microsoft rose about 3 % on the news. Intel, which has long dominated the PC chip market, headed the other direction on NVIDIA's announcement, falling 6 % on worries the new chip could pose competition. Qualcomm, another competitor of NVIDIA's, fell more than 8%. ARM holdings climbed 15%, bolstered by NVIDIA's announcement. The new RTX Spark PC chip from NVIDIA uses ARM technology, MarketWatch noted. Dell and HP Incorporated, which NVIDIA said it's working with on the new laptops with its technology both rose.

8:39Dell added another 10 % gain to its earnings-fueled 33 % Friday lead. Other AI-related stocks jumped as well Monday amid general exuberance around the sector. CoreWeave rose 13%, Oracle rose 10%, and Marvell climbed 8.5%. Micron posted a 6 % rise. IBM surged almost 7%, lifted by Barclays' initiating coverage of the stock with an overweight rating and a$350 price target, Barron's reported. Customer loyalty and the company's infrastructure software business could help protect IBM from AI, the analyst notes said. In post-market trading Monday, shares of Hewlett-Packard Enterprise surged 33 % following better-than-expected earnings and a guidance hike.

9:29Cloud and AI revenue rose 22.9 % year-over-year. Bitcoin dropped 2.6 % after Strategy, a cryptocurrency firm, reported it had sold Bitcoin in late May. Taylor Morrison Home built up 22 % gains on news that Berkshire Hathaway was buying the home building company in a cash deal valued at$8.5 billion. According to Barron's, this appears to be an attempt by Berkshire to buy a home building stock at a discount with the housing market under pressure from high mortgage rates. The Berkshire news likely helped other home builders, including KB Home and Lennar. Transportation stocks generally made mild gains, despite the higher price of oil.

10:13Defensive sectors like healthcare, utilities, and real estate remained weak. Tesla and Amazon both fell sharply, hurting the discretionary sector. Tesla possibly got nicked by OpenAI's announcement that its robotics division is hiring, representing potential competition. Amazon and Tesla both suffered margin fears as hopes for progress ending the conflict waned, Briefing.com noted. MGM Resorts International bucked the lower trend in consumer names on Monday, ringing up 16 % gains after People Incorporated offered to acquire MGM in an$18 billion deal, Barron's reported. And software shares, which rocketed late last week, continued their ascent Monday.

10:57ServiceNow, Adobe, and Salesforce all enjoyed solid gains. As a sector, software is up 44 % from April lows, Barron's reported, and received support Monday from positive comments made by NVIDIA's Huang about the industry. The Dow Jones Industrial Average added 46.42 points Monday, or 0.09%, to 51 ,078.88. The S &P 500 Index climbed 19.90 points, or 0.26%, to 7 ,599.96. And the NASDAQ Composite gained 114.19 points or 0.42 % to 27 ,086.81. This has been the Schwab Market Update Podcast. To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app.

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