Digesting Apple and Amazon, Waiting for Payrolls

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 Friday, August 1st. As investors digest earnings from Apple and Amazon, they look ahead to the week's biggest data report. Today's nonfarm payrolls for July will provide new clues on job market growth amid conflicting trends. Jobless claims are near their 2025 lows, but layoffs grew sharply in July, recent data show. And the Federal Reserve characterized the labor market as solid earlier this week. But continuing jobless claims, a measure of how long people remain out of work after losing their jobs, remains near three-year highs.

0:58The payrolls report is expected to show jobs growth of 102 ,000, down from 147 ,000 in June. The June report got a lift from heavy public sector hiring and education, a surge not likely repeated in July. Estimates range from zero to 170 ,000. This wide gap could reflect analysts and companies struggling to grasp the economic roadmap amid so much geopolitical and tariff uncertainty. Unemployment is seen at 4.2 percent in July, up from 4.1 percent in June, but lower workforce participation may be keeping this figure on the light side. Strengthen the data would likely reinforce ideas that the Federal Reserve will stay on the sidelines.

1:45As of late Thursday, odds of a September rate cut were around 40 percent, down from 65 percent earlier this week before strong data and a hawkish Fed meeting. The central bank's message has arguably shifted from we're waiting for positive data to cut to we need convincing evidence before we cut. It's a subtle but meaningful change as it looks more likely the Fed is willing to stand pat. Later this morning, investors get two more key reports, the July ISM Manufacturing Index and the final July University of Michigan consumer sentiment. Analysts expect sentiment of 61.8, unchanged from the preliminary reading according to briefing.com.

2:29For ISM, the average estimate is 49.5 percent, up from the previous 49 percent. A 50 percent is needed to show expansion, with anything below that a sign of contraction. That said, there are signs of improvement in U.S. manufacturing, mainly due to the AI build-out. While the labor market seems steady now and the Fed isn't feeling rushed, judging from Fed Chairman Jerome Powell's somewhat hawkish tone Wednesday, today's jobs report and the next one early in September both come well before the Federal Open Market Committee meets again. Those, plus inflation numbers and retail sales, mean the Fed has plenty of data to comb through beyond what it sees today.

3:12The pace of U.S. spending has already slowed, growing just 1.4 percent in the second quarter and averaging just 1.0 percent year-to-date. Real final sales to domestic purchasers, a reading that strips out the volatility of trade and inventories, grew at a sluggish 1.2 percent in the most recent quarter. Personal spending in June rebounded to 0.3 % in June from a flat May, but still didn't meet analysts' consensus of 0.4%. This is another element the Fed watches. Thursday saw June personal consumption expenditures, or PCE, the Fed's favored inflation indicator, come in as expected at 0.3 % for both headline and core, with core excluding volatile food and energy.

4:01Both were up from 0.1 percent and 0.2 percent in May. Core PCE rose 2.8 percent annually, adding further doubt to the September rate cut narrative. Looking at today's numbers, the Fed can say there isn't yet enough evidence to warrant a rate cut, said Kathy Jones, chief fixed-income strategist at Schwab. Inflation is above target and turning higher. Tariffs will increase prices while the job market seems steady. Turning to corporate news, Apple and Amazon both reported earnings late Thursday, and Amazon shares turned lower in post-market trading, despite the company topping analysts' estimates on revenue and earnings.

4:44Amazon Web Services growth of 17.5 % year-over-year to just clear the average Wall Street estimate, but forecast results for the current quarter that appear to disappoint. Specifically, investors focused on its third-quarter operating income of$15.5 billion to$20.5 billion, though its anticipated third-quarter revenue surpassed Wall Street's thinking. Apple also reported a solid quarter, surpassing Wall Street's estimates on a variety of important metrics, including earnings per share, revenue, iPhone sales, and services. Shares turned slightly higher in post-market trading, but didn't immediately test recent highs near$215 per share.

5:29Apple has lagged most of its Magnificent Seven peers this year. Major indexes started strong Thursday thanks to rallies in Meta Platforms and Microsoft after their earnings, but Microsoft's strength faded throughout the session. Meta held on to most of its gains. It wasn't enough, however. The rest of the market took a midsummer snooze and closed near the daily lows for major indexes, which may not be too surprising considering that August is typically the start of a seasonally weaker period for Wall Street. Hesitation ahead of Apple, Amazon, and payrolls also could explain the market's negative turn yesterday.

6:11This was the first three-day losing streak for the S &P 500 index since June 20th, and the index heads into Friday down more than 0.5 percent for the week. The Nasdaq composite fared better Thursday, thanks to Meta and Microsoft, but still slipped. Thursday's lackluster action, though it's only one day, suggests the good news is priced in and we may be due for some near-term consolidation, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. He added that with the midpoint of earnings season near and many positive trade-related developments in the rearview mirror, there aren't as many near-term catalysts to push stocks higher.

6:54This can lead to some profit-taking since the perceived shift in the risk and reward equation for chasing performance skews to the downside, Peterson said. Instead of buying the dips, traders look to sell the rips. That's evident in the recent index closes near their daily lows. Thursday's soft performance was especially telling on a day when two megacaps reported solid earnings. Earlier this summer, market breadth expanded in a sign that the rally sparked buying in a variety of sectors. Over the last two weeks, breadth lost ground, and by Thursday, just 58 percent of S &P 500 stocks traded above their 50-day moving averages, down from the peak of 75 percent.

7:40This comes despite 83 % of companies beating second quarter earnings estimates and 67 % beating on revenue. The S &P 500 is on pace for 8.5 % year-over-year earnings growth, well above expectations for 5.8%. However, much of the strength comes directly from mega caps, masking overall tepid gains for many companies. One takeaway from earnings season now that it's about halfway over relates to tariffs and how companies are handling them. Many have relocated production, negotiated with suppliers, or passed along costs to customers. Margin estimates are climbing again, according to Bloomberg. Generally, corporate America is finding ways to moderate the impact of tariffs.

8:30In other corporate news, there were reports in the media that CSX may be looking to buy the Burlington Northern Santa Fe Railroad owned by William Buffett's Berkshire Hathaway. Bloomberg said CSX is said to be working with Goldman Sachs to explore options. Berkshire Hathaway reports earnings tomorrow. The Dow Jones Industrial Average fell 330.30 points Thursday, or 0.74%, to 44 ,130.98. The S &P 500 Index dropped 23.51 points, or 0.37%, to 6 ,339.39. And the Nasdaq Composite sank 7.23 points or 0.03 % to 21 ,122.45. 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.

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9:50For important disclosures, see the show notes and schwab.com slash marketupdatepodcast.