Inflation Data, War News Could Dominate Week Ahead

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 Monday, May 11th. The week begins with a quiet Monday in terms of data and earnings, giving investors more time to digest last Friday's non-farm payrolls report for April. Coming days feature key inflation data, and investors continue tracking every Middle East development. U.S. jobs growth surpassed Wall Street's expectations in April at 115 ,000, while unemployment stayed at 4.3 percent, meeting consensus. Major indexes, already higher before the data, held their gains, while Treasury yields remained slightly lower. Analysts had expected job growth of just 60 ,000, but large jumps in health care and transportation and warehousing positions lifted the total and made March and April the first back-to-back reports with six-figure employment growth since late 2024.

1:16Earnings get much quieter this week, with few large firms reporting. This could be bearish for the major indexes, which rode strong earnings to record highs this month and last. Once earnings news ebbs, attention often shifts to factors like geopolitics. Constellation Energy may be worth watching today as a barometer for AI-related power demand. However, the data picture does look busy. Tomorrow brings the April Consumer Price Index, or CPI, the second month to reflect war-driven oil prices. March saw a sharp 0.9 % increase in headline CPI, while core CPI, excluding food and energy, rose just 0.2%.

1:59For tomorrow, analysts expect 0.6 % headline CPI growth from March and 0.4 % core. If that's the case, it might raise concerns that higher oil is starting to leak into the core price index. A stronger-than-expected core number might get the market's attention and perhaps raise odds of a 2026 rate hike. A Senate vote is expected before Friday on President Trump's nominee for Fed chairman, Kevin Warsh. Chairman Jerome Powell's term ends Friday, though Powell will remain on the board of governors and vote in future meetings. Warsh has a reputation for being a hawk turned dovish. However, the Fed remains dominated by members who don't see the need for any near-term rate cuts.

2:45Turning back to earnings, the first quarter S &P 500 earnings per share growth is almost 28 percent on a blended basis, meaning combined growth for companies reporting already and estimates for those to come, FactSet said Friday. Most of the mega-cap firms boosting that number have already reported, though NVIDIA looms on May 20. Retailer earnings dominate later this month, and their lower margins may help bring down the overall figure. Even so, many analysts now look for stronger earnings growth in coming quarters, piggybacking off the first quarter strength. Those rising estimates are one factor boosting the stock market.

3:27AI and tech companies have dominated in terms of positive revisions to earnings growth, not just for the first quarter, but for the full calendar year. However, there is a concentration issue, as three companies alone, Amazon, Alphabet, and Meta, explain about 70 % in dollar terms the increased earnings expectation for the entire year. Earnings worth watching later this week include Alibaba and Cisco on Wednesday and Applied Materials on Thursday. Cisco is a good barometer for global tech demand as it sells its equipment for so many applications. Returning to last Friday's employment data, jobs growth for February and March got cut by a combined 16 ,000.

4:12Also, average hourly earnings rose just 0.2 percent monthly, a relatively light gain, and the same as seen in March. Labor force participation slipped to 61.8 percent in April from 61.9 percent in March. Lower participation can mean more people giving up looking for jobs, a sign of weakness in the economy. The total number of individuals in the labor force dipped again in April and has been rolling over since November. noted Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research for Skiffer. He added that the number of people working part-time for economic reasons has also been rebounding.

4:56Lightweight growth, combined with the low quits rates seen in Tuesday's March job openings report, suggests the low-hire, low-fire climate continued in April. Also, an April decline of 13 ,000 jobs in the information category could reflect AI competition. In additional data Friday, the University of Michigan's preliminary May Consumer Sentiment Report fell to a new record low of 48.2, down from 49.8 in April and below analysts' expectations hurt by high oil prices and tariffs. Long-run inflation expectations fell to 3.4 percent in May from 3.5 percent in April, which may soothe the Fed. Checking late Friday, chances for a rate cut at any time this year were around 10 percent, while investors still baked in 16 percent odds of a possible hike, according to the CME FedWatch tool.

5:55The odds of no rate change all year is 74 percent. Treasury yields eased Friday and oil remains a big driver heading into the new week. Higher oil generally has sent yields up and vice versa. Crude steadied Friday with little fresh Middle East news. The benchmark 10-year Treasury yield has traded in a tight range between roughly 4.2 % and 4.45 % for about eight weeks. It fell three basis points to 4.36 percent Friday, down two basis points for the week, as crude fell more than$6 from a week earlier. Strong jobs growth last month supported yields, but weak wage gains and consumer sentiment might have countered that.

6:41We're not expecting them to go significantly higher from here, said Colin Martin, head of fixed income research and strategy at Skiffer. We don't really expect them to retest the 5 % level we saw with the 10-year back in 2023, but it could be possible, but we don't expect to see them going much higher than that. Several treasury auctions this week could affect yields, starting with a 3-year note auction this morning and a 10-year note auction tomorrow. Recent auctions saw lax demand, and more of the same could send yields higher and hurt rate-sensitive stocks. Market volatility eased last week, but futures trading shows participants expecting it to rise in the coming months, which could put stocks on shakier footing.

7:28Major indexes hit new records Friday, as the S &P 500 index posted its sixth straight winning week. The Nasdaq composite also set a new high and small cap Russell 2000 index finished just below its all-time high of earlier last week. Strong earnings and a melt up in the chip market gave stocks more momentum, though some analysts are concerned about a market that's growing more concentrated. Only 52 % of S &P 500 stocks trade above their 50-day moving averages, even with the index at record highs. This makes the index positively vulnerable if consolidation begins in chips. In Sector Action Friday, performance was mixed and reflected growing concentration in the mega-cap tech and chip space.

8:14Infotech climbed 2.58 percent, but no other sector advanced even 0.6 percent, while five of 11 S &P sectors closed lower Friday. Industrials and financials were in the red, a blow to stocks that track cyclical economic trends. Checking individual movers Friday, Intel had another double-digit gain of almost 14 percent as the Wall Street Journal reported that Intel will build chips for Apple. Details of the exact type of chip and Apple products involved weren't immediately available. Shares of Intel have tripled since late March. In Intel News, along with a report from Bloomberg that Apollo and Blackstone were considering providing$35 billion in financing for chipmaker Broadcom, gave the entire sector another boost.

9:05The Philadelphia Semiconductor Index rose 5.5 % Friday and is up about 64 % from late March, driven by huge gains for Intel, Micron, and advanced micro-devices. SanDisk rose nearly 17 % Friday. The driving engine behind last week's push higher in stocks continued to be the AI infrastructure plays, especially in the chip stocks, said Nathan Peterson, director of derivatives research and strategy at Skiffer. AMD reported earnings on Tuesday and helped fuel additional bullish momentum as AMD's CEO Lisa Su once again revised longer-term growth expectations higher. CoreWeave fell more than 11 percent after the firm missed earnings expectations, though revenue topped analysts' thinking.

9:55Bookings reached the highest quarterly level in the firm's history, but second-quarter guidance was below consensus. Akamai Technologies surged 26 percent after the cybersecurity and cloud computing firm said a leading AI lab had agreed to a$1.8 billion seven-year deal for its services in cloud infrastructure, Barron's reported. Rocket Lab soared 34 percent after the space company's first-quarter revenue topped estimates and the company announced new deals, CNBC reported. Cloudflare plunged 23 percent. Earnings were solid, coming in above expectations, but the cybersecurity company appeared to spook Wall Street by announcing a job cut affecting 1 ,100 employees, saying its usage of AI has increased more than 600 percent in the last three months.

10:51The Dow Jones Industrial Average inched up 12.19 points Friday or 0.02 percent to 49 ,609.16. The S &P 500 index rose 61.82 points or 0.84 percent to 7 ,398.93 and the Nasdaq Composite surged 440.88 points, or 1.71%, to 26 ,247.07. For the week, the Dow Jones Industrial Average rose 0.22%, the S &P 500 was up 2.33%, and the Nasdaq climbed 4.51%. 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.

11:56Join us for another update tomorrow.

12:04For important disclosures, see the show notes and schwab.com slash market update podcast.