Job Number Misses and Tariffs Prompt Selling

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, August 4th. The week ahead looks less hectic than the last two, with some major economic reports out of the way and no mega-cap earnings. Instead, focus could shift more to trade and geopolitics, with President Trump's new tariffs set to start Thursday and possibly paving the way to last-minute agreements. China's deadline is August 12th, but administration officials said late last week that a deal may be near. Meanwhile, the market continues reeling from Friday's surprisingly weak jobs report and its possible impact on Federal Reserve policy.

0:57Looking ahead, this week still features plenty of earnings, but the season is half over and NVIDIA's results aren't due until later this month. Some of the key earnings reports to watch in coming days include advanced microdevices, Disney, Super Microcomputer, McDonald's, Eli Lilly, and Uber. The July non-farm payrolls report painted a gloomy picture. U.S. July jobs growth of 73 ,000 missed expectations, and the government dramatically downshifted its estimates for May and June job gains. It's more evidence that labor is losing strength and possibly ammunition for Fed doves hoping to cut rates next month.

1:37Analysts had expected 102 ,000, and the government cut a combined 258 ,000 jobs from the prior two months. Overall, it's not a great report, said Kevin Gordon, director, senior investment strategist at Schwab. President Trump fired Erica McIntyre for the commissioner of the Bureau of Labor Statistics, CNN and NBC News reported after the market closed late Friday. Trump accused the Bureau of manipulating the data. Notably, the government put May jobs growth at just 19 ,000 and June's at 14 ,000, below the previous readings of 144 ,000 and 147 ,000. That's well below what's needed to keep pace with population growth and suggests the economy might be slowing.

2:22It was also the most dramatic downward revision since the height of the pandemic in May 2020. Unemployment rose to 4.2 percent in July from 4.1 percent in June. Average hourly earnings rose 0.3 percent in line with recent months, and federal government jobs fell. Healthcare jobs climbed, but no other major category changed much. Reviewing the downward revisions, Gordon said, on the surface, that kind of softness looks bad, but it needs to be looked at in the context of a small increase in the unemployment rate, which might be suggestive of the fact that the run rate for payroll growth has downshifted significantly given the deterioration in the labor force.

3:05With the foreign-born labor force down by more than 1.6 million in the last four months, job growth may not need to be as high as in the past to keep unemployment at these historically low levels. However, labor force participation of 62.2 percent is down 0.5 percent from a year ago, suggesting some workers simply stopped looking for work. Stubbornly high continued unemployment claims also speak to difficulty people have finding jobs. Immediately after the jobs report Friday, the benchmark 10-year Treasury note yield dived nine basis points to below 4.27 percent, a one-month low. And chances of a Fed rate cut in September, which had declined dramatically in the wake of the hawkish Fed meeting, rose to 55 percent from 37 percent the day before.

3:58In other data Friday, the July ISM manufacturing PMI retreated to 48 percent from 49 percent in June, another blow for the manufacturing sector, and below 49.5 percent. Anything below 50 percent indicates contraction. That said, there are signs of improvement in U.S. manufacturing, mainly due to the AI build-out. The ISM July services PMI is due next week. Final July University of Michigan consumer sentiment was also below consensus at 61.7 for the headline. Analysts had expected 62. The figure was up from the previous 60.7, however, and one-year inflation expectations fell again to 4.5 percent in July.

4:45Factory orders today are one of the only U.S. data highlights in a quiet week, but investors will be on the lookout for a series of Treasury auctions. These include a 10-year note auction Wednesday. Even before Friday's jobs report, the S &P 500 index had dropped three straight sessions for the first time in more than a month, and stocks came under renewed pressure on fresh tariffs imposed by President Trump. The tariff rates varied, but one that stuck out is a 35 % tariff on goods from Canada not protected by a previous trade agreement. That's well above the 15 % tariffs for Japan and Europe, while Mexico received a 90-day extension.

5:24The tariffs don't take effect until next Thursday, perhaps offering a last chance for some countries to reach agreements, while China has until August 12. Trump also imposed 40 percent tariffs on trans shipments or products countries send to the U.S. through other countries to evade tariffs. In company news Friday, Apple fell more than 2 percent, despite reporting better-than-expected earnings late Thursday. In an interview with CNBC late yesterday, Apple CEO Tim Cook said the company is increasing its AI investments and is open to getting involved in the merger and acquisition arena. Apple's biggest acquisition came in 2014 when it bought Beats Electronics for$3 billion.

6:10Amazon plunged more than 8 percent. Though Amazon did forecast better than expected revenue in the current quarter, its operating profit estimate and cloud growth appeared to disappoint investors. Coinbase dropped double digits following a disappointing earnings report and amid weakness in Bitcoin as risk sentiment declined following the negative jobs report and tariffs. Strategy and other crypto-related stock fell sharply in sympathy. Eastman Chemical was a drag on the S &P 500 as it plummeted more than 19 % on worse-than-expected earnings, revenue, and guidance. Many tech stocks that surged earlier this summer stepped back Friday amid the drop in risk on sentiment, including CoreWeave, Marvell Technology, Supermicro Computer, Oracle, and Taiwan Semiconductor Manufacturing.

7:00NVIDIA also dropped more than 4%. Monolithic Power was among the top performers, rallying more than 10 % on better-than-expected earnings and raising their forward guidance. ExxonMobil dropped nearly 2%, despite stronger-than-expected earnings. Cost savings helped the company on the bottom line, even as revenue fell more than 12 % from a year earlier, due partly to cheaper oil. Competitor Chevron slid slightly after their earnings beat. Moderna tumbled 6.61 percent despite beating analysts' earnings and revenue expectations. Guidance appeared to disappoint. The Dow Jones Industrial Average fell 542.40 points Friday, or 1.23%, to 43 ,588.58.

7:52The S &P 500 index was down 101.38 points, or 1.60%, to 6 ,238.01. And the Nasdaq Composite dropped 472.32 points, or 2.24%, to 20 ,650.13. For the week. The Dow dropped 2.92%, the S &P 500 was down 2.36%, and the Nasdaq fell 2.17%. 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.

8:48For important disclosures, see the show notes and schwab.com slash marketupdatepodcast.