Jobs Data Next as Budget Bill, Trade Stay in News

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 Wednesday, July 2nd. Job data takes center stage today, but investors are still buzzing over the Senate's passage of a budget bill yesterday and the next steps for that legislation. At the same time, trading may be range-bound ahead of Thursday's key non-farm payrolls report before the long holiday weekend. Trading closes early tomorrow and markets are shut Friday for July 4th. Tariff talk could also cause caution on Wall Street after President Trump expressed frustration with Japan yesterday ahead of Tuesday's tariff extension deadline.

0:59Trading on Tuesday, the first day of the second half, saw a notable swing out of tech and into other sectors in what could be the start of a sector rotation after solid performances in the second quarter for tech and communication services. It's unclear if that was a one-day event or the start of a trend, but it could be important to watch sector performance today for clues. After a marathon series of votes and negotiations over three days, the Senate approved the massive tax and spending bill that is the center of Trump's domestic agenda, with Vice President Vance casting the tie-breaking vote.

1:37For investors and companies, the bill provides certainty on taxes and includes a$5 trillion debt ceiling increase that will take that issue off the table until 2027, said Michael Townsend, Managing Director of Legislative and Regulatory Affairs at Schwab. But the bill ensures that there will be massive budget deficits in the future, which may contribute to ongoing concern in the bond market. The next step is for the House to pass this bill. It's not a slam dunk that this will pass the House by the end of this week and the Republicans' self-imposed July 4th deadline, Townsend said. There have been enormous changes to the bill that the House passed in May, and conservatives and moderates are not happy.

2:22But President Trump is expected to bring heavy pressure on House Republicans to get this across the finish line, and it's likely that he will succeed. Meanwhile, next week brings a big deadline Tuesday when the 90-day pause on tariffs expires. It's not clear what the White House will do. They could selectively impose tariffs on imports from some countries that the White House feels have not been serious in their trade talks, Townsend said. It's another element of uncertainty for businesses of all types. Jobs data continue today with ADP private sector employment. This report often draws market attention early in the day, but seldom correlates with the official government data due Thursday.

3:07Speaking of which, the June non-farm payrolls report is out at 8.30 a.m. Eastern Time Thursday, and analysts expect jobs growth of 120 ,000. Unemployment is seen steady at 4.2 percent. The payrolls report comes as analysts note that less new job creation is needed to keep up with population growth, with immigration down sharply this year. A monthly level below 100 ,000 might be seen as weak on Wall Street, but it would have to drop well below that to fall below the growth in population and raise unemployment, according to some analysts. The May job openings and labor turnover survey of the JOLTS topped expectations at 7.77 million.

3:52Consensus was 7.3 million. This could indicate improved hiring interest, though it's just one month and the trend has been steadily lower. The JOLTS report was a positive surprise, said Kathy Jones, Chief Fixed Income Strategist at Schwab, job openings rose, the ratio of openings to unemployed ticked higher, and layoffs declined. Today brings a look at June layoffs with the Challenger Job Cuts report. May layoffs sank to 93 ,816 from more than 100 ,000 in April. Generally, companies have been on the fence the last few months with hiring and firing on the light side amid uncertainty over tariffs and other economic policies.

4:36Yesterday's June ISM manufacturing PMI came in at 49 percent, up slightly from consensus of 48.8 percent and from 48.5 percent in May, but still below the 50 percent needed to show expansion. The prices element remained high, another source of inflation worries. Hiring fell. In corporate news, Tesla is expected to report second quarter deliveries today, with consensus around 393 ,000, according to Investor's Business Daily. That's down 11 % from a year ago, but up 17 % from the first quarter. It's also down sharply from what analysts had estimated for the quarter heading into this year, and analysts now expect around a 5.6 percent drop for the full year from 2024.

5:30Tech shares got dragged Tuesday by a dip in semiconductors as upward momentum paused for stocks like NVIDIA, Broadcom, and advanced micro devices. One source of pressure might have been the Senate's budget bill, which ended up not including an effort to prevent U.S. states from regulating AI, according to Bloomberg. The measure was a big priority for tech firms and had support from the White House but failed on a 99-1 vote. With tech and communication services taking a collective breather Tuesday, nine other sectors finished in the green and may reinforce ideas that the rally is growing broader.

6:08It was a variety show with materials, health care, energy, and staples filling the top positions. While that may sound like a mostly defensive tilt, consumer discretionary shares popped more than 0.4 percent as several retail stocks, including Nike, Target, and Kohl's advanced. Fast food, travel-oriented firms and homebuilders also saw buying. So did railroad and shipping firms, with the Dow Jones transportation average up about 3 percent to nearly four-month highs. Small caps also had a good day. It was the second best day for the year for the Dow Jones industrial average versus the tech-heavy Nasdaq 100, reflecting strength in non-tech parts of the market.

6:52Around 75 % of S &P 500 stocks climbed yesterday, but the index was held back by the mostly humble performance of mega caps, which weighed it down. The S &P 500 Equal Weight Index, which weighs all stocks in the S &P 500 equally rather than by market weight, rose more than 1 % yesterday versus a 0.11 drop for the S &P 500 index. The benchmark 10-year Treasury yield climbed Tuesday, but stayed near recent lows after the jobs opening data. This came as Federal Reserve Chairman came under new pressure from President Trump to lower rates. The requests have so far fallen on deaf ears, and most market participants don't expect a rate cut at the Fed meeting this month.

7:39Chances for that barely top 20%, according to the CME FedWatch tool. The odds improve in September, with the likelihood of at least one rate cut by then above 90%. The U.S. dollar index steadied but remained below 97 Tuesday near recent three-year lows. Expectations for slower growth, lower inflation, lower forward rates, and shifting preferences for non-U.S. investment are driving the dollar lower. Schwab's Jones said. A lower dollar adds to inflation pressure. The Dow Jones Industrial Average jumped 400.17 points Tuesday, or 0.91%, to 44 ,494.94. The S &P 500 index dipped 6.94 points or 0.11 % to 6 ,198.01, and the NASDAQ composite fell 166.84 points or 0.82 % to 20 ,202.89.

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