Jobs Data, Oil, Memory Chip Earnings In Focus

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 Thursday, August 6th. With one day to go before Friday's key jobs report, investors can potentially take a breath as earnings news slows. This might put more focus on the Middle East, where rumors of peace talks and a short-term deal to open the Strait of Hormuz sent crude oil and treasure yields down again yesterday, even though major indexes ended mostly lower. Before Wednesday's pause, gains were keyed by peace hopes and by Amazon and Microsoft's strong results. Their earnings late last month, accompanied by evidence of AI monetization and guidance for acceleration in cloud services growth, initiated the snapback rally in tech and the AI complex, noted Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research.

1:11The technical picture has also improved, Peterson said, with the NASDAQ and NASDAQ 100 recently pushing above their 50-day moving averages. Is it all clear from here? Of course not, Peterson said. The Iran conflict and oil prices are still an unknown, as are the trajectory of yields and Fed policy. August and September seasonality is bearish, but the strong earnings and AI monetization healing trumps those concerns, at least for now. The earnings parade continued Wednesday, led by Walt Disney and Eli Lilly, both impressed, judging from stock moves. Memory chip firms Western Digital and SanDisk reported late Wednesday, with SanDisk falling slightly after the close as it guided for below-consensus quarterly revenue.

1:59Results, however, topped estimates. Western Digital plunged almost 9 % in post-market action despite an earnings and revenue beat. It also raised consensus for fiscal first-quarter earnings. The bulk of this week's key corporate reporting is behind, but earnings worth watching today include Datadog Later for more insight into what appears to be a booming cloud market and ConocoPhillips this morning.

2:29In Data Wednesday, private sector July jobs growth tracked by ADP missed expectations at 44 ,000, dominated by service sector positions. Analysts had expected 75 ,000. This precedes Friday's July non-farm payrolls report that's expected to show 86 ,000 jobs added, up from 57 ,000 in June. But the government report doesn't often correlate with the ADP data. Unemployment is expected to remain at 4.2%, though there's been growing concern about low participation rates, suggesting actual unemployment might be higher. Jobless claims, however, hit record lows recently. It's a puzzle that might get sorted out more today with the latest jobless claims and tomorrow as payrolls bow.

3:18The ADP report showed jobs growth only in the services sector, with goods-producing jobs declining slightly in July. Education and health care services jobs dominated, while leisure and hospitality positions, typically lower-paying ones, fell. Manufacturing positions barely rose, suggesting that despite recent strength in manufacturing data, it's getting done without a huge rise in hiring. That's probably a good sign for those hoping economic productivity can advance, something Federal Reserve Chairman Kevin Warsh believes AI can help accomplish. An initial second-quarter productivity number is due this morning, and consensus is for 0.6 percent, up from 0.3 percent in the first quarter.

4:07The productivity report comes along with quarterly unit labor cost growth seen at 1.7 percent. Yesterday's ISM non-manufacturing PMI report for July renewed concerns about inflation as the prices paid component rose to 70.3 percent. The 12-month average for this category is now the highest since April of 2023, Briefing.com said. Potential tightness in the services sector could spark wage growth, something to monitor Friday. Any sign of labor market tightness could exacerbate inflation concerns with key U.S. July inflation data approaching next week. Even so, chances of a September Fed rate hike eased to 55 % Wednesday, according to the CME FedWatch tool, down from above 60 % last week after the Fed meeting.

4:56There's some concern that the Fed might let inflation run too high for too long, and that's arguably shown up in the bond market, where yields remain near 18-month highs for the 10-year Treasury note. The 10-year yield eased slightly with oil yesterday. Several Fed policymakers said they remain concerned about leaving rates at the current level of 3.5 percent to 3.75 percent, where it has been since December. The most recent was Minneapolis Fed President Neil Kashkari, who voted to raise rates last week and told CNBC Wednesday that he would rather execute rate hikes in small steps now to prevent dramatic moves later.

5:39In markets Wednesday, consolidation showed up after the booming four-day rally to record highs. The broader market spent much of the day pivoting around unchanged before giving up and losing ground late, while many large chip and AI names that had soared earlier this week gave back some gains. NVIDIA was an exception, climbing more than 3 % to give the Dow Jones Industrial Average a boost after SpaceX CEO Elon Musk said SpaceX will exclusively use NVIDIA's chips for AI services. The news appeared to hurt NVIDIA's competitor Advanced Microdevices, which fell 7%, despite better-than-expected earnings and guidance.

6:21Investors worried that spending might rise due to higher memory prices. Despite index pressure, seven of 11 S &P 500 sectors ended flat to higher Wednesday, led by materials as mining shares rose. A 3 % jump in gold and silver prices that reflected a weaker dollar likely gave metals a boost, and mining companies Barrick Mining, Newmont, and Freeport-McMoran rang up gains. Elsewhere, NVIDIA lifted Infotech, but communication services plunged more than 2.5 percent, thanks mainly to struggles at Alphabet, which dropped 4 percent. Jeff Dean, who's led much of the company's AI efforts, announced he's leaving to start his own company, Barron's reported.

7:09Looking at individual market movers Wednesday, Eli Lilly climbed more than 4.7 percent. Earnings per share of$8.38 were$2.37 above the FACSAC consensus, and revenue rose 47.7 % annually to$22.97 billion. Consensus was$20.69 billion. Lillie raised fiscal 2026 revenue guidance to above consensus levels. SpaceX plunged 13 % despite a narrower-than-expected quarterly loss. heavy AI spending, and concerns about today's lock-up expiration that injects more shares into the market weighed. Disney climbed 3.5 % after earnings per share topped consensus by$0.20, and revenues came in as expected. The company reaffirmed its fiscal 2026 guidance.

8:03The entertainment and theme park divisions performed well. Arista Networks climbed nearly 4 % following earnings that topped consensus and a forecast for above expected quarterly revenue. Uber dropped more than 5 % despite earnings and guidance that generally came in as expected. Gross bookings rose 22 % annually, outpacing first quarter growth. Shopify surged 17%, catapulted by an earnings beat and its forecast for better than expected revenue in the current quarter. Booking holdings climbed more than 6 % after an earnings beat. The company reaffirmed guidance.

8:44The Dow Jones Industrial Average added 263.24 points or 0.49 % Wednesday to a new record close of 54 ,349.12. The S &P 500 Index lost 12.97 points or 0.17 % to 7 ,723.55 and the Nasdaq Composite plunged 221.55 points or 0.83 % to 26 ,363.44. 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. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow.

9:44For important disclosures, see the show notes and schwab.com slash market update podcast.