Jobs Posting: After Weak Data, Payrolls Awaited

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. I'm Keith Lansford, and here is Schwab's early look at the markets for Wednesday, February 11th. Investors await this morning's January non-farm payrolls report with a warning from White House economic advisor Kevin Hassett fresh on their minds. Hassett hinted on CNBC Monday that jobs growth could be smaller, but not to panic. Wall Street's estimates for January jobs growth average around 70 ,000, up from 50 ,000 in December. However, even before Hasse spoke, recent data raised concerns about the labor market, including last week's ADP monthly jobs report, layoff statistics, and job openings.

0:58Tuesday's soft December retail sales report reinforced ideas that a bland jobs picture might be trimming consumer spending. Retail sales were flat in December when analysts had expected a 0.4 percent rise. Sales at furniture, clothing, electronics and appliance stores and motor vehicle and parts dealers all fell, and sales excluding auto dealers and gas stations were also flat. The control group of retail sales that spills into the government's gross domestic product, or GDP, calculations growth fell 0.1 percent from a month earlier. Following the week report, the Atlanta Fed's GDP Now meter tracking fourth-quarter economic growth fell to 3.7 percent from 4.2 percent.

1:41The first government GDP estimate comes next week. The benchmark 10-year Treasury yield dipped to one-month lows near 4.13 percent after the retail sales data and finished just above that after a three-year Treasury auction saw decent demand and a separate report showed employment cost growth easing. Retail sales were a bit of a disappointment missing across the board in terms of expectations, plus slight downward revisions to last one, said Nathan Peterson, Director of Derivatives Research and Strategy at the Schwab Center for Financial Research. The last couple of retail sales reports have been relatively strong, though, suggesting the upper half of the K economy is holding up well.

2:22Tuesday's report is only one data point, and we need a couple more reports to see if there is any change in the trend, which has been signaling healthy consumer spending. The K refers to robust spending by high-income households and falling spending among low-income ones, a trend evident over the last year. Also, goods inflation staying stubbornly above the Fed's 2 % goal and the weakening jobs market might help explain slower retail sales.

2:53Earnings this morning from McDonald's are another consumer demand benchmark. Price increases have hurt restaurant demand in general, and restaurants were among the worst-performing Wall Street segments of the last year. However, McDonald's shares have sizzled since mid-January, helped by rotation out of tack. The company's earnings missed estimates last time, but U.S. same-store sales growth of 2.4 percent impressed as the average check size rose. McDonald's often discusses trends in consumer spending on its calls. Both Coca-Cola and Ford reported yesterday, with Coca-Cola failing to impress as revenue missed analysts' consensus.

3:32Ford's earnings missed consensus, but revenue topped estimates, and guidance looked solid. Shares rose slightly in initial post-market action. Today's earnings reports shift from consumer to tech as Cisco and AppLovin report after the close, followed by Applied Materials late Thursday. Shopify, however, reports this morning as retailers start to dominate earnings in coming weeks. Last time out, Cisco exceeded analysts' expectations and shares climbed 7 % in the immediate aftermath. Shares went on a tear starting in mid-January and recently pushed above the all-time high reached early this century during the original dot-com boom.

4:16Cisco's networking business sales rose 15 % in the most recent quarter. That segment will be watched today, along with the company's AI infrastructure business. Returning to today's jobs report, investors might see a strong showing, say above 100 ,000, as bad news for the market, pushing back hopes of rate cuts. A very poor showing below 50 ,000 might also be bad for stocks, raising economic worries. A Goldilocks figure somewhere in the middle, near the 70 ,000 average estimate, could conceivably support major indexes. In addition, the Bureau of Labor Statistics releases its benchmark revisions for the March 2024 to March 2025 period, which are likely to show that job growth was significantly weaker than originally estimated, said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research.

5:09This data might remove hundreds of thousands of jobs previously reported. After jobs, Friday morning's January Consumer Price Index, or CPI, becomes the next major report with market-moving potential. It's expected to show 0.3 % monthly growth for both headline and core CPI, which excludes volatile food and energy prices. Annual core and headline growth are both seen at 2.5%, not much change from the prior month. As of late Tuesday, chances of a March rate cut were close to 22 percent, according to the CME FedWatch tool, up from 17 percent going into the retail sales report. Chances of rates being lower by April topped 40 percent, up from 25 percent a week ago.

5:56Investors likely will watch futures action carefully after today's jobs data, but it's still a month until the next Fed meeting with more inflation in jobs data between now and then. Neither of Tuesday's Fed policymaker speeches hinted at any near-term rate cuts. The S &P 500 index remains just below all-time intraday highs near 7 ,000, but continues to lack appetite for a true test of that level. Technically, the index is back above its 50-day and 100-day moving averages after dropping under them last week, a positive chart move. But investors seem unwilling to push the index to new highs. The 50-day moving average of 6 ,892 might be a support point on any pullback.

6:43The Magnificent Seven haven't hit a combined new high since October, and neither has the tech-heavy NASDAQ 100. On the other hand, the equal weight S &P 500 has hit 13 record highs since then without the NASDAQ 100 posting a single one. The Equal Weight Index outpaced the S &P 500 index again Tuesday, as rotations seem to favor cyclical and value over tech. Even within tech, investors are exhibiting greater selectivity as the spread between software and chip performance continues to widen. At the same time, overall market breadth remains solid, with around 68 % of S &P 500 stocks trading above their 50-day moving average as of midday Tuesday.

7:27That hasn't fallen below 50 % since December 10th. Broadening is good for the markets to establish breadth and depth below the surface, but creating and sustaining new all-time highs will likely require tech to take the pull position. U.S. large caps dominated net inflows last week, followed by global equities and consumer cyclicals. On Wall Street Tuesday, advancers easily outpaced decliners, but the broader market sagged in tepid trading before today's jobs report. Wall Street keeps wobbling between days like Friday and Monday when tech takes over and days like Tuesday when investors appear to roll back into cyclical and value stocks.

8:13That's apparent in yesterday's Dow Jones Industrial Average strength versus other indexes. In sectors Tuesday, financials sank to the bottom of the barrel. Last week, it was software stocks pressured by an AI tool that threatened to capture some of their business. Tuesday saw financials victimized as tech platform Altruist announced a new AI-powered tax planning tool, CNBC reported. With Treasury yields retreating, rate-sensitive areas like utilities and real estate surged Tuesday, while materials also climbed despite falling metals prices. Homebuilders, including Toll Brothers, D.R. Horton, KB Home, and Lenar, all climbed 5 % or more by late in the session, with weekly mortgage applications out early today and perhaps providing more direction.

9:03Tech stocks, which rolled up early gains Tuesday on a news report that U.S. firms would be exempt from pending semiconductor tariffs, couldn't hold on and finished lower. The PHLX Semiconductor Index fell about 0.7%, backtracking from the recent eye-catching rally. Palantir fell more than 2 % by late Tuesday, despite an upgrade by Daiwa. The weakness across chips and AI may have technical foundations. In Individual Trading Tuesday, Coca-Cola eased nearly 1.5 % after the company's quarterly revenue came in shy of Wall Street's consensus view. Earnings per share slightly beat expectations, but revenue gains of 2.2 % year-over-year to$11.8 billion were below the$12.03 billion fax-set estimate.

9:55Organic revenues grew 5%, and the company sees 4 % to 5 % organic revenue growth in 2026. Spotify advanced nearly 15 % after announcing it added 38 million users last quarter to reach 751 million. The average forecast, according to Bloomberg, was$745.2 million. Operating income outpaced estimates and gross margin improved. And Taiwan semiconductor manufacturing rose almost 2%, bolstered by solid January revenue growth. The Dow Jones Industrial Average added 52.27 points Tuesday, or 0.10%, to 50 ,188.14. The S &P 500 index fell 23.01 points or 0.33 % to 6 ,941.81, and the NASDAQ Composite dropped 136.19 points or 0.59 % to 23 ,102.47.

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11:30For important disclosures, see the show notes and schwab.com slash market update podcast.