New Batch of Jobs Data Next After Surprise Drop

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 Thursday, December 4th. Fresh jobs data await investors before the open after a surprise drop in November private sector employment reported by ADP yesterday raised new concerns about the economy. Investors also are digesting the latest results from large software firms and await tomorrow's key inflation report. Weekly initial jobless claims are out at 8.30 a.m. Eastern time today and expected to show a relatively low headline reading of 220 ,000, according to Briefing.com.

0:52Another report to watch before the open is Challenger job cuts, which soared above 150 ,000 in October. Analysts expect that to fall to just below 100 ,000 in November, but still rather high. The ADP report showed an overall loss of 32 ,000 jobs. Declines were largest at establishments of 1 to 50 employees, while jobs at medium and large establishments rose. This suggests that the smallest firms, which tend to be among the most rate-sensitive, continue to struggle. Chances of the Fed rate cut next week reached 89 percent by late Wednesday, according to the CME FedWatch tool. The ADP report confirms that the labor market is cooling, but we still weigh the ADP release a little bit less than the standard non-farm payrolls report and unemployment rate from the Bureau of Labor Statistics, said Colin Martin, head of Fixed Income Research and Strategy at the Schwab Center for Financial Research, or SCIFR.

1:51The Fed was expected to cut rates next week regardless, but this further supports the case, even if it's just an insurance cut meant to limit a further deterioration of the labor market. The government's own jobs data has been delayed to December 16th after the Fed meeting. It would normally come out Friday, but got delayed by the shutdown. The Fed will have another important data point to ponder before it gathers. Tomorrow's Personal Consumption Expenditures, or PCE Price Index, is the Fed's favorite inflation indicator, though the data due at 8.30 a.m. Eastern Time Friday date back to September.

2:28Consensus for headline PCE is 0.3 percent equal to the August rise, according to briefing.com. For core PCE, which excludes food and energy, analysts expect 0.3 percent, up from 0.2 percent in August. Another key element of the PCE report is annual core PCE inflation, which analysts see remaining at 2.9 percent after it rose 2.9 percent in August. That's well above the Fed's 2 % target. Though the numbers are dated, they're among the handful of official data the Fed has on hand for its meeting, meaning private numbers like the ADP report and Friday's University of Michigan Preliminary December Consumer Sentiment data take on more importance.

3:14Sentiment has slumped for months, possibly indicating job concerns. However, wage growth has been solid, with ADP reporting a 4.4 percent November rise from a year earlier. Hiring has been choppy of late as employers weather cautious consumers and an uncertain macroeconomic environment, ADP said in its release. What appears to be a sliding jobs market likely takes precedence as the Fed meets, with a decision due at 2 p.m. Eastern time next Wednesday, along with the Fed's quarterly projections for gross domestic product, unemployment, inflation, and the rate path. ADP was much weaker than expected, said Cooper Howard, director of fixed income research and strategy at Skiffer.

3:59Next week's rate cut is all but a sure thing, but the outlook going forward is less certain.

4:08Shares of the cloud-based software firm popped 5 % in post-market trading right after the report as Salesforce easily topped analysts' earnings expectations and narrowly beat on revenue. Its earnings guidance for the fourth quarter was roughly in line, and revenue guidance topped Wall Street's estimates, while results from agent force the company's AI business impressed. fast. Things went the other way for Snowflake, with shares down 5 % initially in post-market trading. This was despite better-than-expected earnings and revenue, along with guidance for 27 % fourth-quarter product revenue growth.

4:46In other key developments Wednesday, the ISM Services Index for November was a bright light in what's generally been a dim data picture, coming in at 52.6 versus expectations of 52.1. It was also up from 52.4 in October. Anything above 50 indicates expansion. Even more positively, the report's prices paid component dropped sharply to 65.4 from October's 70. That, along with a benign reading on import prices Wednesday, might have checked some of the inflation fears that propelled bond yields earlier this week. The 10-year Treasury note yield fell two basis points to 4.06 percent Wednesday, thanks partly to the ISM prices reading, but mainly due to the soft ADP jobs report.

5:37Still, there's a host of data before the Fed meets, any of which could affect yields. PCE is key, but next Tuesday's job openings data can also have an impact. With debt and inflation concerns still prevalent, 3.75 % might be the lowest near-term level investors could expect for the 10-year yield. The SIBO Volatility Index, or VIX, posted its lowest levels since October 27, briefly falling below 16 on Tuesday. This could indicate investors expect less choppy markets in the near term. December tends to be a seasonally strong time for equities, which may be reflected in the VIX after some hedging activity last week.

6:19On Wednesday, major indexes climbed for the second straight day, but only mildly. However, the gains were far broader than on Tuesday when major indexes climbed, but less than half of S &P 500 stocks registered gains in the top-heavy market. By late Wednesday, about three-quarters of S &P 500 stocks were higher. Though gains weren't particularly noteworthy for the most part, it's often a positive sign when rallies broaden beyond the biggest mega caps. However, just 54 % of S &P 500 stocks trade above their 50-day moving averages, still below average and not the type of bench depth bullish investors would like to see.

7:00From a sector standpoint, Wednesday was quite the turnaround from Tuesday when only three rose. Widespread strength across individual stocks found its way to sectors, too, with 9 of 11 rising. Only utilities and Infotech sat out, with Infotech hurt by softness in shares of Microsoft and NVIDIA. On the whole, semiconductor shares gained Tuesday and have generally held up well without much support from NVIDIA lately. Checking individual stocks Wednesday, Microsoft sank more than 2 % after a media report said it's reducing AI software quotas or targets for its salespeople. Microsoft denied this report.

7:41It came as AI competition heats up after Alphabet launched its Gemini 3 AI model, seen as a competitive threat to open AI where Microsoft has a large stake. Marvell Technology, a supplier of custom AI chips for Amazon, climbed 7.5 percent after quarterly results roughly matched consensus. Guidance looked solid and several analysts raised their price targets. American Eagle Outfitters jumped 14.8 percent after the company raised its forecast and said it expects solid holiday sales driven by its marketing campaigns, Reuters reported. The company's shares got upgraded by JPMorgan Chase to neutral from underweight.

8:24Uber accelerated 3.5 % after it launched robo-taxi rides in Dallas through a partnership with Avride. At launch, an onboard specialist will be monitoring behind the wheel before full driverless operations begin in the future, Uber said. Tesla leaped 4%, despite the Trump administration announcing it would ease former President Biden's fuel economy rules, news that helped General Motors and other auto stocks. Tesla shares might have benefited from a report in Politico saying Trump is considering ways to accelerate robotic development. Homebuilder stocks had a good day, thanks in part to hopes for lower interest rates based on weak U.S.

9:06data. However, weekly mortgage applications fell 1.4 percent. Small cap stocks outperformed the broader market as the Russell 2000 topped 2 ,500 again and remained above the 50-day moving average it breached in November. Small caps often rely more on borrowing and could potentially benefit more from lower rates.

9:30The Dow Jones Industrial Average climbed 408.44 points Wednesday or 0.86 % to 47 ,882.90. The S &P 500 index added 20.35 points or 0.30 % to 6 ,849.72. And the Nasdaq Composite climbed 40.42 points or 0.17 % to 23 ,454.09. 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.

10:26For important disclosures, see the show notes and schwab.com slash market update podcast.