Pondering Broadcom, Waiting for Payrolls

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 Colette O 'Claire, and here is Schwab's early look at the markets for Friday, September 5th. The report investors spend all week waiting for arrives at 8.30 a.m. Eastern Time today, providing a look at U.S. August jobs growth and any revisions to previous month's figures. The non-farm payrolls data could be critical in helping the Federal Reserve decide how many rate cuts to consider this year. The futures market already builds in a near 100 % chance of the Fed cutting rates by 25 basis points at its September 16th to 17th meeting, so that's likely to stay the case however today's jobs data looks.

0:59But the market has vacillated between one or two additional rate cuts this year, according to the CME FedWatch tool. A weak jobs report might send the needle moving toward two cuts, but a stronger one might dash those hopes for now. Analysts expect today's jobs report to show 78 ,000 new positions, up from 73 ,000 in July. But the July report sliced 250 ,000 jobs from the prior two reports, so any revisions this time could get a closer look. Investors also will track the types of jobs added. Recent hiring has been concentrated in health care and social assistance, both low-paying segments of the economy.

1:42The payrolls report follows soft jobs data earlier this week. Wednesday's job openings and labor turnover survey or jolts on nerved investors and send Treasury yields tumbling to their lowest level since early May at below 4.18 percent for the 10-year note early yesterday. Then Thursday saw ADP private sector hiring fall to 54 ,000 in August from 106 ,000 in July, while the Challenger jobs cuts report hit a three-month high, rising 39 percent from July. Initial jobless claims also jumped by 8 ,000 to a seasonally adjusted 237 ,000 for the week ending August 30, topping analysts' expectations. Private sector hiring continues to slow, said Kathy Jones, chief fixed-income strategist at Schwab.

2:33A Fed rate cut is likely if the jobs numbers keep slowing, even if inflation remains elevated. Before the jobs report, investors got a fresh look at chip demand from Broadcom, which reported its second-quarter earnings late Thursday. The semiconductor giant beat analysts' expectations, posting strong guidance and a 22 percent year-over-year rise in revenue, along with a 36 percent year-over-year jump in earnings. Shares faced volatile trading after hours. The tech bellwether's results represented a largely bullish data point for the AI hardware market and the broader semiconductor sector. That followed action in Washington, D.C.

3:17yesterday when the Senate Banking Committee confirmation hearing took place for Stephen Myron, Trump's nominee to fill a Federal Reserve vacancy. The White House is pressing the Senate to confirm Myron so he can vote at the Fed's mid-September meeting. This would be extraordinarily fast for the Senate to confirm someone this quickly, but it looks like that will happen, said Michael Townsend, managing director of legislative and regulatory affairs at Schwab. Myron is seen as a backer of President Trump's view that the Fed should cut rates, but he reiterated his belief that Fed independence is critical in Thursday's hearing, even as lawmakers questioned his decision to only take an unpaid leave of absence from his role as a top economic advisor to President Trump instead of stepping down from the position.

4:08Futures trading built in a 97.3 % chance of a rate cut this month by late Thursday, according to the CME FedWatch tool. The odds were roughly 50-50 between one or two cuts for the remainder of this year after that. Investors will be closely monitoring those odds after the non-farm payroll data today. Besides the headline payrolls number and any revisions to past reports, investors might want to watch wage growth and any change in the number of long-term unemployed. The number of people unemployed 27 weeks or more reached a two-and-a-half-year high in July, a sign of trouble finding new jobs once people lose a position.

4:48This means hiring is slow, but layoffs had also been slow until recently. Wages are seen jumping 0.3 % in August, while the unemployment rate is expected to rise slightly to 4.3%, according to consensus estimates from Briefing.com. It's unclear if yesterday's Challenger jobs cuts data was a new higher trend beginning or a one-month affair, but this week's job openings data also showed layoffs at the highest level since last September. In Data Thursday, the ISM Services Purchasing Managers Index rose from 50.1 % in July to 52.8 % in August, beating economists' forecast for 50.8%. This marked the third consecutive month of services sector growth in the U.S.

5:40economy. Second quarter non-farm business sector productivity growth was also revised up substantially on Thursday, moving from the 2.4 percent preliminary estimate to 3.3 percent. Total output jumped 4.4 percent, while hours worked increased 1.1 percent. The Department of Commerce then revealed that U.S. trade deficit widened dramatically in July, rising 32 percent to$78.3 billion from$59.1 billion in June. Record capital and goods inflows boosted imports 5.9 percent month over month, while exports rose a meager 0.3 percent. If sustained, this trend could drag down third quarter gross domestic product data, but sustained trade trends have been rare this year, as President Trump's tariff policies have led to volatile swings in imports and the trade deficit.

6:36In the first quarter, a rising trade deficit subtracted 4.6 percentage points from GDP before the trend flipped, adding a record 4.95 percentage points to GDP in the second quarter, Reuters reported. Treasury yields fell on Thursday, with investors betting on impending rate cuts after a slew of weaker-than-expected jobs-related data. The 30-year Treasury bond yield dropped three basis points to 4.86 percent, while the 10-year yield note fell six basis points to 4.16 percent, and the two-year note yield slipped less than one basis point to 3.59 percent. All three major U.S. market indices also closed higher as investors braced for the August jobs report following the weak private payrolls data from ADP.

7:27The reaction to ADP's data was muted, with many investors reasoning that it was soft enough to justify a September rate cut and maybe more rate cuts later this year, but wasn't weak enough to signal a potential recession. As far as individual stocks are concerned, Salesforce was in focus on Thursday. The software giant fell 4.8 percent despite beating analysts' earnings and revenue forecasts on Wednesday after it provided disappointing revenue guidance. Figma also fell 19.9 percent after its first quarterly results as a public company failed to impress investors. Revenue was up 41 percent from a year ago, but the design software firm missed the average Wall Street revenue estimate.

8:11Profit was basically flat, and analysts had expected a larger gain. American Eagle Outfitters soared 38 percent as the company reinstated guidance for the fiscal year, Barron's reported. The firm had withdrawn guidance in May, citing macroeconomic uncertainty. The new outlook exceeded analyst expectations. Earnings, meanwhile, also topped consensus. Sienna Corporation jumped 23.3 percent after handily beating analyst quarterly earnings estimates as well. The The networking systems and software companies saw strong consumer demand for its high-speed connectivity solutions driven by the growth of AI and data centers.

8:53Ten out of 11 S &P sectors rose on Thursday, led by consumer discretionary, financials, and industrials, while utilities lagged, falling 0.28%. The Dow Jones Industrial Average rose 350.06 points Thursday or 0.77 % to 45 ,621.29. The S &P 500 Index advanced 53.82 points or 0.83 % to 6 ,502.08. and the NASDAQ Composite jumped 209.97 points or 0.98 % to 21 ,707.69. 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.

9:53It really helps new listeners find the show. Join us for another update Monday.

10:04For important disclosures, see the show notes and schwab.com slash marketupdatepodcast.