Q3 Begins on Strong Footing Ahead of Jobs Numbers

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 Wednesday, July 1st. Stocks begin the third quarter with the wind at their back, having wrapped up their best quarter in years, despite some mid-June weakness. Higher highs in the major indexes and continued buying support come despite concerns over the Iran war, inflationary pressures and hawkish indications at the Federal Reserve. But there's plenty to be cheerful about, said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research. Seasonally, July is bullish. The broadening of the rally is healthy.

0:57Oil prices are down significantly and rate hike expectations may soften. Investors are also optimistic ahead of the next earnings season, which unofficially kicks off on July 14th when major banking names release second quarter results. As of June 26, analysts were projecting 23.1 % year-over-year earnings growth for the S &P 500 index stocks. All 11 sectors are projected to see gains of 10 % or more, according to FactSet, with communication services leading the charge, while industrials and real estate are expected to bring up the rear. Two of this season's final reports came in after the bell yesterday.

1:40Nike reported earnings per share of 20 cents, sprinting past estimates of 13 cents a share. Revenue slightly topped analyst expectations, though sales continued to retreat in the key market of China. Year-to-date, shares of the athletic apparel giant have lost roughly 36 percent, but earnings news sent the stock higher post-market. And Constellation Brands handily topped consensus estimates and reaffirmed its guidance for fiscal year 2027. Sales of beer, wine, and spirits are expected to be relatively flat in the year ahead. The stock edged higher in after-hours trading.

2:21Before the next round of earnings reports hit the tape, we'll have the regularly scheduled check on the Libra market. Tomorrow could be unusually choppy as investors digest the June non-farm payrolls data ahead of the long Independence Day weekend. Analysts expect June's report to show lower gains than the 172 ,000 seen in May. Early consensus is 110 ,000, which would keep pace with population growth and shouldn't raise any alarm bells among Fed watchers. As a precursor to tomorrow's report, the May Job Openings and Labor Turnover Survey, or JOLTS, came out yesterday and matched April's reading of 7.6 million, edging north of expectations of 7.3 million.

3:07The ratio of openings to unemployed workers, a metric closely monitored by the Fed, edged up to 1.03, meaning the number of open rolls slightly exceeds those looking for work. This morning, ahead of the open, ADP will report its employment change numbers for June. Analysts are expecting results of 112 ,000, down slightly from the prior reading of 122 ,000. Jobs aren't the only reports on the near horizon, as today brings the June ISM U.S. Manufacturing Index. This is an important metric for an industrial economy that appears to be recovering and supporting sectors beyond tech. Analysts expect another solid reading of 53.8%, down just slightly from 54 % the prior month.

3:55Any reading above 50 % represents expansion, and a solid result could help boost sectors like industrials and materials. Also on the docket today are remarks from new Federal Reserve Chair Kevin Warsh, speaking in Portugal at the European Central Bank's annual symposium. While he's likely to discuss inflation, potential risks of an AI bubble, and rising sovereign debt, it will be interesting to monitor whether he holds true to his promise to offer fewer tea leaves for rate change predictors to read. Worsh's colleague Beth Hammack, meanwhile, said Tuesday that higher rates could be necessary amid continued inflationary pressures.

4:36Hammack is the president of Cleveland's Federal Reserve Bank and is a voting member of the FOMC. At Tuesday's close, the CME FedWatch tool indicated a nearly 34 % chance of a rate hike at the July 29th FOMC meeting, with odds of a hike by the end of 2026 at roughly 83%. In Tuesday's trading, stocks wrapped up the month on a positive note led by the Nasdaq Composite, which tacked on 1.5 % to finish north of 26 ,000 and close its best quarter since 2020. The other major indices enjoyed modest gains, though the S &P 500 closed just shy of the psychologically significant 7 ,500 level. Four of the 11 S &P 500 sectors closed higher, led by IT and industrials.

5:28Real estate and consumer staples continued to lose momentum, along with utilities. Communication services was unchanged in the session. Among individual movers Tuesday, chip stocks soared again, taking the PHLX Semiconductor Index more than 3.8 % higher. Notably strong performers included KLA Corporation and Advanced Microdevices, which each tacked on close to 8%. Strategy gave back roughly 6 % after a gain of more than 12 % in Monday's session. Elsewhere in the cryptosphere, Bitcoin continued to move south of the$60 ,000 mark, closing nearly 2.5 % lower. Year-to-date, the currency has shed about one-third of its value.

6:16The Supreme Court ended its current term with a busy final day, issuing decisions on issues ranging from campaign finance restrictions to birthright citizenship. Separately, the court agreed to hear Apple's appeal of a recent contempt ruling tied to its long-running antitrust dispute with Epic Games, the maker of Fortnite French biotech company Abivax rallied more than 38 % amid encouraging developments in trials for its ulcerative colitis drug And Airbnb dropped 2.8 % after being named among the companies being accused of price gouging during the 2025 wildfires that plagued Southern California.

7:02The Dow Jones Industrial Average climbed 136.46 points, or 0.26%, Tuesday, to 52 ,319.20. the S &P 500 index rose 58.93 points, or 0.79%, to 7 ,499.36, and the Nasdaq Composite gained 393.58 points, or 1.52%, to 26 ,213.72. For the month, the Dow Jones Industrial Average rose 2.52%, The S &P 500 index lost 1.06%, and the Nasdaq slipped 2.81%. This has been the Schwab Market Update podcast. To stay informed, visit www.schwab.com slash marketupdate 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.

8:06Join us for another update tomorrow.

8:14For important disclosures, see the show notes and schwab.com slash market update podcast.