Solid Quarter Ends with Jobs Data, Nike Results

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 Tuesday, June 30th. The last day of the quarter dawns with markets up substantially from three months ago, but wobbling recently. Concerns about possible overbought conditions and heavy leverage continue to weigh on the technology sector, though improvement in market breadth suggests some rotation has begun into other areas. Whether that continues could depend on the paths of Treasury yields and oil. It's a shortened week due to Friday's Independence Day holiday, meaning volatility could be a factor as volume thins before the long weekend.

0:56Anyone trading on Thursday might want to consider taking extra care, especially with markets liable to be choppy anyway following that morning's June non-farm payrolls data. Even before that, today could bring volatile trading since it's the last day for window dressing when major funds tend to shift positions to shed losers and add winners before sending out quarterly reports to investors. With many magnificent seven stocks lagging the market over the last month, despite yesterday's slight comeback, this could conceivably mean additional index pressure. Yesterday's mega cap revival might have reflected ideas that the sell-off had gotten too advanced.

1:39Some valuations, including Microsoft, are quite low relative to historic data.

1:48Federal Reserve thinking could be influenced by manufacturing and other data, starting with the May Job Openings and Labor Turnover Survey, or JOLTS, due soon after today's opening bell. The April reading was 7.6 million, well above expectations, and May's is expected to be slightly below that at 7.3 million, but still above recent long-term lows. These are the highest levels in more than a year, suggesting companies are starting to emerge from the no-hire-no-fire climate that's prevailed. That's not completely clear, of course, but U.S. jobs growth is also up three months in a row. Job openings rose to a nearly two-year high in April, and the ratio of job openings to the number of unemployed is back above 1.0, noted Colin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research.

2:41Any additional strength in the labor market can help keep the Fed's hawkish bias going. Analysts expect the June non-farm payrolls report Thursday to show lower gains than the 172 ,000 seen in May. early consensus is 110 ,000, which would still be adequate to keep pace with population growth. Jobs data isn't likely to budge the Fed from another rate pause when it meets at the end of next month, but could provide guidance for its long-term policy. Relatively benign inflation data last week suggested the Fed might be able to wait before deciding its next move. However, some policymakers appear ready to raise rates based on recent speeches.

3:24Inflation has tracked above the Fed's 2 % target now for about five years. As of late Monday, investors priced in 63 % chances of the Fed raising rates as soon as September, according to the CME Group's FedWatch tool. Chances of a July hike were far less at around 31%. Fed Chairman Kevin Warsh speaks at a forum tomorrow, but it would be surprising if he gives any new rate guidance after the Fed's recent hawkish meeting where he emphasized fighting inflation. A rate hike isn't guaranteed this year, despite what the futures market might indicate. We're not expecting a Fed hike by year-end just yet, Martin said.

4:05While the last Fed meeting was hawkish, we think the worst in the recent pickup in inflation may be behind us. Last week's rotation out of tech and into sectors like industrial and health care could get a second wind in coming days, but it depends partly on the path of Treasury yields, which means, to some extent, it depends on crude oil and its recent correlation with yields. If oil rises, the 10-year Treasury note yield could, too, possibly hurting chances for a non-tech rally. In market-related news Monday, the Supreme Court rejected President Trump's request to immediately fire Fed Governor Lisa Cook over unproven mortgage fraud allegations, Bloomberg reported.

4:50The justices ruled 5-4 that Trump hadn't given her enough notice or a chance to be her before trying to fire her. The ruling wasn't definitive, leaving open the question of whether a president can ever fire a Fed governor. The decision came as expected, settling one source of Fed independence insecurity for the moment. Treasury yields barely moved on the news Monday and had a little data to react to. The 10-year yield remains around near-term lows below 4.4 percent. The jobs reports this week may give treasuries a catalyst, while next week includes several treasury auctions. The dollar retreated Monday from recent one-year highs but remains elevated and could be lending support to treasuries, which move the opposite of yields.

5:37A strong dollar reflects weakness in the Japanese yen, solid U.S. economic data, and falling oil prices. Major indexes snapped back Monday from last week's lethargy, led by the tech-heavy Nasdaq composite and 2 % gain. Chips powered higher and the Magnificent Seven emerged from hibernation, especially Alphabet, on its first day as a member of the Dow Jones Industrial Average. All told, the Magnificent Seven posted almost 3 % gains yesterday and the PHLX Semiconductor Index rose 3.8%. The two metrics had diverged recently. Shares of Alphabet rose 4.8%, but are down about 8 % over the last month amid worries about talent leaving the company for chip firms and Alphabet's recent equity offering.

6:28In a reversal from last week's broadening, Monday's S &P 500 index gain came with more stocks declining than advancing through early afternoon. With today the last day of the second quarter, the S &P 500 index is tracking for 14 percent gains since March 31st, and the Nasdaq Composite is up more than 19 percent. Six of the 11 S &P 500 sectors advanced Monday, with the scorecard reflecting a risk-on sentiment that wasn't evident last week. Leading sectors included communication services, consumer discretionary, and infotech, while the cyclicals that outpaced those last week trailed. Defensive areas like utilities and staples that thrived last week turned red to kick off the shortened holiday stretch.

7:17Technically, both the S &P 500 index and the PHLX Semiconductor Index trade near key junctures that could determine where they head prior to earnings season starting in mid-July. The S &P 500 closed Friday just below its 50-day moving average for the first time since early April. Its bounce Monday from that week close could be seen as technically supportive. The tech-dominated Nasdaq 100 rose more than 2 % Monday, but remained below its 50-day moving average to start the week. And the Sox surged 3.5 % Monday, helping investors wash away the bad taste from Friday's close below the closely watched 21-day moving average.

8:01While the broadening of the rally appears to be intact and lower oil prices and yields are net bullish, I'm concerned about tech in the near term, said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research. The sector may be susceptible to some additional deleveraging. Margin debt in the U.S. hit a record$1.42 trillion in May. Among individual movers Monday, Comcast rose 4.5%. The company announced plans to separate its media and technology businesses into independent public companies, spinning off NBCUniversal and Sky. NBCUniversal is the company's global medium and entertainment company and includes the company's theme parks division and NBC.

8:51Sky is the European media business. Comcast will focus on wireless, broadband, and connectivity businesses. Micron clawed back to post 1 % gains after a falling 4 % earlier Monday. On news, the South Korean competitors in the memory space will make large new investments, Barron's reported. SK Hynex and Samsung plan to spend more than$500 billion to construct new capacity in South Korea. Those same plans appeared to aid shares of chip infrastructure firms, including Applied Materials, Corning and Lamb Research. Corning led those with 15 % gains. Rocket Lab soared almost 16 % after the launch and space systems firm announced it would buy Iridium Communications for approximately$8 billion.

9:43Iridium is a provider of global voice, data, positioning, navigation and timing satellite services. Shares of Iridium climbed 25 % on the news. Verizon fell 5.2 % after losing its place in the Dow Jones Industrial Average to Alphabet. However, since not many funds track the Dow Jones Industrial Average, Verizon may not lose much fund inclusion. SpaceX soared 7 % on news its shares will become a component of the NASDAQ 100 prior to the market open on Tuesday, July 7. Since many investment products track the NASDAQ 100, they'll likely be adding shares of SpaceX to their assets under management. Supermicrocomputer fell 8 % after Bloomberg reported that the company's Taiwan office was raided, part of a probe related to the smuggling of chips into China.

10:38Charter Communications surged 9 % after Bloomberg reported that SpaceX and Charter have discussed a U.S. mobile phone partnership. And Nike rose almost 2 % as investors laced up for its earnings report due after today's close. Shares are down 24 % this quarter, and analysts expect annual revenue to fall about 2.1 % for the fiscal fourth quarter. Earnings per share are seen down 5.7 % from a year ago. The Dow Jones Industrial Average climbed 306.63 points or 0.59 % Monday to 52 ,182.74. The S &P 500 Index added 86.41 points or 1.18 % to 7 ,440.43. And the Nasdaq Composite gained 522.53 points, or 2.07%, to 25 ,820.14.

11:39This 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. Join us for another update tomorrow.

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