Stocks on Pace for Strong Week, Awaiting Jobs Data

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 Friday, August 7th. Earnings season takes a backseat today as investors brace for the July non-farm payrolls report. Though it's only a snapshot, the data could influence Federal Reserve policy and comes after recent reports indicated an improving labor market. The data, due at 8.30 a.m. Eastern Time, is expected to show 86 ,000 jobs added, up from 57 ,000 in June. Unemployment is expected to remain at 4.2 percent, though there's growing concern about low participation rates, suggesting actual unemployment might be higher. Wage growth is another factor to watch amid inflation worries, and analysts expect that metric to rise 0.3 % monthly, the same as in June.

1:10The headline figure, if near consensus, is low historically, but improves from several months of job losses last year and would extend a string of gains. The report comes after mixed labor data so far this week. Initial weekly jobless claims of 199 ,000 stayed near record lows, and July layoffs fell sharply from June to around 33 ,000, a three-year low, according to the Challenger Job Cuts report. On the other hand, June job openings fell, and the ADP private sector employment report pulled up short of expectations. In other data yesterday, preliminary second-quarter productivity climbed 1.4 percent from the prior quarter versus the 0.8 % consensus, and the government upwardly revised first-quarter productivity growth to 0.8 % from 0.3%.

2:03Though bond yields didn't slide on the news, it could be positive for the Treasury market, appearing to give Federal Reserve Chairman Kevin Warsh's theory about AI-boosted productivity gains a modest boost. Odds of a September Fed rate hike were 57 % late Thursday, according to the CME FedWatch tool, down from above 60 percent last week after the Fed meeting. Yesterday, the Financial Times reported that Fed Chairman Kevin Warsh would be prepared to raise rates if inflation readings in coming weeks were hot. Next Wednesday brings the July Consumer Price Index, or CPI. Several Fed policymakers said already this week they're prepared to raise rates, contributing to a more hawkish tone after last week's dovish Fed meeting raised concerns the policymakers might punt even if inflation stays hot.

2:55Warsh indicated then that the market itself is tightening borrowing costs thanks to recent rallies in Treasury yields that came without an actual hike by the Fed. However, some analysts say it's the Fed's job to lead the market, not to follow.

3:12Aside from the inflation data, next week's calendar takes investors into the summer dog days as earnings season wanes. Cisco is a key report to look for, however, and NVIDIA's earnings later this month could keep people on their toes. Investors await today's weekly update from FactSet on blended earnings growth, measuring results from companies that reported and estimates of those to come. Last week's estimate was a sky-high 47 % year-over-year, though that's heavily influenced by the booming chip sector and by gains from some of the stock market investments companies made. Organic earnings growth still looks impressive, however.

3:54At the same time, events in the Middle East heading into the weekend could affect the market. A possible deal between Iran and Oman to allow passage through the Strait of Hormuz has helped improve investors' sentiment and bring oil prices down this week, though it's uncertain the U.S. will accept whatever terms get worked out. The U.S. is also again talking to Iran, and attacks have quieted, according to the media. Any shift from this quietly improving picture might leave investors nervous going into the two-day break. A clear path through the strait would help lower oil prices and improve global shipping, but there are worries that we've heard this story before, said Michael Townsend, Managing Director of Legal and Government Affairs at Schwab.

4:40Markets, particularly the price of oil, rise and fall with every on-again, off-again report about the war with Iran. It's reasonable to worry that this, too, will not be a long-term solution. Thursday on Wall Street, initial gains ran into selling by midday midday as investors watched crude oil and yields climb absent any confirmed resolution on straight traffic. The administration spent much of this week touting progress, but with nothing in place by late Thursday, patience among investors appeared to be running out. Trading volume was below average, possibly as investors exercised caution ahead of the payrolls report, while decliners easily outpaced gainers by midday.

5:25Thursday was rough on the sector front as nine of 11 S &P 500 sectors turned red. While major indexes remain on pace for strong weekly gains, the last two days chipped away at recent record highs. Still, over the last five days, most sectors rose, led by consumer discretionary, communication services, and infotech. Defense of real estate and utilities are among the weekly laggards. Only energy and infotech managed to rise Thursday. Looking at individual movers Thursday, memory chip firms Western Digital and SanDisk put pressure on the overall chip in tech markets. SanDisk fell nearly 7 % after it guided for below-consensus quarterly revenue.

6:12Western Digital plunged 13 % despite topping expectations. Other memory chip stocks got dragged down, too. Profit-taking might have been a factor in the sell-off. SpaceX added 6 % as the market grappled with yesterday's expiration of a post-initial public offering or IPO lockup that freed more than 900 million shares valued at around$100 billion. Despite the stock's struggles since its June IPO, Many early investors sit on large gains and may be tempted to sell, possibly one reason shares are down almost 50 % since the IPO. Many homebuilder stocks fell 3 % Thursday as treasury yields ticked back up.

6:58Mortgage applications fell 2.9 % week over week, according to the MBA Mortgage Applications Index. Honeywell Aerospace, spun off from Honeywell Technologies in June, plunged 23 % after its first stand-alone earnings report failed to impress. Cloud provider Datadog fell 19 % after an earnings report and guidance that surpassed consensus on all fronts, suggesting much of the good news had been priced in. Applevin plunged almost 20 % after Wells Fargo downgraded shares to equal weight from overweight, saying the company's market share in mobile games is plateauing. Earnings were roughly in line with consensus, but revenue guidance fell short.

7:44DoorDash delivered better-than-expected results, sending shares up almost 3%. Total orders rose 27 % year-over-year. And Alphabet fell more than 1 % after announcing plans for a benchmark-sized debt deal in 10 parts. The deal announcement might have helped send long-term treasury yields higher as Alphabet and other AI hyperscalers continue flooding the market with debt offerings.

8:13The Dow Jones Industrial Average plunged 464.02 points or 0.85 percent Thursday to 53 ,885.10, ending a five-session win streak. The S &P 500 Index dropped 13.59 points or 0.18 percent to 7 ,709.96, and the Nasdaq Composite gave back 15.09 points or 0.06 percent to 26 ,348.35. 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. I'll be back with another update Monday.

9:15For important disclosures, see the show notes and schwab.com slash market update podcast.