After Broadcom's Beat, Investors Await Jobs Data

**Keith Lansford** (0:05)
Welcome 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, September 3rd. The countdown is on for Friday's critical August Non-Farm Payrolls Report, but first, investors examined earnings from Broadcom while awaiting an important hint on inflation. Broadcom, the AI chip giant, reported late Wednesday and failed to initially impress the market. Earnings per share of $3.32 topped the consensus of $3.22, and revenue of $29.59 billion also surpassed expectations. Guidance also was higher than expected. However, investors might have been expecting even better, and shares tumbled 6% in early post-market action. Today brings weekly initial jobless claims before the open, with analysts expecting a relatively light $205,000, according to briefing.com. Later this morning, Wall Street gets a look at the August ISM Services Index, with a headline expected to show 54.1% equal to July. Anything above 50 signals expansion. Deeper in the report, the prices paid category might provide an inflation clue. This index hit 70.3 in July, above 60% for the 20th month in a row. Any increase is likely to be noted by the Federal Reserve as it prepares for its mid-month meeting.
More importantly, Friday's 8:30 a.m. Eastern Time Non-Farm Payrolls Report is one of two final milestones scheduled between now and September 16th, when the Fed makes its decision. Analysts expect August jobs growth of around 45,000, an improvement from the 23,000 decline in July that surprised Wall Street. July's report also included downward revisions of more than 100,000 combined for the May and June data, so revisions remain an important part of Friday's report to check. Unemployment is expected to get a slight bump to 4.2% in August from 4.1% in July. A soft jobs report might temporarily reduce odds of a September Fed rate hike, but next week's August Consumer Price Index, or CPI, represents another hill for the Fed to climb. The ADP August Employment Report yesterday came in at 38,000, below the consensus of 46,000. However, this report doesn't typically correlate with the official government number. The Fed's Beige Book showed a small bump in US economic activity over the last two months. The release termed the economic outlook positive, but noted a rise in price sensitivity. Manufacturing labor demand looked solid.
John Williams, New York Fed President and an influential member of the Federal Open Market Committee told CNBC Wednesday that higher yields reflect strength in the economy and there is strong investment demand. He added that inflation expectations, a key metric the Fed uses to monitor the chance of prices getting out of hand, remain well anchored and the labor market is solid. The comments by Williams, along with remarks by Treasury Secretary Scott Bessent this week, downplaying yield concerns appeared to calm the Treasury market a bit. Chances of a rate hike at the Fed's September meeting reached 64 percent late Wednesday, according to the CME FedWatch tool, up from 37 percent a week ago.
Fresh skirmishes in the Gulf kept crude and yields near recent highs at midweek. US crude oil stockpiles fell 4.5 million barrels last week but remained 1 percent above the five-year average, the Energy Information Administration said Wednesday. Gasoline use over the last four weeks averaged more than 100,000 barrels a day below year-ago levels so high prices may be cooling demand. Monday's Labor Day holiday represents the traditional end of summer driving season in US and initiates a second period when oil stocks tend to get rebuilt. The government's strategic stockpiles are down to their lowest levels in more than 40 years providing little cushion. In corporate news, today brings results from athletic apparel company Lululemon. Shares of Lululemon recently were near $118, down from peaks above $500 in late 2023 Last time out, the company cut its annual outlook. It blamed negative media reports and disappointing product launches, CNBC reported then.
We'll turn to Wednesday's market action in a moment, but if you'd like to receive market news and insights from Schwab's experts every morning, sign up for the Schwab Market Update Newsletter at schwab.com/dailyupdate.
Major indexes ended a three-session skid Wednesday, in part because treasury yields cooled slightly, though earlier the 10-year note yield reached its highest level since November of 2023 at above 4.8 percent. Yields eased even though crude remained hot, finishing up 1 percent at above $90 per barrel for WTI futures and near five-week highs. From a sector perspective, things looked healthier Wednesday as 10 of 11 S&P 500 sectors rose, led by materials. Rising metals prices and a leap in steel shares helped that sector, while slumping communication services got a lift as Alphabet arrested its slide and meta-platforms gained more than 2 percent. InfoTech got a lift from Dell's earnings. Technically, there was relief that recent selling didn't send the S&P 500 index below long-term support near 7,620 or beneath that at the 50-day moving average. The S&P 500 appears somewhat range-bound between 7,600 and 7,800 and may not have much traction either way before the jobs and inflation data, barring news developments. Checking individual movers Wednesday, Dell climbed 16% as earnings and guidance topped consensus expectations. Several Wall Street firms raised their price targets for shares. Snowflake surged 17% initially in post-market action Wednesday after its quarter beat analysts' expectations and the cloud firm provided guidance that impressed. Snowflake projected fiscal third-quarter revenue growth at 37% to 38% annually. Palo Alto Networks turned around early sharp gains to fall 9% despite earnings and guidance late Tuesday topping analysts' expectations. Shares had rallied sharply into earnings, possibly leading to buy-the-rumors-sell-the-fact trading. Other software stocks also saw selling Wednesday. Palantir, CrowdStrike, ServiceNow and Adobe were all in the red. Financials, especially banks, posted gains Wednesday, helped by economic data and rising yields. Cleveland Cliffs and Newcore added 7% and 4% respectively, both benefiting from the recent breakdown in trade talks with Canada. This might raise demand for domestic steel. MongoDB plunged 14% despite results that beat consensus views. Several Wall Street firms raised their price targets on shares of the company, citing continued strength in the quarter. But others lowered their targets, as apparently the quarter's business mix disappointed some. Hewlett Packard Enterprise rose 2.6%, climbing in conjunction with a strong quarter from its competitor Dow and ahead of its own earnings. GitLab soared almost 12% following a better-than-expected earnings report from the software firm that included guidance for 15% to 16% annual revenue growth in the current quarter. NVIDIA climbed 3%, as Bloomberg reported the company is in talks to acquire AI firm Hugging Face for $14 billion. And Uber rose almost 2%, as the company plans to cut about 10% of its workforce, according to Bloomberg.