All Eyes on Jobs Report After Thursday's Rebound

**Colette Eau Claire** (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 Colette Eau Claire, and here is Schwab's Early Look at the Markets for Friday, September 4th. Today's Non-Farm Payrolls Report, due at 8:30 a.m. Eastern Time, stands head and shoulders above any other developments, even after Thursday's impressive rebound that positioned major indexes for another positive week. The report comes a day after yields retreated slightly on dovish Federal Reserve remarks, and with assistance from Japan, where the yen rose versus the dollar and helped cool global inflation concerns. There is growing belief that the Bank of Japan or BOJ will raise rates at its meeting later this month, partially addressing inflation there. At one point, the 10-year Treasury note yield fell to 4.75% from above 4.8% earlier this week, but it clawed back to 4.77% by the end of the day. Shorter term yields, more exposed to Fed policy, forged steeper declines. Crude oil remains strong, however, above $91 per barrel late Thursday, as progress toward a Middle East solution lagged. Still, the Trump administration said oil traffic through the Strait of Hormuz has improved. The round of tit-for-tat skirmishes earlier in the week died down a bit. Analysts expect August payroll's growth of $45,000, following a decline of $23,000 in July. Unemployment is seen ticking up to 4.2% from 4.1%, still low. Wage growth will also be eyed after a very small July increase. Jobs data heading into the report, including job openings, job cuts, private sector employment and weekly initial jobless claims didn't send clear signals. None showed dramatic changes and all were snapshots for that matter. So is today's report, but potential revisions to past numbers potentially give it more heft. The July report slashed May and June jobs growth by more than 100,000. A repeat of that for June and July in today's report, though not necessarily in store, would likely give the Fed pause before its rate decision September 16th. On the other hand, if jobs growth returns to more normal levels or exceeds expectations, it might be another sign that the Fed can raise rates without hurting the economy too much. Next week's inflation data also looms large. Digging deeper into the jobs report, keep in mind that weakness in leisure and hospitality jobs back in July might have reflected one-time developments related to jobs that ended after the World Cup. Government job cuts also played into a weaker reading. If you take those out, private payroll growth was still positive, and it was actually relatively steady, said Kevin Gordon, head of Macro Research and Strategy at the Schwab Center for Financial Research, or SCIFR.
Fed Governor Christopher Waller sounded slightly dovish in a Reuters interview Thursday, saying he leans toward keeping rates unchanged at the current 3.5 percent to 3.75 percent. A shift away from recent inflation progress, he added, could push him more toward a hike. As of late Thursday, chances of a hike stood at almost exactly 50 percent, according to the CME FedWatch tool, down from 63 percent Wednesday. Investors might want to give that tool another look after today's data to see if it moved. Waller's remarks followed more hawkish views expressed last week by Fed Chairman Kevin Warsh in his Jackson Hole speech last week. After jobs data, the final arbiter might be the August Consumer Price Index, due a week from today. If inflation shows meaningful signs of improvement, the committee may hold, said Colin Martin, head of fixed income research and strategy at Skiffer. But the bar for a hike seems low, given Warsh's comments last week. Any upside surprises will likely shift the needle for those who have favored a hold to instead favor a hike. In data Thursday, initial weekly jobless claims of 206,000 held no surprises, and second quarter productivity of 1.4% was unchanged from the government's first estimate. Labor costs fell slightly, which may also have helped the Treasury market. The ISM Services PMI for August improved to 55.4% from 54.1% in July, above consensus. Any figure 50% or higher signals expansion. However, the report's prices paid metric of 72.6% hit a four-year high mark, thanks mostly to rising energy costs. In corporate news, apparel maker Lululemon reported after the close yesterday, and shares quickly retreated 16% in post-market trading. Earnings per share beat estimates, but the company missed analysts' revenue consensus and lowered guidance. All of its guidance missed consensus. Before that, Snowflake's solid earnings and guidance reinforced ideas that AI is helping, not hindering, software. The sector turned positive for the year after a dismal few months to begin 2026
Major indexes had their best day in a month, up more than 1%, almost across the board, amid falling yields and the software rally. Though NVIDIA rose, most of the chip sectors sat out the gains, hurt in part by Broadcom's earnings. Nine of 11 S&P 500 sectors rose, accelerating the turnaround in market breadth that began earlier this week after a dramatic narrowing last week and Monday. Only materials and energy lagged, with materials losing ground despite gold's 2% rise on the weaker dollar. Growth sectors like consumer discretionary, communication services and infotech were three of the four best performers Thursday, all up 1% or more. Financials placed third, helped in part by the slightly wider yield curve.