Inflation Data, War News Could Dominate Week Ahead

**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 Monday, May 11th. The week begins with a quiet Monday in terms of data and earnings, giving investors more time to digest last Friday's Non-Farm Payrolls Report for April. Coming days feature key inflation data, and investors continue tracking every Middle East development. US jobs growth surpassed Wall Street's expectations in April at 115,000, while unemployment stated 4.3 percent, meeting consensus. Major indexes already higher before the data held their gains while treasury yields remained slightly lower. Analysts had expected job growth of just 60,000, but large jumps in health care and transportation and warehousing positions lifted the total and made March and April the first backed back reports with six-figure employment growth since late 2024
Earnings get much quieter this week, with few large firms reporting. This could be bearish for the major indexes, which rode strong earnings to record highs this month and last. Once earnings news ebbs, attention often shifts to factors like geopolitics. Constellation energy may be worth watching today as a barometer for AI-related power demand. However, the data picture does look busy. Tomorrow brings the April Consumer Price Index, or CPI, the second month to reflect war-driven oil prices. March saw a sharp 0.9% increase in headline CPI, while core CPI, excluding food and energy, rose just 0.2%.
For tomorrow, analysts expect 0.6% headline CPI growth from March and 0.4% core. If that's the case, it might raise concerns that higher oil is starting to leak into the core price index. A stronger-than-expected core number might get the market's attention and perhaps raise odds of a 2026 rate hike. A Senate vote is expected before Friday on President Trump's nominee for Fed Chairman, Kevin Warsh. Chairman Jerome Powell's term ends Friday, though Powell will remain on the board of governors and vote in future meetings. Warsh has a reputation for being a hawk turned dovish. However, the Fed remains dominated by members who don't see the need for any near-term rate cuts. Turning back to earnings, the first quarter S&P 500 earnings per share growth is almost 28% on a blended basis, meaning combined growth for companies reporting already and estimates for those to come, facts had said Friday. Most of the mega cap firms boosting that number have already reported, though Nvidia looms on May 20th. Retailer earnings dominate later this month, and their lower margins may help bring down the overall figure. Even so, many analysts now look for stronger earnings growth in coming quarters, piggybacking off the first quarter strength. Those rising estimates are one factor boosting the stock market.
AI and tech companies have dominated in terms of positive revisions to earnings growth, not just for the first quarter, but for the full calendar year. However, there is a concentration issue, as three companies alone, Amazon, Alphabet and Meta, explain about 70% in dollar terms the increased earnings expectation for the entire year. Earnings worth watching later this week include Alibaba and Cisco on Wednesday and applied materials on Thursday. Cisco is a good barometer for global tech demand, as it sells its equipment for so many applications. Returning to last Friday's employment data, jobs growth for February and March got cut by a combined 16,000. Also, average hourly earnings rose just 0.2% monthly, a relatively light gain, and the same is seen in March. Labor force participation slipped to 61.8% in April from 61.9% in March. Lower participation can mean more people giving up looking for jobs, a sign of weakness in the economy.
The total number of individuals in the labor force dipped again in April and has been rolling over since November, noted Kevin Gordon, head of Macro Research and Strategy at the Schwab Center for Financial Research, or SCIFR. He added that the number of people working part-time for economic reasons has also been rebounding. Lightweight growth, combined with the low quits rate seen in Tuesday's March job openings report, suggest the low-hire, low-fire climate continued in April. Also, an April decline of 13,000 jobs in the information category could reflect AI competition.
In additional data Friday, the University of Michigan's preliminary May Consumer Sentiment Report fell to a new record low of 48.2, down from 49.8 in April, and below analysts' expectations, hurt by high oil prices and tariffs. Long-run inflation expectations fell to 3.4 percent in May from 3.5 percent in April, which may soothe the Fed. Checking late Friday, chances for a rate cut at any time this year were around 10 percent, while investors still baked in 16 percent odds of a possible hike, according to the CME FedWatch tool. The odds of no rate change all year is 74 percent. Treasury yields eased Friday, and oil remains a big driver heading into the new week. Higher oil generally has sent yields up and vice versa. Crude steady Friday with little fresh Middle East news.