Rising Oil, Yields Threaten Rally Before 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, June 4th. Stocks almost did something they hadn't accomplished since 1995, a 10-day S&P 500 index rally. But it wasn't to be, as rising yields and crude oil sapped Wall Street's bullish momentum Wednesday. Today potentially puts markets in a holding pattern, awaiting Friday's critical May nonfarm payrolls report. Investors do have Broadcom and CrowdStrike earnings to digest from late Wednesday, and a couple of other earnings reports on the docket today, along with some lesser jobs reports. Consensus for jobs growth in the nonfarm payrolls report due at 8:30 a.m. Eastern time Friday is near 85,000, down from 115,000 in April. Wage growth has seen up 0.3 percent, a slight improvement from 0.2 percent the prior month. The Federal Reserve isn't expected to change rate policy at its mid-June meeting, but a third straight solid jobs rating might give policymakers more of a sense that they could raise rates to fight inflation without hurting jobs growth. Possible trends to watch in the Payrolls Report include whether AI is limiting jobs growth in certain industries, especially tech and if the workforce participation number continues to edge down. When that happens, it can mean the official unemployment staying unchanged even as more workers leave the workforce and fall off the employment rules masking job weakness. Also, yesterday's monthly ADP Private Sector Jobs Report showed a much larger growth in services jobs than in goods producing positions, sometimes signaling that higher paying jobs in construction and manufacturing have lagged. Unemployment at 4.3% in April is expected to remain there. It's been between 4% and 4.5% for more than 20 months in a row. Wage growth is also top of mind given that inflation-adjusted average hourly earnings growth continues to slide and is in negative territory. However, yesterday's ADP Employment Report for May, which showed 122,000 new jobs for the best reading since January of 2025, also delivered a 4.4% rise in annual wages. Crude oil climbed more than 2% Wednesday after fresh Middle East skirmishes and few signs of progress in negotiations. US crude is back to knocking on the door of $100 per barrel after falling below $90 last week. Any further climb is likely to keep investors uncertain about the impact on consumer spending, though high energy costs do help the US energy sector.
In other data Wednesday, April factory orders jumped 4.8% in April, well above the 3.5% briefing.com consensus and from the prior months 1.8%.
However, the headline masked weakness in the Keys sub-reading that showed a 1% monthly drop in new orders for non-defense capital goods excluding aircraft, a proxy for business spending. It had risen 3.8% in March. The May ISM Services PMI also came in above estimates at 54.5% up from April's 53.6%. A 50% reading is required for expansion. This followed a strong ISM May Manufacturing PMI earlier this week. The Fed's Beige Book of Regional Economic Trends also came out late yesterday showing light to moderate growth across 10 of 12 US regions, stable employment and high inflation fueled by energy costs. Some businesses told the Fed they're concerned higher prices are hurting consumer sentiment. Higher income households remained resilient, but middle income households appeared to struggle.
Two more jobs reports arrived early today, weekly initial jobless claims and monthly challenger layoffs data. A reading of around 90,000 might be what to expect for job cuts, not far from 83,000 in April. Initial jobless claims aren't seen moving by much at 213,000. They've generally stayed between 200,000 and 220,000 in recent weeks, not levels that tend to spark concern about the jobs market. As data piles up, investors listen more closely for insights from Federal Reserve policy-makers ahead of their June 16th and 17th rate meeting. This will be the first one led by new Fed Chairman Kevin Warsh. His press conference will likely be must-see TV.
As of late Tuesday, futures trading predicted the Fed to keep rates paused, according to the CME FedWatch tool. Chances of a rate hike this year climbed slightly to around 58% Wednesday, with odds of a cut, almost nil.
Beyond the US., global economic growth appears to be improving, led by manufacturing. The growth is tied to the AI CapEx boom, and earnings estimates are rising as a result, said Michelle Gibley, Director of International Equity Research and Strategy at the Schwab Center for Financial Research. In earnings news, AI chip giant Broadcom narrowly surpassed analysts' fiscal second-quarter earnings and revenue estimates, but the numbers weren't in blowout territory. It also guided for third-quarter revenue of $29.4 billion well above, in fact, that's consensus view. Shares initially fell 4.62% in post-market trading on Wednesday. The bar appears very high for AI and chip-related stocks at a time when share prices are elevated so dramatically from two months ago. Cybersecurity firm CrowdStrike suffered 9% losses in initial post-market trading following its earnings late Wednesday. This was despite a quarter that beat analysts' estimates and guidance for second quarter revenue above estimates. Fiscal year guidance also topped consensus and the company announced a 4-for-1 stock split.