Stocks on Pace for Strong Week, Awaiting 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 Landsford, and here is Schwab's Early Look at the Markets for Friday, August 7th. Earning 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 percent monthly, the same as in June. The 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, a 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% from the prior quarter versus the 0.8% consensus, and the government upwardly revised first-quarter productivity growth to 0.8% from 0.3%.
Though 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% 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 are 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. Warsh indicated then that the market itself is tightening borrowing costs thanks to recent rallies in treasure 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.
Aside 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 FaxSat 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. At 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 would help improve investors' sentiment and bring oil prices down this week. Though it's uncertain, the US will accept whatever terms get worked out. The US 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. Markets, 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 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.
Thursday was rough on the sector front as 9 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, and 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.