Schwab Market Update | May 6, 2021

Schwab Market Update

Stocks Higher in Choppy Action

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U.S. equities were able to finish in the green after a bumpy session, with the Dow notching another record high amid strength in a number of the tech heavyweights, but a number of stocks in the Information Technology space saw a pullback to keep a lid on the Nasdaq. Some upbeat economic data appeared to be today's catalyst, as well as more positive earnings results. Consumer Staples got a boost from an upbeat earnings report from Kellogg, while jobless claims improved more than expected and Q1 productivity rose more than anticipated ahead of tomorrow's key April nonfarm payroll report. Following the economic data, conjecture as to when the Fed may begin to rein in its highly-accommodative monetary policy added a bit of caution to the mix. Treasuries were little changed despite the data, though the U.S. dollar fell, while gold gained solid ground and crude oil prices declined. In other earnings news, Uber Technologies, PayPal Holdings and Booking Holdings diverged as the Street continued to scrutinize some key metrics and guidance. Europe reversed course to finish to the upside amid some upbeat data in the region and following the Bank of England's monetary policy decision, while Asia finished mixed as the region returned to full strength following holiday breaks.

The Dow Jones Industrial Average rose 318 points (0.9%) to 34,549, the S&P 500 Index increased 34 points (0.8%) to 4,202, and the Nasdaq Composite gained 50 points (0.4%) to 13,633. In heavy volume, 1.0 billion shares were traded on the NYSE and 4.9 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.92 to $64.71 per barrel. Elsewhere, the Bloomberg gold spot price was $28.15 higher at $1,815.02 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.5% at 90.90.

Uber Technologies Inc. (UBER $47) reported a Q1 loss of $0.06 per share, compared to the FactSet estimate calling for a shortfall of $0.56 per share. Revenues declined 11.0% year-over-year (y/y) to $2.9 billion, below the Street's forecast of $3.3 billion, with revenues being reduced by an accrual made for the resolution of historical claims in the U.K. relating to the classification of drivers. Excluding the U.K. accrual, the ride-hailing company's revenues were $3.5 billion, up 11.0% quarter-over-quarter and 8.0% higher compared to a year ago, with gross bookings growing 24.0% y/y. UBER said it is starting to "fire on all cylinders," as more consumers are riding with it again and continuing to use its delivery offerings. However, the company warned that higher costs to combat a driver supply shortage could negatively impact Q2 results. Shares traded solidly lower.          

PayPal Holdings Inc. (PYPL $252) reported adjusted Q1 earnings-per-share (EPS) of $1.22, compared to the expected profit of $1.01 per share, as revenues rose 29.0% y/y to $6.0 billion, just above the estimated $5.9 billion. The company's total payment volume (TPV) for the quarter topped forecasts and it raised its full-year guidance, which included an outlook for TPV for the year to grow roughly 30.0% y/y. The company said it saw the strongest Q1 results in its history amid sustained momentum as the world shifts into the digital economy, while its addressable market continues to grow as it launches new products and services for its 392 million active accounts. Shares rose.     

Booking Holdings Inc. (BKNG $2,279) posted an adjusted Q1 loss of $5.26 per share, versus the expected shortfall of $5.97 per share. Revenues fell 50.0% y/y to $1.1 billion, just shy of the forecasted $1.2 billion. The company said while it expects continued volatility in the recovery of global travel demand, it saw encouraging signs of improving booking trends in Q1 that continued into April with notable strength in the U.S. Shares were lower. 

Kellogg Company (K $68) reported adjusted Q1 EPS of $1.11, above the projected $0.96, with revenues rising 5.1% y/y to $3.6 billion, exceeding the expected $3.4 billion. The company said its sales through retail channels remained strong, despite lapping last year's pandemic-related surge, and was led by many of the company's largest brands and by particularly strong growth in e-commerce. K added that its away-from-home channels continued to decline amidst the pandemic, though their decline moderated sequentially in Q1. The company raised its full-year guidance. Shares rallied. 

Q1 earnings season is headed down the homestretch and per data compiled by Bloomberg, with 423 of the S&P 500 companies that have reported thus far, about 70% have topped revenue expectations, while roughly 87% have bested earnings estimates. At this point, sales growth is on track to be up 11% y/y and profit expansion is on pace to be approximately 47% above year ago levels.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article, Pump it Up: Earnings Season Starts Off Strong, results this earnings season have been strong enough to significantly boost growth expectations, while also easing some valuation concerns. As well, in her latest commentary, Boom Boom Pow: Have Stocks Already Priced in Economic Boom?, she notes that economic and earnings data are in boom territory, with more momentum likely near-term. But the stock market tends to sniff out inflection points in economic data, so keep a close eye on growth rates, and the possibility of a peak in this year’s second quarter.

You can also keep up with our latest views on the market landscape at our Market Insights page on and be sure to also follow us on Twitter @SchwabResearch.

Jobless claims lower than expected, Q1 nonfarm productivity stronger than anticipated

Weekly initial jobless claims (chart) came in at a level of 498,000 for the week ended May 1, compared to the Bloomberg estimate of 538,000 and the prior week's upwardly revised 590,000 level. The four-week moving average fell by 61,000 to 560,000, and continuing claims for the week ended April 24 rose by 37,000 to 3,690,000, north of estimates of 3,620,000. The four-week moving average of continuing claims dipped by 6,750 to 3,675,750.

Preliminary Q1 nonfarm productivity (chart) rose by 5.4% on an annualized basis, versus expectations of a 4.3% gain, and following the favorably revised 3.8% drop seen in Q4. Unit labor costs dipped by 0.3%, versus the forecast calling for an 1.0% decline. Unit labor costs were revised lower to a gain of 5.6% in Q4.

Treasuries were little changed despite the data, with the yields on the 2-year and 10-year notes, along with the 30-year bond, all flat at 0.15%, 1.56% and 2.23%, respectively.

Bond yields have been trading in a modest range after cooling from the sizable gains seen in Q1, while the U.S. dollar continues to be well below the peak reached at the end of March, even with economic data being strong to preserve expectations of robust 2021 growth, and inflation expectations having gained ground.

Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her latest article, How to Handle a Bond Bear Market, how it can be challenging to handle a bond bear market, a period during which investors drive bond prices down and yields—which move inversely to prices—higher. She points out that the good news is that the worst of this phase of the bond bear market may be over, and you can take steps to help mitigate the impact of increased volatility and higher interest rates.

To end the week, tomorrow's economic calendar will offer the April labor report, forecasted to show that nonfarm payrolls grew by 1,000,000 jobs and private sector payrolls increased by 938,000 jobs, the unemployment rate fell to 5.8% from the prior month's 6.0%, and average hourly earnings were flat m/m and were down 0.4% y/y. As well, in the final hour of trading consumer credit will be released, with economists projecting that consumer borrowing was $20.0 billion in March.

Europe turns higher with earnings and BoE decision in focus, Asia mixed

European equities bounced off their lows late in the day to finish higher, with gains in Consumer Staples and Financials issues being tempered by weakness in the Information Technology and Consumer Discretionary sectors. The markets digested a host of mostly positive earnings reports in the region, along with some favorable economic data, while reacting to the Bank of England's (BoE) unchanged monetary policy decision and likely caution ahead of tomorrow's key labor report in the U.S. German factory orders and Eurozone retail sales both rose more than expected in March, while the BoE held its benchmark interest rate and asset purchase targets unchanged. However, the BoE did reduce the pace of its bond-buying activity, noting that the U.K. could recover to pre-pandemic levels sooner than expected as vaccinations ramp up. The British pound was lower versus the U.S. dollar in choppy trading following the BoE's decision and bond yields in the U.K. saw some pressure. The euro traded higher versus the greenback and Eurozone bond yields were mixed. 

Recent economic data and the massive amounts of monetary and fiscal policy relief have underpinned the markets and Schwab's Liz Ann Sonders addresses in her commentary the question of Will Rising Federal Debt Slow Economic Growth?, and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his article, Stimulus Payback: 2023.

The U.K. FTSE 100 was up 0.5%, Germany's DAX Index, Italy's FTSE MIB Index and Spain's IBEX 35 Index all gained 0.2%, and France's CAC-40 Index rose 0.3%, while Switzerland's Swiss Market Index was little changed.

Stocks in Asia finished mixed as several markets returned to action, including China and Japan, which opened following extended holidays to begin May. The markets continue to be buoyed by optimism of global economic prosperity as pockets of the world show signs of strong recoveries, notably in the world's largest economy of the U.S. However, some of the optimism remains hamstrung by rising inflation pressures, resurging COVID-19 cases in some areas of the world, notably in India, and uncertainty regarding when the extremely accommodative global monetary policy may begin to be reined in. This uncertainty comes ahead of tomorrow's key U.S. nonfarm payroll report, which may have fostered some cautious trading in the region.

Japan's Nikkei 225 Index rose 1.8% with the yen choppy after a recent retracement of April's strong advance. China's Shanghai Composite Index declined 0.2% and Australia's S&P/ASX 200 Index decreased 0.5% as tensions between the two nation's remain elevated, with Bloomberg noting that the former halted economic dialogue with that latter. South Korea's Kospi Index gained 1.0% after yesterday's holiday break, while the Hong Kong Hang Seng Index rose 0.8% and India's S&P BSE Sensex 30 Index moved 0.6% to the upside. For more insight into international stocks and events, see Schwab's Jeffrey Kleintop's latest article, What’s Working? Two Ideas For Investors, where he discusses two investment themes that have been rewarding investors with outperformance: companies in the defense sector and those participating in share buybacks.

Tomorrow's international economic calendar will offer the Caixin Services PMI and trade data from China, industrial production and trade figures from Germany and France, as well as retail sales from Italy.

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