Here is Schwab's early look at the markets for Friday, August 7.
Earnings season takes a back seat today as investors brace for the July nonfarm 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. ET, is expected to show 86,000 jobs added, up from 57,000 in June.
Unemployment is expected to remain at 4.2%, 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% 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, 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 are hot. Next Wednesday brings the July Consumer Price Index (CPI).
Several Fed policymakers said already this week they're prepared to raise rates, contributing to a more hawkish tone after last week's dovish Fed meeting raised concerns that policymakers might punt even if inflation stays hot. Warsh indicated then that the market itself is tightening borrowing costs thanks to recent rallies in Treasury 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 FactSet 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 helped improve investor sentiment and bring oil prices down this week, though it's uncertain the U.S. will accept whatever terms get worked out.
The U.S. 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, 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 strait 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 exercise caution ahead of the payrolls report, while decliners easily outpaced gainers by midday.
Thursday was rough on the sector front as nine 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, led by consumer discretionary, communication services and info tech. Defensive real estate and utilities are among the weekly laggards. Only energy and info tech managed to rise Thursday.
Looking at individual movers Thursday, memory chip firms Western Digital and Sandisk put pressure on the overall chip and tech markets. Sandisk fell nearly 7% after it guided for below-consensus quarterly revenue. Western Digital plunged 13% despite topping expectations. Other memory chip stocks got dragged down, too. Profit taking might have been a factor in the selloff.
SpaceX added 6% as the market grappled with yesterday's expiration of a post-initial public offering (IPO) lock-up that freed more than 900 million shares valued at around $100 billion. Despite the stock's struggles since its June IPO, many early investors sit on large gains and may be tempted to sell, possibly one reason shares are down almost 50% since the IPO.
Many home builder stocks fell 3% Thursday as Treasury yields ticked back up. Mortgage applications fell 2.9% week-over-week, according to the MBA Mortgage Applications Index.
Honeywell Aerospace, spun off from Honeywell Technologies in June, plunged 23% after its first standalone earnings report failed to impress.
Cloud provider DataDog fell 19% after an earnings report and guidance that surpassed consensus on all fronts, suggesting much of the good news had been priced in.
AppLovin plunged almost 20% after Wells Fargo downgraded shares to equal weight from overweight, saying the company's market share in mobile games is plateauing. Earnings were roughly in line with consensus but revenue guidance fell short.
DoorDash delivered better-than-expected results, sending shares up almost 3%. Total orders rose 27% year over year.
Alphabet fell more than 1% after announcing plans for a benchmark sized debt deal in 10 parts. The deal announcement might have helped send long-term Treasury yields higher as Alphabet and other AI hyperscalers continue flooding the market with debt offerings.
The Dow Jones Industrial Average® ($DJI) plunged 464.02 points (-0.85%) Thursday to 53,885.10, ending a five-session win streak; the S&P 500 Index ($SPX) dropped 13.59 points (-0.18%) to 7,709.96, and the Nasdaq Composite® ($COMP) gave back 15.09 points (-0.06%) to 26,348.35.