Big Jobs Week Ahead Highlighted by Payrolls Data
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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's Schwab's early look at the markets for Monday, January 6th. U.S. jobs data take the spotlight this week, starting with job openings tomorrow and reaching a crescendo Friday with the December nonfarm payrolls report.

Stock trading is shut Thursday to observe a national day of mourning for President Jimmy Carter, and bonds close early that day. Though the closure ahead of the jobs report could inject volatility, the CBOE Volatility Index, or VIX, fell 8% Friday after testing the pivotal 20 level on Thursday.

Recent seven-month highs in yields and strength in the dollar and crude oil represent possible headwinds this week. A combination of U.S. economic strength, fiscal policy worries, sticky inflation, a cautious Federal Reserve, and hopes for a stimulus of China's sagging economy drove those measures higher over the last month, creating a rocky road for U.S. equities. Friday saw a five-day losing streak end with a solid rally, though major indexes still dropped for the week.

Treasury yields helped set the tone recently and may keep calling the shots, with stocks generally rising on days when the 10-year yield falls and falling when the 10-year yield rises. That benchmark yield is near its 2024 peaks, but the yield curve has steepened. This reflects recent Fed rate cuts accompanied by worries that fiscal policy and inflation could keep the Fed on pause for the long term.

Futures trading puts odds of rate pause this month above 88% according to the CME FedWatch tool. One difference maker could be the labor climate, which comes into focus starting at 10 a.m. Eastern time tomorrow when the government releases its November Job Openings and Labor Turnover Survey, or JOLTS.

A lot depends on the economic data, especially the labor market data. But until there are clear signs that growth is slowing and unemployment is pushing higher, the market's bias is towards higher yields, said Kathy Jones, chief fixed income strategist at Schwab.

The jolts data is followed by the December ADP monthly private payrolls report on Wednesday morning. Weekly jobless claims data are still scheduled to come out Thursday, although that may change with a government shutdown that day. Last week's jobless claims report reinforced ideas that the Fed might stay cautious on rate cuts as it showed weekly initial claims falling to their lowest level in months and continuing claims down sharply.

The Fed is in prime view, too, on Wednesday afternoon when investors receive minutes from the last Federal Open Market Committee, or FOMC, meeting. Down the mall from the Fed, another Washington, D.C. institution is in focus this week after Friday's opening of the new Congress led by Republicans.

Major indexes climbed sharply after the election on hopes for business-friendly regulatory and tax reform, but bringing those policies to fruition requires cooperation on the Hill. There's also concern on Wall Street about President-elect Trump's proposed tariffs on imports.

Expect President Trump to impose tariffs on imports from other countries on day one, said Michael Townsend, managing director of legislative and regulatory affairs at Schwab. But the scope of those tariffs is the key thing to watch. He called during the campaign for tariffs on all imports.

But there's a sense in Washington that the actual tariffs may be more nuanced and targeted, given that across-the-board tariffs are considered by most economists to be inflationary and likely to cause a trade war. Last Friday's ISM manufacturing PMI came in at 49.3 percent, below the 50 percent needed to denote expansion, but above the consensus of 48.5 percent.

Treasury yields immediately ticked up on the news, and the benchmark 10-year Treasury note yield ended the day and week up to basis points at 4.6%. Crude oil has also been ticking higher on hopes for economic stimulus in China, while the strong U.S. dollar poses another possible threat to any rally attempt.

Technically, the S&P 500 entered Friday well below its 50-day moving average of 5,944 after running into selling pressure on a move toward that level Thursday. On Friday, it finished just under that point and remains in a trading range between the 100-day moving average near 5,800 and the 50-day.

Every S&P 500 sector tracked higher Friday, led by the usual suspects of consumer discretionary and infotech, as Tesla and Nvidia drove gains. Some of the so-called cyclical sectors that had slipped in late December, including industrials and discretionary, ended up doing well Friday, but so did most of the Magnificent Seven. One day isn't a trend, so it's too early to say if the market's missing breath is returning.

The S&P 500 index added 73.92 points or 1.26% Friday to 5,942.47 and fell 0.48% for the week. The Dow Jones Industrial Average climbed 339.86 points or 0.8% to 42,732.13 but fell 0.6% for the week and

And the Nasdaq Composite gained 340.88 points, or 1.77%, to 19,621.68, while finishing the week down 0.51%. This has been the Schwab Market Update Podcast.

To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow. For important disclosures, see the show notes and schwab.com slash market update podcast.