Investors Brace for Nonfarm 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 is Schwab's early look at the markets for Friday, January 10th. Today's December non-farm payrolls report, due shortly before the open, could set the tone for stocks and treasury yields following separate reports this week hinting at a strong labor market.

The burst of strong economic data to start the year as yields at seven-month highs and stocks playing defense, though the S&P 500 index enjoyed a late comeback to finish slightly higher Wednesday before yesterday's closure. Consensus for December jobs growth is 154,000, down from 227,000 in November, with unemployment expected to tick up to 4.3% from 4.2%.

But this week's November Job Openings and Labor Turnover Survey, or JOLTS, hit a six-month high of $8.098 million, up by $259,000 from October and above Wall Street's $7.7 million consensus, while initial weekly jobless claims slipped to a surprisingly low $201,000, which suggests layoffs aren't common and came as a blow to investors hoping for a minimum of two Fed rate cuts this year.

Add to this Tuesday's surprisingly hot ISM data, particularly prices paid, and it's looking as if the Fed may be on hold for a significant amount of time. Inflation and market volatility are on the rise. Investors may be beginning to fear that rising prices could have a domino effect, complicating monetary policy, unsettling the economy, and shaking market confidence. A strong dollar is another weight on stocks.

Wednesday's ADP private sector jobs number of 122,000 in December was below market expectations and an outlier among this week's data. However, that report seldom correlates with official government job numbers.

Treasury yields carved fresh seven-month highs above 4.7 percent on Wednesday, but eased during the session, possibly reflecting the ADP data. Treasuries also appeared to catch a break from Fed Governor Christopher Waller, who said in a speech Wednesday that he still supports rate cuts. If the outlook evolves, as I have described here, I will support continuing to cut our policy rate in 2025, Waller said in the Fed's transcript of his remarks.

The pace of those cuts will depend on how much progress we make on inflation while keeping the labor market from weakening. However, Treasuries, which move the opposite of yields, lost some strength after the Fed released the minutes from its December meeting late Wednesday that appeared to support slower easing of monetary policy.

The minutes showed policymakers expecting economic conditions to remain solid, but feeling uncertain about possible government policy changes under the new administration, especially the potential inflationary impact from trade policy. Though the minutes didn't mention tariffs, the implication was there.

Citing what the minutes said were increased upside risks to the outlook for inflation, policymakers would likely slow the pace of further adjustment to the stance of monetary policy, which could mean fewer rate cuts spaced farther apart. Wednesday's $22 billion 30-year Treasury bond auction was the first this week to entice strong buying interest. This came as the 30-year bond yield flirted with 5% for the first time in more than a year.

Generally, strong auctions indicate that current yields satisfy investors and are bullish for treasuries.

Checking sector performance Wednesday, defensive areas led the way as health care and consumer staples placed first and second on the scoreboard. Health care has led all sectors over the last week and received a lift from Eli Lilly Wednesday after CNBC reported that Medicare drug plans can now cover Lilly's obesity drug Zepbound for obstructive sleep apnea.

Infotech bounced back Wednesday after a terrible Tuesday, but semiconductors continued to struggle. The PHLX Semiconductor Index, or SOX, still trades well below last summer's highs, and analysts worry the demand for chips used for applications beyond data centers remains sluggish. So far this year, sectors like energy and healthcare that struggled in 2024 have outpaced last year's leaders.

This could be due to preparation for the earnings season or inflation concerns, but also shows investors feel jittery. Market breadth has narrowed considerably, with only 23% of S&P 500 stocks trading above their 50-day moving averages compared with around 70% a month ago.

Technically, fresh support for the S&P 500 index may be near 5,870 and below that at the 100-day moving average, which served as support on several sell-offs last year and is now near 5,817. That happens to line up pretty closely with the recent double bottom near 5,825.

The 50-day moving average for the S&P 500 is near 5,950 and likely forms a resistance area.

The S&P 500 index rose 9.22 points or 0.16% to 5,918.25. The Dow Jones Industrial Average climbed 106.84 points or 0.25% to 42,635.20. And the Nasdaq Composite fell 10.8 points or 0.06% to 19,478.88. 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. I'll be back with another update Monday. For important disclosures, see the show notes and schwab.com slash market update podcast.