Jobs Data Next as Investors Assess Amazon Results
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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 Colette O'Clare, and here is Schwab's early look at the markets for Friday, February 7th.

Today begins with investors looking backward at Amazon's earnings and forward to crucial monthly jobs data before the open. The S&P 500 index, or the SPX, climbed for the third day in a row Thursday ahead of the numbers.

Amazon's shares initially dipped in post-market trading Thursday as first-quarter revenue guidance fell short of expectations. The company expects $151 billion to $151.55 billion in first-quarter revenue, well below the FACSEC consensus of $158.56 billion.

However, Amazon's fourth quarter earnings per share easily beat Wall Street's estimates and revenue slightly topped consensus. Also, Amazon Web Services' cloud revenue rose 19% year-over-year, matching the third quarter gain for that closely watched business segment.

The company's 5-9% first quarter revenue growth guidance reflects what Amazon called an unusually large, unfavorable impact from foreign exchange rates and a tough comparison to last year's first quarter that had an extra day due to the leap year.

January nonfarm payrolls due at 8.30 a.m. is expected to show jobs growth of 170,000, up from estimates earlier this week, with the unemployment rate unchanged at 4.1 percent and hourly earnings growth up 0.3 percent month over month.

The jobs data also might be affected by the Los Angeles wildfires and the freak snowstorm that affected southern states last month. Like last summer's hurricanes, events like these can slow apparent jobs growth temporarily, due in part to interruptions in data collecting. Sometimes the missing jobs show up in later monthly reports.

The government also issues annual revisions to jobs data today, which could be positive in terms of the household reading of the report. The non-farm payrolls data consists of surveys from households and businesses, and the household number has long lagged the business payrolls number. Today's revision might help close the gap as the government adds population not previously counted, CNBC reported.

Job growth is likely to slow from current levels, but the report due out on Friday will include benchmark revisions that will make it difficult to see the underlying trend, said Kathy Jones, chief fixed income strategist at Schwab. It's hard to be confident about the numbers due to seasonal factors, the effect of wildfires in California, and the benchmark revisions. The household survey is likely to see the biggest revisions.

Heading into jobs data, the near-term trading environment seems cautiously optimistic, but there are signs of possible consolidation. Breadth had stabilized, with around 51% of S&P 500 stocks trading above their 50-day moving averages, roughly in the middle of the recent range.

Magnificent seven stocks have fallen nearly 2% since earnings season began, but advancers outnumbered decliners this week for the major indexes, a sign that there's some broadening beyond the mega caps. On the earnings scorecard, 60% of S&P companies have reported and 78% beat on earnings per share, while 56% beat on sales, Bloomberg reported.

Treasury yields rose slightly but stayed near seven-week lows below 4.45 percent Thursday following soft U.S. services data and as the Treasury Department signaled it would stay the course for now on auction sizes.

Several auctions next week, including for the 10-year note, could help set direction for yields. Also, today's jobs report is likely to have a yield impact, especially if it comes in hotter than expected. Odds of a Federal Reserve rate cut in March remained low at 14.5% late Thursday, according to the CME FedWatch tool, and even a cool jobs report wouldn't be likely to change those chances too much if historic precedent holds.

The tariff picture and other policy uncertainty also play into the Fed's current tilt toward pausing rates. Short-term yields are likely to remain anchored with the Fed on hold, while intermediate to long-term yields will fluctuate on the day-to-day news, Schwab's Jones said. The dollar is likely to stay strong as long as tariffs are a threat or reality.

Looking farther out, futures trading builds in roughly 63% odds of a rate cut by the June Fed meeting. Higher-than-expected fourth-quarter productivity growth and a drop to one-month lows for crude oil, just above $70 a barrel amid rising U.S. supplies, could be anti-inflationary and make the Fed's job easier. But the trends would likely have to continue for a long-term impact.

On the Sector Watch Thursday, some consumer names like Ralph Lauren, Philip Morris, and Uber Technologies were among the S&P 500's leading gainers yesterday following upbeat earnings reports. Healthcare fell as a sector but enjoyed some strength from two large firms as Eli Lilly and Novo Nordisk rallied following earnings. Energy took it on the chin after crude oil prices fell sharply and Infotech had another solid day.

Technically, Thursday finished on a positive note as the SPX closed near its highs and up for a third straight session after rallying in the final half hour. The late surge might have reflected short covering and buy-the-dip action ahead of Amazon results and jobs data. The SPX climbed 22.09 points Thursday, or 0.36%, to 6,083.57.

The Dow Jones Industrial Average dropped 125.65 points or 0.28% to 44,747.63. And the Nasdaq Composite rose 99.66 points or 0.51% to 19,791.99. This has been the Schwab Market Update Podcast.

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