Jobs Report in Focus Amid More Signs of Softness
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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'Claire, and here is Schwab's early look at the markets for Friday, June 6th. May jobs data takes center stage this morning, even as trade news swirls after a discussion between the U.S. and Chinese presidents. Investors also studied earnings from Broadcom and Lululemon.

Today's May nonfarm payrolls report at 8.30 a.m. ET tests a theory that suggests so-called hard data, like jobs and retail sales, haven't seen much effect from tariff tensions that the two presidents discussed yesterday.

Analysts expect jobs growth of 130,000, down from 177,000 in April. However, estimates range from as few as 95,000 to as many as 175,000, with unemployment expected to stay at 4.2% and wage growth up 0.3% month over month. Non-farm payrolls have generally been falling, but April's report was solid and recent data have often surprised with their strength.

However, initial weekly jobless claims and layoffs data Thursday raised fresh concerns about the jobs market a day before the payrolls number.

Employers cut around 94,000 jobs last month, according to the Challenger Job Cuts report, down from about 11,000 from April, but layoffs soared in the services sector. Meanwhile, initial weekly jobless claims edged up for the second straight week to 247,000, an eight-month high. And continuing claims were back above 1.9 million, a nearly four-year high.

The rise in initial jobless claims suggests some softening in the labor market, said Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research.

If softening continues in today's jobs report, it wouldn't necessarily mean a trend, but might get the Federal Reserve more focused on June and July jobs numbers as investors look ahead to a possible September rate cut. Odds of that are around 75 percent, according to the CME FedWatch tool.

A number of big stories vied for investors' attention yesterday, including President Trump's phone call on trade with Chinese President Xi, which was instigated by Trump. After the call, Trump reported progress and said there'd be more meetings soon between lower-level officials from the two countries, but offered few details.

Trump hinted that a dispute over critical minerals from China for industrial and automotive use was part of the discussion, Behrens reported. With information thin, the market didn't appear to move much on the news.

Tesla stock moved dramatically on Trump-elated news, however, as a feud between Trump and CEO Elon Musk over the federal budget went public, and Trump threatened to terminate billions of dollars of Musk's governmental subsidies and contracts. Tesla shares, which had rallied from April lows in recent weeks despite falling sales abroad, fell double digits and pulled down the S&P consumer discretionary sector.

Tesla's large market capitalization on its own contributed to pressure on the S&P 500 index. The other big story yesterday was the initial public offering, or IPO, of Circle Internet Group, which traded more than 100% higher than its debut price at times.

In earnings yesterday, Broadcom slightly surpassed analysts' average estimates for quarterly revenue and earnings per share while forecasting third-quarter revenues just above consensus. Shares fell initially in post-market trading.

Yesterday afternoon also brought earnings from retailer Lululemon, with shares off double digits initially in post-market trading as earnings guidance disappointed. Next week is light on earnings, but one tech firm to watch is Oracle on Wednesday.

The AI secular growth story and corresponding investment push is certainly one of the key pillars that is fueling the bullish optimism about the economy and growth, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.

Though earnings are scarce, focus returns to treasuries in coming days ahead of fresh government auctions. These include a three-year note auction Tuesday and a 10-year note auction next Wednesday. Recent auctions drew solid demand, which helped bring yields down from their late May highs. Recent soft data has yields even lower, but weak auction demand, a strong jobs report, or upbeat trade news all could get yields on the comeback trail.

Lower yields can suggest slowing economic growth, and higher ones can mean increased borrowing costs for consumers and companies. But on the whole, stocks often trade more vigorously when yields decline. So far this year, jumps above 4.5% for the 10-year yield generally caused selling on Wall Street. The 10-year yield inched up three basis points to 4.39% Thursday, not far above near-term lows.

Political and economic uncertainty could keep fixed income market volatility up. The higher trend in long-term yields has been a global phenomenon, said Kathy Jones, chief fixed income strategist at Schwab. The market is signaling that adding to government budget deficits accumulated during the last 20 years, when interest rates and inflation were low, will require higher yields to attract investors.

Speaking of inflation, next week features the closely monitored U.S. Monthly Consumer Price Index, or CPI, report. A New York Federal Reserve survey found that among businesses facing higher operational costs due to Trump's tariffs, 75 percent are passing on at least some of those costs to customers, Barron's reported.

Futures trading as of late Thursday put odds of a June rate cut at less than 3% and a July trim at 30%, according to the CME FedWatch tool. Odds are near 75% in September, but check the market again after today's jobs report for any sense of perceived Fed response. The market now prices in high odds of two rate cuts this year, but employment data could be the linchpin.

Technically, yesterday was a weekday on the charts for the S&P 500. It topped intraday at just below 6,000, a psychological level it hasn't been above since late February. Failing to climb the final rung, it then fell to close more than 0.5% lower for the session, the type of performance that often inspires more selling. However, with today's jobs report ahead, data might have more influence than charts.

The Dow Jones Industrial Average lost 108.00 points Thursday, or 0.25%, to 42,319.74. The S&P 500 Index dropped 31.51 points, or 0.53%,

to 5,939.30, and the Nasdaq Composite slipped to 162.04 points, or 0.83%, to 19,298.45. This has been the Schwab Market Update Podcast.

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