Jobs, Services Data Ahead After Failed Comeback
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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 Wednesday, March 5th. Though major indexes rebounded late Tuesday from this week's sharp early losses, markets continue to grapple with fears of a global trade war and possible economic repercussions.

U.S. tariffs this week and retaliatory ones from China, Canada, and Mexico affect $2.2 trillion in annual trade among these nations. ISM services PMI could be a key indicator following the open after services slipped in January, along with several other soft indicators like surveys and hard data like retail sales.

Analysts expect a headline reading of 53.0 for the report due at 10 a.m. ET today, above the 50 needed for expansion and up from the 52.8 last time. But underlying numbers might have more impact after Monday's ISM manufacturing data showed an alarming rise in prices and a drop in employment and new orders.

Investors also will be watching the ADP private sector job report for February early today, though it doesn't typically sync with official government job numbers. Wall Street finished yesterday modestly above its lows, but risk-off sentiment has the tech-heavy Nasdaq Composite trading more than 9% below its all-time high and approaching 10% correction territory.

The small-cap Russell 2000 index is now down nearly 15% from its late November peak, and the S&P 500 index has seen a broad-based decline, with about 80% of its members down by midday Tuesday as financials, industrials, and consumer discretionary sectors led the sell-off. Technically, damage was done on the charts after the S&P 500 traded briefly below its January low Tuesday.

Support appeared to show up at the 200-day moving average of 5,726 for the S&P 500. That's when the indiscriminate selling in technology saw a snapback bounce amid classic signs of capitulation. These included the SIBO Volatility Index, or VIX, rising above 25 and the Relative Strength Index, or RSI, of the S&P 500 dropping below 30.

For RSI, that's traditionally a level that signals oversold conditions and might have triggered some technical buying. The late rally brought the S&P 500 index back to even for the day with about an hour left in the session, but sellers re-emerged and the market dropped again as the closing bell approached.

Still, the ability of the S&P 500 to finish above its 200-day moving average may be technically constructive heading into Wednesday, though the S&P 500 still posted a new closing low for 2025. The index is down more than 5% from its all-time high close of 6,144 registered on February 19th, but it's not uncommon for major indexes to suffer more than one 5% setback in any given year.

Another point to remember is that the S&P 500 Equal Weight Index, which weighs all S&P stocks the same rather than by market capitalization, has fallen less than 4% since the February high, reflecting that much of the S&P 500 damage has been done to the Magnificent Seven.

Though market breadth has fallen over the last week, most S&P 500 sectors remain higher year-to-date, led by health care and consumer staples, as investors rotate away from tech and consumer discretionary. The latter of those two is dominated by Tesla and Amazon.

The 10-year Treasury note yield dropped sharply to below 4.15% intraday Tuesday for the first time since October, but finished higher for the day by three basis points at 4.21%, still down sharply from highs above 4.6% last month.

The moves in Treasury yields are because the market's concerned that trade policy will negatively impact growth, said Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research. The question that the market's grappling with now is will the inflation or growth hit occur first? Given the difficulty in predicting the outcome, we think it's prudent for investors to take a cautious approach and not make any big shifts in their portfolios.

Target reported better-than-expected fourth-quarter earnings yesterday, but big-box stores depend heavily on overseas supply chains. In its release, Target cited ongoing consumer uncertainty combined with tariff uncertainty among reasons to expect year-over-year profit pressure. Across the road, at Best Buy, results also topped estimates, but guidance looked mixed and didn't include the possible impact of tariffs.

In addition, CNBC reported Best Buy's CEO warning that price increases are highly likely after Trump's tariffs. CrowdStrike reported late Tuesday and will be followed Wednesday by Foot Locker and Marvel, both timely considering tariff impacts on chips and consumer goods. Thursday is a banner earnings day featuring Broadcom and Costco, among others.

But the week's highlight comes Friday with the February nonfarm payrolls report. Analysts expect U.S. jobs growth of around 159,000, with unemployment holding steady at 4%. In a reversal from Monday's defensive action, Infotech and communication services led the way Tuesday as investors swooped in to buy the dip, and homebuilder stocks got a boost too, thanks to hopes for lower interest rates.

But airline stocks lost altitude yesterday on concerns the economy might slow down and hurt travel demand. Defensive sectors like utilities and staples played defense, and banks got clobbered after a strong start to the year, hurt by a yield curve that's grown less steep over the past week.

As of late Tuesday, the CME FedWatch tool put rate pause odds at 93% for the March Federal Open Market Committee meeting, but chances of a rate cut by the May meeting are close to 50% and above 80% for the June meeting. The S&P 500 index skidded 71.57 points Tuesday, or 1.2%, to 5,778.15, the lowest close since the day of last November's election.

The Dow Jones Industrial Average fell 670.25 points or 1.55% to 42,520.99 representing a 1,300.2-day drop. And the Nasdaq Composite fell 65.03 points or 0.35% to 18,285.16. This has been the Schwab Market Update Podcast.

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