June Jobs Data Awaited with Estimates Near 120,000
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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 Thursday, July 3rd. First, an important note. U.S. markets are closed Friday, July 4th, in observance of U.S. Independence Day. The Schwab Market Update will return on Monday, July 7th.

Jobs data again dominates the scenery today, with investors bracing for the 8.30 a.m. Eastern time June non-farm payrolls report. Expectations are for jobs growth of 120,000 down from 139,000 in May, with unemployment staying at 4.2%. The market won't have a full session to digest the data as trading closes at 1 p.m. Eastern time today ahead of tomorrow's holiday.

However, yesterday's data raised fresh concerns about the labor market and pushed up odds of near-term Federal Reserve rate cuts. Private sector job growth fell 33,000 in June, the first decline in more than two years according to the ADP National Employment Report. Analysts had expected a 100,000 increase. Softness in services sector jobs and at smaller businesses capsized the data.

The non-farm payrolls report will be more important, but this suggests the labor market is softening, said Kathy Jones, chief fixed income strategist at Schwab. Washington is another focus after the Senate passed its version of a budget bill earlier this week and the House now debates changes.

Passage isn't a slam dunk, said Michael Townsend, managing director of legislative and regulatory affairs at Schwab, and both conservatives and moderates have concerns. But intense pressure from the White House is likely to push the bill across the finish line. Still, with a narrow majority in the House and Democrats unified in opposition, Republicans can have only three defections and still be able to pass the bill.

All this takes place as next Wednesday's deadline nears for the three-month extension of President Trump's reciprocal tariffs. Though a deal with India was said to be close, according to media reports, Trump threatened Japan with tariffs of between 30 percent and 35 percent. The administration promised 90 deals in 90 days, but only a couple appeared done. Importantly, one is with China.

On another note, Trump said he'd reached a deal with Vietnam yesterday that would put 20% tariffs on imports from that country. Though Trump called it a 20% tariff on Vietnam, that means companies importing from Vietnam would pay the cost, perhaps dividing it up between suppliers or passing it along to consumers. The news put Nike in the spotlight after shares of that firm fell in April when Trump threatened much higher tariffs on Vietnam.

Nike manufactures many products there. Other major U.S. companies with exposure to Vietnam include Apple, Boeing, Gap and Amazon. Shares of Nike and Gap both rose Wednesday.

It's difficult to say right now how the market views the news of the Vietnam agreement, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. On the one hand, a trade deal provides incremental clarity and suggests there is the potential for more deals in the coming days. But the 20 percent rate may be higher than expected, and the economic impact is unclear as far as the effect on inflation and demand.

The non-farm payrolls report comes out at the same time as weekly initial jobless claims and continuing claims. Any number above $250,000 for initial claims or $1.95 million for continued claims could get a fisheye from market participants. However, May job openings outpaced expectations and layoffs fell in today's Challenger Jobs Cut report, possibly positive signs.

If cracks widen in the labor market, this suggests Fed rate cuts are likely coming sooner, but it also suggests economic weakness, Schwab's Peterson said. The question in that case, he added, is whether market participants translate weak jobs as bullish or bearish. But the market's technical underpinnings, he said, remain bullish.

The theme earlier this year was weakness in so-called soft data like consumer sentiment and consumer confidence, despite relatively solid hard data like retail sales and jobless claims. Recent signs point to a switch as sentiment appears to be improving, even as the hard numbers in housing, jobless claims and personal spending get worse.

Yesterday's ADP report was another example, though it's important to remember that the ADP report doesn't often correlate with the official government jobs number due today. Additionally, the Atlanta Fed's GDP Now metric fell to 2.5% for anticipated second quarter gross domestic product growth, down from the prior 2.9%. Another update is due today.

Next week is a little light on data, but several important Treasury auctions are on the calendar, along with minutes next Wednesday from the Fed's last meeting. All this could help shape the path of Treasury yields, which popped yesterday despite the soft jobs data. Investors may be concerned about growing levels of federal debt that could possibly arise from the budget bill.

Even so, odds of a rate cut rose yesterday after the weak data to around 23 percent for a July move, according to the CME FedWatch tool. Chances of at least one cut by September hit 93 percent. Investors might want to check this after today's nonfarm payrolls report to see which way it moves. There's no guarantee a near-term rate cut would ease borrowing costs.

If the Fed cuts rates too soon, it would likely raise inflation expectations, which could move intermediate to long-term rates higher, especially in an environment where the supply of treasuries is likely to keep rising due to increased spending, said Schwab's Jones.

Trading Wednesday, major indexes, including the S&P 500 and the Nasdaq Composite, climbed to new all-time highs, boosted by the Vietnam deal and rising rate cut hopes. However, strength in some of the largest stocks, including Tesla and Nvidia, helped gains at the index level, even though only five of 11 S&P sectors closed higher. Energy led, but Infotech and Consumer Discretionary were gainers too.

In corporate news, Tesla reported a 14% Eurovere decline in vehicle deliveries last quarter, the second straight quarterly drop. Deliveries of 384,122 came up short of Wall Street's consensus for slightly above 390,000 and were down from 443,956 a year earlier.

Also, Microsoft plans to cut 9,000 workers in a second wave of major layoffs this year, Bloomberg reported. The company says this is an effort to streamline, and Bloomberg Intelligence notes the move could help offset rising costs associated from the AI infrastructure build-out.

The benchmark 10-year Treasury yield rose above 4.3 percent Wednesday, perhaps due to worries about higher debt levels associated with the budget bill. Still, 4.3 percent is the lower end of the near-term range. Longer-dated Treasury yields climbed more than shorter ones, possibly on ideas the Fed could be more likely to cut rates later this month.

The Dow Jones Industrial Average fell 10.52 points Wednesday, or 0.02%, to 44,484.42. The S&P 500 Index rose 29.41 points, or 0.47%, to 6,227.42. And the Nasdaq Composite added 190.24 points, or 0.94%, to 20,393.13.

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