Market Awaits Amazon, Jobs Data After Yield Drop
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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's Schwab's early look at the markets for Thursday, February 6th. Amazon's earnings this afternoon precede Friday's pivotal jobs data and follow the latest results from tech sector companies including Qualcomm and Arm Holdings.

Results from Amazon come after a week of mixed tech sector reports that raised new concerns about AI chip and cloud demand. Despite those worries, stocks entered the final days of the week up slightly and with a bit more traction, thanks in part to dropping Treasury yields and a slipping dollar as tariff tensions eased.

A softer-than-expected read on the U.S. services sector Wednesday also weighed on yields and the greenback, but today's weekly jobless claims data and tomorrow's non-farm payrolls reading might have a bigger impact on the Treasury market. The benchmark 10-year Treasury note yield fell nine basis points to 4.42 percent yesterday, a seven-week low. Near-term yields fell less than long-term ones, potentially signaling worries about slower U.S. economic gains.

Yesterday's soft ISM services PMI data and Tuesday's weak job openings both suggested lighter growth, though no single data point is a trend. Tariff fears also played into growth concerns.

Yields are moving lower on concerns about growth, said Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research. The yield curve is reflecting the thought that inflation may rise and the economy may slow due to the potential for a trade war. There are a lot of unknowns at this point, so volatility is likely to remain high.

Several Treasury auctions take place next week, which could provide fresh signals for yields. The Treasury Department announced this week that auction sizes would stay steady, which also may have contributed to the decline in yields.

This week brought mixed signals on employment ahead of Friday's non-farm payrolls report. The ISM manufacturing PMI swung into positive territory for the first time in many months, and the ADP private sector jobs report topped expectations, which both appeared positive for jobs growth. At the same time, job openings fell sharply in Tuesday's Job Openings and Labor Turnover Survey, or JOLTS, report.

Weekly initial jobless claims this morning are seen on the light side at 211,000 according to briefing.com consensus. January nonfarm payrolls due tomorrow before the open is expected to show jobs growth of 170,000 up from estimates early this week, with the unemployment rate staying at 4.1% and hourly earnings growth up 0.3% month over month.

The Jolt's report showed a market that is starting to slow, so it will be worth watching if this is confirmed by the non-farm payrolls report, Schwab's Howard said. Jobs growth was above expectations at 256,000 in December, but Friday's report should be checked for possible revisions, as December's reading was well above the three-month average of 170,000.

Sector volatility continued Wednesday. Earlier this week, tech fell and defensive sectors like utilities, real estate and health care gained as tariff fears surged, and traders continued rolling out of tech and into the other parts of the market, a trend that began late last year. Then on Tuesday, tech and defensives reversed positions as tariff fears eased.

Wednesday saw tech, utilities, real estate, and healthcare all join in the market's light rally, though the tech-heavy Nasdaq composite lagged due to weakness in communications services giant Alphabet. Tech's revival was key by gains in NVIDIA and Broadcom. Semiconductor strength came despite soft earnings from advanced microdevices, with NVIDIA and Broadcom possibly getting a lift from big spending plans announced by Alphabet.

Just after Wednesday's close, investors received results from Qualcomm and Arm Holdings, the latest in a string of key tech sector earnings reports following disappointing outcomes earlier this week from Alphabet and AMD. Their results and outlooks had investors worrying about chip and AI data center demand, but one quarter isn't necessarily a trend.

In fact, Alphabet seemed positive about its cloud business and suggested capacity constraints might have contributed to the sequential drop in fourth quarter cloud revenue growth. The company is working very hard to bring more capacity online, it said in a transcript of its earnings call, and increased spending, which also caused worries among investors, is partly to address capacity issues.

Qualcomm's results late Wednesday might cool some semiconductor concerns, as earnings, revenue, and the outlook all beat analysts' consensus. MicroStrategy's earnings missed analysts' expectations. Arm Holdings beat analysts' views, but shares initially fell in pre-market trading. Ford shares also fell after results surpassed consensus, hurt by lighter-than-expected auto segment revenues.

The S&P 500 index climbed 23.60 points Wednesday or 0.39% to 6,061.48. The Dow Jones Industrial Average added 317.23 points or 0.71% to 44,873.28. And the Nasdaq Composite gained 38.31 points or 0.19% to 19,692.33.

The small-cap Russell 2000 index climbed more than 1% for the second straight session as yields dropped. 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. Join us for another update tomorrow.

For important disclosures, see the show notes and schwab.com slash market update podcast.