Tariff Day Dawns with Investors Hoping for Clarity
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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, April 2nd. Today is Liberation Day, with a tariff announcement by the White House scheduled for 3 p.m. ET, about an hour before the market closes.

That could make it important to keep tabs on where stocks go the final hour of trading today and to watch futures prices later tonight as investors digest the news. President Trump's policy is expected to take U.S. tariff levels to a height not seen since World War II and could spark a global trade war as other countries respond in kind.

Trade wars typically haven't helped the economy, and two major banks recently raised recession risk odds substantially. Today's announcement isn't necessarily the same as implementation, which could be delayed by legal proceedings and possible challenges from the World Trade Organization. Still, the event could provide a clearer sense of the tariff picture and perhaps ease the uncertainty that helped propel a safe haven move by investors into bonds yesterday.

The 10-year Treasury yield forged its lowest level of the year Tuesday, near 4.13 percent intraday, hurt also by weak U.S. data. The sour data included a drop of nearly 200,000 in the February Job Openings and Labor Turnover Survey, or JOLTS, to 7.568 million. Analysts had expected 7.68 million, roughly unchanged, from 7.74 million in January.

The closely watched quits level changed a little from January, according to the U.S. Bureau of Labor Statistics, and job openings in the retail trade category dropped more than 126,000, possibly a sign of worries over consumer spending.

The ISM manufacturing PMI also released yesterday fell back under the 50 level that signals expansion to 49, missing the average analyst estimate of 49.8 and showing sharp drops in factory activity and other categories. Meanwhile, the prices paid component hit new highs.

This report will likely keep stagflation in the headlines, given that the activity readings components are generally in contraction territory, where the prices paid index rose to its highest level since mid-2022, said Colin Martin, director of fixed income strategy at the Schwab Center for Financial Research. The fact that yields fell on the news highlights that growth expectations are driving the markets rather than inflation expectations these days.

Marchin added that the JOLTS report suggests a cooling but not crumbling labor market. Nonfarm payrolls have continued to grow, but at a slower pace than a few years back emerging from the pandemic. In a sign of how the data might affect U.S. growth, the Atlanta Fed's GDP Now model for first quarter gross domestic product, or GDP, fell to negative 3.7 from the previous negative 2.8.

Still, most analysts expect a small amount of first quarter GDP growth. This morning brings the ADP March jobs report on private sector jobs growth. This report seldom closely correlates with the government jobs data. Friday's March nonfarm payrolls report is expected to show 130,000 jobs added, down from 151,000 in February, with unemployment remaining at 4.1%.

Should job growth fall to the level analysts expect, it would still indicate hiring stability, but a much steeper drop would likely play into recession fears. Returning to tariffs, the announcement today could answer some questions related to how high they might be, which countries will they affect, whether they'll be universally the same or be different for each country, how much time there might be to negotiate before implementation, and other points.

Major indexes wobbled Tuesday in a seesaw session ahead of today's announcement, with the tech-heavy Nasdaq generally ahead of its counterparts after a quarter when it trailed the S&P 500 index by a large amount. Some of the Magnificent Seven, including Tesla, mounted rebounds Tuesday, supporting the indexes. Tesla is in the spotlight today as the EV company reports quarterly deliveries.

Shares fell more than 35% in the first quarter amid competition and political concerns. Analysts expect around 360,000 Tesla deliveries, down slightly from a year ago. Technically, there seems to be support down near the mid-March closing low of 5,521 for the S&P 500 and a drop under that intraday Monday, found buyers.

Any settlement much below that level might draw attention and set up a chance for a test of further support near 5,400, while the S&P 500 remains well below its 200-day moving average of 5,761. A move above that last week met sellers. Still, the S&P 500 has climbed two sessions in a row following Friday's 2% plunge and Monday morning's intraday six-month low.

Consumer discretionary, communication services, and infotech led all sectors yesterday, and the more defensive health care sector ended last. That, however, reflected weakness in Johnson & Johnson after a judge rejected the company's $10 billion proposal to end tens of thousands of lawsuits alleging that its baby powder and other talc products caused ovarian cancer.

As of late Tuesday, there was an 18% chance of rates being lowered at the May FOMC meeting, according to the CME FedWatch tool. That rises to 76% for June, and odds of three rate cuts over the course of 2025 have grown lately, reaching above 70%. Several Fed governors and vice chairs speak over the next few days, culminating with remarks by Fed Chairman Jerome Powell on Friday.

The S&P 500 index added 21.22 points or 0.38% to 5,633.07. The Dow Jones Industrial Average fell 11.80 points or 0.03% to 41,989.96. And the Nasdaq Composite climbed 150.60 points or 0.87% to 17,449.89.

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