I'm Colette Auclair, and here is Schwab's early look at the markets for Friday, March 6.
Today's February nonfarm payrolls report could provide a brief respite for investors tired of war news and its impact on markets. The report could be closely watched for any impact on Federal Reserve rate policy, though rate cut odds shrank this week as inflation concerns surged due to the war.
The U.S. economy created less than 200,000 jobs last year, a historically poor performance for any year not associated with a recession. January's nonfarm payrolls improved, with 130,000 jobs added, but analysts don't expect a repeat. Consensus for the February reading, due at 8:30 a.m. ET, is a light 60,000. Unemployment is expected to remain historically light at 4.3%.
ADP employment data, which only tracks the private sector, recorded 63,000 jobs created in February and easily topped consensus. Yesterday's initial weekly jobless claims reading of 213,000 stayed near recent low levels, while Challenger job cuts data for February fell to less than 50,000 from more than 100,000 in January. All three reports looked encouraging.
When nonfarm payrolls bow, investors might consider focusing on where jobs were generated. Recent reports showed heavy increases in services-related employment like health care and social services. Federal government employment has dropped, but construction jobs gained in January.
For stronger economic growth, it's helpful to see job gains in higher-paying sectors like professional and business services and financial activities. These numbers could also provide early hints about the possible impact of AI on white-collar job activity.
While a shift toward growth in highly compensated positions would often suggest higher spending followed by stronger gross domestic product, or GDP, the current "no hire, no fire" environment is one force behind the current K-shaped economy that's pressed on consumer spending. People concerned they might lose their jobs conceivably aren't as likely to make big purchases.
One hope that's associated with lighter jobs growth is AI improving productivity, allowing the economy to grow faster without generating much inflation. That got a blow Thursday when the government's preliminary estimate of fourth quarter productivity rose just 2.8% on a seasonally adjusted annual basis, far below the upwardly revised 5.2% of the third quarter. Still, even 2.8% is historically decent, though productivity is notoriously difficult to measure.
Getting back to the markets, major indexes increasingly appear tied oil, with stocks generally retreating and rallying along with crude.
"The market isn’t trading war as much as trading oil," said Liz Ann Sonders, chief investment strategist at the Schwab Center for Financial Research, or SCFR. "If crude remains stable, equities likely remain stable; if it spikes toward $100, macro story changes quickly."
Things could get worse if the war drags on, however, and news reports Thursday of Iran attacking a U.S. tanker and hundreds of ships trapped in the Persian Gulf didn't help matters. Though Iran's future missile launching capability is now in question, the country has enough drones to wreak havoc for months, Reuters reported Thursday, citing military analysts. Qatar has halted liquid natural gas production, increasing costs for that important source of heating and air conditioning.
War dominated attention all week, including on Thursday when fighting intensified and Iran sent missiles flying toward countries not hit previously. Crude oil popped more than 7% Thursday to above $80 per barrel for U.S. futures and could continue calling the shots for stocks and Treasuries next week. The price of oil—and its impact on stocks—could ease if the U.S. finds a way to get ships into and out of the Persian Gulf. Success on that front might loosen the logjam and ease market concerns.
Rising oil lifted U.S. gas prices to $3.25 a gallon on average, the highest since last September, according to AAA.
"A rapid end to the conflict or even a gradual reduction of hostilities may be enough to avoid sustained impacts to global growth and inflation," Schwab's experts wrote Wednesday. "In these cases, policymakers are likely to remain on the sidelines, waiting to gauge how the conflict plays out and to what degree economic and financial conditions are impacted. The risk of recession increases the longer energy supplies are disrupted, with larger impacts on Europe and Asia-Pacific."
The 10-year Treasury note yield, which initially fell to multi-month lows on war news, has spent the rest of the week doggedly climbing back toward near-term highs, ending at 4.15% Thursday. Yields added additional muscle thanks to Thursday's solid jobs data and Wednesday's strong services sector report for February.
All this put hopes for any near-term rate cuts on ice. Futures trading now pencils in less than a 5% chance of a cut this month and only about a 35% chance of any rate cut by the time of the Fed's June meeting, according to the CME FedWatch Tool. That's down from 55% a month ago. For the full year, traders build in one to two cuts, down from the two to three previously. That's the way things are on the Fed front as former Fed Chairman Alan Greenspan celebrates his 100th birthday today.
Key data next week includes Wednesday's February Consumer Price Index and Friday's January Personal Consumption Expenditures, or PCE, prices--the Fed's favored inflation metric. A hot January Producer Price Index, or PPI, led to ideas that the PCE might be hot, as well. None of these reports will include any impact from war-related oil rallies, as they were compiled before the conflict began.
"Geopolitical events tend to create volatility spikes, not necessarily lasting bear markets, unless they hit growth or inflation through the commodity channel," Sonders said, adding that recent economic data looks healthy.
The week ahead also includes Treasury auctions that could help set direction for yields. A 3-year note auction on Tuesday and a 10-year note auction on Wednesday could be the most influential. They're the first major auctions since the war began, and weak demand—if that's the case—might suggest investors expect to be paid higher yields to hold U.S. debt amid rising inflation fears.
On the corporate side, earnings are light the next few weeks, but Oracle's report on Tuesday could serve as tech barometer.
Technically, chart watchers entered the week watching the 6,750 to 6,775 area for the S&P 500 Index. The S&P 500 Index earlier this week bounced off the December low near 6,720. It dipped under 6,800 again intraday Thursday but appeared to find buying interest at the 6,770 low and clawed back to finish well within its recent 6,800 to 7,000 range. It's down less than 1% so far this week, but U.S. front-month crude futures are up 18% from last Friday heading into today's trading.
Stocks came under fresh pressure Thursday thanks to rebounding crude prices after a mid-week retreat. Thousands of ships remain stuck in the Persian Gulf despite U.S. promises to escort oil tankers through the Strait of Hormuz, Reuters reported. A suspected Iranian attack on a U.S. vessel raised additional tension.
Most S&P 500 sectors lost ground Thursday, and the pressure wasn't complicated. Rising crude prices reverberate around the entire economy. Even some energy sector stocks struggled, in part because higher oil prices don't help much if a company can't get the oil to market. That's the case now with traffic into and out of the Persian Gulf at a virtual standstill.
Reuters reported late Thursday that China is in discussions with Iran to allow safe passage of oil and gas through the Straight of Hormuz. China is the biggest importer of Iranian oil. Media outlets also reported the U.S. Treasury Department is working on ways to mitigate the rising oil prices.
Checking market internals, there's widening dispersion, falling correlations, and broader participation, write Liz Ann Sonders, chief investment strategist, SCFR, and Kevin Gordon, head of macro research and strategy, SCFR, in their latest analysis. Notably, equal-weight indexes, small caps, and international equities continue to outperform cap-weighted benchmarks. But markets continue to display resilience despite the war.
Some of the more defensive areas of the market like staples finished weaker on Thursday, but so did so-called "cyclical" sectors like industrials and materials.
In individual trading Thursday, Broadcom rose more than 3% after reporting better-than-expected results and delivering upbeat guidance. Notably, semiconductor solutions revenue grew 52% year over year. AI revenue grew 106% year over year and topped the company's own forecast.
StubHub Holdings cratered 12% after the ticketing company reported a quarterly loss in profit and lower revenue than a year earlier. JPMorgan Chase downgraded shares to neutral from overweight.
Salesforce added 4.5% and ServiceNow was up 6% late Thursday as software shares continued to emerge from recent depths. An upbeat interview on CNBC that morning with Salesforce's CEO might have cheered investors about the company and sector prospects despite AI competition.
Tariff-sensitive discretionary stocks finished second best among all S&P sectors, and one of only two in the green along with energy.. NBC News reported that a judge from the U.S. Court of International Trade ruled "all importers of record" were entitled to benefit from last month's Supreme Court ruling against a set of President Trump's tariffs. If the ruling stands, it could lead to possible refunds for affected companies.
Nvidia and other chip stocks fell Thursday but pared losses later in the session, after Bloomberg reported that the Trump administration has written draft regulations that would restrict AI chip shipments to anywhere in the world without American approval.
Shares of Marvell Technology popped 6% initially in post-market trading late Thursday after the semiconductor firm topped analysts' earnings and revenue consensus. Tech-related stocks generally outperformed the broader market yesterday, helped by software strength.
Berkshire Hathaway rose 2% after the company announced a share repurchasing plan.
Defense-related stocks slid Thursday despite expectations of climbing weapons demand from the U.S. government. Airline, delivery, railroad, automobile, and travel-related stocks fell sharply Thursday, and so did some big box stores considered dependent on stable oil prices.
Bitcoin—a sentiment indicator--gave back nearly 3% Thursday following Wednesday's vigorous rally.
The Dow Jones Industrial Average® ($DJI) slid 784.67 points Thursday (-1.61%) to 47,954.74; the S&P 500 Index (SPX) gave back 38.79 points (-0.56%) to 6,830.71, and the Nasdaq Composite® ($COMP) slipped 58.49 points (-0.26%) to 22,748.99.