Here is Schwab's early look at the markets for Thursday, March 5.
Ahead of Friday's critical U.S. jobs data, investors mulled Broadcom's results and the latest reports from the Middle East war early today. Layoffs data is ahead this morning before the open, along with fourth quarter productivity.
War dominated the market's attention all week, including on Wednesday when fighting showed no signs of slowing and spread across much of the Middle East. The crude oil market calmed slightly after President Trump offered risk insurance and escorts of tankers through the Strait of Hormuz. Still, that might not be enough to open traffic.
"The U.S. International Development Finance Corporation would need to have some creative operational changes, including the ability to operate in the Middle East, a shift from project-based financing to shipping, and would need a significant acceleration in approvals from the typical six-to-nine month process," said Michelle Gibley, director of international equity research and strategy, Schwab Center for Financial Research, or SCFR. "Additionally, even with insurance, concerns about the safety of crews could limit the amount of risk taking."
Next, Friday's nonfarm payrolls report elbows its way into the spotlight and comes under intense scrutiny after the economy added less than 200,000 jobs all last year. January's report showed improvement with 130,000 jobs added, but a repeat looks unlikely. Consensus for February is 60,000, and unemployment is expected to remain at 4.3%.
The report—due at 8:30 a.m. ET tomorrow--follows today's Challenger layoffs data that put focus on several job cut announcements from large companies since the start of the year.
ADP's February jobs growth of 63,000 easily topped the Briefing.com consensus of 42,000, but manufacturing jobs still fell by 5,000, continuing the weakness in that sector. Additionally, January's ADP job growth got downwardly revised to just 11,000 from 22,000, meaning overall jobs growth the first two months of the year averaged 37,000, a relatively tepid performance.
When nonfarm payrolls bow early tomorrow, investors might consider focusing on where jobs growth was generated. Recent reports showed large climbs 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.
Chip giant Broadcom reported late yesterday, shifting focus back to this volatile sector after Nvidia's solid results and guidance late last month. Shares of Broadcom initially traded both ways in extended trading despite the company reporting better-than-expected results and guidance. Notably, semiconductor solutions revenue grew 52% year over year. AI revenue grew 106% year over year and topped the company's own forecast.
Earnings late Tuesday from cybersecurity firm CrowdStrike turned focus back toward struggling software. The cybersecurity firm's results and guidance were mostly near analysts' expectations, another of many recent examples of software companies delivering decent quarters despite the market's hand wringing.
In other data Wednesday, the February ISM Services PMI jumped to 56.1% from 53.8% in January. Anything over 50% indicates expansion, and the Briefing.com consensus was 53.9%. Looking under the hood, prices fell slightly but remain historically elevated while new orders jumped. Overall, this report, which followed a solid outing from ISM Manufacturing earlier this week, indicated underlying economic vigor.
At 8:30 a.m. ET today, watch for the U.S. government's preliminary reading on fourth-quarter productivity. This report draws more attention as many economists examine details to parse whether AI efficiency gains have worked their way into the broader economy. In the third quarter, productivity rose a solid 4.9% on a seasonally adjusted annual basis. Analysts expect 4% in the fourth quarter, Briefing.com said.
The U.S. dollar index drew back slightly Wednesday from three-month highs despite relatively strong U.S. data.
The 10-year Treasury note yield edged up two basis points by late Wednesday to 4.08%, a smaller gain than the 2-year note.
Strength in short-term yields, which rose four basis points Wednesday, came after the ISM services data and ADP report, both of which indicated the economy is staying above water and may not need additional help from the Fed. However, Friday's jobs report and next week's inflation data may have a bigger impact on Treasuries.
Crude oil rose again Wednesday but not as much as earlier this week. U.S. crude finished the day with an almost 1% gain to just above $75 per barrel, below the peak near $78 that occurred soon after the war began.
Rising oil has lifted U.S. gas prices to $3.19 a gallon on average, the highest since last September, according to AAA. Though the core Consumer Price Index report due next week doesn't include energy costs, there's concern higher gas prices could eventually seep into so-called "core" inflation by raising costs for companies which then pass those along to customers in the form of higher prices for goods.
Next week's February CPI doesn't cover periods affected by the war, so the impact won't be measurable. March data bows in April. War can raise inflation in other ways, too, for instance through heavier government demand for weapons, and as shipping firms pass along their rising costs.
Worries about inflation mean less than 3% odds of a Fed rate cut this month, and futures trading now pencils in only about a 35% chance of any rate cut by the Fed's June meeting. For the full year, traders build in one to two cuts, down from the two to three previously.
On Wednesday, Cleveland Fed President Beth Hammack called for an extended rate pause, The New York Times reported. She said it's too early to gauge the war's impact on the economy.
Less chance of rate cuts weighed on small-cap stocks earlier this week, as those companies are often more rate-sensitive. Small caps recovered some losses Wednesday, with 1% gains for the Russell 2000 index outpacing the broader market.
Technically, chart watchers went into this week with their eyes on the 6,750 to 6,775 area for the S&P 500 Index. That range of support held for several months. The S&P 500 Index earlier this week bounced off the December low near 6,720 and then closed just under its 100-day moving average of 6,834. The 50-day moving average just above 6,900 remains above Wednesday's close and may form a resistance point.
On Wednesday, major indexes finished moderately higher, reversing course from Tuesday's dismal performance.. arkets are divided between "buy the dip"--notably for software shares—and "sell the rip" behavior in crowded areas like metals and memory chips. This tension could result in either a healthy rebalance or sharper risk-off moves if the conflict drags on.
Sector action also rebounded after all 11 S&P sectors fell Tuesday. Eight of 11 rose Wednesday, led by three discretionary, tech, and communications services, which happen to be the three sectors with Magnificent Seven exposure. Solid gains for five of the seven on Wednesday might indicate improving risk tolerance.
Energy shares brought up the rear as crude oil's rally slowed, and staples slumped as investors seemed less defensively oriented.
In individual trading Wednesday, CrowdStrike added 4% following earnings late Tuesday from the cybersecurity firm. Results came in a little better than consensus for earnings and in line for revenue, and guidance mostly matched consensus or slightly exceeded it. Shares entered today down 17% this year, caught up in the general software sector selling amid AI substitution fears.
Shares of Box, a content management provider, climbed 10% as earnings and revenue beat expectations.
GitLab shares cratered 6% as the software firm offered guidance that appeared to disappoint investors.
Ross Stores rallied 8% after the retailer's quarterly results turned out better than analysts had expected. The market also seemed impressed by the company's outlook.
Consumer-oriented stocks staged a rally Wednesday, burnished by strong results from Ross Stores and strength from the largest discretionary shares, Amazon and Tesla. Ford shares rose despite February sales dropping more than 5% year over year. The buying wasn't universal. Home Depot inched up, and home builder Lennar lost ground.
Lennar reports next week and could be a test case for investors wondering if recent lower mortgage rates helped raise home buying interest. Though it's only one week, not a trend, the MBA Mortgage Applications Index climbed 11% week-over-week.
The memory chip market had a big day Wednesday, led by sharp gains for Sandisk and Micron. Software also showed some muscle as ServiceNow and App Lovin had strong days.
Bitcoin, an important barometer of risk sentiment, had its best day in a while, climbing 7%. Bitcoin is near its highest level in a month, and strength in crypto has recently correlated positively with U.S. growth equities. Crypto-related shares also rallied Wednesday.
The Dow Jones Industrial Average® ($DJI) rallied 238.14 points Wednesday (+0.49%) to 48,739.41; the S&P 500 Index (SPX) gained 52.87 points (+0.78%) to 6,869.50, and the Nasdaq Composite® ($COMP) added 290.78 points to 22,807.48.