Here is Schwab's early look at the markets for Tuesday, September 8.
Investors spent the long weekend digesting surprisingly vigorous August U.S. jobs data and now stare down inflation readings due later this week. Corporate news isthin with earnings season over, keeping central bank activity and geopolitics front and center eight weeks before U.S. elections.
As a reminder, U.S. jobs growth surged to 162,000 in August and unemployment was steady at 4.1%, the government said Friday in its nonfarm payrolls report. In addition, it upwardly revised what had been a negative July reading to positive territory. Analysts had expected August growth of 45,000 to 55,000.
"July's job losses were revised away, and we've now seen six straight months of payroll gains," said Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research (SCFR). "With all eyes on the potential 'hold versus hike' discussion at the next FOMC meeting, in a vacuum this could lend support for the 'hike' camp, but inflation matters more right now."
For the past three months, jobs growth averaged 70,000, the government said. That might sound light versus pre-pandemic levels, but in the current economy with immigration down substantially and an older population, 70,000 could be considered moderate.
Hourly earnings jumped 0.3% in August, and are up 3.1% over the last year, near the lowest annual rise in five years. Jobs growth soared in the leisure and hospitality sector last month, where food and drinking places added 59,000 positions, the government said.
Though inflation data looms, the rate implications of the jobs report can't be ignored.
"This just raises the risk of a hike this year," Martin said.
As of late Friday, when this report went to press, odds of a rate hike at the meeting a week from tomorrow stood at 58%, according to the CME FedWatch Tool. That was up from 43% a week earlier. Chances for at least one hike by the end of the year stand at 86%.
This week kicks off the larger liquidity buybacks recently announced by the Treasury, with a possible easing effect on yields.
"We should know this week how much above $4 billion the operations are, as Secretary Bessent suggests it's the floor, and operations could be larger," Martin said. "Higher yields are not something that necessarily need to be fixed. The economy is growing and the fed funds rate is near neutral (or below), so a positively sloped yield curve makes sense."
The Fed's recent shift from a cutting bias to a hiking bias explains much of the recent yield rally.
Coming days also feature Treasury auctions likely to grab attention with yields near long-term highs. It starts with a 3-year note auction today, followed by a 10-year note auction tomorrow. Weak demand at current yields might signal investors stepping back and waiting to see if the Fed raises rates.
Speaking of which, the European Central Bank (ECB) is expected to announce its second rate increase of the year early Thursday, U.S. time, according to a Reuters survey of economists. The hike is largely baked in, but what the statement and press conference indicate about plans for coming months might be more valuable for investors.
Crude stayed firm late last week, still above $90 per barrel for U.S. product. There was no sign of resolution in the Middle East, and ship traffic through the Strait of Hormuz remained light. This is the time of year when the U.S. typically begins to re-stock crude after summer driving season, and strategic reserves are at 40-year lows. Diesel – a key element for the transport industry—is above $7 per gallon now in California.
With jobs data behind, this week's Producer Price Index (PPI) on Thursday and Consumer Price Index (CPI) on Friday represent the final key data points heading into next week's Fed meeting. Early CPI consensus is 0.4% monthly for headline and 0.2% for core, which excludes food and energy.
"I’m not sure how resilient U.S. equities will be if the Iran conflict gets worse and oil prices and yields continue to march higher," said Nathan Peterson, director of derivatives research and strategy at SCFR. "Throw in bearish seasonality during the month of September, along with the potential for higher volume and adjustments to positioning when most fund managers and traders come back from vacation Tuesday, and I'm going to stay with a cautious outlook."
Major indexes retreated Friday, ending a three-day win streak while the broader market had a basically flat week. Tech fared slightly better than other sectors Friday and for the week.
Just three of 11 S&P 500 sectors rose Friday, reversing the mid-week move toward greater breadth. Industrials and info tech both led, helped by the week's earnings reports indicating strong AI demand. Utilities held their ground, but consumer sectors that powered to gains earlier in the week when yields fell reversed course Friday when yields popped. Consumer discretionary sank more than 1.2%.
The benchmark 10-year Treasury yield climbed six basis points last week to 4.78%, not far from intraday two-year-peaks.
Technically, there was a sense of relief that recent selling didn't send the S&P 500 Index below long-term support near 7,620.
The tech-heavy Nasdaq-100® (NDX), however, traded above and below its 50-day moving average last week, hesitating to pull away from that important chart line. And the PHLX Semiconductor Index (SOX) hasn't spent much time above the 50-day since June.
The SPX appears to be consolidating near record highs and holding the important support zone around 7,600, said Rachel Dashiell, director and head of technical research and strategy at SCFR.
Checking individual movers Friday, Lululemon dove 17% after sharing disappointing results late Thursday. Earnings per share beat estimates, but the company missed analysts' revenue consensus and guidance was lowered and missed consensus.
Tesla dropped 6% after revealing its latest driverless car at an event in Austin Thursday and the event didn't feature CEO Elon Musk.
Adobe plunged 6% after the company named Anil Chakravarthy its next CEO. He replaces Shantanu Narayen, who announced his departure last March.
Chip stocks generally outperformed the market Friday, led by a 12% gain for Sandisk and 8% for SK Hynix. Micron climbed 6%. The opposite side of the ledger was software, which weakened after its big mid-week earnings-driven rally. Snowflake and Palantir lost ground. Friday's volatile action in both sectors appeared technical.
Media-related names generally declined Friday, with Netflix falling 5%. Shares of Netflix had risen about 20% from the July low but are down 28% from the April peak.
Bitcoin fell around 2.5% as rate hike odds rose. Shares of crypto-related stocks retreated.
Gold fell 1.3% after the jobs report, hurt by ideas that the Fed might raise rates. Mining stocks lost ground.
The Dow Jones Industrial Average® ($DJI) tumbled 271.86 points (-0.51%) Friday to 53,414.25; the S&P 500 Index ($SPX) lost 29.11 points (-0.38%) to 7,718.60, and the Nasdaq Composite® ($COMP) shed 77.07 points (-0.29%) to 26,506.99.
For the week, the DJIA lost 0.27%, the SPX climbed 0.09%, and the Nasdaq added 0.40%.