Schwab Market Update

Here is the morning Schwab Market Update for Friday, June 6. U.S. jobs growth stayed chipper in May, climbing 139,000 with unemployment unchanged at 4.2%, according to the latest U.S. Bureau of Labor Statistics nonfarm payrolls report. Strength in the health care and leisure sectors provided many of the new positions, even as sectors associated with trade and manufacturing saw little growth in what may reflect tariff concerns.

On the negative side, however, job gains in March and April both got revised down, removing 95,000 positions that the government previously reported. This means growth over the last three months averaged 135,000, well below levels most of last year and possibly more evidence that the jobs engine is slowing slightly. That said, historically 135,000 isn't far from average. Major indexes, which were already up overnight, added to gains after the data while the 10-year Treasury yield jumped seven basis points to back above 4.45% as odds of Federal Reserve rate cuts dipped on the news.

After the jobs report, focus returns to Treasuries next week with fresh government auctions and May inflation data. Recent auctions drew solid demand, helping ease yields and giving equities a boost. Stocks stumbled Thursday, however, hurt partly by Tesla's (TSLA) sharp decline as CEO Elon Musk feuded publicly with President Trump. The two had been scheduled to talk today, but doubts arose before the open. The president's call with China's President Xi, which proved light on details, also weighing on stocks Thursday. And the S&P 500 index (SPX) gave an uninspiring performance leading into today's data. It topped Thursday just below 6,000, a level untouched since February. Failing to climb the final rung, it closed more than 0.5% lower. One thing to watch today as the market rallies on the jobs news is whether the SPX can climb above 6,000 and stay there.

Three things to watch

Jobs report deeper dive: Sorting through the payrolls data, one thing that stuck out was a stronger-than-expected 0.4% increase in hourly wages last month. They're up 3.9% over the last year. Higher wages can buttress consumer spending, a key aspect of economic growth. But they also can keep inflation sticky and narrow margins. Also, federal government jobs fell 22,000, perhaps reflecting cuts by the new administration. "Another relatively solid jobs report despite fears of a lingering slowdown," said Collin Martin, director, fixed income strategy at the Schwab Center for Financial Research. "Nonfarm payroll gains have held in a very tight range lately, and while the monthly growth has slowed, it's still positive. While the payroll gains have slowed, that's natural given how strong they were in 2022. The weakness that many on Wall Street have been expecting still hasn't really shown up in the data yet. Treasury yields rose following the release since this won't give the Fed any urgency to cut rates sooner than expected. It wasn't all roses, however, as the participation rate declined to 62.4% from 62.6% in April and the previous two months were revised down."

Apple on deck next week: There's a sense of déjà vu for investors approaching next week's annual Apple (AAPL) Worldwide Developers Conference. A year ago, investors eagerly awaited Apple's update on AI features, and the conference delivered plenty of excitement around Apple Intelligence and its planned upgrades. Now, after what some analysts termed a disappointing debut for the AI assistant, many investors want to know how Apple plans to reinsert itself into the discussion about top AI names. The most notable disappointment for Apple over the last year was a delay in planned AI enhancements of Siri, which raised concerns about whether iPhone consumers might delay purchases awaiting the promised features now on hold. A report by Bloomberg suggested Apple plans to allow third-party developers to use its AI models, which got some market attention, but there are analysts who say Apple's AI competitors offer developers better features.

Economic impact of tariffs and debt: In their latest On Investing podcast, Schwab Chief Investment Strategist Liz Ann Sonders and Chief Fixed Income Strategist Kathy Jones discuss ways in which trade policy and the proposed budget bill might affect inflation and the labor market. "One other data point from this week that I think was interesting was the combination of labor costs and productivity," Sonders said in the podcast. "Labor costs were up a bit more than expected and productivity wasn't just lower than expected, it actually was in negative territory. That's not a great combination."

On the move

Broadcom (AVGO) dropped 2.4% in pre-market trading after the AI semiconductor giant that designs AI processors for large cloud providers narrowly surpassed analysts' average estimates for quarterly revenue and earnings per share, while forecasting third quarter revenues just above consensus. None of the numbers missed Wall Street's estimates, but it wasn't a blow-out quarter, and that seems to be dragging on shares after they recently hit all-time highs and catapulted from their April lows.

Lululemon (LULU) shares dove 21% ahead of the open as earnings guidance disappointed. The apparel retailer cut guidance but beat Wall Street's earnings expectations. In the press release, LULU cited a "dynamic macroenvironment." Weak sales in the U.S.—where the company saw cautious consumers—and the impact of tariffs that might force LULU to increase prices, hurt the outlook.

Circle Internet Group (CRCL) climbed another 11.8% ahead of the open after rising more than 160% on its initial public offering (IPO) yesterday. The company is a leader in so-called "stablecoins." Legislation on stablecoins is being debated in the Senate and has bipartisan support and support from President Trump.

Tesla (TSLA) rebounded 4.5% in pre-market trading after diving double digits yesterday as a feud between President Trump and CEO Elon Musk over the federal budget went public and Trump threatened to terminate billions of dollars of Musk's governmental subsidies and contracts. Tesla shares had rallied from April lows in recent weeks despite falling sales abroad.

Docusign (DOCU) shares fell 19% in the early going after the software company's quarterly results disappointed.

Petco Health & Wellness (WOOF) shares retreated 10% despite earnings and revenue being in line with Wall Street's expectations. It also reaffirmed guidance, but added that full year guidance for 2025 assumes current tariffs on imports from China and other countries stay at current levels.

Bitcoin (/BTC) rose 2% early Friday after pulling back sharply Thursday amid the Musk/Trump feud. Most competing cryptocurrencies also bounced back this morning. Shares of crypto-related names like Coinbase Global (COIN) and MicroStrategy (MSTR) both climbed more than 1.7% ahead of the open.

Odds of a June rate cut are virtually nil, and odds of a July cut fell to less than 15% after today's jobs report from around 30% before it, according to the CME FedWatch Tool. September rate cut odds fell to 63%, down from 70% before the report, though odds of a cut by September are 75%, conditional on July's meeting.

More insights from Schwab
Latest from Washington, D.C.: Check this week's Schwab Washington Wise podcast for perspective on two of the big issues percolating right now in Washington: the massive tax and spending bill moving through the Senate and the ongoing uncertainty around tariffs. "The key thing to watch over the next few weeks is how much the Senate changes the bill," said Schwab's Townsend.

Munis and the tax bill: As the Republican budget plan gets debated in the Senate, investors may want to check possible tax-code changes that could affect municipal bonds, said Cooper Howard, director, fixed income strategy at the Schwab Center for Financial Research. Check out his new analysis, in which he wrote the bill likely won't reduce the appeal of munis for high-income earners.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap this week.

June 9: Expected earnings from Casey's General (CASY).
June 10: Expected earnings from GameStop (GME) and Stitch Fix (SFIX).
June 11: May Consumer Price Index (CPI) and expected earnings from Oracle (ORCL) and Chewy (CHWY).
June 12: May Producer Price Index (PPI) and expected earnings from Adobe (ADBE).
June 13: Preliminary June University of Michigan Consumer Sentiment.