Schwab Market Update

Here is the morning Schwab Market Update for Thursday, June 5. Earnings from AI giant Broadcom (AVGO) loom after the close before Friday's May jobs report, but first investors mull a sprinkling of fresh labor updates. Employers cut less than 94,000 jobs last month, according to the Challenger job cuts report, down about 11,000 from April, but layoffs soared in the services sector. Meanwhile, initial weekly jobless claims edged up for the second straight week to 247,000, an eight-month high. Major indexes fell after the data but climbed after media reports of a call between U.S. President Trump and China's President Xi. "The rise in initial claims suggests some softening in the labor market," said Cooper Howard, director, fixed income strategy, at the Schwab Center for Financial Research.

Yesterday saw how quickly stocks can be swayed by jobs data, as ADP's private sector jobs report disappointed with only 37,000 positions added in May, the lowest in more than two years. Major indexes ended mixed, retreating from an early rally. Treasury yields skidded to three-week lows below 4.4% for the 10-year note Wednesday and now trade under 4.35% after soft May services data and today's claims reinforced growth worries. Trump leaned publicly on Federal Reserve Chairman Jerome Powell to cut rates, but Trump's tariff policy has the Fed concerned about possible resurging inflation.

While CNBC reported this morning that Trump and Xi spoke by phone, citing Chinese media reports, the market seems less bothered by the daily din. "Uncertainty is likely to extend over a longer period for businesses and consumers, but investors may be adapting," said Michelle Gibley, director of international research at the Schwab Center for Financial Research. "We're seeing smaller and smaller reactions by markets. It appears investors may be becoming desensitized to tariff news. As the year progresses, taking a longer-term view, investors may increasingly look toward potential deals and more certainty."

Three things to watch

Jobs data puts "hard data" center stage: Tomorrow's May nonfarm payrolls report is the first major test of a theory that suggests so-called "hard data" like jobs and retail sales haven't felt much impact from tariff tensions. For the most part, that's been true, though some of this week's data suggests this may be changing. The Citigroup Economic Surprise Index recently plowed into firmly positive territory for the first time in a while even though many survey figures, including on manufacturing earlier this week, failed to impress. But those are "soft data." "The Fed has been pretty clear that they're on hold," said Kathy Jones, chief fixed income strategist at Schwab. "They are waiting for clarity about policy. Unless there's evidence that the economy is slowing and the unemployment rate is rising, the message we're getting is, 'Hey, we're not doing much.'" Analysts expect jobs growth of 130,000, down from 177,000 in April. However, estimates range from as few as 95,000 to as many as 175,000, with unemployment staying at 4.2% and wage growth up 0.3% month over month. Nonfarm payrolls have generally been falling, but April's was solid  and recent reports have often surprised with their strength.

As market rallies, rising tide lifts most boats: Market breadth—a useful indicator of sentiment—remains relatively firm with almost 70% of S&P 500 stocks trading above their 50-day moving averages as of Wednesday's close. Sectors with the best breadth include info tech, industrials, and communication services. "Stocks remain buoyant," despite Wednesday's weak data, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. "I think the upside bias, or bullish momentum, is still being fueled by constructive technicals, potentially some under-positioning, a belief that the economy is strong, the consumer is resilient, and the potential negative impact of tariffs is being overblown. Cooling Treasury yields are likely giving the bulls an assist." Another boost for stocks is what Peterson calls "the AI secular growth story and corresponding investment push." Semiconductors stayed hot yesterday, led by Taiwan Semiconductor Manufacturing (TSM) and Broadcom. Nvidia (NVDA) climbed again, too. The PHLX Semiconductor Index (SOX) is up more than 35% from its April low.

Stability seen in corporate borrowing: Though Treasuries remain volatile as trade uncertainty competes with soft inflation data, another bedrock of the financial picture looks placid. "Credit spreads remain relatively low and have been generally stable despite the risk that tariffs can negatively affect corporate profits," said Schwab's Jones. "There is some widening in lower rated high yield, but it has been moderate." Big concerns about tariffs and fiscal policy, she added, are mostly reflected in the Treasury market. Low and stable credit spreads imply that companies still have relatively easy access to money if they need to borrow, a healthy sign for the corporate world. When credit spreads rise, it often spells economic trouble ahead.

On the move

Broadcom climbed 0.75% in pre-market trading  ahead of its earnings report after the close where investors await an update on AI chip demand. However, Broadcom's guidance may have more to say about where shares go from here, with investors punishing firms that show any let-up in momentum. Exhibit A was CrowdStrike (CRWD), which fell yesterday despite a strong quarter as investors gave its revenue outlook the fisheye.

Ciena (CIEN) dropped 7.6% in pre-market trading after the optical networking systems and software company missed analysts' earnings expectations, though quarterly revenue exceeded the average Wall Street estimate. The firm repurchased 1.2 million shares and referred to a "positive network infrastructure spending environment."

Shares of software firm MongoDB (MDB) soared 16.3% ahead of the open after earnings and the company's outlook both beat Wall Street's expectations.

Five Below (FIVE) rose 7.6% in early trading after the discount retailer reported solid earnings.

Visa (V) and Mastercard (MA) both climbed about 0.5% this morning after recently reaching all-time highs. Visa got an upgrade from Mizuho analysts. Strength in credit card stocks suggests consumer health.

Tesla (TSLA) dropped more than 2% early Thursday after news reports of falling sales across much of Europe in May.

Micron (MU) climbed 1.6% ahead of the open after the semiconductor firm received a price target increase from Mizuho to $130 from $124. Mizuho sees industry high bandwidth memory revenue rising 55% annually through 2027.

Cracker Barrel (CBRL) rose 3.8% after exceeding earnings expectations and reaffirming fiscal 2025 guidance.

U.S. May vehicle sales fell sharply in May to an annualized 15.65 million from the previous 17.27 million, according to Wards Intelligence. Sales had spiked earlier in the year as customers tried to buy ahead of tariffs.

The European Central Bank (ECB) cut its key interest rates by 25 basis points, as expected, citing inflation that's near its 2% medium-term target.

As of early Thursday, futures trading indicated a less than 1% chance of a Fed rate cut in June, and close to 30% in July, according to the CME FedWatch Tool. Odds top 75% in September, up from earlier this week after yesterday's soft jobs growth and services data.

More insights from Schwab
Cloudy fixed income forecast: Political and economic uncertainty could keep volatility up, wrote Schwab's Jones in her second half fixed income outlook. "The higher trend in long-term yields has been a global phenomenon," Jones noted. "The market is signaling that adding to government budget deficits accumulated during the last 20 years, when interest rates and inflation were low, will require higher yields to attract investors."

The week ahead

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

June 6: May nonfarm payrolls.
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).