July Jobs Growth Dips, Stocks Sink on Tariff News

Here is the morning Schwab Market Update for Friday, August 1. U.S. July jobs growth of 73,000 missed expectations and the government dramatically downshifted its estimates for May and June job gains, today's nonfarm payrolls report showed. It's more evidence that labor is losing strength and possibly ammunition for Federal Reserve doves hoping to cut rates next month. Analysts had expected 102,000, and the government cut a combined 258,000 jobs from the prior two months.  "Overall, it's not a great report," said Kevin Gordon, director, senior investment strategist at Schwab.

Amazon (AMZN) and Apple (AAPL) shares went opposite directions after the two titans reported late Thursday, only to be overshadowed by a deluge of tariffs announced by President Trump around the same time. The tariff rates varied, but one that stuck out is a 35% tariff on goods from Canada not protected by a previous trade agreement. That's well above the 15% tariffs for Japan and Europe, while Mexico received a 90-day extension. The tariffs don't take effect until next Thursday, perhaps offering a last chance for some countries to reach agreements, while China has until August 12.

Major indexes sank Thursday despite post-earnings rallies in Meta Platforms (META) and Microsoft (MSFT). The rest of the market took a mid-summer snooze, which may not be too surprising considering August marks the start of a seasonally weaker period. The S&P 500 index suffered its first three-day losing streak since June 20 and heads into Friday down more than 0.5% for the week.  Stocks fell sharply Friday following President Trump's new tariff announcements and didn't budge after the jobs data, remaining down around 1% immediately before the open and Treasury yields dove. The 10-year note yield fell below 4.3%, down nine basis points.

Three things to watch

Jobs report deeper dive: Last month's job growth wasn't the big story today. Instead, it was the government chopping 258,000 jobs from the prior two months' reports, putting May jobs growth at just 19,000 and June at 14,000. That's well below what's needed to keep pace with population growth and suggests the economy might be slowing. It was also the most dramatic downward revision in five years. Unemployment rose to 4.2% from 4.1% in June. Average hourly earnings rose 0.3%, in line with recent months, and federal government jobs fell. Health care jobs climbed, but no other major category changed much. Looking at the downward revisions, "on the surface, that kind of softness looks bad, but it needs to be looked at in the context of a small increase in the unemployment rate, which might be suggestive of the fact that the run-rate for payroll growth has downshifted significantly given the deterioration in the labor force," Gordon said.

Amazon and Apple assessed as tariffs put on pressure: Growth in the Amazon Web Services cloud business of 17.5% year over year just cleared the average Wall Street estimate and didn't impress analysts after bumper cloud crops from competitors Microsoft and Alphabet (GOOGL). Amazon also forecast third quarter operating profit in a range of $15.5 billion to $20.5 billion, when analysts had anticipated $19.4 billion. This put the focus on heavy data center spending. Profit challenges also could reflect tariffs' impact on Amazon's retail business. Apple reported a solid quarter, surpassing estimates on important metrics including earnings per share, revenue, iPhone sales, and services. Some of the iPhone strength may have reflected "pull forward" demand ahead of anticipated price increases related to tariffs. Apple has moved some iPhone production from China to India, only to face fresh U.S. tariffs against products from India. Yesterday's 40% tariffs on transshipments—or products countries send to the U.S. through other countries to evade tariffs—are another concern.

Summer doldrums beginning? Thursday's lackluster index action—while only one day and not necessarily a trend—is telling on a day when mega caps Microsoft and Meta Platforms delivered such solid results. It suggests "the good news is priced in and we may be due for some near-term consolidation," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. He added that with the mid-point of earnings season near and many positive trade-related developments in the rear-view mirror, there aren't as many near-term catalysts to push stocks higher. "This can lead to a profit taking consolidation move lower since the perceived shift in the risk and reward equation for chasing performance skews to the downside," Peterson said. "Instead of buying the dips, traders become more inclined to sell the rips." That's evident in the recent index closes near their daily lows. More data today could affect the market, with the ISM Manufacturing PMI® for July and final July University of Michigan Consumer Sentiment due shortly after the open.

On the move

Apple climbed 1.8% before the open. In an interview with CNBC late yesterday, Apple CEO Tim Cook said the company is increasing its AI investments and is open to getting involved in the merger and acquisition arena. Apple's biggest acquisition came in 2014 when it bought Beats Electronics for $3 billion.

Amazon tumbled 8% in pre-market trading. Though operating profit estimates sent shares down, Amazon did forecast better-than-expected revenue for the current quarter.

Exxon Mobil (XOM) rose nearly 0.7% ahead of the open following stronger-than-expected earnings. Cost savings helped the company on the bottom line even as revenue fell more than 12% from a year earlier due partly to cheaper oil. Competitor Chevron (CVX) also rose after an earnings beat.

Moderna (MRNA) plunged 6.6% despite beating analysts' earnings and revenue expectations. Guidance appeared to disappoint.

Figma (FIG) traded higher again this morning after soaring 250% on the design software start-up's initial public offering (IPO) day yesterday.

CSX (CSX) dropped 1.4% after media reports said a merger with Berkshire Hathaway's (BRK.B) Burlington Northern Santa Fe (BNSF) railroad could be more likely.. Bloomberg said CSX is exploring options. A deal would likely be valued in the range of $80 billion, Barron's reported, and would come after Union Pacific (UNP) announced its purchase of Norfolk Southern (NSC).

Reddit (RDDT) soared 13.7% ahead of the open after reporting earnings and guidance that topped Wall Street's estimates.

Roku (ROKU) dropped 3.4% in the early going despite earnings that beat analysts' estimates and guidance that came in above forecasts. The company's board also approved a stock repurchase program.

Berkshire Hathaway moved little ahead of its earnings release tomorrow. Shares have struggled since earlier this year when Warren Buffett announced his plan to step down as CEO at the end of 2025. Earlier this week, the company was in the news as it sold one-third of its VeriSign (VRSN) stake. The weekend just got more interesting due to the media reports of a possible BNSF merger with CSX, and perhaps that will come up tomorrow.

Bitcoin (/BTC) dropped 1.3% early Friday as risk appetite slowed in the markets. Stocks related to crypto, including Strategy (MSTR) and Coinbase (COIN), were also down, with COIN shares falling nearly 10% as its earnings report released late Thursday disappointed investors. The company's quarterly revenue missed the average analyst estimate and trading volumes weakened, CNBC reported.

Copper futures (/QC) plummeted 22% on Thursday after the President Trump imposed a 50% tariff on semi-finished copper goods which includes pipes, wires, sheets, and other products, making it the biggest intraday drop on record. They inched back about 0.6% this morning.
Chances of a September rate cut rose to 55% early Friday after the jobs data, according to the CME FedWatch Tool, from under 40% Thursday.

Recent market softness comes despite 83% of companies beating second quarter earnings estimates and 67% beating on revenue. The S&P 500 is on pace for 8.5% year-over-year earnings growth, well above expectations for 5.8%. However, much of the strength comes directly from mega caps, masking overall tepid gains for many companies.

More insights from Schwab

Washington watch turns to trade: This year has been the year of the tariff, but the question is when tariff pain might hit U.S. markets. Get some thoughts in our latest WashingtonWise podcast, hosted by my colleague Michael Townsend, managing director of legislative and regulatory affairs. Mike also provides observations on the latest Fed decision and cryptocurrency legislation.

The week ahead

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

August 2: Expected earnings from Berkshire Hathaway (BRK.B).
August 4: June factory orders and expected earnings from Tyson Foods (TSN), Hims & Hers Health (HIMS), Wayfair (W), and Palantir (PLTR).
August 5: July ISM Services PMI® and expected earnings from Pfizer (PFE), Caterpillar (CAT), BP (BP), Marriott (MAR), Duke Energy (DUK), DuPont (DD), Cummins (CMI), Yum! Brands (YUM), Advanced Micro Devices (AMD), Super Micro Computer (SMCI), Amgen (AMGN), Arista Networks (ANET), Opendoor Technologies (OPEN), Snap (SNAP), and Rivian Automotive (RIVN).
August 6: Expected earnings from Disney (DIS), Uber (UBER), Shopify (SHOP), AppLovin (APP), DoorDash (DASH), McKesson (MCK), Airbnb (ABNB), and Lyft).
August 7: Preliminary Q2 productivity and expected earnings from Eli Lilly (LLY), ConocoPhillips (COP), Constellation Energy (CEG), Becton Dickinson (BDX), Kenvue (KVUE), Warner Bros Discovery (WBD), Gilead Sciences (GILD), Block (XYZ), Expedia (EXPE), and Wynn Resorts (WYNN.