Here is Schwab's early look at the markets for Wednesday, February 5:
Markets continue to whipsaw on tariff news, but jobs data and mega cap earnings could compete for attention the next few days as investors assess Alphabet's (GOOGL) results and await earnings from Amazon (AMZN) tomorrow. Friday's January nonfarm payrolls report increasingly dominates the scenery and could cause cautious trading the next two days as investors wait for the data.
Yesterday featured a comeback after tariff-related weakness Friday and Monday, though new U.S. and Chinese tariffs took effect. Info tech led the way, helped by solid results and guidance from software firm Palantir Technologies (PLTR).
"There's still that 'buy the dip' mentality," said Liz Ann Sonders, chief investment strategist at Schwab, speaking on CNBC Tuesday. "There is still money that wants to find opportunities. You've seen some more stealthy, quiet participation in areas other than the Magnificent Seven and that's also healthy and was in place prior to what we were dealing with from a tariff perspective. But we've had these rapid-fire sector rotations in terms of tech at the bottom on Monday going to the top Tuesday and defensives going from top to bottom between Monday and Tuesday. Those sector-related gyrations will be with us for a while."
Though tariffs against Canada and Mexico are delayed, any tariffs could hurt GDP growth and raise inflation, wrote Sonders and Kevin Gordon, director, senior investment strategist at Schwab. They added that "the door has likely been shut" in terms of additional rate cuts at the coming few Federal Reserve meetings. "All else equal, hotter inflation would likely keep the Fed from cutting rates sooner, which would in turn result in a stronger dollar," they added.
The 10-year Treasury note yield initially jumped Tuesday to a one-week high of nearly 4.6% before backtracking to just above 4.5% by the end of the session amid concerns that tariffs could slow trade with China and sap economic growth. Shorter-term yields that are typically more sensitive to rate policy fell more than longer-term ones.
The weakness in longer-term yields might also have reflected Tuesday's December Job Openings and Labor Turnover Survey (JOLTS) showing 7.6 million openings versus expectations of 8 million and November's 8.1 million. The Fed closely watches job openings, but chances for a March rate cut didn't climb much despite the soft figure and was 15.5% by late Tuesday, per the CME FedWatch tool. A single month doesn't tell the tale, and job openings have fluctuated heavily since the pandemic.
In news that might have propped yields, the Atlanta Fed's GDPNow forecast for first quarter gross domestic product (GDP) growth jumped to 3.9% this week from the previous 2.9% and well above last year's 2.8% annual rate. If GDP achieves nearly 4% growth and stays in that territory long enough, which is far from guaranteed, it could bring more tax revenue and help reduce deficits with less borrowing from the Treasury. However, tariffs could threaten GDP.
With tariffs causing so much uncertainty and unlikely to be resolved anytime soon, the Fed might hold rates where they are for a while barring some sort of dramatic weakness in the labor market. There are two monthly jobs reports before the next Fed meeting in March, but even two weak readings in a row might not be enough to move the needle, considering that tariffs raise inflation concerns.
ADP private sector job growth data for January are due this morning. ADP data is watched by Wall Street, it doesn't often sync with government data in the nonfarm payrolls report, due Friday. Analysts expect Friday's report to show jobs growth of 155,000 in January, with the unemployment rate staying at 4.1% and hourly earnings growth up 0.3% month over month, the same increase as in December.
Jobs growth was above expectations at 256,000 in November, but Friday's report should be checked for possible revisions. Friday also brings the Bureau of Labor Statistics (BLS) annual "benchmark" revisions to jobs growth covering an extended period and any downward move could change how investors and the Fed view the labor climate.
Alphabet exceeded consensus Wall Street estimates for earnings per share and came up just short of the consensus revenue estimate. Cloud revenue rose 30%, but some analysts had expected a sharper gain. Shares plummeted initially in trading after the news and could weigh on other communication services sector names if the weakness continues into today's session.
Alphabet precedes MicroStrategy (MSTR), Uber (UBER), and Ford (F) later today, followed by Eli Lilly (LLY) and Amazon (AMZN) tomorrow. The Ford earnings call might be particularly interesting considering the tariff situation, as U.S. auto companies rely heavily on parts made in Mexico and Canada. The tariffs were delayed but not canceled and could take effect in early March. Walt Disney (DIS) is another big company reporting this morning after strong streaming momentum lifted results last time out. Recent box office hits might have aided quarterly growth.
As of Tuesday, the blended fourth quarter S&P earnings growth rate was 12%, including companies that have reported and estimates for those yet to report. That's up from 9.5% entering earnings season, but estimates for the full year continue to trend lower. It had been 14% and is now 12.9%. This could reflect weaker corporate guidance, some of which occurred earlier this week with Merck (MRK) and Estee Lauder (EL) disappointing.
Sector-wise, defensive parts of the market like consumer staples and utilities dipped yesterday even as info tech and communication services led the scorecard, a flip from Monday when defensive areas topped the list. Yesterday might have reflected relief after tariffs on imports from Canada and Mexico got delayed. The dollar also stepped back Tuesday, perhaps a sign that at least for a day the "safe haven" trade eased.
The SPX gained 43.31 points Tuesday (+0.72%) to 6,037.88; the Dow Jones Industrial Average® ($DJI) climbed 134.13 points (+0.3%) to 44,556.04, and the Nasdaq Composite® ($COMP) added 262.06 points (+1.35%) to 19,654.01. The small-cap Russell 2000 index (RUT) outpaced those three indexes, rising more than 1.4% as yields retreated.