I'm Colette Auclair, and here is Schwab's early look at the markets for Friday, November 6.
The post-election rally proved short-lived on Thursday. Stocks plunged amid fears that Democratic control of Congress could bring regulatory pushback against the AI infrastructure buildout.
Selling that began in tech quickly spread across the broader market, leaving the S&P 500 down 4.36% by the close. The carnage was even more extreme in the Nasdaq Composite. The index plummeted 5.52% and entered correction territory as investors continued to rotate out of the AI trade.
"The fundamentals surrounding the AI infrastructure buildout, or the potential pace of that buildout, have been under fire due to questions around future funding, and the blue sweep just exacerbated that concern," said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research, or SCFR.
Wall Street's fear gauge—the Cboe Volatility Index, or VIX—spiked more than 65% amid the selloff, hitting a seven-month high. U.S. Treasury yields also fell sharply across most of the curve as investors sought safe havens. A rebound in crude prices added to the anxiety.
Investors exhausted after this volatile week still have one more hill to climb before the weekend, however. October's nonfarm payrolls report is due at 8:30 a.m. ET and could set the tone for the rest of the session and into Monday.
The report follows relatively solid labor market data so far this week, including higher-than-expected job openings, a mild Challenger layoffs report, and solid ADP employment figures. However, none of those necessarily hint at what today's report might tell investors, as the government's data tends to differ from private numbers, and the September job openings report is dated.
Consensus expects jobs growth of 65,000, a moderate amount that may be in the Goldilocks zone, meaning not enough to interrupt the Federal Reserve's expected policy path.
Unemployment is seen at 4.2%, unchanged from September. Wage growth is seen rebounding to 0.3% from 0.1% in September.
While the jobs report might have implications for monetary policy, inflation is probably the bigger trigger considering recent pricing pressures. Monthly jobs growth has been light at an average of 45,000 per month over the last year, but not weak enough to necessarily divert the Fed's inflation focus.
Beyond the headline jobs numbers, investors might consider checking the labor force participation rate. It fell to a 50-year low outside of the COVID era this summer but has since regained its footing to hold steady at 61.8% in September. Job openings will also attract attention after jumping for the first time in months in September, suggesting solid demand for workers. Better-than-expected labor force results today might improve consumer sentiment.
Revisions are always worth checking as well, especially after September's jobs growth came in well below expectations at 29,000. No one month tells the entire story, so investors should consider checking the three-month average of jobs growth. The September report chopped 60,000 jobs from the prior three-month average, leaving it just above 50,000. However, October's data will remove July's negative 10,000 print from the three-month calculation.
Investors also track where jobs are being created, and a recent surge in health care employment—which can include many low-paying jobs—has likely put pressure on wage growth. Any sign of improvement in manufacturing, financial services, and construction jobs might give wages a bump, perhaps helping consumer sentiment heading into the holiday season.
Looking at the rest of today's schedule, investors will receive the preliminary November University of Michigan Consumer Sentiment report at 10 a.m. ET. The headline Index of Consumer Sentiment figure is expected to come in at 47.2%, according to Briefing.com. That's even lower than October's lackluster 48.0%. Inflation expectations are a key metric in the report. Long-run inflation expectations rose slightly to 3.5% in October, while year-ahead inflation expectations ticked up to 4.7%.
Once the jobs and sentiment reports are behind investors, attention next week turns to October inflation metrics, especially Tuesday's Consumer Price Index (CPI). Results could provide insight into the Fed's next move. The odds of a rate hike in December hit 68% on Thursday, down from over 80% the day prior, according to the CME FedWatch Tool.
In data Thursday, the government reported a solid 3.6% annual increase in third quarter productivity in its first estimate, up from 2.1% in the second quarter. Unit labor costs fell 0.7%. These figures might draw the Federal Reserve's attention as Chairman Kevin Warsh theorized that AI could help the economy grow more efficiently.
Overseas, the Bank of England raised rates and left the door open to further rate hikes while warning of high inflation.
Earnings season will slow after this week, now that about 80% of S&P companies have reported. That said, there's a handful of interesting reports due this morning from Enbridge, Vistra, and Moderna, and Berkshire Hathaway's earnings will attract attention on Saturday.
Renewable energy is part of the equation for Enbridge, so its call could provide insight into how the Democratic victory might shape that industry. Vistra is an energy company tied closely to AI power needs, meaning its earnings and commentary also might shed light on election-related trends as data center slowdown worries percolate.
Later this morning, be on the lookout for an updated report from FactSet on S&P 500 earnings to date. Last week, blended earnings growth was projected at just over 29% year-over-year.
Despite the strong earnings results thus far, investors headed for the hills on Thursday. All three major indexes nosedived and every S&P 500 sector ended the day in the red. Defensive sectors, including consumer staples and utilities, posted the smallest losses, while information technology plunged over 5.5% as the AI trade unraveled.
Market breadth, which had been a bright spot in recent months, plummeted as well. Just 58% of S&P 500 stocks traded above their 200-day moving average by market close, down from 68% at the start of the session.
From a technical perspective, the S&P 500 smashed through a possible support level at 7,600. That leaves its 200-day moving average of 7,300 as the next key level to watch.
Checking individual market movers Thursday, AppLovin jumped 31% after its earnings easily topped estimates on an AI tailwind. The mobile ad technology platform also announced a $3.2 billion buyback program as its revenue grew 55.5% year-over-year.
Arm Holdings sank 13.1% amid the tech selloff, despite beating estimates on both revenue and earnings. Guidance that only slightly topped forecasts didn't enthuse investors hoping for stronger outlooks from tech.
Qualcomm dropped 9.5%. Like Arm, it provided earnings and revenue that slightly beat expectations, but its guidance disappointed investors. High memory chip prices continue to hurt phone demand and pressure margins at the company.
Chip and AI-related stocks plunged, taking their cues from Arm and Qualcomm. Nvidia sank 9.3%, while Advanced Micro Devices tumbled 17.3%.
The Magnificent Seven lost more than $1 trillion in value combined; their largest one-day market cap decline in history. "It's not just the AI buildout, there are still lingering questions around AI ROI, the commoditization of models, and even potential cannibalization after Google's reported drop-off in the average click-through rate on queries," said Peterson.
SpaceX and Tesla sank 9.1% and 10.8%, respectively. SpaceX touched multi-month lows, as election fallout continued on concerns about the impact of Democratic control of Congress on Elon Musk's businesses.
Snap fell 14.1% after missing estimates for third quarter revenue and user growth, though earnings per share topped expectations.
Wendy's added 3.4% after the company rejected a takeover attempt.
Cava Group tumbled 2.7% following an earnings report that missed Wall Stret's expectations. An outbreak of Cyclospora at the Mediterranean fast-casual chain during the quarter hurt results.
The Dow Jones Industrial Average® ($DJI) dropped 1,833.06 points (-3.44%) Thursday to 51,523.06; the S&P 500 Index ($SPX) shed 334.89 points (-4.36%) to 7,353.73, and the Nasdaq Composite® ($COMP) lost 1,421.52 points (-5.56%) to 24,314.99.