I'm Colette Auclair, and here is Schwab's early look at the markets for Friday, May 8.
For about one hour this morning, the market's focus will shift from earnings and war news directly to data in honor of the 8:30 a.m. ET April nonfarm payrolls report.
Barring any dramatic news on the conflict, payrolls is likely to set Wall Street's direction at least this morning, if not all day. March jobs growth of 178,000 nearly tripled expectations, and any downward revision to that could be closely watched.
For April, analysts have the bar set relatively low at 60,000, which may not be as bad as it sounds. The labor force participation rate and immigration have been falling steadily, putting the "break-even" number for jobs growth to match population growth at a lower level than people got used to following the pandemic. Unemployment is expected to remain at 4.3%.
The market's reaction could be seen less in stocks—which remain tied closely to earnings news—and more in Treasuries. Yields fell earlier this week on positive war tidings as the U.S. and Iran seemed to edge farther from active conflict and closer to the negotiating table. Yields could easily jump above 4.4% again for the benchmark 10-year note if the jobs report surprises to the upside again. Other economic data recently has generally impressed, so a better-than-expected jobs growth number can't be ruled out.
Though ADP's private employment data doesn't often correlate with nonfarm payrolls, Wednesday's report showed 109,000 new jobs, the highest for that report in many months. Weekly initial jobless claims of 200,000 yesterday remained near recent historic lows. However, April job cuts surged above 83,000 from 60,000 in March, according to the monthly Challenger job cuts data.
In other data yesterday, preliminary first quarter productivity of 0.8% fell from 1.6% in the fourth quarter, which might disappoint investors hoping AI can propel productivity, potentially reducing inflation over time. However, preliminary first quarter unit labor costs rose a less-than-expected 2.3%, which might be positive from an inflation standpoint if it persists.
The jobs data isn't likely to affect Federal Reserve rate policy, judging from recent hawkish noise from the Federal Open Market Committee (FOMC). It would likely take several months of consistently poor jobs growth to nudge the Fed from its bias toward keeping rates on hold between 3.5% and 3.75%, or a major improvement on the inflation front.
As of late Thursday, chances for a rate cut at any time this year were low at 7%, while investors still bake in 21% odds of a possible hike this year, according to the CME FedWatch Tool. Hike odds typically rise each time the war heats up and crude jumps, emphasizing the key role high crude prices play in determining possible Fed policy, at least for now.
The Fed also is likely to monitor today's 10 a.m. ET preliminary University of Michigan Consumer Sentiment report, especially the inflation expectations component. The report's one-year metric—likely to be affected by oil prices—is less important than the long-term outlook. The report's long-run inflation expectations rose to 3.5% in April from 3.2% in March, and another tick upward would likely get hawks' attention.
For headline sentiment, analysts expect 50.5%, according to Briefing.com, up slightly from April's 49.8% but still near historic lows.
Turning to the conflict , hopes for a new round of talks between Iran and the U.S. initially helped ease oil prices early yesterday. Crude turned higher around midday, hurting stocks, on a Wall Street Journal report that the U.S. might restart its effort to escort commercial ships out of the Persian Gulf after pausing that operation earlier in the week. It's unclear when talks might start, and as of late Thursday news reports said Iran was reviewing a U.S. peace proposal.
Negative headlines surfaced at midday Thursday when Iran said it wouldn't "allow" the U.S. to re-open the Strait of Hormuz with "an unrealistic plan," according to the Wall Street Journal.
War news could remain front and center heading into the weekend once the jobs report is digested. And with the earnings flow easing next week, geopolitics could push its way back onto the top of investors' list. That said, U.S. inflation and retail sales reports next week could keep data in focus, too.
Also, though earnings growth is near an impressive 28% annually for the S&P 500, a few major tech firms still need to report, including AI leader Nvidia on May 20. Broadcom, another major chip player, is expected to report in early June.
The overall 28% earnings growth figure—influenced heavily by AI and chip firms—is likely to ease from here, and FactSet's weekly update later today could be worth checking.
Earnings die down a bit heading into the weekend, but biotech giant Gilead reported late Thursday and two Japanese benchmarks, Toyota and Sony, are out early today. The earnings calendar next week slows appreciably. Some key names to watch include Constellation Energy, Cisco, Applied Materials, and Alibaba.
Treasury yields reversed their lower trend Thursday across the curve, including a four-basis point rise for the 10-year note yield to nearly 4.4%. Weaker productivity data and low jobless claims, along with the rise in oil, all contributed to pressure on Treasuries, which move the opposite direction of yields.
The strength in yields and higher crude, along with uncertainty about peace negotiations, ganged up on major indexes Thursday and stopped the two-session rally. Wall Street remains on pace for sharp weekly gains and near record highs despite Thursday's retreat. With the S&P 500 Index up more than 15% since its March 30 low, a slack in the pace of the rally isn't all that surprising.
Despite the turn lower, 16 S&P stocks hit all-time highs Thursday, including Caterpillar and Alphabet, CNBC noted. Nine fell to 52-week lows.
Sector-wise, the market did an almost complete 180 between Tuesday—when all 11 sectors rose—and Thursday when only two did. One of the two was info tech, lifted by a strong performance from AppLovin after its earnings, along with strength in Qualcomm, ServiceNow, Palantir, and IBM.
Software stocks also performed well yesterday, and Nvidia climbed 2%. However, most chip stocks turned lower after their historic ascent to all-time highs for the PHLX Semiconductor Index earlier this week. Selling in stocks like CoreWeave, SanDisk, and Western Digital on Thursday might have been related to profit taking. CoreWeave fell another 2% in post-market trading late yesterday after the firm missed earnings expectations, though revenue topped analysts' thinking.
Despite oil ticking higher by the end of the day to close near $96 per barrel in the U.S., energy spent its second straight day as the worst sector performer, falling nearly 2%. Cyclical sectors including materials and industrials also fell more than 1% after solid outings earlier in the week. A drop in copper prices might have hurt some materials names.
Checking other individual movers Thursday, McDonald's initially rose then pulled back to finish barely higher after earnings surpassed expectations. Sales at stores open a year or more rose 3.8%, while U.S. comparable sales rose 3.9%, down sequentially from 7%. In its release, the company cited "a challenging environment."
Arm Holdings tumbled almost 10% despite earnings and revenue topping estimates. The drop came after an initial climb and positive guidance. Investors might be concerned about the prospect of higher costs as Arm begins to make its own chips, Barron's noted, and valuation was lofty heading into earnings.
Fastly, a cloud platform provider, capsized 38% even though the firm's earnings topped consensus and guidance got raised. Shares have tripled so far this year, so the response could be a "sell the news" type of event.
IonQ fell 9% after the quantum computing firm topped analysts' revenue estimates and narrowed its loss. Guidance climbed along with remaining performance obligations, but the stock's drop suggests investors might have hoped for even more, Barron's noted.
Shake Shack took a 28% spill after both earnings and revenue missed analysts' expectations. Revenue rose 14.3% year over year, while "same-shack sales" rose 4.6% annually. In a letter to shareholders, the company cited a "challenging macro environment and inclement weather."
Datadog soared 31% after the monitoring and analytics company topped analysts' quarterly estimates. The strength in its results might have helped explain solid outings Thursday in other software names.
Fortinet soared almost 20% after earnings and guidance from the cybersecurity firm appeared to impress investors. The news lifted shares of other cybersecurity firms, too, with Palo Alto Networks and CrowdStrike up. The sector has faced concerns about potential AI competition.
Whirlpool plunged 12% after earnings and revenue missed consensus, while the company also lowered fiscal 2026 guidance. Whirlpool blamed the war in Iran for a decline in consumer confidence.
The Dow Jones Industrial Average® ($DJI) fell 313.62 points Thursday (-0.63%) to 49,596.97; the S&P 500 Index (SPX) retreated 28.01 points (-0.38%) to 7,337.11 and the Nasdaq Composite® ($COMP) gave back 32.75 points (-0.13%) to 25,806.19.