Stocks End on High Note, Despite Disappointing Jobs Report

U.S. equities finished out a choppy week in the plus column, with Information Technology stocks lending support in today's session, but weakness in tech issues early in the week left the Nasdaq as the lone major index to not post a gain on a weekly basis. Investors seemed to somewhat shrug off a much softer-than-expected read on April employment growth, as the report seems to be suggesting the recovery is taking longer than many economists were estimating, easing concerns about the Fed reining in its extremely accommodative monetary policy. Treasuries initially rose on the jobs report, which applied some downside pressure on yields, but bond prices finished mixed. The U.S. dollar was decisively lower, continuing to give back all of Q1's rally, and crude oil prices saw only modest gains, while gold was solidly higher. Earnings results continued to pour in to close out the week, with reports from Beyond Meat, Peloton Interactive and Cigna fostering mixed reactions. Europe saw widespread gains, bolstered by strong earnings and economic data, while Asia finished mixed before the release of the U.S. jobs report and amid some upbeat data in the region.

The Dow Jones Industrial Average rose 229 points (0.7%) to 34,778, the S&P 500 Index increased 31 points (0.7%) to 4,233, and the Nasdaq Composite advanced 119 points (0.9%) to 13,752. In moderate volume, 871 million shares were traded on the NYSE and 4.3 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.19 higher to $64.90 per barrel. Elsewhere, the Bloomberg gold spot price gained $16.60 to $1,831.32 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.8% to 90.21. Markets were mixed for the week, as the DJIA jumped 2.7%, the S&P 500 was up 1.2%, while the Nasdaq Composite declined 1.5%.

Beyond Meat Inc. (BYND $114) reported a Q1 loss of $0.43 per share, compared to the FactSet estimate calling for a $0.18 per share shortfall. Revenues increased 11.4% year-over-year (y/y) to $108 million, below the Street's forecast of $113 million. The plant-based meat company said due to the COVID-19 pandemic, it continues to experience significantly reduced demand in its foodservice channel, and the surge in demand from retail customers that characterized the early stages of the pandemic as consumers abruptly shifted towards more at-home consumption has moderated. BYND added that given that the ongoing evolution of consumer demand patterns across retail and foodservice channels has significantly increased the difficulty of forecasting its customer demand levels, management believes it cannot provide full-year guidance for 2021 with reasonable certainty. Shares were lower.

Peloton Interactive Inc. (PTON $85) posted adjusted fiscal Q3 earnings before interest, taxes, depreciation, and amortization (EBITDA) of $63.2 million, exceeding the projected $17.8 million. Revenues jumped 141.0% y/y to $1.3 billion, topping the expected $1.1 billion. The company's connected fitness subscribers of 2.1 million came in above expectations and were up 135.0% y/y. PTON slightly lowered its full-year guidance, noting a $165 million negative impact in Q4 due to its recall of its treadmills. Shares gained modest ground.

Cigna Corporation (CI $260) announced adjusted Q1 earnings-per-share (EPS) of $4.73, north of the estimated $4.37, with revenues rising 6.8% y/y to $41.0 billion, exceeding the forecasted $40.2 billion. The company's pharmacy revenues and net investment income both topped forecasts and its medical care ratio—a measure of medical costs as a percentage of premiums received—was slightly better than expected. CI raised its full-year guidance, which included net unfavorable impacts of COVID-19. Shares were higher.

Q1 earnings season is headed down the homestretch and per data compiled by Bloomberg, with 438 of the S&P 500 companies that have reported thus far, about 71% have topped revenue expectations, while roughly 87% have bested earnings estimates. At this point, sales growth is on track to be up 10% y/y and profit expansion is on pace to be approximately 47% above year ago levels.

Schwab's Chief Investment Strategist Liz Ann Sonders notes in her article, Pump it Up: Earnings Season Starts Off Strong, results this earnings season have been strong enough to significantly boost growth expectations, while also easing some valuation concerns. As well, in her latest commentary, Boom Boom Pow: Have Stocks Already Priced in Economic Boom?,she notes that economic and earnings data are in boom territory, with more momentum likely near-term. But the stock market tends to sniff out inflection points in economic data, so keep a close eye on growth rates, and the possibility of a peak in this year’s second quarter.

You can also keep up with our latest views on the market landscape at our Market Insights page on www.schwab.com and be sure to also follow us on Twitter @SchwabResearch.

April nonfarm payroll report misses noticeably

Nonfarm payrolls (chart) rose by 266,000 jobs month-over-month (m/m) in April, compared to the Bloomberg consensus estimate of a 1,000,000 increase, and following March's downwardly adjusted gain of 770,000, from the initial report of a 916,000 rise. Excluding government hiring and firing, private sector payrolls increased by 218,000, versus the forecasted rise of 933,000 after increasing by a negatively revised 708,000 in March. The labor force participation raterose to 61.7% from March's 61.5% rate and compared to forecasts of 61.6%. The U.S. Department of Labor said notable job gains were seen in leisure and hospitality, other services, and local government education, partially offset by employment declines in temporary help services and in couriers and messengers.

The unemployment rate increased to 6.1% from March's 6.0% rate, versus forecasts calling for a decline to 5.8%. The underemployment rate—including total unemployed and those employed part time for economic reasons, along with people who are marginally attached to the labor force—declined to 10.4% from the prior month's 10.7% rate. Average hourly earnings rose 0.7% m/m, above projections of a flat reading and versus March's unrevised 0.1% decrease. Y/Y, wages were 0.3% higher, versus estimates of a 0.4% decline. Finally, average weekly hours ticked higher to 35.0 from March's unrevised 34.9 rate, where it was expected to remain.

March wholesale inventories (chart) were revised slightly lower to a 1.3% m/m gain, versus expectations to be unrevised at the preliminary estimate of a 1.4% increase and compared to February's upwardly revised 1.0% gain. Sales jumped 4.6% m/m after February's positively revised flat reading.

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $25.8 billion during March, more than the $20.0 billion forecast of economists polled by Bloomberg, while February's figure was adjusted downward to an increase of $26.1 billion from the originally reported $27.6 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $19.5 billion, a 7.2% increase year-over-year (y/y), while revolving debt, which includes credit cards, rose by $6.4 billion, a 7.9% y/y rise.

Treasuries were mixed after rallying initially following the data, as the yield on the 2-year note dipped 1 basis point (bp) to 0.14%, while the yield on the 10-year note increased 1 bp to 1.58% and the 30-year bond rate was 3 bps higher at 2.27%.

Bond yields continue to cool from the sizable gains seen in Q1, while the U.S. dollar remains in retreat from the rally seen last quarter that peaked at the end of March. Schwab's Chief Fixed Income Strategist Kathy Jones discusses in her latest article, How to Handle a Bond Bear Market, how it can be challenging to handle a bond bear market, a period during which investors drive bond prices down and yields—which move inversely to prices—higher. She points out that the good news is that the worst of this phase of the bond bear market may be over, and you can take steps to help mitigate the impact of increased volatility and higher interest rates.

Europe higher on data and noticeable miss on U.S. employment report, Asia mixed European equities closed out the week higher following some favorable earnings and economic data, while the decisive miss in April employment figures out of the world's largest economy of the U.S. appeared to ease concerns about the Federal Reserve reining in its highly-accommodative monetary policy. Earnings reports continued to pour in and were mostly upbeat, headlined by a raised sales outlook from German footwear and apparel company Adidas AG (ADDYY $171), which boosted its shares. On the economic front, German industrial production and exports for March both rose more than anticipated. The euro and British pound rose decisively versus the U.S. dollar, which extended a recent pullback on the heels of the much softer-than-expected U.S. employment report. Bond yields in the Eurozone were higher but yields in the U.K. came under pressure.

The moves came after yesterday's monetary policy decision from the Bank of England, which left its benchmark interest rate and asset purchase target unchanged but slowed the pace of bond purchases. Also, a European Central Bank governing council member suggested the central bank could slow its bond-buying activity as soon as June. Recent economic data and the massive amounts of monetary and fiscal policy relief have underpinned the markets and Schwab's Liz Ann Sonders addresses in her commentary the question of Will Rising Federal Debt Slow Economic Growth?, and Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his article, Stimulus Payback: 2023.

The U.K. FTSE 100 Index was up 0.8%, France's CAC-40 Index and Italy's FTSE MIB Index gained 0.5%, Germany's DAX Index rose 1.3%, Spain's IBEX 35 Index advanced 0.9%, and Switzerland's Swiss Market Index increased 0.6%. Stocks in Asia finished mixed to close out the week with the markets digesting a host of economic data, while likely treading with some caution ahead of today's key nonfarm payroll report out of the world's largest economy of the U.S. China's April trade report showed exports continued to recover solidly, along with imports, while the Caixin PMI Services Index showed growth unexpectedly accelerated for last month. In other economic news, Japan's labor cash earnings figures for March came in higher than expected, and Australia's Services PMI report showed expansion continued to accelerate. Japan's Nikkei 225 Index ticked 0.1% higher, with the yen continuing to pause from a recent soft patch. China's Shanghai Composite Index declined 0.7% and the Hong Kong Hang Seng Index dipped 0.1%. Australia's S&P/ASX 200 Index moved 0.3% higher, South Korea's Kospi Index gained 0.6%, and India's S&P BSE Sensex 30 Index advanced 0.5%. For more insight into international stocks and events, see Schwab's Jeffrey Kleintop's latest article, What’s Working? Two Ideas For Investors, where he discusses two investment themes that have been rewarding investors with outperformance: companies in the defense sector and those participating in share buybacks.

Stocks begin May mixed

U.S. stocks finished mixed for the first week of May, with optimism of robust 2021 economic prosperity bolstering the Energy, Materials, Financials and Industrials sectors and leading the S&P 500 to a solid gain and the Dow to fresh record highs. However, the economic optimism was met with uncertainty regarding when the Fed may begin to taper its aggressive bond purchases that were initiated to combat the pandemic, which hamstrung growth-related issues and the Nasdaq. The week's economic calendar underwhelmed, with ISM Manufacturing and Services Indexes both showing growth unexpectedly slowed in April but remained in solid expansion territory, and factory orders missing estimates, while culminating with Friday's decisively soft nonfarm payroll report. However, initial jobless claims for the week ended May 1 did fall below the 500,000 mark for first time since the pandemic began. Treasury yields continued to retreat from the noticeable rise that ushered in 2021, and the U.S. dollar resumed its slide to wipe out the rally seen in Q1, while crude oil prices rose solidly, along with gold.

Next week, the economic calenda r is poised to continue to garner heavy attention, delivering the April inflation picture courtesy of the Consumer Price Index (CPI), the Producer Price Index (PPI) and the Import Price Index. Inflation has been a key area of focus for the markets as of late as pricing pressures have been building to help foster the spike in Treasury yields seen in Q1. Next week's inflation data will be joined by a host of Fedspeak, likely keeping the debate alive regarding the timing of when the Central Bank will begin to taper its asset purchases. The all-important U.S. consumer will also take center stage with the releases of April retail sales and the preliminary May University of Michigan Consumer Sentiment Index. The employment front could remain front of mind as the markets digest the releases of the NFIB Small Business Optimism Index, the job openings and labor turnover survey(JOLTS), and initial jobless claims for the week ended May 8th. The Fed's industrial production and capacity utilization report and business inventorieswill round out the fully-loaded docket.

Next week's international economic calendar also has some data points that could foster some market reactions with reports worth noting including; Australia—retail sales. China—lending statistics, CPI and PPI. India—trade balance, industrial production, CPI and PPI. Japan—household spending. Eurozone—industrial production, along with German investor confidence. U.K.—Q1 GDP and industrial/manufacturing production.

As noted in our latest Schwab Market Perspective: Springing Forward, the U.S. economy is accelerating quickly, with gross domestic product growth expected to be as high as 8% this year—the fastest pace since 1983. Globally, we've just experienced the sharpest economic "V" in history—a deep recession and rapid recovery within just five quarters. Longer-term bond yields have continued to rise, reflecting the economy’s faster-than-expected recovery from the COVID-19 crisis, as well as growing inflation concerns. However, optimism remains elevated in many measures of sentiment—particularly on the attitudinal side. The hope is that even if sentiment remains stretched, expected stronger earnings growth is kicking in, which could ease valuation pressures. For now, however, pervasive enthusiasm is more of a vulnerability for equities.

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Stocks End on High Note, Despite Disappointing Jobs Report

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