Up on Strong Jobs Report

A trio of forces helped the major U.S. stock indexes end the week on a high note Friday, with market heavyweight Apple (AAPL) reporting expectations-beating results, embattled banking shares rebounding, and a strong jobs report helping alleviate some recession concerns.

Apple's shares were up nearly 5% after its late Thursday report of first-quarter earnings per share (EPS) of $1.52, about 9 cents above Wall Street forecasts, on revenue of $94.84 billion. Although the company's overall sales were down for the second straight quarter, revenue from iPhone sales was up 5.1% from a year earlier. The company also announced a dividend increase and a $90 billion stock buyback.

Meanwhile, regional lenders PacWest (PACW), Western Alliance (WAL), and Zions Bancorporation (ZION) all bounced sharply after being knocked back in the previous day's trading following reports that JPMorgan said in a research note the banks appear to be "substantially mispriced."

Finally, the Labor Department added to the good mood Friday morning when it reported that the U.S. economy added 235,000 non-farm jobs in April, well above the 180,000 new jobs economists had predicted following more than a year of aggressive interest rate increases by an inflation-fighting Federal Reserve.

Jeffrey Kleintop, Schwab's chief global investment strategist, says Friday's jobs report provided some reassurance that the recent troubles with the banking sector haven't hastened the arrival of a recession.

Additionally, "Apple reported iPhone sales rebounded . . . helping push the Information Technology sector into the green for the week—the only sector to post a weekly gain. Even banks rallied."

Still, Jeffrey cautions, "this doesn't mean stocks are on a straight upward path from here. The solid labor market raises questions about whether the Fed will actually cut rates later this year. Banks could still pose a risk to the economy as credit conditions tighten, and inflation remains a factor with next week's inflation readings on tap." Here's where the major indexes ended:

The S&P 500® Index was up 75.03 points (1.9%) at 4136.25; the Dow Jones industrial average was up 546.64 (1.7%) at 33,674.38; the Nasdaq Composite was up 269.01 (2.3%) at 12,235.41.
The 10-year Treasury yield was up about 8 basis points at 3.431%.
Cboe's Volatility Index was down 2.89 at 17.20.

Financial shares were a bright spot Friday, with the KBW Regional Banking Index up over 4% after sinking near a 2½-year low Thursday. Energy stocks were also strong as crude oil futures rallied over 4% and pushed back above $70 a barrel. Small-cap stocks also gained, with the Russell 2000 up more than 2%.

Read all our market commentary on our Insights & Education page, and you can follow us on Twitter at @SchwabResearch.

Earnings roundup

The following companies reported quarterly earnings over the past day:

Lyft (LYFT) late Thursday reported a loss of 7 cents per share, slightly worse than analysts expected, though its $1 billion of revenue exceeded forecasts. The ride-hailing company also provided weak revenue guidance for the current quarter, which helped send its shares down 19%.
Coinbase (COIN) late Thursday reported a smaller-than-expected loss of 34 cents a share. Additionally, Wedbush Securities analysts reiterated an "outperform" rating on shares of the cryptocurrency platform. Its shares rose more than 18%.

Earnings season will be slower next week, with just a couple hundred companies expected to report results, compared to over 2,600 this week. Some of the standout names include Disney (DIS), PayPal (PYPL), Duke Energy (DUK), and UnderArmour (UAA).

Wage growth accelerates

Friday's strong Employment Report offered a little something for both the economic optimists and the pessimists who fear additional interest rate increases.

While April's payroll growth of 253,000 was well above expectations, the Labor Department also downwardly revised its combined February and March totals by a combined 165,000. The unemployment rate fell to 3.4%, which is tied for the lowest level since 1969. Also, average hourly earnings, a key inflation barometer, rose 0.5% for the month, more than the 0.3% economists had expected and the biggest monthly gain in a year. On an annual basis, wages were up 4.4%, higher than the expectation for a 4.2% gain.

The Fed has been eager to tamp down wage and job growth as it battles a historic surge in inflation with 10 rate hikes over the past year. The wage numbers in Friday's report could boost the odds of an 11th hike when the central bank's policy arm meets again in June. However, the market appears to expect the Fed to stand pat for now. As of late Friday, investors saw a 90% probability that the Fed would leave rates unchanged.

For those in the market expecting a "pause for the cause," a word to the wise: Don't get your hopes up.

"The Federal Reserve is not in pause mode yet," the Schwab Center for Financial Research says in a report Friday. Fed Chair Jerome Powell "kept the door open (even if slightly) for future rate increases, given [his] several mentions of a tight labor market and still-high inflation."

The Fed's recent messaging "is about optionality, not pre-committing to a move," the report says. "Perhaps more important is that Powell (in remarks earlier this week) pushed back harder against the prospect of rate cuts this year. Those would only occur in the face of weaker economic/labor data."

Other central banks are taking a similar tack. The European Central Bank (ECB) raised its benchmark rate Thursday. The report notes that the ECB is "adamant it is not pausing."

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Up on Strong Jobs Report

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