Here is Schwab's early look at the markets for Monday, October 5.
This week could be a breather between last week's data blitz and the start of earnings season as big banks report a week from Tuesday. There's enough on schedule to keep participants interested, though, including a sprinkle of earnings and several Treasury auctions.
Treasury yields and oil could set the stage, as they have for a while. Yields sagged early Friday after weak jobs data but plowed back as investors still expect at least one more Federal Reserve rate hike in 2026, though not necessarily this month. Aggressive AI spending, global pressure on yields, and rising government deficits appeared to outweigh one month's soft U.S. jobs growth in the minds of bond traders, who sent yields higher again Friday despite the September nonfarm payrolls report missing consensus.
A couple items on tap today include final S&P Global U.S. Services PMI for September and the ISM Services Index for September soon after the open. The services economy has generally been solid, but the ISM's prices paid component bears watching after it rose 21 consecutive months through August to its highest level in four years.
U.S. jobs growth slowed dramatically to 29,000 in September and the government reduced its estimate for the prior two reports by a combined 60,000, according to Friday's nonfarm payrolls report.
The September headline was far below consensus of 84,000, and unemployment ticked up to 4.2%, above consensus for an unchanged 4.1%.
It wasn't all bad, as the household survey showed a gain of 406,000 in September and the participation rate rose.
Friday's data recast the jobs narrative, which had been on the mend thanks to August's initial booming total of 162,000. That got downwardly revised to 133,000, while July's growth of 21,000 became a loss of 10,000.
In addition, September wage growth fell to 0.1%. Analysts had expected 0.3%.
Checking categories, health care employment was the only area with a significant job increase last month, manufacturing jobs rose slightly, and financial activities employment dropped by 7,000 in a continued lag. August's report was boosted by seasonal gains in educational and leisure jobs.
The three-month growth average is now around 50,000, down from 71,000 previously. Slower jobs and wage growth raised concerns about consumer spending, as wages haven't kept pace with prices over the last year.
Chances of an October rate hike, which climbed as high as 70% early last week, fell to near 14% early Friday before rebounding later to 23%, according to the CME FedWatch Tool. Market participants now see 85% odds of a hike at some point before year-end, now looking like the December meeting. Another hike seems likely early next year. These odds can be fluid.
"The markets expect the Fed to remain patient here," said Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research (SCFR). "This doesn’t change our expectations of two more rate hikes, but it gives the Fed more time to evaluate incoming data. More importantly, this report likely takes away the potential need to aggressively raise rates in the coming months."
With wage growth of just 0.1% in September, fears of a tighter labor market sending wages higher and causing prices to rise seem reined in for now.
Fears do seem elevated in corporate credit, where high-yield spreads rose eight days in a row through last Thursday—suggesting high borrowing costs might be hurting companies' ability to secure loans. If persistent, this can drag corporate profit growth.
Crude is another wildcard. Prices fell Friday despite signs of rising tensions between the U.S. and Iran, coming under pressure from reports of more supplies exiting the Gulf and a proposal for E.U. countries to release diesel from emergency inventories, Reuters reported. Recent talks between the warring parties haven't yielded fruit, media reports said.
Treasury auctions this week--including a 10-year note auction Wednesday--could provide insight into U.S. debt demand. Solid auction results might ease yields, but there's no guarantee. A few well-received auctions several weeks ago did nothing to halt the yield rally. The 10-year note yield climbed 10 basis points last week to 5.28%, near 24-year highs. The more rate-sensitive 2-year yield rose just four basis points last week.
Investors await monthly revenue numbers this week from Taiwan Semiconductor Manufacturing, typically issued early each month from the world's largest chip manufacturer.
Late this week, stay tuned for earnings from PepsiCo and Delta Air Lines. Both can be good barometers of consumer demand. Also, be on the lookout for any pre-earnings updates from major companies, which sometimes occur soon before earnings season.
On Friday, Tesla rose almost 5% after reporting third quarter vehicle deliveries of more than 486,000. Analysts had expected roughly 460,000. Second quarter deliveries were 480,000.
On Wall Street Friday, major indexes wrapped up a mixed week with pre-weekend gains, fueled by tech. The Nasdaq posted an all-time intraday high and climbed slightly for the week. However, the broader market finished slightly lower from the previous Friday, and the S&P 500 Equal Weight Index--which weighs all components the same--is down seven straight weeks, the worst stretch since mid-2022 as breadth struggles persist.
Mega-caps rose Friday and Nvidia hit new 52-week highs, but yields continue to weigh on cyclical areas like financials and discretionary. The percentage of S&P 500 stocks trading above their 200-day moving average is around 42%, down from 74% in mid-August and hitting a new 2026 low last week.
Every S&P 500 sector finished flat to higher Friday, a notable improvement from weak breadth earlier in the week. Cyclical sectors that perform best in a strong economy led the way, with consumer discretionary and industrials near the top. Financials were weak, however, and health care continued to struggle, though managed care names generally performed well Friday, Briefing.com noted.
Checking individual performers Friday, Nvidia climbed 1.3% and posted 52-week highs for the first time since May, though shares fell from their best intraday levels. The latest boost came as Morgan Stanley reinstated Nvidia as a top pick in semiconductors.
The PHLX Semiconductor Index (SOX) climbed more than 2.4% Friday, lifted by Nvidia and strength in Arm Holdings, Lumentum, Texas Instruments, Broadcom, and ASML. Broadcom got a 3% boost as Reuters reported that Broadcom will lend Anthropic up to $42 billion to finance infrastructure purchases.
The SOX index finished at its highest level since early July but still off 10% from the all-time peak of mid-June.
SpaceX literally launched its way to a 7% rally Friday with three successful rocket launches in a 13-hour period, including one that transported four astronauts to the International Space Station.
Data storage stocks Seagate Technology and Western Digital both dove 10% as Nikkei Asia reported that Toshiba is considering doubling the availability of its hard disk drive supplies to fill a gap in AI chip memory.
AppLovin fell 4.6%, another rough day for a stock down roughly 50% over the last three months amid concerns about AI threats to e-commerce advertising.
On Semiconductor climbed 6% as the chip supplier revised its buy-out offer of Synaptics for $5.7 billion in cash, Barron's said. Shares of Synaptics rose 14%.
The Dow Jones Industrial Average® ($DJI) climbed 250.40 points (+0.49%) Friday to 51,176.96; the S&P 500 Index ($SPX) rose 56.27 points (+0.73%) to 7,722.72, and the Nasdaq Composite® ($COMP) added 319.27 points (+1.19%) to 27,190.86.
For the week, the DJIA backtracked 1.26%, the SPX fell 0.27%, and the Nasdaq gained 0.45%.