I'm Colette Auclair, and here is Schwab's early look at the markets for Monday, June 30th:
This abbreviated holiday week could pack a punch after stocks set new record highs Friday. Markets are shut this coming Friday for July 4 and close early Thursday, but an avalanche of jobs data come between now and then.
Job openings are due tomorrow, and the ADP private sector employment report is out Wednesday. The main event is Thursday's June nonfarm payrolls report, with job growth expectations on the low side near 120,000, according to Briefing.com. That's down from 139,000 in May, but unemployment is seen holding at 4.2%.
The jobs data could help shape the Federal Reserve's next decision a month from today, though it might take a very poor showing to push policy makers into a July rate cut. Fed Chairman Powell speaks on a panel early tomorrow after other Fed speakers today.
"We've had clearly a greater divide now at the Fed as to the timing of the next policy step," said Kathy Jones, chief fixed income strategist at Schwab. "I don't think there's a lot of people at the Fed who are looking at raising rates, but clearly there's a lot who think that we should be on hold through the end of the year. And then we have some very outspoken people, Christopher Waller and Michelle Bowman, who are now coming out and saying, 'Hey, maybe we should cut as early as July.' "
Those pushing for an early rate cut may have their arguments undercut by Friday's May Personal Consumption Expenditures (PCE) price report. Headline growth was in line with analysts' expectations of 0.1%, but core PCE excluding volatile food and energy prices rose by 0.2%, above the 0.1% consensus.
There's still no sign of a price bump from tariffs, Schwab's Jones said. But if the effective tariff rate remains near the current 15% that will likely translate into price increases on most consumer goods.
Jones said the base case remains one or two rate cuts this year, starting in September. By then she expects economic growth to have slowed and unemployment to be higher. She thinks the yield curve -- which tracks the difference between short-term and long-term rates – will continue to steepen. Higher long-term yields on a steeper curve would imply little relief from elevated borrowing costs weighing on big purchases.
Those high rates take blame from the administration and some economists for hurting consumer demand. Friday's final University of Michigan June Consumer Sentiment of 60.7, compared with consensus of 60.5. Though now above 60, sentiment remains well below historic averages, and housing data last week mostly disappointed.
Drilling deeper into Friday's data, headline annual PCE rose to 2.3% from 2.1%, while annual core PCE was 2.7% versus expectations of 2.6%. Both moved further from the Fed's 2% goal.
"It makes the case for a July rate cut less likely," said Cooper Howard, director, fixed income strategy at the Schwab Center for Financial Research.
On the other hand, Friday's personal spending and income data for May fell 0.1% and 0.4%, respectively, when analysts had expected both to rise.
"The consumer looks to be weaker," Howard said.
Also on the economic front, the Atlanta Fed's GDPNow metric fell to 2.9% Friday from 3.4%, pulled down by recent data.
As of late Friday, the CME FedWatch Tool built in 93% chances of at least one cut by September.
Last week ended sweet and sour on trade. A U.S.-China deal was signed and includes a pledge by Beijing to deliver rare earth materials, Bloomberg reported. Additionally, the Trump administration said deals with 10 other countries are "imminent" and the July 9 deadline for reciprocal tariffs "is not critical."
But stocks retreated midday Friday after tensions flared between the U.S. and its northern neighbor. President Trump said he's terminating all talks with Canada and threatened higher tariffs within "the next seven-day period," citing Canada's decision to keep in place a digital services tax on tech companies. The tax takes effect Monday.
Tech stocks, which have rocketed from early-April lows, ran into pressure late Friday on the news, with Palantir, Marvell Technology, Super Micro Computer, Dell, Micron, and IBM among the hardest hit.
"Canada is an important trading partner for the U.S., and while there could be some sort of resolution to the current conflict over the digital sales tax by Monday, it's understandable why the news triggered some intraday profit taking with indices hovering at all-time highs," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research.
Friday also brought news of the Fed's annual "stress tests" for big U.S. banks. The stress test subjects banks to hypothetical strains on the market and sudden economic downturns to see how well their businesses can handle trouble and protect clients.
Passing the tests allows banks to announce share buybacks and boost dividends, which potentially could help their stock prices.
The market approaches twin deadlines on the U.S. budget July 4 and tariffs July 9. The administration indicated it might extend the tariff date for countries negotiating "in good faith."
The Senate is likely to pass its version of a budget bill by July 4, but the House and Senate versions are different and only a single bill can be signed by the president. Ultimately, the budget is likely to pass and be signed later in July, said Michael Townsend, managing director, legislative and regulatory affairs at Schwab.
Earnings slow this week as only one major company, Constellation Brands, reports. Things accelerate after the holiday, with big banks set to report starting July 15. FactSet sees second quarter S&P 500 earnings up 5% year over year, well below 13.3% first quarter growth. Five sectors are expected to see EPS declines.
In trading Friday, the S&P 500 rebounded from mid-afternoon lows in the final half hour to close at a new all-time high of 6,173. Though tech companies got frozen by the Canada trade news, consumer-focused firms generally performed well, led by Nike with 15% gains after a beat on earnings and a somewhat better-than-expected forecast.
Cruise lines, restaurants, automobile firms, and retailers were among the biggest Friday gainers, with Carnival, Foot Locker, Delta, Ford, and Walmart among them. Semiconductors were mixed, but Nvidia and Taiwan Semiconductor appeared to gain traction from the U.S./China deal.
Market breadth – which can help pinpoint investor sentiment – improved last week. By late Friday, the number of S&P 500 stocks trading above their 200-day moving averages jumped to 54.8% from 48.4% a week earlier.
However, the S&P 500's relative strength index, a momentum measure, got warm Friday, climbing into what's traditionally seen as overbought territory above 70. This could imply a near-term "digestion of gains," Schwab's Peterson said.
The benchmark 10-year Treasury yield, which hit two-month lows earlier last week, edged up Friday to 4.28% on the somewhat warm inflation reading but remained below its near-term 4.3% to 4.5% average.
The Dow Jones Industrial Average® ($DJI) added 432.43 points Friday (+1.00%) to 43,819.27; the S&P 500 index (SPX) climbed 32.05 points (+0.52%) to 6,173.07, and the Nasdaq Composite® ($COMP) gained 105.55 points (+0.52%) to 20,273.46.
For the week, the DJIA rose 3.82%, the S&P 500 rose 3.44% and the Nasdaq added 4.25%.