Dow, S&P 500 struggle for direction after unexpected rise in jobless claims

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MARKET SNAPSHOT

U.S. stocks were looking for a third straight day of gains Thursday, despite earlier data showing first-time applications for unemployment benefits rose last week.

Video: Dow, S&P 500 end lower, financials among biggest drags (Reuters)

Dow, S&P 500 end lower, financials among biggest drags
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Corporate earnings reports continue to roll in, supporting the week’s recovery in stocks, while the European Central Bank offered a dovish tweak to its guidance on interest rates and monetary policy.

What are major indexes doing?

  • The Dow Jones Industrial Average rose 66 points, or 0.2%, to 34,862, near session highs.
  • The S&P 500 was up 8 points, or 0.2%, trading at 4,366, also near session highs.
  • The Nasdaq Composite rose 52 points, or 0.4%, to 14,684.

On Wednesday, the Dow Jones Industrial Average rose 286.01 points, or 0.8%, to finish at 34,798, while the S&P 500 advanced 0.8% and the Nasdaq Composite gained 0.9%.

What’s driving the market?

Stocks perked up in afternoon trading, looking to rebound for a third day following Monday’s sharp selloff. All three major indexes were positive on the week, despite economic data Thursday showing some labor market weakness.

Some think recent action in equities could be signaling the beginning of a period of more moderate gains for stocks, which largely have been moving only higher since last summer.

“We do think we are past the point of peak stimulus pumped into the market from monetary and fiscal support,” said Matt Stucky, portfolio manager, equities at Northwestern Mutual Wealth Management. “The next move to us is down, not up, in terms of monetary support.”

But Stucky also expects unemployment claims to steady this fall as COVID vaccinations help more children in the U.S. return to schools or daycares and workers to jobs, he told MarketWatch.

Read: Biden says COVID-19 fast becoming pandemic of unvaccinated, hopes children under 12 can join program ‘within months’

Earlier on Thursday, the disappointing U.S. jobs data led to a rally in bonds and threatened to undercut the rebound in equities. The Labor Department said initial jobless claims rose by 51,000 to 419,000 in the seven days ended July 17 — the highest level in almost two months. The increase, however, was concentrated in Michigan and Kentucky and likely is tied to the annual retooling of auto plants to build new models while 31 states actually posted declines in jobless benefit claims.

Still, other investors may be getting impatient to see signs of improvement in the labor market.

“One data point isn’t a trend, and a one-off can probably be chalked up to delta variant concerns,” said Cliff Hodge, chief investment officer at Cornerstone Wealth. “If jobs data doesn’t inflect soon, the markets and the Fed will be put on notice.”

A strong second-quarter corporate earnings reporting season rolls on though, while most U.S. economic data suggests the recovery from the pandemic is intact.

For U.S. investment-grade companies alreadying reported for the second-quarter, earnings came in 16% ahead of expectations at the start of the season, “a very large beat,” according to BofA Global analysts, who also noted that the first quarter holds the record at about 21% beat.

“Peak growth also probably is in the rearview mirror,” Stucky said. “But that doesn’t mean equities can’t move higher, but the sharpness and magnitude up for equity returns probably moderate from here.”

Read: Think this is a ‘weird market’ right now? Here’s more proof

Some analysts are penciling in the potential for further near-term weakness amid weak seasonal factors, stretched valuations, worries that economic growth is peaking, and uncertainty over the spread of the delta variant.

In One Chart: Why the S&P 500 could be poised for a 5% drop — or even more this summer

In other U.S. economic data, existing-home sales rose 1.4% to a seasonally adjusted annual rate of 5.86 million in June, the National Association of Realtors said Thursday. Compared with June 2020, home sales were up nearly 22.9%, though the year-over-year comparisons are skewed by the onset of the COVID-19 pandemic last year. The median sales price of an existing home rose 23.4% year-over-year to a record $363,300.

Meanwhile, the U.S. economy grew rapidly in June and is likely to maintain its recent momentum, according to the leading economic indicators. The index increased 0.7% last month, the Conference Board said Thursday.

Which companies are in focus?

  • Dow Inc. shares rose 1%, after the chemicals company swung to a second-quarter profit and reported revenue that rose above expectations, boosted by sharp local price increases amid stronger demand.
  • Netgear Inc. shares tumbled 10.2% after the computer-networking company reported fiscal second-quarter results that fell short of Wall Street forecasts on earnings and revenue.
  • Shares of Texas Instruments Inc. were down 4.8%, after its forecasts late Wednesday for the third quarter signaled slowing revenue growth amid a global chip shortage.
  • Whirlpool Corp. late Wednesday reported a 32% increase in quarterly sales and said it was boosting its 2021 guidance, citing continued demand for its kitchen and laundry appliances. Shares were down 1.1%.
  • AT&T shares edged 0.4% higher after the company topped expectations with its latest financial results as the telecommunications giant continued to see low customer churn in its wireless business as well as subscriber growth for the HBO Max service.
  • Biogen was up 1.2% after the company beat expectations for the second quarter and disclosed that it’s already sold $2 million of its new, controversial Alzheimer’s disease drug.
  • Southwest Airlines Co.  shares fell 3.1% after reporting net income of $348 million, or 57 cents a share, in the second quarter, after a loss of $915 million, or $1.63 a share, in the year-earlier period, when travel stalled during the global pandemic. 

What did other markets do?

  • The yield on the 10-year Treasury BX:TMUBMUSD10Y fell 4 basis points to 1.25%. Yields and debt prices move in opposite directions.
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was up 0.1%.
  • Oil futures were up, with the U.S. benchmark CL00 up 2% at $71.66 a barrel on the New York Mercantile Exchange Gold futures GC00 rose $2, or 0.1%, to settle at $1,805.40 an ounce on Comex.
  • In European equities, the Stoxx Europe 600 index XX:SXXP rose 0.6%, while London’s FTSE 100 UK:UKX slumped 0.4%.
  • In Asia, the Shanghai Composite CN:SHCOMP rose 0.3%, and Hong Kong’s Hang Seng Index HK:HSI advanced 1.8%, while Tokyo was closed for a holiday Thursday.
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