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U.S. stocks book 3rd day of gains, despite rise in jobless claims, as investors focus on earnings

By William Watts and Joy Wiltermuth

Nasdaq Composite gains 2.9% in past three days, its best stretch since early April

U.S. stocks booked a third straight day of gains Thursday, despite data showing first-time applications for unemployment benefits rose last week, as investors focused on health corporate earnings reports.

Even though many S&P 500 index sectors slipped, gains for several technology heavyweights, including Apple and Microsoft, pushed the index higher and close to a new record.

How did major indexes fare?

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 drove the market?

Stocks perked up in afternoon trading 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 though, 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' (link)

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 (link) 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 reporting 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 (link)

Some analysts are penciling in the potential for further near-term weakness amid weak seasonal factors, stretched valuations 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 (link)

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 (link) 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 (link)Thursday.

-William Watts; 415-439-6400;

Which companies were in focus?

What did other markets do?


(END) Dow Jones Newswires

07-22-21 1627ET

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