Following upbeat corporate earnings and signs of continuing progress in the labour market, U.S. stocks made a late-session turnaround on Thursday, closing at session highs.
After jumping around the flatline earlier in the day, the S&P 500 ended just short of a new high, while the Dow Jones Industrial Average jumped more than 300 points, setting a new high. The Nasdaq Composite gained ground as well, ending the day in the black and breaking a four-day losing streak. Earnings were a factor in the stock market’s biggest gainers, as Kellogg led the S&P 500 higher after outperforming analysts’ expectations.
Treasuries remained stable, with the 10-year yield remaining about 1.57%, a far cry from recent peaks. The Fed said in its semi-annual financial stability report that a growing appetite for risk across a variety of asset markets is stretching valuations and creating vulnerabilities in the US financial system. Meanwhile, applications for state unemployment benefits in the United States hit a new pandemic low, and separate data revealed a productivity rebound. Traders are now looking forward to Friday’s payroll figures.
Economists expect Friday’s report to show that the US economy added 1 million jobs in April, as the economy recovers from losses suffered during the coronavirus shutdowns. The non-farm payrolls report will be closely scrutinized by investors for information about the Federal Reserve’s next steps, as the central bank has said that it will continue to buy $120 billion in bonds every month until the labour market improves.
Although markets are benefiting from stronger growth in the world’s largest economy, investors are worried that a faster-than-expected recovery from unprecedented government and central bank stimulus would result in excessive inflation. The Federal Reserve remains committed to near-zero interest rates in order to achieve a complete recovery, but in the second half of this year, an announcement of a reduction in its large monthly bond purchases seems increasingly imminent.