Stocks pushed higher Thursday. Strong economic data are coinciding with an improving reopening story.
Dow Jones Industrial Average
rose 332.26 points, or 1.08%, to close at 31,055.86. The
gained 41.57 points, or 1.09%, to end at 3,871.74, and the
added 167.20 points, or 1.23%, to close at 13,777.74. The biggest gainer in the S&P 500 was
(ticker: ALGN), the maker of Invisalign teeth straighteners, which saw shares rocket 12.9% after reporting strong earnings.
Initial jobless claims for the past week came in at 779,000, better than the expected 830,000 and better than the previous week’s 812,000. Initial claims totals have now been in a downtrend since the start of the year when they hit 900,000.
Economic data, which were largely poor in the last months of 2020 as Covid-19 cases surged, haven’t been foremost in the minds of the investing public until recently. On signs of hard proof that effective vaccines would be distributed widely, stocks still rose on days that include ugly economic data.
Now, markets are more likely to trade on data. The positive claims report reflects a potentially opening economy, making economic info more relevant for forecasts.
“The continued drive to lower levels in initial claims is not unexpected, as virus cases have fallen over recent weeks, and states have correspondingly started to gradually ease activity restrictions or at least not implement new ones,” wrote Citigroup economists in a note. Indeed, the rate at which vaccines found Americans’ arms has been surging exponentially in the past month.
“Vaccine distribution is ramping up and with the likely approval of additional vaccines in the coming weeks, this should help alleviate some concerns about a slower than expected start,” wrote David Lefkowitz, head of equities at UBS.
Reopening stocks performed exceptionally well. The US Global Jets ETF (JETS), which tracks the major airlines, rose 2.3%. Shares of Olive Garden parent
(DRI) rose 2.5%. Most economically sensitive stocks—regardless of whether they are directly “reopening” plays—saw substantial moves up. The
SPDR S&P Bank ETF
(KBE) rose 3% as long-dated Treasury yields rose, a boon to bank profitability, and a general indication of firm economic and inflation expectations.
“You couple that [jobless claims report] with Covid cases coming down and the Covid vaccinations picking up speed and what you have today is the risk on [market],” Quincy Krosby, chief market strategist at Prudential Financial, told Barron’s.
The main reason reopenings can bring economic activity and earnings at least up to pre-pandemic levels is that fiscal stimulus has provided small businesses with the cash to rehire workers, and consumers have the savings to spend when their confidence increases.
Another driver of gains in the major indexes were tech stocks. Earnings the sector were strong, but the shares had a muted reaction. That’s because the last three months of earnings aren’t big indicators when vaccines are the by far the biggest factor driving earnings going forward. But even for companies focused on stay-at-home services such as e-commerce, a reopening doesn’t mean the rate of customer acquisition will slow. The pandemic may have permanently raised the total available market for some of these services.
(E(BA)Y) beat revenue and earnings estimates and the stock rose 5%. The online auctioneer and marketplace offered a bright outlook, and noted the strength in synergy between its payments and e-commerce businesses.
(PYPL) beat estimates and shares of the payments firm rose 7%. The company still expects to grow revenue at about 20% in 2021.
As for the near term, watch the all-important Friday jobs report from the Bureau of Labor Statistics.
Write to Jacob Sonenshine at [email protected]
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