Dow Makes a 600-point U-turn as US Jobless Claims Reach a New Low

Dow Makes a 600-point U-turn as US Jobless Claims Reach a New Low

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Key Takeaways

• Value stocks on the rise as investors anticipate an economic rebound
• US jobless claims fell to pre-pandemic levels

The equity market snapped a two-day losing streak on Thursday as traders and investors jumped on stocks tied to an economic rebound. Signs of recovery have been surfacing lately, the most recent of them is the new US jobless claims report. Worker filings for unemployment benefits fell to 684,000 last week, the lowest level since the pandemic began. The number is significantly lower than a week earlier when the report showed 781,000 new claims.

The decline by 97,000, according to Labor Department data, suggest that the economy is reopening as restrictions are easing and people are getting back to work. Moreover, the vaccine rollout is bringing hopes for a quick economic rebound this year. According to Federal Reserve Chairman Jerome Powell, the US GDP could grow by 6.5% this year while the unemployment rate could fall to 4.5%. In addition to the positive outlook, Treasury Secretary Janet Yellen predicted the country could return to full employment as soon as next year.

The claims mark the lowest level since mid-March last year before the coronavirus crisis hit and more than 10 million people went out of work due to lockdowns and restrictions which prevented the operations of millions of businesses. In recent weeks, companies are growing increasingly hopeful as states start to unwind restrictions on the back of lowering daily cases and a successful vaccine campaign.

Optimism Crossing Markets

The economic recovery is looking optimistic on another note, too. The four-week average for jobless claims is also at a pandemic low of 736,000. Additionally, the US GDP rose at a 4.3% annualized rate in the fourth quarter of 2020, better than the consensus of 4.1%.

Investors read the figures as evidence the economy is ramping up and rotated back to cyclical stocks while tech companies lagged behind. The Dow Jones Industrial Average Index staged a 600-point turnaround, averting a third straight day of declines. The 30-stock blue-chip index climbed 199.42 points, or 0.62%, to end the session at 32,619.48. The S&P500 also snatched some gains and rose 0.52%, or 20.38 points, to close at 3,909.52. The tech-heavy Nasdaq Composite could barely make it in the green and managed to close higher by 0.12%, or 15.79 points, at 12,977.68.

Shares of airlines, cruise line operators, hospitality companies and others poised to benefit from economic reopening led the day. American Airlines gained 4%, while Boeing rose 3.3%. Tech stocks, in contrast, were largely pushed aside. Microsoft, Amazon, Facebook and Twitter all closed lower by more than 1%. Netflix, the online video streaming giant, fell by 3.45%.
The bond market climbed moderately on Thursday, snapping a four-day slide. The 10-year Treasury yield gained just 1 basis point to 1.64%. The 30-year Treasury yield rose 2 basis points to 2.37%. On Friday, futures contracts tied to the benchmark stock indexes are positive. Nasdaq futures point higher by more than 0.60%, while Dow Jones futures and S&P500 futures indicate a higher open by roughly 0.40% each.