MarketView for February 23

Summary

The major equity indexes were higher on Thursday after data indicated that the the labor market remained on the mend. Yet, they were also held back a bit as the numbers began to approach highs not seen since before the 2008 collapse of Lehman Brothers. One key reason for the day’s gains was an upbeat note regarding new claims for unemployment benefits. That indicator held steady last week and was at its lowest point since the early days of the 2007-2009 recession.

Thursday's gains brought the benchmark S&P 500 index near 1,370, considered the upper end of a technical barrier. The broad index has surged 8.4 percent this year and more than 20 percent from October lows, but many worry the market will soon run out of steam. During the past four sessions, the S&P has hovered around 1,360, closing on Thursday at a 9-month high.

However, the market has also been reluctant to sell off on bad news. One possible reason is the increased implementation of a commonly used investor protection methodology. Specifically, investors are using the CBOE volatility index as a hedge. The VIX, as it is known, is expected to soar from its current levels if the S&P 500 retreats sharply.

Data indicate that the volume in VIX futures rose sharply to more than 100,000 contracts on separate days in the past two weeks. That volume has not been seen since the United States had its credit rating downgraded from triple-A in the week of August 2011.

According to Thomson Reuters data through Thursday morning, of the 446 companies in the S&P 500 that have reported earnings, 63 percent topped analysts' expectations. That falls below the 70 percent average beat in the past four quarters, but slightly above the average since 1994 of 62 percent.

Sears Holdings moved sharply higher despite reporting a huge quarterly net loss, after the company reassured investors about its ability to pay down debt. The stock was up 18.7 percent at $61.80, nearly doubling in price so far this year but far from last year's high above $94.

Shares of Vivus rose 78 percent as investors bet its experimental weight-loss drug would be approved by regulators.

Hewlett-Packard fell 6.5 percent to $27.05 and was the largest drag on the Dow. Late Wednesday, the world's No. 1 computer maker posted a sharp decline in earnings and warned it would take several years to turn around its sprawling businesses.

Jobless Claims Remain at 4-Year Low

New claims for unemployment benefits were unchanged last week; holding at the lowest level since the early days of the 2007-2009 Great Recession and giving a fresh sign the battered labor market is healing. Workers filed 351,000 initial claims for state unemployment benefits, the Labor Department reported on Thursday. The prior week's figure was revised up to 351,000 from the previously reported 348,000.

The last two weekly readings have been the lowest since March 2008. The four-week moving average for new claims, a measure of labor market trends, fell 7,000 to 359,000 - also the lowest since March 2008.

With weekly claims approaching levels last seen before the recession that began in December 2007, It appears that employers might be close to ending a long cycle of heavy layoffs, laying the ground for more hiring.

Already, the jobless rate has fallen sharply, dropping to 8.3 percent in January from 9.1 percent in August. Job gains have exceeded 200,000 for two straight months. A Labor Department official said there was nothing unusual in last week's data, although claims were estimated for three states, including California.

The number of people still receiving benefits under regular state programs after an initial week of aid fell 52,000 to 3.392 million in the week ended February 11 from a revised reading of 3.444 million. The drop left continuing claims at their lowest level since August 2008.

However, considerable slack still remains in the jobs market, with 23.8 million Americans either out of work or underemployed. There are no job openings for nearly three out of every four unemployed.

A total of 7.503 million people were claiming unemployment benefits during the week ended February 4 under all programs, down 178,619 from the prior week.

Oil Down in Asia

Oil slid from a nine-month high to near $106 a barrel Thursday in Asia after a report showed U.S. crude supplies grew more than expected last week, suggesting demand remains sluggish.

Benchmark crude for April delivery was down 29 cents to $105.99 per barrel late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose 3 cents to settle at $106.28, the highest since May, in New York on Wednesday. Brent crude was down 10 cents at $122.80 per barrel in London.

The American Petroleum Institute said late Wednesday that crude inventories rose 3.6 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 1.7 million barrels.

Inventories of gasoline added 314,000 barrels last week while distillates rose 630,000 barrels, the API said.

Crude has soared from $75 in October, raising concern that higher gasoline prices may stymie consumer spending and an improving U.S. economy. Analysts fear mounting tension over Iran's nuclear program could lead to a disruption of global crude supplies and trigger a jump in prices.

In other energy trading, heating oil fell 0.1 cent to $3.26 per gallon and gasoline futures slid 0.2 cent to $3.26 per gallon. Natural gas added 2.3 cents to $2.67 per 1,000 cubic feet.