MarketView for Febuary 6

Summary

Wall Street posted its best day of the year on Thursday after a drop in applications for unemployment insurance boosted confidence in the economy along with a report by Disney that its numbers for last quarter well expectations. The rally came ahead of the widely-followed payrolls report for January due Friday, which some are expecting to be affected by the extreme weather that hit much of the United States. December's number was a much-lower-than-expected 74,000 and an upward revision wouldn't be a surprise.

Initial claims for state unemployment benefits fell by 20,000 claims last week, to a seasonally adjusted total of 331,000 claims. While the data has no direct bearing on January's employment report, it bodes well for the jobs market and the overall economy.

Recent soft data regarding growth in China and a selloff in emerging market currencies and stocks put the Street on edge. However, a near 6 percent decline by the S&P 500 index from its record high last month to the session low yesterday was seen by some as a buying opportunity, as earnings continue to grow.

Disney was the most recent bellwether to exceed expectations as its profit topped estimates, with the result that its share price ended the day up 5.3 percent to close at $75.56. Disney led gains on both the Dow industrials and S&P 500.

According to Thomson Reuters data, of the 330 companies in the S&P 500 that have reported earnings through Thursday morning, 68.8 percent have topped Wall Street expectations, above the 63 percent beat rate since 1994 and the 67 percent rate for the past four quarters.

It was the largest daily percentage gain for the S&P 500 and Dow Jones Industrial Average since mid-December. However, the S&P was on track for its fourth consecutive negative week, a continuous run not seen since July-August of 2011.

Green Mountain Coffee Roasters ended the day up 26.2 percent to close at $102.10. Coca-Cola bought a 10 percent stake for $1.25 billion and said it would help launch Green Mountain's new cold drink machine.

Coke ended the day up 1.1 percent to $38.03 while SodaStream rose 7.2 percent to to close at $38.35. The Nasdaq received a boost from Akamai Technologies, which rose sharply to end the day up 20.6 percent at $57.18 after forecasting better-than-expected results.

Bucking the bullish trend, Spirit AeroSystems fell 19.6 percent to $26.51. The major supplier of components to Boeing and Airbus reported a quarterly loss on charges tied mainly to the Boeing 787 program.

After the closing bell, LinkedIn shares fell 8 percent following its results and outlook.

About 6.9 billion shares changed hands on the major equity exchanges, below the 7.9 billion share average of the past five sessions, according to data from BATS Global Markets.

Unemployment Claims Fall Aiding Economic Data

The number of new claims for unemployment benefits fell more than expected last week, which added to both the labor market outlook and the broader economy. The upbeat news, however, was undermined somewhat by other data on Thursday showing a slump in exports in December.

The Street felt that the labor market recovery appeared on track after some recent data had raised concerns about the economy's health. Economists said a government report on January hiring on Friday should send a similar signal.

Initial claims for state unemployment benefits declined 20,000 last week to a seasonally adjusted 331,000, the Labor Department said. While the data has no direct bearing on January's employment report, as it falls outside the survey period, it bodes well for the jobs market.

Hiring is expected to have accelerated in January after being held down by unseasonably cold weather the prior month. That would offer confirmation that the economy continued to expand after robust growth in the second half of 2013 that was driven by consumer spending, inventory accumulation and trade.

So far, data for January have been mixed. Cold weather caused a sharp slowdown in factory activity and held back automobile sales, and retailers on Thursday complained of reduced traffic volumes because of the freezing temperatures.

Kohl's Corp reported that sales last month were "significantly" lower than expected. While some chains managed to register sales gains, those came either at the expense of rivals or profit margins.

On the other hand, reports on Wednesday showed relatively strong hiring by private companies and acceleration in services sector activity after two months of slower growth.

The largest decline in exports since October 2012 helped widen the trade deficit by 12 percent in December to $38.7 billion, the Commerce Department said. When adjusted for inflation, the trade gap rose to $49.5 billion.

In its first estimate of fourth-quarter GDP last week, the government said trade accounted for 1.33 percentage points of the economy's 3.2 percent annual growth pace during the period.

However, the deficit in December was bigger than the government had assumed, and economists said fourth-quarter GDP growth would likely be lowered when a revision is published later this month.

The deficit last year was the smallest since 2009, helped by record exports and the first drop in imported goods in four years.

In December, however, exports dropped 1.8 percent, even as petroleum and food exports hit a record high, and imports edged up 0.3 percent. Imports of consumer goods hit an all-time high, but the impact was muted by a fall in the price of imported crude oil, which hit its lowest level since February 2011.

A separate report showed productivity rose at a strong 3.2 percent rate in the fourth quarter after rising 3.6 percent pace in the third quarter as businesses managed to step up output sharply while keeping a lid on hiring and hours worked.

Still, the underlying trend remained soft. For all of 2013, productivity rose just 0.6 percent, the smallest gain since 2011.

The rise in fourth-quarter productivity helped keep down unit labor costs - a gauge of the labor-related cost for any given unit of output. They fell at a 1.6 percent rate, showing no wage inflation pressures in the economy. For the year as a whole, unit labor costs were up just 1.0 percent, the weakest reading since 2010.