MarketView for January 24

Summary

The smallest of gains gave the Standard & Poor's 500 its seventh straight winning day on Thursday, but the index failed to hold above the 1,500 line, restrained by Apple's worst day in more than four years.

Apple fell 12.4 percent to $450.50 a day after it posted revenue that missed Wall Street's forecast as iPhone sales were less than the Street had been looking for. The sharp decline wiped out nearly $60 billion in Apple's market capitalization to less than $423 billion, leaving the company vulnerable to losing its status as the most valuable company in the United States to second-place ExxonMobil, at $416.5 billion.

The S&P 500, however, managed to hit its longest winning streak since October 2006. The S&P 500 briefly traded above 1,500 for the first time since December 12, 2007, but failed to hold above it, indicating that momentum is waning and a pullback is in the charts.

Economic data helped buoy equities as factory activity hit its highest point in nearly two years during January and new claims for jobless benefits fell to a five-year low last week, giving surprisingly strong signals on the economy's pulse.

At the same time, Chinese manufacturing grew this month at the fastest pace in about two years, while data suggesting German growth picked up boosted hopes for a euro-zone recovery.

The broader Russell 2000 index also hit a milestone as it closed above 900 points for the first time.

Netflix surprised Wall Street with a greater than expected quarterly earnings number after the company added nearly 4 million customers in the United States and abroad. Netflix shares ended the day up 42.2 percent to close at $146.86, its largest percentage increase ever.

Earnings have helped drive the stock market's recent rally. Thomson Reuters data through early Thursday indicated that of the 133 S&P 500 companies that have reported earnings so far, 66.9 percent have exceeded expectations - above the 65 percent average over the past four quarters.

About 6.8 billion shares changed hands on the three major equity exchanges, a number that was below the daily average during January 2012 of about 6.93 billion shares.

New Claim Numbers Fall

The number of new claims for unemployment benefits unexpectedly fell to its lowest level since the early days of the 2007-09 recession. Initial claims for state unemployment benefits fell 5,000 to a seasonally adjusted 330,000, the lowest level since January 2008, the Labor Department said on Thursday. Claims have now fallen for two straight weeks, suggesting that if employers are concerned tax hikes enacted this year will affect consumer demand, this is not leading to more layoffs.

Economists have cautioned about reading too deeply into this month's figures, as claims tend to be volatile around this time of the year. This is because of large swings in the model used by the department to iron out seasonal fluctuations.

A measure of labor market trends nonetheless pointed to an improvement in the labor market's health. The four-week moving average for new claims fell 8,250 to 351,750, the lowest since March 2008.

A Labor Department analyst said claims data were estimated for three states last week, but there was nothing unusual in the state level data. Claims are now at roughly the same level they were in much of 2006 and 2007. Claims started trending higher around December 2007, the month that the country's recession began.

However, while employers have pulled back on layoffs, they have only added jobs to the economy at a lackluster pace. Employers adding 155,000 new positions in December and the unemployment rate held steady at 7.8 percent.

Job gains averaged 153,000 jobs per month in 2012, little changed from 2011. The sluggish labor market and subdued inflation pressures appear likely to keep the Federal Reserve on its ultra-easy monetary policy course.

The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid dropped 71,000 to 3.16 million in the week ended Jan. 12.

Leading Economic Indicators Look Good

A gauge of future economic activity rose in December, pointing to an improvement in growth despite an ongoing political fight in Washington over fiscal policy. The private Conference Board said on Thursday its Leading Economic Index gained 0.5 percent to 93.9 last month, after being unchanged in November.

A drop in new claims for jobless benefits helped drive the gain, as did an increase in new building permits. The Conference Board had previously said its leading index fell 0.2 percent in November, but on Thursday it revised the reading.

Many economists have worried that a debate in Washington over taxes and government spending - which was particularly raucous in December - would lead businesses and consumers to hold back on spending, hurting the economy. The Conference Board's index, however, suggested the economy was picking up speed despite ongoing uncertainty over fiscal policy.