MarketView for March 1

Summary

The three major equity indexes were higher on Thursday, moving back to 2008 highs, after a rise in bank shares and further upbeat data on the labor market, though sharp gains in oil prices limited the advance. After losses on Wednesday, the rebound took the S&P 500 back above its 1,370 resistance level, which is seen as key to maintaining momentum in this five-month rally.

Bank shares ranked among the best performers on hopes that the European Central Bank's second long-term liquidity injection would ease the region's financial crisis. JPMorgan Chase gained 2.9 percent to close at $40.37.

Brent crude's advance, which took futures above $128 a barrel to the highest since 2008 in post-settlement trading, revived concerns about the effect of higher oil prices on consumers and businesses. Nonetheless, the Dow Jones Transportation Average ended the day up 1.1 percent, thereby suggesting that the rise in oil was not dampening investors’ enthusiasm.

Claims for unemployment insurance, which fell by 2,000 claims to a total of 351,000 claims in the latest week, were viewed as another sign the labor market may be on the mend. The news was partly offset by an Institute for Supply Management report showing the pace of growth in the manufacturing sector slowed somewhat in February.

Automakers and retailers also were among the day's best advancers after reporting surprisingly healthy sales in the face of rising gas prices. Shares of Ford rose 2.3 percent to close at $12.66, while General Motors ended the day up 1.7 percent to close at $26.47.

Mild weather helped many retail chains post better-than-expected monthly sales in February. Gap rose 7.2 percent to $25.05 while Buckle gained 6.9 percent to close at $48.01.

The late-day surge in oil prices followed an Iranian media report of an explosion on an unknown Saudi oil pipeline, but a CNBC report cited a Saudi oil official as saying the report was untrue. Brent crude closed up $3.54 to settle at $126.20 per barrel.

Stocks have held up, however, with the S&P 500 now up 9.3 percent since the end of December.

UBS raised its year-end target on the S&P 500, citing improved economic data, and said the market is likely to continue its upward path over the rest of 2012. Its target is now 1,475, compared with 1,325 previously.

Approximately 7 billion shares changed hands on the three major equity exchanges, a number that was about equal to the daily average of 7 billion shares.

Latest Economic Data a Bit of a Disappointment

Manufacturing was down a bit in February and consumer spending was flat for a third straight month in January, suggesting the economy lost more steam early this year than expected. Other reports on Thursday were more upbeat, with new claims for jobless benefits last week hovering near four-year lows and retailers and automakers enjoying brisker February sales. Nevertheless, the spending and factory data cut into the optimism generated by a recent drop in the unemployment rate, and suggested rising energy prices were taking a toll.

The Commerce Department reported on Friday that inflation and taxes gobbled up income gains in January, and inflation-adjusted spending was unchanged for the third month running. According to the Department, its gauge of inflation rose 0.2 percent in January, picking up a bit from December as energy prices posted their first increase in four months.

Consumer spending and the restocking of company shelves lifted economic growth to a 3 percent annual rate in the last three months of 2011, its quickest pace in more than a year.

The Institute for Supply Management said its national factory index fell to 52.4 last month, indicating a slower pace of expansion. A surge in the ISM's reading of prices paid showed factories were getting stung by oil prices, which have risen on tensions between Iran and the West over Tehran's nuclear ambitions.

The drop in jobless claims also buttressed the view that the economic recovery was still firmly entrenched, and it suggested a government report next week would show companies were still hiring at a brisk pace in February. The number of people receiving benefits under regular state programs after an initial week of aid fell in mid-February to the lowest level since August 2008.