MarketView for March 7

Summary

The equity markets were modestly higher on Thursday, with the Dow Jones Industrial Average ending at a record high for a third straight day as jobless claims indicated to an increase in the labor market's recovery a day before the closely watched payrolls report.

The Dow and the S&P 500 indexes were higher for the fifth straight day as investors looked for opportunities to buy into the recent rally. However, caution ahead of the jobs report curbed gains and kept the S&P more than 1 percent below its record close.

Growth-oriented sectors led the day's gains. Shares of Dow component Bank of America ended the day up 2.9 percent to close at $12.26 while JPMorgan Chase added 1.2 percent to $50.63.

A strengthening economy and loose monetary policy by central banks around the world have pushed share prices upward this year. At the same time, gains have been more subdued. One reason is that worries remain as Washington debates the path of fiscal policy, the euro zone is not out of its crisis, and U.S. economic growth remains anemic.

However, the latest economic data was encouraging, as the number of new claims for unemployment claims fell unexpectedly last week to a seasonally adjusted 340,000. It was the second straight week of declines.

Investors will stay focused on the labor market ahead of Friday's non-farm payrolls report, which is expected to indicate that the economy added 160,000 jobs in February. While it has been a soft spot in the economic recovery, the labor market is seen as healing slowly.

The Dow is up 9.4 percent so far this year, while the S&P 500 is up 8.3 percent. The Russell 2000 Index, which measures the performance of 2,000 U.S. small-cap companies, closed at a record high in Thursday's session, as did the Russell 1000 and the Russell 3000.

In a separate report on Thursday, the Commerce Department reported that our international trade deficit widened more than expected in January as crude oil imports rose and fuel oil exports fell. In contrast, the department cut its estimate of the December trade gap.

Shares of Ciena ended the day up 17.3 percent to close at $17.53 after the company reported a smaller quarterly loss.

Retail stocks were among the most active following February same-store sales. The Gap rose 4.1 percent to end the day at $35.87 as its results were stronger than expected. Zumiez fell 4.8 percent to end the day at $22 on a weak report. Hot Topic reported that it will be bought by private equity firm Sycamore Partners for about $600 million. Shares of the retailer moved up a sharp 29 percent to $13.87.

Time Warner rose 2.4 percent to $56.78 after the company said it would spin off its magazine unit, ending weeks of merger talks with Meredith. Meredith fell 6.2 percent to close at $37.82.

On the down side, shares of PetSmart fell 6.6 percent to $62.18 after the company's earnings forecast missed Street estimates. At least two brokerages cut their price targets on the retailer's shares.

Volume was light, with about 6.1 billion shares changing hands on the three major equity exchanges, a number that was below the daily average so far this year of about 6.48 billion shares.

Claims for Unemployment Insurance Fall

The number of Americans filing new claims for unemployment insurance fell unexpectedly last week, suggesting a pick-up in the labor market recovery and the pace of economic growth. That data was the latest one of many to indicate the economy's resilience in the face of higher taxes, although a separate report showing the trade gap widened in January, dimmed the near-term outlook a bit.

Initial claims for jobless aid fell by 7,000 claims to a seasonally adjusted 340,000 claims, the Labor Department reported. It was the second straight weekly drop, and it confounded
Street expectations. The four-week moving average for new claims, a better measure of labor market trends, fell 7,000 to 348,750 - the lowest level since March 2008.

Job gains of at least 250,000 per month are needed over a sustained period to significantly dent the ranks of the unemployed. Job growth averaged 200,000 in the three months through January.

High unemployment prompted the Federal Reserve last year to launch an open-ended bond buying program to keep borrowing costs low. The U.S. central bank said it would keep up the program until there was a substantial improvement in the outlook for the labor market.

In testimony to Congress last week, Fed Chairman Ben Bernanke signaled the central bank would press forward with plans to buy $85 billion in bonds per month.

A 2 percent payroll tax cut ended and tax rates went up for wealthy Americans on January 1. In addition, $85 billion in federal budget cuts that could slice as much as 0.6 percentage point from growth this year started on March 1.

In another sign of improving economic conditions, household debt grew at its fastest pace since early 2008 in the fourth quarter of last year, the Federal Reserve said in a report.

Other reports showed steady job gains and a pick-up in tax refunds helped to boost sales at several retailers in February. The new reports added to recent data on housing and factory activity that have pointed to acceleration in growth.

In a separate report, the Commerce Department said the trade deficit widened to $44.45 billion in January from $38.14 billion in December. Exports fell, giving back the bulk of December's gains, while imports rebounded after being held down by disruptions to port activity in the prior months. The inflation-adjusted trade deficit widened to $48.0 billion from $44.2 billion in December. Economists said this implied trade would be a small drag on first-quarter growth.

While layoffs have ebbed, companies are not in a hurry to step up hiring as demand remains lackluster. Claims are tucked in the low end of a 330,000 to 375,000 range for this year.

Another report showed planned layoffs companies rose for the second month in a row in February as the financial sector cut the most employees in over a year. Still, planned layoffs remain at historic low levels.

Consumer Debt Up

Consumer credit in January recorded its largest increase in five months, as consumers borrowed to buy cars and go to school, Federal Reserve data showed on Thursday. Total consumer installment credit expanded by $16.15 billion to $2.795 trillion. Revolving credit, which mostly measures credit-card use, rebounded $106 million in January after a falling a revised $3.16 billion in December.

Non-revolving credit, which includes auto loans as well as student loans made by the government rose $16.04 billion in January. That followed an $18.25 billion increase in December.