MarketView for May 1

Summary

It was a relatively uneventful day as far as share prices were concerned on Thursday. The S&P 500 ended nearly flat as the Street awaited Friday's jobs report, though gains in Internet shares helped lift the Nasdaq. The Dow Jones Industrial Average eased back into negative territory for the year, a day after closing at its first record high of 2014.

The April jobs report, which is expected to show employment rose at its fastest clip in five months based on a Reuters’ survey, could further confirm the economic momentum is back on track after a dismal winter.

Thursday's April car sales report indicated a rebound from the winter, sending General Motors shares up 1.2 percent to end the day at $34.90. Facebook was up 2.3 percent at $61.15, and other Internet shares were among the day's best performers, helped by strong results from Yelp, whose shares gained 9.8 percent to close at $64.02.

Tech shares had sold off in recent weeks on concerns that they, along with biotech "momentum" names, were overvalued. The Nasdaq lost 2 percent in April compared with the Dow and S&P 500's slight gains.

Among other Internet gainers, TripAdvisor added 3.4 percent to end the day at $83.50 while Amazon rose 1.2 percent to close at $307.89.

After the bell shares of LinkedIn fell 2.7 percent to $156.85 in response to the company’s 2014 revenue forecast that was below analysts' expectations. Expedia fell 1.5 percent to $72.80 even as its adjusted profit topped expectations.

During the regular session, the biggest drag on the S&P 500 was Exxon Mobil. The shares fell 1 percent to $101.41, despite reporting first-quarter earnings that exceeded expectations.

DirecTV rose 4.1 percent to $80.76 after the Wall Street Journal reported that AT&T had approached the company about a possible acquisition. Shares of AT&T fell 0.3 percent as a result to $35.58.

Early Thursday, jobless claims unexpectedly rose in the latest week, though the underlying trend continued to point to an improving labor market. Consumer spending recorded its largest increase in more than four and a half years in March.

Approximately 6.4 billion shares changed hands on the major equity exchanges, a number that was below the 6.7 billion share average of the last five days, according to data from BATS Global Markets.

And Now For Some Good Economic Data

The Commerce Department Consumer reported on Thursday that consumer spending chalked up a 0.9 percent gain during March after rising by 0.5 percent in February. It was the largest gain in more than 4-1/2 years during March. Consumer spending accounts for more than two-thirds of all economic activity. When adjusted for inflation, it increased 0.7 percent in March after advancing 0.4 percent in February. That was also the largest gain since August 2009 and put consumer spending on a strong upward trajectory heading into the second quarter.

In an early sign of growing consumer spending, four of the top six automakers, including Chrysler, Toyota and Nissan reported year-to-year gains in sales on Thursday.

Factory activity accelerated last month, reinforcing views the economy was regaining steam. In a separate report, the Institute for Supply Management said its index of national factory activity rose to 54.9 last month, up from 53.7 in March. A reading above 50 indicates expansion in the nation's factories.

Manufacturing activity has now accelerated for three consecutive months and last month's gains were driven by a pickup in employment, export orders and inventories. New orders, however, were unchanged.

Data so far, including employment and industrial production, suggest there was momentum in the economy at the tail end of a difficult first quarter, providing a springboard for faster growth in the April-June period.

The economy grew at an annual rate of only 0.1 percent in the first three months of the year. Economists and the Fed pinned the slowdown on the impact of a brutal winter. A moderation in the pace of restocking by businesses, which is likely temporary, also weighed on growth.

There is, however, a risk that first-quarter growth could be lowered to show a contraction after a report from the Commerce Department showed an unexpectedly smaller rebound in construction spending in March.

While another report from the Labor Department showed an unexpected rise in the number of Americans filing for unemployment benefits last week, the overall trend in initial claims continued to point to improving labor market conditions.

Initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 344,000. Economists had expected a decline to 319,000. The four-week moving average for new claims rose only 3,000 to 320,000.

Claims are volatile around this time of the year because the timing of the Easter and Passover holidays and school spring breaks makes it difficult to adjust for seasonal fluctuations.

The government is expected to report on Friday that nonfarm payrolls increased by 210,000 last month after rising by 192,000 in March, according to a Reuters survey. The jobless rate is forecast falling one-tenth of a percentage point to 6.6 percent.

In March, consumer spending was buoyed by a 1.4 percent increase in spending. Spending on durable goods rose 2.7 percent, the largest increase since March 2010. Spending on services increased 0.7 percent, reflecting increased demand for utilities and healthcare services.

Income increased 0.5 percent in March, the biggest gain since August 2013, after rising 0.4 percent in February. Income continues to be supported by government subsidies for healthcare payments. With spending outpacing income growth, the saving rate, which is the percentage of disposable income households save, hit a 14-month low.

Despite the rise in consumer spending, inflation was benign. A price index for consumer spending rose 0.2 percent in March after rising 0.1 in February. It was up 1.1 percent from a year ago, compared to a 0.9 percent year-on-year advance in February.

Excluding food and energy, prices also rose 0.2 percent after gaining 0.1 percent in February. They were up 1.2 percent from a year ago in March, compared to a 1.1 percent year-on-year rise in February.

Both measures remain stuck well below the Fed's 2 percent inflation target, giving the central bank room to keep benchmark interest rates near zero for a while. The Fed plans to wrap up a bond-buying program later this year, but it is not expected to move rates higher until sometime in 2015.