LIVE MARKETS-U.S. stocks rally with earnings in full swing, jobs next

Feb 4 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

U.S. STOCKS RALLY WITH EARNINGS IN FULL SWING, JOBS NEXT (1605 EST/2105 GMT)

Wall Street closed higher on Thursday with the S&P 500 .SPX, Nasdaq .IXIC and the small cap Russell 2000 .RUT all boasting record closing highs for the first time since late January. This as earnings season raged on, and investors watched for stimulus progress, just ahead of the January jobs report due out on Friday morning. .N

The S&P, Nasdaq and the RUT also boasted intraday records on Thursday. The RUT also significantly outperformed the large cap indexes with a near 2% gain, while the S&P, Nasdaq, and Dow .DJI each rose just a little more than 1%.

The morning's data bolstered the mood with the number of Americans filing new applications for unemployment benefits decreasing further last week and suggesting a stabilizing labor market as pandemic-related restrictions loosened. nL1N2K92L7 Also U.S. private payrolls rebounded more than expected in January, according to The ADP National Employment Report released on Wednesday. nL1N2K827W

Citing the data so far this week BNY Mellon Pershing Lockwood Advisors, Chief Investment Officer, Matthew Forester told Reuters' Aleksandra Michalska "the whisper number for the non-farm payrolls has now climbed over 100,000. We were at about 70,000 for consensus earlier this week."

While he said anything less would be disappointing, "given the tone of the recent macro data," Forester is hoping for a "number that might show us turning a little bit of a corner on the labor front."

While the S&P and the Nasdaq boasted their first record closes since January 25, the RUT's last record close was on January 22.

Among the S&P's 11 major sectors, financials .SPNY led the percentage gainers with information technology .SPLRCT next in line. Materials .SPLRCM finished as the sole loser.

Here is your closing snapshot:

(Sinéad Carew, Aleksandra Michalska)

*****

INCHING BACK TO NORMAL: PANDEMIC RECOVERY SOLDIERS ON (1344 EST/1844 GMT)

The United States is gaining ground in its pandemic recovery, with health conditions and strengthening demand leading the charge.

Global financial information firm Oxford Economics (OE) is out with its most recent Recovery Tracker, which shows a robust 2 percentage point gain to 79% of 'normal.'

OE follows 23 discrete metrics and groups them into six baskets: financial, mobility, production, employment, demand, and health.

For the week ended January 22 - the most recent data point available - an accelerated vaccine rollout helped the health tracker jump by 11.5 percentage points to 38.1%, aided by falling positive COVID-19 test rates, while demand strengthened by 1.2 percentage points due to increasing credit card outlays.

These gains were mitigated by drops in mobility (down 1.8 percentage points), financial conditions (falling 1.4 percentage points), and production (off 0.4 percentage points).

The employment tracker was unchanged as lower jobless claims were offset by a rise in internet searches for "unemployment insurance."

"The recent upturn in our Recovery Tracker suggests the recent soft patch was short," writes Gregory Daco, chief U.S. economist at OE. "We expect the economy will grow 5.9% in 2021 as accelerating vaccine distribution and an improved health situation support a summer mini-boom in activity."

The chart below, courtesy of OE, shows a history of the recovery tracker broken down by its six major components:

(Stephen Culp)

*****

LOOKING BACK FOR THE FUTURE (1316 EST/1816 GMT)

While strategists are always quick to point out that every business cycle is different, they love to look to the past for patterns that might repeat.

DataTrek's comparison of 2009/2010 trends with today, is such an effort and comes with a caution sign.

According to co-founder Nicholas Colas, the 2009/2010 playbook says a pullback is coming. His research involves comparing the S&P performance after the March 9 2009 low to its performance following the March 23 2020 low.

Colas graphed the comparison, with orange and blue lines for 2020 and 2009/2010 respectively, and noticed that when the 2020 trend ran ahead of the 2009 experience it "invariably pulled back" and when 2020 lost some of its courage it soon managed to return to the 2010 pathway.

As of Wednesday's close - 219 trading days after the spring lows - the S&P 500 was 71% off the March 23rd, 2020 close, he notes, and on the 219th trading day after the March 9th, 2009 low, the S&P was up 70%.

"Yes, we know. It’s creepy…" wrote Colas.

So with a warning sign flashing at this point of the graph, he asked history what we should expect next. In 2009 he saw a textbook pullback over 13 trading days that shaved 8.2% off the index. But then he notes that the S&P then recovered in the following 30 trading days and ended March 2010 at new highs.

However, before you start worrying about the creepy spirits at work, Colas says its just "an illustration of what happens as we get deeper into a cyclical recovery."

He also notes that 2020 did diverge from 2009 several times, and says 2021 might well do the same. But with many market observers actually looking for a pullback, the comparison could provide suggestions for "what to expect and where to start buying."

Here is a snapshot of Colas orange line/ blue line graph:

(Sinéad Carew)

*****

BANKS LIFT EUROPE TO 4TH STRAIGHT SESSION OF GAINS (1237 EST/1737 GMT)

The pan-European STOXX 600 index has signed off a fourth straight session of gains with a 0.6% rise, setting it on course for weekly gains of 3.4%.

If that still holds on Friday evening, it would be its best week since November.

U.S. stimulus optimism played its part but there was plenty of good news propping up European banks with their index jumping about 2.6%.

Notably, the BoE saying British lenders would need at least six months to prepare for negative rates was a clear boost to the sector which rose 2.8%. Natwest NWG.L and Lloyds LLOY.L rose well over 5%.

In Italy, banking stocks were also on the rise and enjoying watching former ECB head Draghi attempting to build a coalition.

Also on the bright side, Deutsche Bank DBKGn.DE eked out a small profit in 2020 after five years of losses.

While it didn't do much good to the German giant's shares, which closed down 0.3%, there was a positive read across for the sector.

The best performing banking stock was BBVA, up 7.5% and seemingly still very popular after announcing last week a share buyback plan and its intention to resume paying dividends.

Among losers, Unilever ULVR.L stood out with a 6.2% fall after it underwhelmed investors with disappointing sales targets.

Another underperformer of the earnings season was ABB, down 5%. The Swiss group was also criticised for its outlook announced after a surprise Q4 loss.

(Julien Ponthus)

*****

UFO: IN ORBIT ON THE CHARTS (1137 EST/1637 GMT)

Space-related stocks have been on a rocket ride of late. Indeed, the Procure Space ETF UFO.O has outperformed so far in 2021 with a more than 16% thrust vs the S&P 500's .SPX rise of only around 2.5%.

Indeed, there appears to be growing enthusiasm for "final frontier" stocks. This, despite the recent news that a prototype of a Starship rocket developed by SpaceX, billionaire entrepreneur Elon Musk's private space company, exploded during a landing attempt minutes after a high-altitude experimental launch on Tuesday, in a repeat of an accident that destroyed a previous test rocket. nL1N2K82QF

In any event, this did not deflect enthusiasm for UFO, which has hit fresh record highs Thursday:

This week, the ETF broke above its $29.03 February 2020 top, and has extended as high as $29.77. There is a channel resistance line, however, around $29.70, which may hinder strength. The resistance line across highs from mid-2019 now comes in around $31.65, or nearly 7% above current levels.

As of January 31, UFO's top holdings included Iridium Technologies IRDM.O, Virgin Galactic SPCE.N, and Gilat Satellite GILT.TA.

Virgin Galactic has been especially strong this year, with a gain of more than 130%. nL1N2K813D In fact, SPCE shares have more than doubled since ARK Investment Management filed on January 13 for a space exploration ETF. nL1N2JP14C

That said, after spiking to a fresh intraday record in early trade Thursday, SPCE is now down 2% on the day.

(Terence Gabriel)

*****

LAYOFFS PERSIST, LABOR COSTS RISE, BUT FACTORY ORDERS INCREASE (1100 EST/1600 GMT)

Data released on Thursday revealed an economy still hemorrhaging jobs a year into the pandemic recession, with factory orders and labor costs heating up amid ongoing vaccine deployment.

The number of U.S. workers filing first-time applications for unemployment benefits USJOB=ECI fell last week to 779,000 according to the Labor Department, 51,000 fewer than economists estimated. nL1N2K92L7

While any decrease is welcome news, jobless claims have stubbornly remained above 665,000 - the nadir of the Great Recession - for coming up on a year.

"Additional fiscal stimulus and broader vaccine diffusion will put the labor market on a better footing around mid-year," writes Nancy Vanden Houten, lead U.S. economist at Oxford Economics (OE). "But in the near term, we expect jobless claims to remain elevated by historical standards as the pandemic continues to restrict activity."

Continuing claims USJOBN=ECI, reported on a one-week lag, dropped by 193,000 to 4.592 million.

The data sample was taken after the survey period for the Labor Department's comprehensive employment report expected on Friday.

The Commerce Department piped in today, with its announcement that factory orders USFORD=ECI rose by 1.1% in December, faster than the 0.7% anticipated but a slight deceleration from November's upwardly revised 1.3% advance. nL1N2K926D

That advance was limited by a 51.7% plunge in commercial aircraft orders, which, as addressed below in the Challenger Gray report, contributed to the aerospace sector's spike in layoffs.

The deceleration jibes well with the Institute for Supply Management's purchasing managers' index released on Monday, which showed the U.S. manufacturing sector's expansion losing a bit of momentum. nL1N2K71PA

The Labor Department also released fourth-quarter data on labor costs USLCP=ECI and productivity USPROP=ECI.

The report showed labor costs jumped by 6.8% on a quarterly annualized basis in the last three months of 2020, a reversal from the third-quarter's 6.6% decline and a bigger increase than the 4% consensus.

Productivity, on the other hand, fell more than expected, dropping by 4.8%.

"The productivity and costs numbers have been so noisy since Covid struck that the trend has been lost," says Ian Shepherdson, chief economist at Pantheon Macroeconomics. "The Q1 numbers likely will be soft - though better than Q4 - and then Q2 and Q3 should see a substantial post-Covid lift."

"This will drive down the rate of growth of unit labor costs, which right now appear to be signaling big spike in inflation," Shepherdson adds.

Finally, a report from executive outplacement firm Challenger, Gray & Christmas revealed that pre-announced job cuts by U.S. companies USCHAL=ECI rose by 3.3% in January to 79,552.

Demand downturn was cited as the most common reason, and the aerospace/defense sector, hit by drying up new orders referenced above, was the hardest hit.

Year-on-year, January planned layoffs were 17.4% higher.

"While cuts were higher than average last month, we are seeing a leveling off of announcements, which may bode well for recovery in the coming months," says Andrew Challenger, senior vice president at Challenger Gray. "Companies may be reassessing their staffing levels and waiting on the impact of the relief bill before making any additional workforce decisions."

Eyes now turn to the January jobs report due tomorrow morning, which is expected to show a paltry 50,000 increase in nonfarm payrolls, with the unemployment rate holding firm at 6.7%.

The dip in claims, along with a series of upbeat earnings reports put investors in a buying mood in morning trading.

All three major U.S. stock indexes were modestly higher, with small caps and some of the cyclicals out front.

(Stephen Culp)

*****

WALL STREET EDGES UP WITH STIMULUS, DATA IN VIEW (1010 EST/1510 GMT)

Wall Street's three major averages are modestly higher early in Thursday's regular session as investors appear to be clinging to stimulus hopes and economic data showed some promise. .N

On Thursday morning, data showed that the number of Americans filing new applications for unemployment benefits decreased last week, suggesting that the labor market was stabilizing as authorities started to loosen pandemic-related restrictions on businesses. The Labor Department said seasonally adjusted initial claims were 779,000 for the week ended Jan. 30, compared to 812,000 in the prior week and 830,000 applications expected by economists polled by Reuters. nL1N2K92L7

While U.S. worker productivity fell at its steepest pace since 1981 in the fourth quarter, the trend remained solid as the COVID-19 pandemic weighs heavily on less productive industries like leisure and hospitality. nL1N2K928X

On Wednesday, the Democratic-controlled U.S. Congress worked to pass President Joe Biden's $1.9 trillion COVID-19 relief package without Republican support, as the White House said it was flexible on a key element of the plan. nL1N2K91C8

Earnings were a mixed bag with Qualcomm Inc QCOM.O shares the biggest drag on the S&P after it said late Wednesday that semiconductor supply constraints were hampering its sales growth. nL1N2K934C

But PayPal Holdings Inc PYPL.O is the biggest boost after it beat Wall Street estimates for quarterly profit on Wednesday, with a coronavirus-driven shift to online shopping and digital transactions driving record payment volumes. nL4N2K94PR

The financial sector .SPSY is the biggest percentage gainer among the S&P's 11 major sectors, while materials .SPLRCM is the biggest decliner.

Here is your morning snapshot:

(Sinéad Carew)

*****

NASDAQ COMPOSITE: CRACK UNDER THE SURFACE? (0900 EST/1400 GMT)

The Nasdaq Composite .IXIC ended just slightly lower on Wednesday, finishing only around 25 points, or just 0.19%, below its January 25 record-high close of 13,635.992.

Meanwhile, the Nasdaq New High / New Low (NH/NL) index .AD.O, a measure of internal strength, finished at its lowest level in nearly 3 months nL1N2K00Y5:

On January 29, the Nasdaq NH/NL index ended a 46-trading-day streak of greater than 90% readings. This was its longest such streak since a 46-trading-day run from March 1 to May 4, 2010. Of note, back then, once the streak ended, and with the NH/NL index then deteriorating, the Composite ultimately collapsed nearly 20% over the next 47 trading days.

Additionally, the NH/NL index's recent high, on January 21, was 96.4%, or just decimals below the 96.6% high hit during the 2010 streak. As of Wednesday, the measure has now deteriorated to 88.5%.

It now remains to be seen if the January 21 high marked a momentum peak for this measure, and if the Composite simply became so overheated that it is vulnerable to weakness. nL1N2K91DE

Additionally, any new IXIC high, unconfirmed by the NH/NL index, will start the clock ticking on a divergence pattern. Just since early last year, periods of market instability were preceded by this measure diverging from the Composite.

(Terence Gabriel)

*****

FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE: nL1N2KA171

(Terence Gabriel is a Reuters market analyst. The views expressed are his own)