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LIVE MARKETS-Wall Street adds to records with a dollop of stimulus hope

LIVE MARKETS-Wall Street adds to records with a dollop of stimulus hope

· 02/05/2021 16:37
LIVE MARKETS-Wall Street adds to records with a dollop of stimulus hope

Major stock close up; small caps outperform

Materials lead S&P sector gains; tech, barely off, is sole loser

Dollar falls; gold, oil rise

U.S. 10-year Treasury yield ~1.17%

- 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



WALL STREET ADDS TO RECORDS WITH A DOLLOP OF STIMULUS HOPE (1605 EST/2105 GMT)

Wall Street's major averages closed higher on Friday with the S&P 500 .SPX and the Nasdaq .IXIC building on the previous day's records as investors coped with the disappointment of a softer than expected January jobs report by betting on the passage of U.S. President Joe Biden's hefty stimulus package. .N

The Dow Industrials .DJI gained too, but it was the only one of the three major indexes still waiting to surpass its most recent closing and intraday records. During the session, it came within shouting distance of its all time high of 31,272.22, reached January 21, before receding and closing at 31,148.24.

For the week, the S&P 500 advanced around 4.6% while the Nasdaq rose 6% and the Dow added about 4%. This was the strongest advance for the S&P and the Nasdaq since the week of the U.S. presidential election. For the Dow, it was the strongest gain since the week ended Nov. 13, when very positive vaccine news emerged.

The Russell 2000 .RUT was the real standout for the week with a near-8% surge that was its biggest since the week ending June 5. The small-cap index has now advanced for five straight days, which is its longest winning streak since May. For the day, the RUT closed up 1.4%.

Between stimulus and vaccination hopes, investors had some things to lift their spirits going into the weekend.

"In the senate Biden's stimulus plan looks like it's got some legs. A lot of people were thinking that because of the GOP pushback it wouldn't get passed ... but it looks like even without GOP support this could get passed in Congress," said King Lip, chief investment strategist at Baker Avenue Asset Management in San Francisco.

"If we get these stimulus checks out there'll be more money available for discretionary spending for people. With the vaccine rolling out ... combined with stimulus checks, anecdotally a lot of people are looking to start traveling more."

Among the 11 major S&P industry sectors materials .SPLRCM advanced most with a 1.7% gain. Market darling technology .SPLRCT was the only loser with a tiny 0.2% drop

Here is your closing snapshot:

(Sinéad Carew)

*****


WHAT WERE YOU THINKING? (1338 EST/1838 GMT)

With jobs looking soft as the, hopefully, melting snow, and the coronavirus still lurking, Morgan Stanley put out the results of its Feb 1-2 survey of 2,000 U.S. consumers.

Asked about their top concerns, 58% unsurprisingly cited the virus, while 45% were most worried about the political environment and 34% listed rising inflation as top of mind.

Compared with the last survey though, virus worries were trending lower while political concerns were higher, although they were below pre-election peaks, and inflation concerns moved higher.

With 7% of respondents saying they were already vaccinated for COVID-19, vs 2% a month ago, those who had been inoculated or said they were likely to seek it, stayed stable at around two thirds of respondents.

In terms of the economic picture there was not that much difference between the optimists and the pessimists with 42% of respondents expecting the economy to improve over the next 6 months and 40% expecting things to get worse.

While this looked less optimistic than last month it was within the range for the last few months.

Regarding personal household financials, the six months outlook is stable with 81% of consumers vs. 82% a month ago seeing their own finances getting better or staying the same.

With re-opening, spending is expected to bounce back to pre-Covid levels for most categories according to Morgan Stanley with increases expected in groceries, leisure, household supplies and entertainment activities. It said that International travel showed a particularly "big net spending intention uplift" from the last survey.

Who wouldn't want to get away right now?

As if on cue, hotel stocks are the biggest percentage gainers on Friday in the consumer discretionary sector .SPLRCD, which itself was the second biggest percentage winner among the 11 major S&P 500 sectors.

(Sinéad Carew)

*****



EARNINGS PICTURE NUDGES FURTHER INTO THE LIGHT (1300 EST/1800 GMT)

With 286 fourth-quarter reports already out, the tally is moving in a positive direction with current S&P 500 .SPX blended estimates now calling for 2.4% earnings per share growth, according to Refinitiv's Tajinder Dhillon.

This was after the blended number - including actual reports and estimates for companies yet to report - turned positive for the first time this week vs January expectations for a >10% drop. nL1N2K924P

The 12.7 percentage point improvement was the fourth largest going back to the third quarter of 2002. And excluding the extremely weak energy sector, the growth estimate would actually be 6%.

The research also says earnings are coming 17.7% above expectations in aggregate compared with an average beat of 3.6% back to 1994 and 12.4% for the last four quarters.

Reports the market is noticing include Estee Lauder Cos Inc EL.N, which on Friday is rising 7% after surprise quarterly sales growth and profits that beat estimates on strong demand for premium skin-care products and fragrances in China. nL4N2KB39W

That said, Unity Software U.N shares are off 9% after the gaming platform's financial guidance underwhelmed given high expectations embedded in its valuation. nL1N2KB1RU

Outlook was also a sore point at Peloton Interactive Inc PTON.O, a big beneficiary of pandemic restrictions, after it forecast lower-than-expected quarterly earnings due to logistics issues following a demand surge for its stationary bikes and treadmills, sending its shares down 8%. nL4N2KA4J9

Shares of Snap Inc SNAP.N, owner of photo-messaging app Snapchat, are gaining ~5% after user growth and revenue beat fourth-quarter estimates although the initial after-hours reception on Thursday was frosty as it warned Apple Inc AAPL.O privacy changes could hurt its ad business. nL1N2KA31C


(Sinéad Carew)

*****


EUROPE'S CLOSE: A FLAT END TO AN UPBEAT WEEK (1155 EST/1655 GMT)

Europe's close looks very much like a thin French crepe.

The STOXX 600 is completely flat which makes it hard to decide whether the series of four-straight positive sessions achieved this week is broken or not.

Anyhow, for those worried about bubbles creeping up, this is very far from the 11-straight sessions of gains reached in 1999 during the dotcom frenzy.

What's for sure though is that it has been the best week since November with a gain of 3.5%.

Again, banks have spearheaded the rise and jumped 7.7% in five days, also the highest weekly progression since November.

Here's the close with the STOXX in purgatory cyberspace:



(Julien Ponthus)

*****



BULLS GET LEANER (1130 EST/1630 GMT)

The level of optimism among individual investors about the short-term direction of the U.S. stock market fell to its lowest level in 13 weeks according to latest American Association of Individual Investors Sentiment Survey (AAII).

The survey also showed a decrease in pessimism and an increase in neutral sentiment.

AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, slipped 0.3 percentage points to 37.4%. Bullish sentiment was last lower on October 28, 2020 (35.3%). And optimism is below its historical average of 38.0% for the second consecutive week.

Bearish sentiment dipped 2.7 percentage points to 35.6%. Pessimism is above its historical average of 30.5% for the fourth consecutive week.

Neutral sentiment gained 3.0 percentage points to 27.1%. Neutral sentiment remains below its historical average of 31.5% for the 52nd time out of the past 55 weeks.

With these changes, the bull-bear spread rose to +1.8 from minus 0.6 last week nL1N2K41RD:



In this week's special question AAII asked members for their opinions about the Federal Reserve’s decision to maintain its current monetary policy.

Slightly more than half of all respondents (51%) said that they agree and that the Fed has little choice but to continue with its current policy.

This compares to 38% of respondents who said that they are concerned about the long-term consequences of this policy. Many respondents in this group also said that when rates eventually go up, it could have a "devastating impact on the economy."

(Terence Gabriel)

*****


JOBS REPORT DEEP DIVE: JANUARY'S BIG CHILL (1050 EST/15505 GMT)

The hotly-anticipated January employment report was largely expected to be underwhelming in the face of resurgent COVID-19 infections and a slower-than-expected vaccine rollout.

And while market participants got what they were expecting, aside from a surprise dip in unemployment, the underlying data provides little reason to celebrate.

The U.S. economy added a paltry 49,000 jobs USNFAR=ECI in the first month of 2021 according to the Labor Department, a hair below expectations. nL1N2KA34D

The relatively weak rebound is cold comfort, coming on the heels of December's revised loss of 227,000, much steeper that previously reported.

The lackluster report arrives at a time when Washington is pushing Biden's robust stimulus package toward passage while vaccines are being deployed and as the economy enters its twelfth month of pandemic-induced recession.

In that time, the U.S. economy has recovered just over half of the 22.2 million jobs lost at the onset of the health crisis.

"The weakness portrayed in today's labor report opens the door for the Biden administration to push forward with a higher spending package and provide relief for many Americans and businesses that continue to struggle with the pandemic," writes Charlie Ripley, senior investment strategist at Allianz Investment Management. "Despite the soft report, market reaction was favorable as the odds for a bigger stimulus package have only been increased."

While the unemployment rate USUNR=ECI unexpectedly dropped to 6.3% from 6.7%, the decline was partly attributable to people incorrectly classifying themselves as 'employed but absent from work.'

Additionally, long-term unemployed account for the largest slice of the unemployment duration pie, at 39.5% of the total.

And the participation rate edged down to 61.4% as workers grew increasingly discouraged over job prospects and left the labor market, which also is likely to have pushed the unemployment rate lower.

But how much is the low participation rate a product of fear?

"Many people are afraid of COVID and are not wanting to go back to some of these roles," says JJ Kinahan, chief market strategist at TD Ameritrade. "Part of the participation rate is people want to get the vaccine before they decide to get back on the horse."

Finally, average hourly earnings growth held steady at an elevated 5.4% annual rate, suggesting that lower-paying, customer-facing services jobs, which bore the brunt of lockdown-related layoffs, have yet to come back.

As we head into the spring and the summer, we'll see many of those leisure and hospitality jobs coming back but that will take some time," Kinahan adds. "My hope is when more people get the vaccine employment will return, particularly in customer-facing roles."

Investors took the employment report largely in stride and chose instead to focus on the likelihood of a robust fiscal aid package from Capitol Hill.

All three major U.S. stock indexes were modestly green.

(Stephen Culp)

*****


DOW INDUSTRIALS: TRIES TO SWING FOR ITS HIGHS (1005 EST/1505 GMT)

The Dow Industrial's .DJI violent swings from its January 21 high into its January 29 low now appear to have been a corrective pattern on the charts. nL1N2K91DE

Indeed, on Thursday, the blue-chip average was able to overwhelm a short-term resistance line and exceed Tuesday's high. With that thrust, the index is now challenging its 31,188.38 record-high close/31,272.22 record-intraday high:



Additional hurdles can be found at monthly log-scale resistance lines from late 2018, now around 31,500, and 1929, now around 33,000. These barriers are 0.7% to 5.5% above the record intraday high.

Of note, despite the recent weakness, the Dow is on track for a 4th straight higher monthly low. This, even though the Nasdaq Composite .IXIC nL1N2KA154, and the NYSE Composite .NYA nL1N2K218U, may have cracks under the surface. Therefore, a Dow reversal below January's trough at 29,856.30 may add to any renewed negativity.

Meanwhile, despite the Dow flirting with record highs, its monthly RSI is failing to confirm the move. Although rising, this study remains shy of its 2020 and 2019 tops, and well below its 2018 highs.

In fact, given the Dow's swings since early 2018, the oscillator has been unable to muster enough strength to end a month above the overbought threshold (70.00) for more than 2 years. Protracted stretches of monthly RSI divergence have preceded significant periods of Dow nL1N2JI1FF and S&P 500 .SPX nL1N2K7193 instability.


(Terence Gabriel)

*****

A (UK) DREAM OF SPRING (1004 EST/1504 GMT)

A Dream of Spring is expected to be the last novel of George R.R. Martin's epic fantasy saga which was adapted to the screen in HBO's Game of Thrones.

A lot of the action is set during a winter which lasts for years and during which an army of zombies march through the civil war-torn continent of Westeros, a fictitious land which looks very much like a map of Great Britain and Ireland turned upside down.

Granted, COVID-19 isn't on the same scale as a horde of living dead in terms of catastrophes but the UK would also be entitled to dream of spring as it battles through a most deadly winter.

And hope there is!

"Beginning with schools and non-essential shops, we expect the UK to start the stepwise reopening process by mid-March", Berenberg's team of economists said in note looking into the prospects of the UK economy going back to normal.

There's been a lot of good news lately: the lockdown is working and "based on the recent five day average, recorded infections could be at summer 2020 levels within two weeks".

That good trend comes as Britain is emerging as one of the most successful countries in vaccinating its population with hopes that 15 million people most at risk will have had a jab in the arm come mid-February.

Spring in itself should also help fight the pandemic with "the normal remission of seasonal respiratory viruses" according to the research note.

Looking further ahead, it gets even better as the vaccine rollout continues to do its thing.

"By summer, almost all of the economically significant restrictions are likely to be lifted – perhaps with some exceptions such as public events at full capacity", the Berenberg team of economists believe.

Here's Berenberg's chart showing how infections are expected to drop going forward:



(Julien Ponthus)

*****


WALL STREET POINTS UP WITH STIMULUS, JOBS INTERTWINED (0905 EST/1405 GMT)

S&P e-mini futures EScv1 are pointing to a higher open on Friday as Democrats pushed ahead with their plans for approving COVID-19 stimulus and data showed January jobs growth was slightly below expectations and prior month revisions were on the bleak side.

Indeed, U.S. employment growth rebounded slightly less than expected in January and job losses the prior month were deeper than initially thought, strengthening the argument for additional relief money from the government to aid the recovery from the COVID-19 pandemic. nL1N2KA34D

While rising wages and average work week indicated to Sameer Samana, senior global market strategist at Wells Fargo Investment Institute that things may not be as bad as they seem, he also pointed to a need for government support.

"Job growth slowed markedly in January, and the previous two months’ revisions were also to the downside. It is worth noting that the unemployment and underemployment rates both fell, however some of that may be due to a decrease in the participation rate," said Samana.

"These data points show that the labor market has softened in the past few months and the need for fiscal stimulus remains high."

The U.S. House of Representatives will vote on Friday on final passage of a budget resolution that would allow Democrats in Congress to approve President Joe Biden's $1.9 trillion COVID-19 relief package without Republican support, a Democratic leadership aide said. nL1N2KB170

Here is your premarket snapshot:

(Sinéad Carew)

*****


FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE: L8N2KB47I








Wall St points to higher openhttps://tmsnrt.rs/3oRS3wi

dream of springhttps://tmsnrt.rs/36LalJi

Dow02052021Chttps://tmsnrt.rs/3ayXOtO

nonfarm payrollshttps://tmsnrt.rs/2Lt8oKk

unemploymenthttps://tmsnrt.rs/2YPbETa

Participation ratehttps://tmsnrt.rs/2MZ0PLP

Hourly wage growthhttps://tmsnrt.rs/39NAwkx

AAII02052021https://tmsnrt.rs/39QwOGT

closerhttps://tmsnrt.rs/3jnDlMr

Wall Street ends higher with stimulus on the cardshttps://tmsnrt.rs/3oTTtWU

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