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DJ U.S. Stocks Climb as Investors Focus on Stimulus, Labor Recovery

· 02/05/2021 13:04
By Caitlin Ostroff and Paul Vigna

U.S. stocks rose Friday after a sluggish U.S. jobs report boosted investor bets that a fresh coronavirus-relief spending package will bolster the economy.

The Dow Jones Industrial Average gained 0.3% to 31153. The S&P 500 climbed 0.4% after closing at a record high Thursday. The benchmark is up more than 4% this week, on track for its biggest one-week gain since the week ending Nov. 6.

The tech-heavy Nasdaq Composite rose 0.4%.

On Friday morning, the Labor Department reported that employers added 49,000 jobs in January, and the jobless rate edged lower to 6.3% from 6.7% the month prior. Still, many sectors lost jobs last month, including leisure and hospitality, retailers, health-care companies and warehouses.

"It's because of the ongoing issues around Covid and the dislocations in the economy," said Saira Malik, the chief investment officer of Nuveen Equities. Still, she thought the data was more of a "rearview mirror" look. New coronavirus cases are trending down, vaccines are being distributed, and more government aid is likely. "All of that gives investors confidence," she said.

Many investors believe that the relatively weak jobs report Friday will bolster the odds of a government stimulus package gaining approval. The market has rallied this week as President Biden pushed ahead with efforts to pass a $1.9 trillion relief package. Democrats are using a special procedure to move ahead on the stimulus bill: The Senate on Friday approved a budget plan that advances the reconciliation process necessary to get the aid plan approved with a simple majority in the Senate.

The fresh spending is viewed by many investors as crucial for shoring up the economy, with coronavirus cases still high across parts of the U.S.

"That would be a huge boost to the economy." said Edward Smith, head of asset allocation research at Rathbone Investment Management. "It certainly reduces any short term risk as we wait for the vaccine rollout to get fully up to speed."

Investors remain focused on the rollout of Covid-19 vaccines, which could accelerate the speed of economic recovery. Johnson & Johnson asked U.S. regulators on Thursday to authorize the emergency use of its single-shot Covid-19 vaccine, setting the stage for a potential third vaccine to become available in the U.S. within weeks.

"The more vaccines get rolled out, the more people are going to start moving around," said Gregory Perdon, co-chief investment officer at private bank Arbuthnot Latham.

Shares of Johnson & Johnson rose 1.6%.

Volatility in markets has also declined somewhat this week, after soaring at the end of January to its highest level since late October. The spike came as individual investors on online forums injected money into a handful of stocks, leading to frenzied trading and sharp jumps in prices. The Cboe Volatility Index, a gauge of turbulence in the broader U.S. stock market, fell to less than 22 on Friday, from over 37 last week.

Those heavily traded stocks have since lost some steam, although GameStop swung wildly. It rose some 50% early in trading before paring its gains. It was up 17% in midday trading. AMC Entertainment Holdings slipped 0.8%. Popular trading app Robinhood Markets removed the last of its trading limits on shares of both companies, according to its website.

Another heavily shorted stock, Koss, rose 7%.

The market's gains for the past year have largely been driven by companies that have benefited from the pandemic and the stay-at-home economy, many of them tech firms. Several reported earnings late Thursday.

Pinterest, which added millions more users than expected in its latest quarter, rose 4.6% on Friday. Activision Blizzard, a videogame company, jumped 9.7% after results topped expectations.

Pandemic favorite Peloton said sales and subscriptions more than doubled in the latest quarter. Still, customers have complained about long shipping delays for its bikes, and would-be customers have vented their anger online. The stock fell 8.1%.

The market's gains have been fueled by expectations for earnings growth and a return to normal in the economy, plus central-bank policy that has kept interest rates low. But valuations are dangerously stretched, said James McDonald, the chief executive of alternative-asset manager Hercules Investments.

"We're really in a very tenuous place," he said. Government aid and central-bank policies can prevent a collapse, but they won't create growth on their own. And the sectors that provide the most jobs are the ones that are struggling, he said. The jobs market may not recover fully until 2022, but the market is priced as if it has already happened, Mr. McDonald said.

"Fundamentally, it's unsustainable for the market to stay higher without some dramatic improvement," he said.

In bond markets, the yield on the 10-year Treasury note earlier ticked up to 1.158%, near its highest closing level since March 2020, but most recently was at 1.149%. Yields fall when prices rise.

Overseas, the pan-continental Stoxx Europe 600 was flat. Shares of French bank BNP Paribas rose 2.6% after it reported a smaller-than-expected drop in profit.

In Asia, most major benchmarks advanced by the close of trading. Japan's Nikkei 225 gained 1.5%, and South Korea's Kospi Index closed 1.1% higher. Hong Kong's Hang Seng rose 0.6%. China's Shanghai Composite edged 0.2% lower.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Paul Vigna at paul.vigna@wsj.com

(END) Dow Jones Newswires

February 05, 2021 13:04 ET (18:04 GMT)

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