Wall Street closed at record highs on Thursday as rising oil prices lifted energy stocks along with the expectation of a strong corporate earnings season. The reporting season kicks off in earnest on Friday, with results from JPMorgan Chase and Wells Fargo.
Earnings for S&P 500 companies are expected to have increased by 11.8 percent in the recently-ended quarter, with the biggest gain from the energy sector, according to Thomson Reuters I/B/E/S.
The S&P energy sector ended the trading day up two percent as Brent crude went above $70 a barrel for the first time since December 2014, the result of a surprise decline in domestic production and lower crude inventories.
The consumer discretionary sector saw strong gains in media and retail stocks, while the industrials index was helped by airlines after news from Delta Air Lines.
The major indexes pared gains briefly in late afternoon trading on Thursday after New York Fed President William Dudley said tax cuts could lead to economic overheating. He predicted above-trend GDP growth with rising inflation in 2018.
Delta Air Lines ended the trading day up 4.8 percent at $58.52 after it predicted a double benefit from the recent tax bill – savings on its own bill and an uptick in business travel as companies to spend tax savings. It also reported an upbeat quarterly profit.
Delta helped the Dow Jones U.S. Airlines index close up 4.2 percent. The Dow Jones Transport index rose 2.3 percent – its biggest one-day percentage gain since Nov. 29.
Approximately 6.74 billion shares changed hands on the major domestic equity exchanges, a number that was above the 6.39 billion share average over the past 20 trading days.
The Day’s Economic News
Producer prices fell for the first time in nearly 1-1/2 years in December amid declining costs for services, which could temper expectations that inflation will accelerate in 2018.
Other data on Thursday showed initial claims for unemployment benefits increasing for the fourth straight week to more than a three-month high. That probably does not signal weakness in the labor market as the number of Americans receiving jobless benefits is at levels last seen in 1973.
Bitter cold and snow in parts of the country likely kept some workers at home, accounting for last week’s jump in jobless claims.
Weak wholesale prices could stoke fears that the causes of weak inflation will become more persistent and prompt the Federal Reserve to be more cautious about raising interest rates this year.
The Fed is forecasting three rate hikes for 2018. It raised rates three times last year.
The Labor Department said its producer price index for final demand slipped 0.1 percent last month. That was the first drop in the PPI since August 2016 and followed two straight monthly increases of 0.4 percent.
In the 12 months through December, the PPI rose 2.6 percent after accelerating 3.1 percent in November. Economists polled by Reuters had forecast the PPI rising 0.2 percent last month and increasing 3.0 percent from a year ago.
A key gauge of underlying producer price pressures that excludes food, energy and trade services edged up 0.1 percent last month. The so-called core PPI increased 0.4 percent in November. It rose 2.3 percent in the 12 months through December after increasing 2.4 percent in November.
The PPI data came on the heels of a report on Wednesday showing a sharp moderation in import prices in December. While the correlation between those two reports and the consumer price index is weak, they underscore the challenge for the Fed to achieve its 2 percent inflation target.
The price of services fell 0.2 percent in December after nine straight monthly rises. The decline reflected a 10.7 percent drop in margins for automotive fuels and lubricants retailing.
Wholesale food prices recorded their largest decline since May, while energy prices were unchanged. The cost of healthcare services increased 0.2 percent last month after being unchanged in November. Those costs feed into the core PCE price index.
In a second report on Thursday, the Labor Department reported that initial claims for state unemployment benefits increased 11,000 to a seasonally adjusted 261,000 for the week ended Jan. 6, the highest level since late September. Economists had forecast claims falling to 245,000 in the latest week.
A large part of the country faced frigid temperatures and snow during the first week of 2018, likely making it hard for some people to report for work. Unadjusted claims for New York rose by 27,170 last week, more than half of the national total.
Claims have risen since mid-December, though the data tend to be volatile during year-end holidays.
Last week marked the 149th straight week that claims remained below the 300,000 claims threshold, which is associated with a strong labor market. That is the longest such stretch since 1970, when the labor market was much smaller.
The labor market is near full employment, with the jobless rate at a 17-year low of 4.1 percent. The number of people receiving benefits after an initial week of aid dropped 35,000 to 1.87 million in the week ended Dec. 30, the lowest level since December 1973.