US equities rally as continuing claims hit 2-year low
Labor market resilience reduces recession fears amid Fed policy uncertainty
US stocks climbed Thursday as fresh labor market data reinforced confidence in the economy's resilience, with continuing jobless claims dropping to their lowest level in nearly two years. The S&P 500 rose 0.8% in early trading, while the Dow Jones Industrial Average gained 0.6%, as investors welcomed evidence that the labor market remains a pillar of economic strength.
Initial unemployment claims edged up to 210,000 for the week ended March 21, according to Labor Department data, roughly in line with economists' expectations. However, the more telling figure came from continuing claims, which fell to levels not seen since April 2024, signaling that unemployed workers are finding new jobs relatively quickly.
The decline in continuing claims—the number of people receiving ongoing unemployment benefits—suggests employers are holding onto workers despite broader economic uncertainties. A tight labor market supports consumer spending, which accounts for roughly 70% of US economic activity, and reduces the likelihood of a recession in the near term.
"The labor market continues to demonstrate remarkable durability," said Sarah Johnson, senior economist at Wells Fargo Securities. "When people keep their jobs and find new employment quickly, that sustains household income and spending power, which ultimately drives corporate earnings."
The positive jobs report comes at a critical juncture for markets, which have been grappling with uncertainty around Federal Reserve policy. While the central bank has kept interest rates elevated to combat persistent inflation, strong employment data complicates the path to rate cuts. The Fed typically prefers some cooling in the labor market to ease inflationary pressures, but today's figures suggest the economy can withstand current monetary policy without stalling.
Bond yields ticked higher following the release, with the 10-year Treasury rising to 4.32% from 4.28% the previous session, as investors adjusted expectations for the timing of any Fed rate reduction. Government bond yields have been climbing again in recent weeks amid renewed focus on inflation risks.
Sector performance reflected the day's risk-on tone. Technology shares led gains, with the Nasdaq Composite advancing 1.1%. Financials also posted solid increases as higher rates bolster net interest margins. Cyclical sectors including industrials and consumer discretionary outperformed, buoyed by the outlook for sustained economic growth.
The OECD added a note of caution in a separate report, warning that an energy crisis could push US inflation to 4.2%, potentially complicating the Fed's inflation battle. However, investors appeared to focus on the immediate positive signal from the labor market rather than longer-term inflation risks.
Looking ahead, market participants will closely monitor next Friday's nonfarm payrolls report for a broader picture of employment conditions. The continued strength in the labor market has been a key factor supporting equities despite elevated valuations and lingering concerns about corporate profit margins.
"As long as jobs remain plentiful and wages continue growing, the consumer remains the backstop for this economy," said Michael Reinking, senior market strategist at the New York Stock Exchange. "That backdrop should continue to support equity prices even as we navigate policy uncertainty."