U.S. Stocks Edge Higher as Investors Turn Toward June Jobs Data

(Bloomberg) --U.S. stocks edged higher for the sixth time in seven days, amid signs of stability in the labor market as traders turned their focus to the upcoming monthly jobs report.

With markets in Europe rallying after a three-day slide, worries were abating over the impact of Britain's secession from the European Union. Banks, commodity producers and industrial shares that bore the brunt of the post-Brexit selling continued to recover as they paced Thursday's advance.

The S&P 500 Index rose 0.4 percent to 2,107.18 at 10:38 a.m. in New York, after adding 0.5 percent yesterday amid data that boosted optimism that the nation can weather any fallout from the U.K.'s decision to leave the EU. The Dow Jones Industrial Average gained 48.18 points, or 0.3 percent, to 17,966.80. The Nasdaq Composite Index increased 0.6 percent. Trading volume in S&P 500 shares was 10 percent below the 30-day average for this time of day.

“We're setting up for a pretty decent employment situation report on Friday,” said Brian Jacobsen, chief portfolio strategist with Wells Fargo Funds Management LLC, which oversees $242 billion. “This creates a bit of a conundrum for the Fed then. They obviously want to wait to see what the fallout is from Brexit, but the fallout from Brexit is going to be felt over the course of years not over the course of months.”

Investors are keen to get a look at the government's latest reading on employment growth to see if May's weak report was an anomaly. The addition of just 38,000 jobs that month abruptly pushed out investors' expectations for future interest-rate increases, and minutes released yesterday from the Federal Reserve's June meeting showed policy makers want more proof the economy hasn't lost momentum after the disappointing data.

Economists surveyed by Bloomberg expect a rebound, with a 180,000 increase in jobs last month. A report today showed companies added 172,000 workers to private payrolls in June while another gauge showed filings for unemployment benefits unexpectedly declined last week to the lowest level since mid-April, signaling labor market stability amid a shaky global economy.

The S&P 500 has rebounded more than 5 percent since June 27, almost erasing a selloff that followed the Brexit vote. The index rallied last week by the most since November on optimism that central banks will loosen monetary policy to counter aftershocks from the U.K.'s referendum result.

Turbulence has continued to diminish, with the CBOE Volatility Index falling 3.7 percent Thursday to 14.41, the lowest in nearly a month. The measure of market turmoil known as the VIX is on track for back-to-back weekly declines for the first time since April.

“The remarkable snap-back in the market is largely a function of central banks around the world that are not going to raise rates for a good long time so that makes risk assets more attractive,” said Katie Nixon, chief investment officer of wealth management at Northern Trust Corp. “The risk-on rally is off to the races with the central banks either sitting on their hands or contemplating further action.”

Traders are pricing in almost no chance for higher borrowing costs this month, compared to a 55 percent probability a month ago, just before the May jobs report. Odds for a move are now 46 percent or less until at least the end of 2017. Investors and policy makers will continue to scrutinize data to assess the vitality of growth as another earnings season approaches.

Alcoa Inc. unofficially launches the second-quarter reporting period next week, with analysts predicting a profit decline of 5.4 percent compared to a year ago for companies in the S&P 500. That would mark a fifth-straight quarterly drop, the longest streak since 2009.

“There is that balancing act for the Fed in that they are quite right to be vigilant and observant of the U.K.'s position, but at the same time the direct impact on the U.S. economy is probably going to be quite small,” said Daniel Murray, head of research at EFG Asset Management in London. “Markets are looking to nonfarm payrolls tomorrow as the first solid data point following the last Fed meeting to give guidance.”