© Reuters. FILE PHOTO: People are seen on Wall Street outside the New York Stock Exchange (NYSE) in New York City, U.S., March 19, 2021. REUTERS/Brendan McDermid/File Photo

By Chuck Mikolajczak

(Reuters) – U.S. stocks advanced modestly on Thursday, as data showing improvement in the labor market helped fuel expectations the economy continues to recover and spurred a small rotation towards stocks seen as more likely to benefit from the rebound.

The number of Americans filing new unemployment claims dropped more than expected last week to a 14-month low of 406,000 as pandemic restrictions continue to be lifted, while a separate report showed business spending on equipment picked up speed.

The data helped lift U.S. Treasury yields, with the benchmark 10-year note reaching a high of 1.625% and denting the attractiveness of higher-growth names in areas such as technology while helping those seen as more likely to benefit from an improving economy such as financials.

Still, the 10-year yield remained within the range it has been in for several days, which served to keep inflation concerns in check and limited the rotation within sectors.

Investors have been closely watching economic data and comments from Federal Reserve officials for signs of runaway inflation and the possibility the central bank may begin to pull back on its massive stimulus measures.

“They want to see the labor market heal so to that extent the May jobs report will be really important, initial claims beating expectations this morning and coming in at a new pandemic low, but the reality is we are still a ways off from where they want to be,” said Ross Mayfield, investment strategy analyst at Baird.

“Until the labor market heals the Fed is not going to budge and until the Fed budges it’s kind of a holding pattern.”

The rose 108.6 points, or 0.32%, to 34,431.65, the gained 4.57 points, or 0.11%, to 4,200.56 and the added 3.96 points, or 0.03%, to 13,741.96.

U.S. planemaker Boeing (NYSE:) climbed 3.82% after its European rival Airbus outlined an almost two-fold increase in production, citing a strong recovery in aviation from the COVID-19 pandemic.

Boeing supplier General Electric (NYSE:) jumped 6.49% and the two were the biggest boost to the S&P industrials, the best performing sector on the day.

Investors will now look to the personal consumption expenditure report due on Friday as it is the central bank’s preferred inflation measure for its 2% long-term target.

Fed officials have repeatedly maintained in recent days that the central bank is not ready to adjust its monetary support, although some have suggested they are open to begin discussing the reduction of its bond-buying plan. On Thursday, Federal Reserve Bank of Dallas President Robert Kaplan said the labor market is tighter than many realize.

Strategists expect the S&P 500 to end the year at about 4,300, according to a Reuters poll. The benchmark index is currently less than 1% away from its record high of 4,238.04 points.

Nvidia (NASDAQ:) Corp forecast second-quarter revenue above analysts’ estimates, but shares fell 0.99% as the chipmaker could not say for certain how much of its recent revenue rise was driven by the volatile cryptocurrency-mining market.

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