Why Stocks Surged Before the Fourth of July

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Blue-chip stocks closed higher on the eve of tomorrow's holiday thanks largely to a couple of better-than-expected reports about the state of the labor market. The Dow Jones Industrial Average (DJINDICES: ^DJI  ) was up by 0.37%, while the S&P 500 (SNPINDEX: ^GSPC  ) was higher by 0.06%.

In the first case, the Labor Department said today that applications for unemployment benefits fell by 5,000 last week compared with the week before. The number of people submitting jobless claims for the week ended June 29 came in at 343,000. In addition to the fact that this beat the consensus estimate, which called for 346,000 claims, it also represents the lowest level in six weeks.

And in the second case, Automatic Data Processing, which provides payroll services to the private sector, said that companies added more workers than economists predicted last month. According to ADP's estimate, a net 188,000 jobs were created in June compared to the average analyst forecast of 160,000. In economist Mark Zandi's opinion, the report showed that the improvement was "broad-based across industries and businesses of all sizes."

The one disappointing piece of news out today related to the mortgage market. Data from the Mortgage Bankers Association suggested that mortgage applications fell by 11.7% last week following the recent and dramatic uptick in mortgage rates. The refinance market was particularly hard hit, with a 16% decline on a sequential basis.

On the heels of the latter news, it should be no surprise that many bank stocks underperformed the broader market today. For instance, Wells Fargo (NYSE: WFC  ) , the nation's largest mortgage lender by far, finished flat compared with an increase on both the Dow and S&P 500. In the first quarter of this year, the mortgage giant underwrote a staggering $109 billion in mortgages, the vast majority of which were to refinance older home loans. Consequently, investors will be watching this line item closely when Wells Fargo reports its second-quarter earnings at the end of next week.

In terms of Dow stocks, the day's best performance came from Boeing (NYSE: BA  ) , which advanced by 1.4%. Earlier today, the aerospace company released data showing that it delivered more planes than its principal competitor, Airbus, during the first half of the year. Through June, Boeing has delivered 306 jetliners. By comparison, Airbus reported only 295 deliveries.

Alternatively, the worst-performing stock on the index today was Alcoa (NYSE: AA  ) , down by 1.2% at close. The aluminum company was the unwitting victim of a downgrade from JPMorgan Chase. Citing a predicted 5% decline in aluminum prices this year and an even steeper drop next year, analysts at the megabank removed their "buy" label on the company in exchange for a "neutral" rating.

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Related Tickers

9/28/2016 5:27 PM
^DJI $18339.24 Up +110.94 +0.61%
^GSPC $2171.37 Up +11.44 +0.53%
S&P 500 INDEX CAPS Rating: No stars
AA $9.88 Up +0.23 +2.38%
Alcoa CAPS Rating: ***
BA $132.23 Up +0.91 +0.69%
Boeing CAPS Rating: ****
WFC $45.31 Up +0.22 +0.49%
Wells Fargo CAPS Rating: ****