Market Coverage: Friday February 5th Yahoo Finance

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Stock futures rose, adding to Thursday’s record levels after a closely watched report on the labor market missed expectations, possibly making a case for additional fiscal stimulus.

Contracts on each of the three major equity indexes traded higher ahead of the opening bell. Both the S&P 500 and Nasdaq ended at record closing highs on Thursday, and the Dow closed within 0.5% of its own recent all-time closing high. Friday’s January jobs report showed that the U.S. economy returned to adding back more jobs than it lost at the start of this year, but at a slower than expected rate.

The areas of outperformance in the markets this week fit “into three of the potential rotation trades that we’re closely monitoring for 2021,” Kevin Mahn, Hennion & Walsh chief investment officer, told Yahoo Finance on Thursday. “The first being smaller cap stocks starting to outperform larger cap stocks, given the excessive valuation that large cap stocks are currently trading at … emerging stocks outperforming U.S. stocks, and then that potential rotation from growth-oriented stocks value oriented stocks.”

Over the past five days, the financials sector has been the best performing sector in the S&P 500, coinciding with firming Treasury yields. Energy has also outperformed as crude oil prices recovered, given prospects for stronger demand for travel and fuel later this year. The Russell 2000 has also outperformed the S&P 500 this week and so far in 2021, with small cap stocks typically leading the way higher during economic recoveries.

But while some large-cap and growth stocks may seem lofty based on some traditional measures, they may also grow into these valuations given the strong earnings results posted so far for the fourth quarter, some strategists said. The majority of S&P 500 companies that have reported fourth-quarter results thus far have beaten expectations, and many by a wide margin.

“Fourth quarter earnings are really impressive thus far … one way to improve that P/E ratio [is] prices going down, or earnings go up,” Mahn added. “If we continue to see earnings growth, that could also create some more attractive investment opportunities.”

Shares of consumer tech companies that reported earnings results after market close on Thursday traded mixed in the pre-market session.

Snap (SNAP) shares dropped 6% after the company’s disappointing first-quarter guidance overshadowed strong fourth-quarter results, which reflected faster-than-expected sales and user growth and the company’s first-ever full-year adjusted EBITDA profit. Peloton (PTON) shares slid after the company said increased delivery costs would crimp margins, drawing attention away from its first-ever quarter bringing in over $1 billion in revenue. Meanwhile, Pinterest (PINS) shares surged more than 10% to a record high overnight after the company reported a major fourth-quarter top- and bottom-line beat, with revenue jumping more than 76%.

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8:45 a.m. ET: January payroll gains disappoint
The U.S. economy resumed adding back more jobs than it lost in January, as easing stay-in-place restrictions and fiscal stimulus measures out of Washington alleviated some of the pressure on the labor market. However, the number of jobs regained fell short of expectations.

Non-farm payrolls grew by 49,000 in January, coming in at fewer than half the 105,000 expected.

Plus, the depth of the job losses in December were revised to be greater than previously reported. The economy shed 227,000 jobs in December, versus the 140,000 previously reported.

While the unemployment rate improved to 6.3% from 6.7%, the drop coincided with a decline in the labor force participation rate.

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