The US markets closed at fresh record highs on Thursday, driven by a rally in energy and materials sectors, which followed rising oil prices higher. The rally comes a day after the S&P 500 and Nasdaq suffered the first down day of the year on anxieties about appetite for Treasurys from the world's second-largest economy, China. Optimism about earnings growth and the potential windfall from lower corporate tax rates have been fueling equity market gains. Investors shrugged off weaker-than-expected jobless claims and wholesale inflation data to chase stocks as the market geared up for the start of fourth-quarter earnings, which could provide a definitive catalyst for investors after what has mostly been a strong start to 2018. New York Fed President William Dudley said that the Federal Reserve may have to press harder on the brakes at some point over the next few years due to rising risk of a hard landing for the economy. The risk of economic overheating seems like an odd issue to focus on when inflation is low, but it strikes me that this is a real risk over the next few years.
Meanwhile, the federal government ran a budget deficit of $23 billion in December, down $4 billion from the same month a year ago. Spending rose by $2 billion to $349 billion, while revenues climbed by $7 billion to $326 billion in the month. Homeland Security spending rose by $2 billion or 39%, which the Congressional Budget Office attributed largely to disaster relief. There was also a 10% jump in individual withheld and payroll taxes, which the Congressional Budget Office (CBO) attributed to increases in wages and salaries. The figures come as lawmakers are attempting to strike a deal to keep the government operating past January 19, and also follow President Donald Trump's signing of a $1.5 trillion tax cut into law on December 22. Compared to the first three months of the prior fiscal year, the deficit is growing. It's up 7% so far in fiscal 2018. The government's budget year runs from October through September.
On the economy front, initial US jobless claims climbed by 11,000 to a nearly four-month high of 261,000 in the seven days ended January 6. That's the highest level since mid-September and well above the 248,000 forecast. The more stable monthly average of claims increased by 9,000 and stood at 250,750. That's the highest level since early October. The number of people already collecting unemployment benefits, known as continuing claims, fell by 35,000 to 1.87 million. Claims often exhibit big ups and downs after the end of the holiday season. Workers hired for temporary jobs are let go and state employment offices take longer to process applications. New York showed a particularly big increase in claims in the first week of 2018. They more than doubled to nearly 50,000 in raw or unadjusted terms.
The Dow Jones Industrial Average added 205.6 points or 0.81 percent to 25,574.73, the Nasdaq gained 58.205 points or 0.81 percent to 7,211.78, and the S&P 500 edged higher by 19.33 points or 0.70 percent to 2,767.56.