By Caitlin McCabe and Caitlin Ostroff 

U.S. stocks edged higher Thursday as investors' optimism over stronger-than-expected earnings overshadowed signs that the labor market is still struggling to recover.

The S&P 500 and Dow Jones Industrial Average rose in recent trading after swinging between gains and losses for much of the day. The broad benchmark index gained 0.2%, while the Dow rose about 50 points, or 0.2%.

The Nasdaq Composite also rallied, gaining 0.7%, propelled higher by stocks including Apple and Amazon.com.

Despite a turbulent start to 2021, U.S. stocks have largely continued to climb, with all three indexes currently up 2% or more year-to-date. The Nasdaq, in particular, has posted a strong performance, gaining 5% for the year, while the Russell 2000 index of small-cap stocks has risen 8.8%.

Driving some of those gains has been optimism that further economic recovery may be ahead under President Biden's new administration. Mr. Biden has called for a $1.9 trillion Covid-19 relief plan that includes direct payments to households and more money for testing and vaccine distribution. On Wednesday, the day that Mr. Biden took office, the S&P 500 and the Dow posted their best Inauguration Day performances since 1985, when Ronald Reagan was sworn in for his second term, according to Dow Jones Market Data.

Better-than-expected earnings reports have also buoyed markets recently.

Still, the U.S. economy faces major obstacles, with fresh data Thursday showing that about 900,000 Americans filed first-time claims for unemployment benefits for the week ended Jan. 16, as companies continued to lay off workers amid a surge in Covid-19 cases.

Meanwhile, the coronavirus pandemic continues to loom large. The U.S. reported 4,200 deaths for Wednesday, the second-highest daily number ever.

Analysts say those factors -- along with Netflix's strong earnings this week -- have renewed investor interest for "stay-at-home stocks" that were popular for much of 2020. Technology stocks were bright spots for the market Thursday, with Apple gaining 3.3%. Amazon.com added 1.8%.

"You've got this rotation going on under the surface for a second day in a row where the small-cap stocks and the cyclical plays have been giving some back to the tech and stay-at-home areas," said Ryan Detrick, chief market strategist for LPL Financial. "We think this rotation back to the stay-at-home tech names could have more legs to it."

"That's the lifeblood of a bull market -- to see a rotation," he said.

Traders this month have been closely eyeing earnings to see if they support the strong run across markets in recent months. Many investors are still betting on an economic recovery this year as Covid-19 vaccinations ramp up, increasing prospects for future earnings.

Earning results so far have been better than expected, with the number of companies in the S&P 500 beating estimates so far hovering just below 90% as of early Thursday afternoon, according to FactSet. Several companies have been rewarded by investors for the strong earnings results.

Shares of Travelers, one of the nation's biggest sellers of insurance to businesses and a top consumer-car insurer, climbed 2.6% Thursday after reporting that its net income surged in the fourth quarter.

"Earnings season looks relatively good and seems to confirm this picture that the U.S. -- because there was no full lockdown -- did well in the fourth quarter," said Carsten Brzeski, ING Groep's global head of macro research. "Stock markets are really looking through the short-term outlook for the economy, which has worsened over recent days."

Investors are also paying close attention to corporate guidance in the sectors most affected by the pandemic. Shares of United Airlines fell 5.3% after the airliner said late Wednesday it expected the coronavirus to continue to weigh on travel demand this year.

In other corporate news, Ford Motor climbed 5.6%. Shares of the company have jumped on upbeat analyst notes . Ford also holds a stake in electric-vehicle startup Rivian Automotive, which raised another $2.65 billion earlier this week.

In addition to expectations for possible stimulus ahead, supporting markets is also the expectation that central banks and governments will step in if financial conditions deteriorate. This has encouraged investors to seek out higher returns, including in overseas markets.

Japan's Nikkei 225 Index rose 0.8% Thursday and is trading near its highest level in 30 years. India's benchmark stock gauge, the S&P BSE Sensex Index, hit a record high Wednesday. Indexes in China and South Korea rallied Thursday, with the Shanghai Composite up 1.1% and Korea's Kospi gaining 1.5%.

The pan-continental Stoxx Europe 600 added less than 0.1% after the European Central Bank held steady on interest rates.

The backstop from governments and central banks -- plus consensus among investors for a strong economic recovery this year -- has squeezed volatility out of the market. The Cboe Volatility Index, known as the VIX and seen as Wall Street's fear gauge, was at 21.19 Thursday, down from 25.16 a month ago, but higher than the historical average for the VIX is 19.48.

The yield on the benchmark 10-year Treasury note ticked up to 1.106% Thursday, from 1.089% Wednesday. Yields rise when bond prices fall.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com

(END) Dow Jones Newswires

January 21, 2021 15:30 ET (20:30 GMT)

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