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U.S. stocks and oil prices rebounded sharply on Thursday as unemployment claims declined and the trade deficit widened - positive economic data in the face of rising COVID-19 cases and signals of declining Federal Reserve stimulus. The Nasdaq and the S&P 500 both closed at records.

The TSX also closed at a record high amid an avalanche of earnings reports from major Canadian firms - with most beating Street expectations. The S&P/TSX Composite Index closed at 20,375.48, a rise of 45.75 points, or 0.23%, and surpassing its previous all-time closing peak on Tuesday.

The Canadian market had a lot of support from the upbeat earnings reports, including from Canadian Natural Resources, Maple Leaf Foods, Bombardier, TMX Group, Thomson Reuters, Lightspeed, Manulife, and BCE - all of which beat analysts’ estimates. Maple Leaf Foods, Lightspeed and Bombardier all closed up close to 7%, and Thomson Reuters rallied 5.5%.

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Energy stocks rose about 1%, paring some of Wednesday losses. But sector-wise, it was health stocks that took the lead in Toronto Thursday, rising 3.3% thanks to a rally in cannabis names.

The Canadian market also saw some M&A action: Score Media and Gaming Inc. soared nearly 80% after announcing it has entered into a definitive agreement to be acquired by Penn National Gaming Inc. for approximately US$2.0-billion in cash and stock.

The number of Americans filing new claims for unemployment benefits declined further last week, while layoffs dropped in July to their lowest level in just more than 21 years.

The U.S. trade deficit surged to a record high in June as businesses boosted imports to rebuild inventories. The Canadian trade surplus swung to a surprise surplus, helping to keep a strong bid in the Canadian dollar, which retested 80 cents U.S. during Thursday’s session.

The Dow Jones Industrial Average rose 271.58 points, or 0.78%, to 35,064.25, the S&P 500 gained 26.46 points, or 0.60%, to 4,429.12 and the Nasdaq Composite added 114.58 points, or 0.78%, to 14,895.12.

“Yesterday’s record high reading on the Services PMI and today’s unemployment claims data have reinvigorated confidence on the economic growth front,” Dave Donabedian, chief investment officer of $92 billion CIBC Private Wealth U.S., wrote in an email.

A measure of U.S. services industry activity jumped to a record high in July, boosted by the shift in spending to services from goods.

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“Investors definitely are keeping an eye on the Delta variant, but mostly view it as a speed bump for the economy rather than a showstopper,” Donabedian said.

Goldman Sachs market strategists raised their year-end and 2022 price targets for the S&P 500 Index, citing “the combination of higher-than-expected S&P 500 earnings and lower-than-expected interest rates.” It hiked its year-end 2021 price target for the S&P 500 to 4700 from 4300, and its 2022 target to 4900 from 4600, implying a 7% S&P 500 price return for the remainder of 2021 and an additional 4% in 2022.

Still, investors want to know how low rates will stay, and for how long.

On Wednesday, U.S. Federal Reserve Vice Chair Richard Clarida, a major architect of the Fed’s new strategy, said he felt conditions for raising interest rates could be met by the end of 2022, raising expectations that the central bank could scale back its bond-buying program soon.

A key indicator is due on Friday with the U.S. non-farm payrolls report, seen as key to the U.S. central bank’s policy stance.

“Everyone is on pins and needles waiting for tomorrow’s jobs report, which will clearly dictate how the markets close out the week,” Michael S. Harris of Verdence Capital Advisors in Hunt Valley, Maryland, wrote in an email.

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Traders sent U.S. Treasury yields higher on Thursday as risk sentiment improved after the healthy jobless claims report and ahead of the more detailed employment data.

Benchmark 10-year notes last yielded 1.2235%, up from 1.184% late on Wednesday.

Oil prices rose more than 1% on increasing Middle East tensions. U.S. crude rose 1.41% to $69.11 per barrel and Brent was at $71.25, up 1.24% on the day.

Gold fell to test the pivotal $1,800 support level, with spot gold dropping 0.4% to $1,803.97 an ounce.

Read more: Stocks that saw action on Thursday - and why

With files from Reuters

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