By Joe Wallace, Alexander Osipovich and Frances Yoon
U.S. stocks edged higher Thursday, extending their recent rally, after data showed a drop in the number of Americans filing for unemployment -- albeit from historically high levels.
The Dow Jones Industrial Average climbed 100 points, or 0.4%, in morning trading, a day after the blue-chips gauge closed above 25000 for the first time since early March and posted its largest two-day advance in more than a month.
The S&P 500 and the Nasdaq Composite both gained 0.5%.
U.S. workers filed just over 2.1 million jobless claims last week, extending a downward trend, but still at sharply elevated levels from before the coronavirus pandemic.
Investors were also monitoring growing strains between the U.S. and China, which have prompted concerns about a revival in the trade war that rocked markets last year. The House passed a bill late Wednesday that would sanction Chinese officials involved in the suppression of Muslim minority groups.
The move came just hours after the State Department determined that Hong Kong no longer has a high degree of autonomy from China, opening the way for President Trump to take a range of steps including revoking special arrangements on trade. China on Thursday hardened its stance, forging ahead with a resolution to impose national-security laws on Hong Kong in a bid to crush anti-Beijing protests.
"It's just another potential concern on top of Covid," said Brian O'Reilly, head of market strategy at Italian asset manager Mediolanum. "Whether we actually get into trade war 2.0 -- I think even in a second term for Trump, they'd be reticent to go down that path."
Utilities, health-care and consumer staples were the best-performing sectors of the S&P 500, while energy stocks and financials fell.
Dollar Tree shares jumped 14% after the discount retailer posted stronger-than-expected earnings in the first quarter, boosted by a surge in demand for essential goods as homebound consumers stocked up during the pandemic.
Shares of Boeing rose 3.6% after the aerospace giant laid out plans to cut more than 13,000 jobs. HP shares fell 12% after the information-technology company's first-quarter profit fell and it pulled financial projections for the year.
A key question for investors is whether economically sensitive stocks can extend their recent rally, said Hugh Gimber, a strategist at J.P. Morgan Asset Management. "It's been the most beaten-up sectors that have really caught the bounce," he said, pointing to gains for shares in U.S. banks and travel companies.
The rally in shares of technology companies has paused in recent days, having powered much of the recovery in U.S. stocks since March. They could come under further pressure in response to a draft executive order that Mr. Trump is expected to sign Thursday, Mr. Gimber said. The order would seek to limit the broad legal protection that federal law currently provides social-media and other online platforms, according to people familiar with the draft.
Twitter shares dropped 2.2%. Mr. Trump lashed out at the company this week after it added fact-checking notices to two of his tweets.
Stocks are likely to pull back at some point given the degree of uncertainty surrounding the global economy as lockdown measures are relaxed, said Michael Drummey, head of U.S. equity risk trading at Mizuho Americas LLC. "The market is acting in a way that doesn't really line up with that uncertainty," he said. "We have a FOMO rally -- a fear of missing out."
Hong Kong's Hang Seng Index fell 0.7%. The resolution passed by China's legislature would allow senior lawmakers in Beijing to write legislation to prevent and punish acts of separatism, subversion, terrorism and foreign interference in Hong Kong. The laws would then be promulgated by the city's leader. The resolution would also allow mainland Chinese state-security agencies to operate officially in Hong Kong, according to the draft.
"Investors are worried about whether that means there could be new trade barriers introduced," said Chang Wei Liang, a strategist at DBS Bank. "This will be lingering on investors' minds until we get clarity on what the U.S. intends to do with Hong Kong."
Other international markets climbed. The Stoxx Europe 600 rose 1.7%. Japan's Nikkei 225 jumped 2.3%.
Write to Joe Wallace at Joe.Wallace@wsj.com, Alexander Osipovich at firstname.lastname@example.org and Frances Yoon at email@example.com