U.S. stocks and exchange traded funds (ETFs) oscillated between positive and negative territory this morning on better-than-expected earnings reports by JP Morgan Chase (JPM) and an unexpected drop in jobless claims.

JP Morgan beat analysts’ expectations, reporting earnings of $0.40/share as compared to the $0.32/share forecasted.  Additionally, the firm posted record fixed-income trading revenue and siad that it can repay U.S. rescue funds. This report, in combination with last week’s earnings release by Wells Fargo (WFC), suggests that there could be a little life left in the financial sector.

Unfortunately, the financials are still not completely in the clear.  JPMorgan says that it still expects loan defaults to increase, losses to increase in credit cards, home equity loans, mortgages and commercial real estate loans and the activity in fixed-income to taper off, states Madlen Read of the Associated Press.  These issues, in combination with over-leveraged financing, has kept many investors skeptical of the overall health of the sector, sending the Financial Select SPDR (XLF), down about 1.8% in intraday trading.

Yet another blow has been dealt to the housing industry, killing any hope of stability for now.  New U.S. housing starts fell more then expected in March by 10.8% to a seasonally adjusted annual rate of 510,000 units, reports the Associated Press.

To add fuel to the fire, new building permits declined by 9%. Completion of building projects rose by 3.5%, however. Additionally, foreclosure filings rose 24% in the first quarter from a year earlier, putting a further damper on home pricing.  A combination of the aforementioned news took its toll on the homebuilders, sending the SPDR S&P Homebuilders (XHB) down about 1.6% in intraday trading, despite being up 0.8% year to date.

On a positive note, new jobless claims fell more than expected for the second straight week.  The Labor Department reported that initial unemployment claims dropped to a seasonally adjusted 610,000 from a revised 663,000 the previous week.  This was significantly below analysts expectations of 655,000 and the lowest level since late January,states Christopher S Rugaber of the Associated Press. Generally, initial jobless claims reflect the pace of layoffs of companies and are considered a timely indicator of the state of the economy.  With this in mind, things are starting to look a little better.

Keep in mind that we aren’t in the clear, though.  The total number of Americans receiving unemployment benefits has surpassed the 6 million mark, for the first time ever and most analysts believe the labor market will remain weak for the remaining of the year on fears that employers are reluctant to hire until a full economic recovery is under way.

Some more big news that hit the markets were the following earnings reports:

  • Nokia (NOK) beat analysts’ expectations by posting a smaller loss than expected on profits of $161 million.
  • Southwest Airlines (LUV) posted an enormous loss on falling traffic and plans to trim its workforce.  The airline posted a loss of $0.12/share, much larger than the $0.01/share analysts forecasted.  The majority of this loss was a result of their fuel hedges.
  • Media giant Gannett Co. (GSI), the publisher of USA Today, beat analysts’ expectations by posting profits of $0.34/share.  Analysts expected profits of $1.44 billion, or $0.24/share

The Federal Reserve released its latest “Beige Book” yesterday, which contained a little bit of economic optimism.  The data this time around showed declining demand for appliances, furniture and other goods, reports V. Dion Haynes for The LA Times. Overall, the report said, economic activity declined further or remained weak. The report is released eight times per year.

The Dow Jones Industrial Average was in the red, down about 0.65%, the S&P 500 was up about 0.12% and the Nasdaq climbed about 0.72% in morning trading.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.