Congress faces the challenge of raising or suspending the U.S. debt ceiling by Oct. 18.
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The stock market surged Friday, starting October on a high note. Economic data were stronger than expected—and positive news on a new Covid-19 treatment from Merck lifted reopening stocks.
The Dow Jones Industrial Average rose 483 points, or 1.4%, after being down more than 200 points early Friday morning. The S&P 500 gained 1.2%, while the Nasdaq Composite advanced 0.8%. The Dow and the S&P 500 just had their worst Septembers since 2011.
On Friday, just over 80% of S&P 500 stocks rose, according to FactSet. “A nice start for stocks in October contained a breakthrough in the fight against Covid and a resilient consumer despite the Delta variant,” writes Edward Moya, senior market analyst at Oanda.
Merck (ticker: MRK) revealed positive data for a Covid-19 oral antiviral treatment, which could reduce hospitalization risk. Shares of Merck gained 8.4%.
“Merck’s Covid pill news is a game-changer in the fight against Covid and while it won’t be immediately available it should just confirm confidence that 2022 will be strong,” Moya writes.
Stocks most sensitive to reopenings performed handsomely on Friday. The U.S. Global Jets Exchange-Traded Fund (JETS), for example, rose 5.4%. Cruiseline operators Carnival Corp. (CCL) and Norwegian Cruise Line (NCLH) saw shares rise 4.2% and 5.9%, respectively.
The more economically sensitive, or “cyclical,” stocks performed the best after solid U.S. economic data.
The Institute for Supply Management’s manufacturing index rose to 61.1, higher than the expected reading of 59.5.
“The manufacturing data is starting to turn around,” said Lindsey Bell, chief investment strategist at Ally Invest. “It is a sign that the economic environment is actually improving.”
She cited that economic data have recently been surprisingly solid recently, after a period during the summer when data were surprisingly poor.
Personal income for August rose 0.2% month-over-month, in line with expectations. Personal spending increased 0.8%, better than the expected 0.7%. Investors want to see that spending remains healthy, as companies are having trouble meeting demand with supply.
Core inflation was 0.3% higher in August, above the expected 0.2% and the same as July’s result. Investors are paying close attention to inflation data, especially as the Federal Reserve revealed in its most recent update it is more likely to raise interest rates in 2022.
It would seem that the challenges that have recently hit the stock market have not gone away. Inflation is so far proving stubbornly high, and it could potentially eat into consumer demand.
“Overall inflationary pressure will be more persistent into 2022,” wrote Andrew Hollenhorst, Citigroup economist. Peter Boockvar, chief investment officer of Bleakley Advisory Group, noted, “higher inflation is eating into income.”
Investors will be closely watching the September jobs report, out next Friday, to see if people returned to work as government benefits expired.
Inflation could also weigh on upcoming earnings reports. Most companies have yet to report third-quarter earnings, and if the early reporters are an indication, companies could reveal that supply chain constraints and higher costs are denting sales and profit margins.
While the overall market is rallying to start the fourth quarter, the S&P 500 is still down about 4% from its all-time high, hit Sept. 2. The Dow also fell roughly 1% for the week, which would mark its fourth decline in the past 5 weeks.
Plus: A Vote on Biden’s $1 Trillion Infrastructure Bill Was Delayed. Watch These Stocks.
Meanwhile, investors are also keeping an eye on potential developments out of Washington. The delayed infrastructure vote came amid debate among Congressional Democrats over the second part of President Joe Biden’s agenda—a hallmark $3.5 trillion budget reconciliation package addressing the U.S. social safety net and climate change initiatives. It could get a vote Friday.
Also read: House Delays Infrastructure Vote as Divisions Persist Among Democrats
Congress also faces the challenge of raising or suspending the U.S. debt ceiling before Oct. 18 to avoid a federal default.
Overseas, in Asia, Japan’s Nikkei 225 fell 2.3% as analysts noted traders in Tokyo were focused on events globally, with Chinese markets closed. The pan-European Stoxx 600 was down 0.4%, as European stocks have found themselves under pressure from a strengthening dollar this week. The greenback has climbed 1.3% relative to the euro since Monday.
These 6 stocks were on the move Friday:
Zoom Video Communications (ZM) stock rose 2.3% after the company and software company Five9 (FIVN) agreed to end their deal talks.
Keurig Dr Pepper (KDP) stock dropped 2.8% even after the company announced a $4 billion share buyback program.
Southwest Airlines (LUV) stock rose 5.7% after getting upgraded to Overweight from Neutral at JPMorgan.
General Mills (GIS) stock rose 1.3% after getting upgraded to Buy from Neutral at Citigroup.
Dollar Tree (DLTR) rose 2.4% despite getting downgraded to Sector Weight from Overweight at KeyBanc Capital Markets. This comes after the stock has soared this week as the company announced it is increasing its buyback program and raising prices.
Airbus (AIR.France) rose 1.3% in Paris after news that Italian carrier ITA moved to lease 31 jets from the company and buy 28 more.
Write to Jacob Sonenshine at [email protected]
