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.
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,…
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