Company / Analytics

Week 39 in Brief

North America

• U.S. stocks finished sharply higher on Friday driven by mixed economic data to start October and the fourth quarter positively, but still ended the week lower.
• Markets were in part driven by optimistic news that on oral antiviral treatment for Covid-19 developed by Merk & Co. in partnership with Ridgeback Biotherapeutics reduced the risk of hospitalization or death by 50% for patients with mild or moderate cases.

How did the major indices perform?

• The Dow Jones Industrial Average rose 482.54 points, or 1.4%, to close at 34,326.46.
• The S&P 500 climbed 49.50 points, or 1.2%, to finish at 4,357.04.
• The Nasdaq Composite advanced 118.12 points, or 0.8%, to end at 14,566.70.
• The Dow lost 1.4% for the week, its biggest weekly decline since the week ending September 10. The S&P 500 lost 2.2% for the week, its largest percentage drop since the week ending February 26. The Nasdaq saw a 3.2% weekly drop, also its biggest decline since the week ended February 26, according to Market Watch.
• For September, the Dow lost 4.3% and the S&P 500 fell 4.8% to snap a seven-month winning streak. The Nasdaq Composite was off 5.3%, its worst September in a decade. Still, the S&P 500 index remains up 16% this year.

What drove the market?

• Economic Data: Markets were mixed on Friday, moving higher in the afternoon after as investors assessed a batch of mixed data on the U.S. economy. US personal spending and incomes provided further evidence of rising inflation which is at a 30-year high and is expected to continue into next year.
• The personal consumption expenditure price index climbed 0.4% in August, marking the sixth straight increase, according to government reports.
• The Institute for Supply Management manufacturing index for September also rose to 61.1 from 59.9 in the prior month. A reading of 50 or better indicates improving conditions.
• Covid-19 news: Markets reacted (higher) to a report that Merck’s experimental drug to treat COVID-19 cut hospitalizations and deaths by half. This prospect for an additional tool to tame the pandemic helped lift shares of airlines, hotels, and companies hurt by restrictions on travel and other activities.
• US Government shutdown: Investors dumped stocks Thursday, despite policymakers in Washington approving a short-term spending bill to avert a government shutdown while debt-limit wrangling was set to continue. Speaker Nancy Pelosi late Thursday called off a planned vote in the U.S. House of Representatives on a $1 trillion bipartisan infrastructure bill, as Democratic lawmakers failed to agree on other linked spending proposals.
• Rising energy prices: Energy prices have been soaring, including in Europe, with shortages on the continent as well as in Asia, where China has been hit by power cuts and outages. Traders are betting on higher crude demand after a report Thursday said China has ordered state-owned energy companies to secure winter supplies at all costs.

Which US stocks were in focus Friday?

• Shares of Merck closed about 8.4% higher Friday at $81.40, jumping after the company said its experimental pill cut the risk of serious illness or death from Covid-19 in a study. The company plans to apply for an emergency use authorization for the treatment from the Food and Drug Administration in the US, and other regulatory bodies around the world.
• Raymond James analyst Aaron Kessler removed his “strong-buy” rating on shares of Alibaba Group Holding Ltd. though he’s becoming a bit more cautious on the name. Shares of Alibaba fell 2.6%, closing at $144.20.
• Dollar Tree Inc. was downgraded to sector weight from overweight at KeyBanc Capital Markets as analysts express concern over the higher supply chain and labor costs. Retailers across the board have been impacted by bottlenecks at the ports, factory shutdowns overseas, and other challenges across the supply chain. Shares of Dollar Tree climbed about 2.4%, at $97.98.

How did the European markets perform?

• European stocks slumped to their lowest in two months on Friday, on inflation worries resulting from reduced factory activities resulting from supply-chain constraints.
• The Europe-wide STOXX 600 index fell 0.4% in a weak start to October, which has traditionally been a rough month for equities, with technology, miners, and banks leading broad declines.
• The STOXX 600 ended the week with declines of 2.2%. The DAX is higher by 0.06%, while the CAC 40 is leading the FTSE 100 lower. They are down 0.43% and 0.07% respectively.
• Meanwhile, a survey showed eurozone manufacturing growth remained strong in September, but activity took a big hit from supply chain bottlenecks that are likely to persist and keep inflationary pressures high.
• Bank of America Global Research cut its outlook for European stocks, predicting a decline of nearly 10% by year-end given a shift in the macro backdrop towards “anti-goldilocks”, where slowing growth is accompanied by higher discount rates.
• In stocks, Online electricals retailer AO World Plc tumbled 24.3%, on reports that a shortage of delivery drivers in Britain and other disruptions in the global supply chain hit revenue growth in the first half of the year. BMW AG rose 1.3% after lifting its annual profit margin forecast as higher prices for new and used vehicles outweighed the effect of supply-chain issues.
• French state-owned utility EDF and energy group Engie rose 5.9% and 2.5%, respectively, with traders pointing to relief that electricity tariffs were untouched by the government in its plan to check further price rises.

How did Asian markets perform?

• Asian stock markets fell earlier in the day, despite Japan’s lifting of a pandemic state of emergency and a survey of large Japanese manufacturers showing sentiment at a nearly three-year high.
• Markets closed mixed with the Nikkei 225 index down 2.3%, dropping 4.9% for the week. Chinese markets were closed for the Golden Week holidays and won’t reopen until next Friday. Hong Kong markets were also closed Friday.

Commodities and Bonds

• The yield on the 10-year Treasury note fell about six basis points Friday to 1.464%, but still eked out a rise of less than one basis point for the week in a sixth straight weekly rise, according to Dow Jones Market Data.
• Oil futures finished higher, with the U.S. benchmark rising 1.1% to settle at $75.88 a barrel Friday.
• Gold futures rose nearly 0.1% to settle at $1,758.40 an ounce for a small weekly gain.

Currencies

• The dollar fell for a second straight session on Friday, tracking declines in U.S. Treasury yields, as investors pared back their positions after recent sharp gains, though the decline was viewed as temporary.
• The ICE U.S. Dollar Index fell 0.2% Friday but rose 0.8% for the week.
• The euro was flat at $1.1587, falling about 1.1% for the week, on pace for its biggest percentage fall since June. The yen bounced back against the dollar from a 19-month low overnight, with the greenback last
• down 0.3% at 110.98 yen.
• Sterling was also an underperformer last quarter, dropping 2.5%, and looks set to log its worst week in more than a month, amid growing supply chain problems. Sterling was last up 0.6% at $1.3560, just above a 9-month low at $1.3516.

Next Week

• Investors will parse economic data from around the world, including U.S. jobs reports, service sector PMI readings from India & Europe, and China’s Caixin services PMI.
• Levi Strauss, Pepsico, Constellation Brands, and RPM International & Helen of Troy, among others report earnings.