Wall Street kicks off October with gains, boosted by economic optimism

(Reuters) – Wall Street advanced in a broad rally on Friday, after sorting out conflicting news about the economy, the battle against COVID, and legislative wrangling in Washington at the start of the fourth quarter.

FILE PHOTO: A Wall Street sign is pictured outside the New York Stock Exchange in New York, October 28, 2013. REUTERS/Carlo Allegri

All three major U.S. stock indexes began trending higher by late afternoon, buoyed by economically sensitive cyclicals.

“It’s the first day of trading in a new quarter so it’s common to see stocks move in and out of the plus and minus columns,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “September played its traditional role by cooling down the market and probably presenting a buying opportunity.”

Merck & Co Inc revealed that a recent study showed its experimental oral drug for COVID-19 cut risk of death and hospitalization by about 50%, sending its shares jumping about 10% and boosting economic reopening sentiment.

The news provided “another reason to be optimistic,” said Cardillo. “It lessens the threat of the virus and obviously that means more people going back to work, more spending.”

While U.S. President Joe Biden signed into law a stop-gap bill to continue the government through Dec. 3, lawmakers only succeeded in kicking the can down the road.

This lack of resolution helped prompt rating agency Fitch to issue a warning that the United States’ ‘AAA’ credit rating could be at risk.

A host of economic data released on Friday showed increased consumer spending and accelerated factory activity and elevated inflation growth, a formula that could help nudge the U.S. Federal Reserve toward shortening its timeline for tightening its accommodative monetary policy.

Philadelphia Fed President Patrick Harker repeated his view expressed in a speech delivered on Wednesday that he believes the central bank should begin tapering its asset purchases “soon,” but reiterated that he does not expect it to hike key interest rates until late next year or early 2023.

The Dow Jones Industrial Average rose 465.23 points, or 1.37%, to 34,309.15, the S&P 500 gained 46.2 points, or 1.07%, at 4,353.74 and the Nasdaq Composite added 80.37 points, or 0.56%, at 14,528.95.

All 11 major sectors in the S&P 500 were higher, with healthcare stocks lagging.

The sector’s gains were capped by a 11.8% drop in shares of COVID vaccine maker Moderna Inc in the wake of the Merck news.

Economic optimism prompted value stocks outperform growth, and transports and smallcaps to outperform the broader market.

Advancing issues outnumbered decliners on the NYSE by a 2.19-to-1 ratio; on Nasdaq, a 1.51-to-1 ratio favored advancers.

The S&P 500 posted 7 new 52-week highs and 9 new lows; the Nasdaq Composite recorded 55 new highs and 129 new lows.

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