Stocks rebounded sharply Friday as traders looked past worries about the Federal Reserve and rising Covid-19 cases. The S&P 500 bounced to 4,442, a gain of 0.8%, says Jon Markman, editor of Pivotal Point.
For the week, the benchmark lost 0.6%, its first weekly decline in a month. It’s hard to know if the gains late in the week were the start of a sustainable move to new highs or an oversold rally.
Big technology shares are behaving better yet weakness in cyclical sectors such as energy, industrial and many financial stock groups persist. This is a near-term negative. It means leadership is narrow.
That said, the benchmark S&P 500 did manage to hold support at 4,352 in the middle of the week. Going into Monday, bullish investors get the benefit of doubt.
The Nasdaq Composite advanced 1.2% on Friday to 14,714.66 and the Dow Jones Industrial Average rose 0.7% to 35,120.08. The 10-year US Treasury yield rose to 1.26% from 1.24% late Thursday, while market volatility expectations fell as the major averages recouped the bulk of Wednesday's losses.
Breadth favored advancers, 5-2, and there were 164 new highs vs 291, an oversold condition. Leading the new high list were Microsoft (MSFT), Johnson & Johnson (JNJ), UnitedHealth Group (UNH), Cisco (CSCO), Accenture (ACN), Costco (COST), and Prologis (PLD). Good, solid vanguard.
Consumer stocks perked up as crude oil continued to slump, dropping $1.37 to $62.32 per barrel after peaking above $75 per barrel in mid-July. Wholesale gasoline slid 7 cents to $2.01 per gallon with the summer driving season largely in the rearview mirror and the delta variant of COVID-19 filling intensive care units to capacity in parts of the US south.
Industrials and staples suppliers lagged as a nine-month high in the US dollar amid revived global growth worries eroded the value of their overseas earnings.
The seven-day average of daily new US COVID-19 cases topped 130,000, the US Centers for Disease Control and Prevention reported, compared with less than 20,000 before the delta variant surfaced as the dominant strain last month. Daily new deaths nationwide topped 1,000 this week for the first time since March.
The pandemic remains the top issue for equity traders, according to a Charles Schwab survey. Dallas Federal Reserve Bank President Robert Kaplan said Friday the delta variant has had little noticeable effect on the economy, though he acknowledged it has slowed the recovery.
Still, Kaplan said the Fed should start reducing its monthly asset purchases as soon as possible. Most Fed policymakers are prepared to do so before the end of this year if the recovery remains on track, minutes of their recent meeting showed this week.
Meanwhile, the economic recovery's momentum is slowing, Oxford Economics said in a research note, saying consumer mobility has declined, especially across the southern states, in response to the new wave of infections. "While a significant deterioration in the health situation is a downside risk to our outlook, rising inoculation rates offer protection against severe Covid cases and a new economic downturn," Oxford said.
Nvidia (NVDA) shares rose after the UK competition regulator reported significant concerns over the computing chip supplier's proposed acquisition of ARM Holdings but said it did not reach a firm conclusion pending a more thorough investigation. Meanwhile, Benchmark joined the crowd of bullish analysts, initiating coverage with a buy and $230 share price target following Nvidia's strong quarterly results and guidance earlier in the week.
Microsoft (MSFT) rose 2.6% to a stunning $2.2 trillion market cap after the software giant said it would raise Microsoft Office 365 prices in March for business users, with Wedbush calling the hike a "smart strategic poker move" that could add $5 billion in revenue next year and saying recent channel checks for its favorite large-cap cloud play revealed strong flow of increasingly large deals as enterprise cloud spending booms. Wedbush raised its price target to $350 from $325. The stock closed Friday at $304.
Learn more about Jon Markman at Pivotal Point.
