Wall Street closed higher on Friday with upbeat earnings reports helping to drive optimism about the economy along with hopes for successful COVID-19 vaccines even as investors monitored a surge in virus cases and restrictions across North America. The TSX also rose, though gains were a little less robust.
The bellwether S&P 500 and the small cap Russell 2000 both reached record closing highs.
After a volatile trading week where the market was whipsawed between hopes and fears around the virus, Cisco Systems Inc provided the biggest boost to the S&P 500 after its quarterly report showed a work-from-home driven surge in demand.
Walt Disney Co also rose as its rapidly growing streaming video business, and a partial recovery at its theme parks tempered its quarterly loss.
“At least for today it looks like sentiment regarding the potential for vaccines combined with very strong earnings announcements from a number of companies has investors hopeful that the economy can continue to recover,” said Michael Arone, chief investment strategist at State Street Global Advisors.
The Dow Jones Industrial Average rose 399.64 points, or 1.37%, to 29,479.81, the S&P 500 gained 48.14 points, or 1.36%, to 3,585.15 and the Nasdaq Composite added 119.70 points, or 1.02%, to 11,829.29.
Friday’s outperformance of more economically sensitive sectors including energy, and industrials over growth sectors like technology was a clear indication of “optimism around the economy getting back on its footing,” said Tom Martin, senior portfolio manager at Globalt Investments in Atlanta.
The three major U.S. stock indexes had fallen on Thursday as more than a dozen U.S. states reported a doubling of new COVID-19 cases in the last two weeks, with Chicago’s mayor issuing a month-long stay-at-home advisory.
But a senior adviser to President-elect Joe Biden said there were no plans for nationwide lockdowns next year and instead talked about restrictions for specific regions when the virus spread is bad there.
State Street’s Arone said the aversion to a full lockdown likely cheered up some investors. But he was concerned that investor optimism may be overdone, particularly as Fed officials have been warning about the potential damage rising virus cases could do to the economy without a fresh economic stimulus package in sight.
“The market is underestimating some of the impact that rising cases and no stimulus will have on the economy and earnings and they’re over estimating the potential timeline and breadth of a vaccine distribution,” Arone said.
“In the spring folks were bracing for the worst and the worst didn’t happen. Now they’re expecting the best and they may be a little too rosy.”
Positive data from Pfizer’s vaccine study earlier this week had prompted a rotation into the cyclical sectors, boosting the S&P 500 and Dow.
The tech-heavy Nasdaq, however, underperformed as investors booked profits in technology stocks, which have benefited from a stay-at-home environment.
Globalt’s Martin also pointed to hopes for news of more coronavirus vaccine progress, after Moderna Inc said earlier this week that it had enough data for a first interim analysis of its late-stage trial.
With third-quarter reports released from about 90% of S&P 500 companies Refinitiv IBES estimates now show profits falling 7.8% from last year compared with an Oct. 1 expectation for a 21.4% slump.
Meanwhile, Biden’s victory in the battleground state of Arizona expanded his electoral vote margin, but the official transition remains in limbo as President Donald Trump refuses to concede.
Value stocks, which include mostly cyclical sectors such as banks and energy, outperformed the growth index, which is largely comprised of tech companies.
The S&P/TSX Composite Index closed up 93.46 points, or 0.56%, at 16,675.64. The energy sector led gains, advancing 1.58%, despite a drop in the price of crude oil.
Oil prices were pressured by swelling output from Libya and fears that rising coronavirus infections may slow the recovery in the global economy and fuel demand. Brent crude fell 75 cents, or 1.7%, to settle at $42.78 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell 99 cents, or 2.4%, to end the session at $40.13 a barrel. For the week, both notched gains of more than 8%.
The TSX is still well below its record high of just shy of 18,000 it hit in February before the pandemic-related shutdowns.
The pan-European STOXX 600 index rose 0.01% and MSCI’s gauge of stocks across the globe gained 0.83%.
U.S. Treasury yields were mixed as investors consolidated positions ahead of the weekend and remained cautious given the surge in coronavirus cases. But the yield curve steepened on Friday, after flattening the previous session.
Benchmark 10-year notes fell 2/32 in price to yield 0.893%, from 0.886% late on Thursday.
The 30-year bond last rose 6/32 in price to yield 1.6442%, from 1.652% late on Thursday.
Read more: Stocks that saw action Friday - and why
Reuters, Globe staff
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.