Dow jumps by about 400 points as stock market attempts rebound after Thursday selloff

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MARKET SNAPSHOT

U.S. stock benchmarks traded higher Friday, putting equities on track to bounce from a selloff in the previous session that was triggered by a drop in Treasury yields and doubts about the global economic recovery from the pandemic.

What are major indexes doing?

  • The Dow Jones Industrial Average rose 380 points, or 1.1%, to 34,809.
  • The S&P 500 traded up 33 points, or 0.8%, at 4,354.
  • The Nasdaq Composite Index added 40 points, or 0.3%, to trade at 14,600.

On Thursday, stocks retreated but ended the day off session lows. The Dow closed 259.86 points lower, off 0.7%, at 34,421.93, after dropping more than 500 points at its session low. The S&P 500 ended 0.9% lower, while the Nasdaq Composite gave up 0.7% a day after both indexes closed at their latest in a string of records.

For the week, the Dow and S&P 500 were on track for weekly gains of less than 0.1%, marking their third weekly advance in a row if the benchmarks can hang on to the close at or above current levels. The Nasdaq Composite was looking at a weekly decline of 0.2%, which would mark its first weekly decline in three weeks.

What’s driving the market?

Stocks were attempting to regain their footing after equities slumped Thursday on worries over the global growth outlook as some countries struggle with the coronavirus pandemic. The concerns about the pandemic were blamed — along with myriad other factors — for a U.S. Treasury debt rally that sent long-term yields down to their lowest levels since February this week.

Yields were edging back up Friday though, with the 10-year U.S. Treasury yield up 5 basis points at 1.342%. The yield hit a five-month low below 1.25% on Thursday.

Coronavirus-related restrictions were tightened in Asia and Europe. Seoul’s pandemic alert was lifted to its highest level, the Netherlands announced new steps and social-distancing rules were tightened in Sydney, a day after Japan declared a state of emergency that will effectively rule out spectators at the 2020 Olympics.

While concerns about the spread of the delta variant of the coronavirus that causes COVID-19 were cited as part of the reason behind the worries over the global economic outlook, some analysts questioned whether the struggle with the pandemic in some Asian and emerging market countries in particular would be enough to derail the global equity market rally.

Read: Why did the stock market sell off? Falling bond yields point to ‘growth scare’

In the end, falling yields should be a positive for stocks, argued Ipek Ozkardeskaya, senior analyst at Swissquote, in a Friday note. Falling yields hint that inflation and the potential for a more aggressive than expected withdrawal of easy money policies by the Federal Reserve are a fading cause for concern, she said.

“The market rhetoric is clearly shifting from transitory inflation to transitory recovery, and that’s probably what keeps the inflows in U.S. Treasurys elevated, combined with a seasonally low issuance of Treasurys in July and the Fed coming back to the market after the July 4 break,” the analyst said.

“ As such, falling Treasury yields and rising equity prices is the most reasonable market reaction, although it’s worth noting that this time, the rising COVID concerns are also accompanied by rising COVID cases,” Ozkardeskaya wrote.

Market bulls have also argued that the kickoff of the second-quarter U.S. corporate earnings reporting season next week could also underpin markets. Companies in the S&P 500 are expected to see a 63.6% increase in earnings in the second quarter from a year before, which would mark the biggest 12-month climb since the fourth quarter of 2009, according to FactSet analysts.

In One Chart: Get ready for peak earnings growth as second-quarter results kick off next week

Meanwhile, the Biden administration on Friday was set to announce a new executive order to crack down on anticompetitive practices in the technology industry. The order includes 72 actions and recommendations across a dozen federal agencies, the report said.

Elsewhere in the world, the People’s Bank of China announced Friday it was cutting reserve requirements for its banks to help bolster the world’s number-two economy. The PBOC said, effective July 15, that reserve requirement ratio, or RRR, would be lowered by a half point, to a weighted average of 8.9%.

In economic news, U.S. wholesale inventories climbed 1.3% in May, compared with 1.1% that had been expected by economists on average, suggesting that inventories remain tight amid supply-chain bottlenecks and amplified demand in the rebound from the pandemic.

Which companies are in focus?

  • Philip Morris International Inc. announced plans to buy Vectura Group PLC, a U.K. pharmaceuticals business specializing in inhaled medicines, for $1.24 billion in cash, part of its push to expand beyond tobacco and nicotine. Philip Morris shares rose 1.7% in premarket trade.
  • Shares of Levi Strauss & Co. after the jeans company late Thursday announced results that topped Wall Street estimates and raised its forecast for the year. Its stock was up 3.5%.
  • Stripe has hired Cleary Gottlieb Steen & Hamilton LLP to advise it on planning for an initial public offering, according to a report from Reuters Friday. 
  • Shares of United Airlines Holdings IncUAL were in focus on Friday, after the air carrier is taking advantage of the “resurgence” in travel as the recovery from the COVID-19 pandemic continues, by saying it was adding nearly 150 flights to warm-weather cities in the U.S., and boosting service to Mexico, the Caribbean and Central America. 
  • Altria Group IncMO said Friday it has agreed to sell its Ste. Michelle Wine Estates business to private-equity firm Sycamore Partners Management L.P. for about $1.2 billion in cash. 
  •  The Food and Drug Administration and the Center for Disease Control on Thursday said there isn’t scientific evidence that COVID-19 booster shots are required, hours after drug maker Pfizer PFE said it would seek authorization for a Covid booster shot to help contain the Delta variant.
  • Stamps.com Inc. STMP announced Friday an agreement to be acquired by software investment firm Thoma Bravo in a cash deal that values the web-based mailing and shipping services company at $6.6 billion. Shares were up more than 63%.

How are other assets faring?

  • The ICE U.S. Dollar Index DXY, a measure of the currency against six major rivals, was down 0.2%.
  • Oil futures headed sharply higher on Friday, with the U.S. benchmark CL00 advancing 1.5% to trade at $74.03 a barrel. Gold GC00 was trading modestly higher, up $2.90, or 0.2%, at $1,803.40 an ounce.
  • European equities rebounded after Thursday’s declines, with the Stoxx Europe 600 SXXP up 0.8% and London’s FTSE 100 UKX trading0.6% higher.
  • In Asia, the Shanghai Composite SHCOMP slipped less than 0.1%, Hong Kong’s Hang Seng Index HSI rose 0.7% and Japan’s Nikkei 225 NIK dropped 0.6% in Friday action.
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