Cyclicals Beat Tech as Traders Weigh Economic Data: Markets Wrap

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(Bloomberg) — Stocks climbed as prospects for an economic recovery outweighed concern over faster-than-estimated inflation at a time when the Federal Reserve is getting ready to wind down stimulus.

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Companies that stand to benefit the most from a pickup in activity — like energy, financial and industrial shares — outperformed technology firms. The S&P 500 still headed toward its biggest weekly slide since January. Promising results for Merck & Co.’s experimental Covid-19 pill fueled a rally for airlines, cruise operators and hotels, while sinking vaccine makers.

“We continue to advise investors to buy winners from global growth,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “Positive sentiment will return as recent headwinds abate and the focus shifts back to the outlook for solid economic growth and strong earnings.”

A measure of American manufacturing expanded at the fastest pace in four months, bolstered by robust demand for factory goods and burgeoning inventory. U.S. consumer sentiment edged higher in late September, though remained near a pandemic low. The personal consumption expenditures index — which the Fed uses for its price target — had the biggest annual increase since 1991.

Former U.S. Treasury Secretary Lawrence Summers said investors may be tuning into the risk of an overheating U.S. economy and the chance that pushes the central bank into a faster withdrawal of monetary policy stimulus. The reopening of the global economy will likely lead to high inflation for the next 12 to 18 months, said BlackRock Inc. Vice Chairman Philipp Hildebrand.

House Democrats are trying to break a stalemate that’s holding up a vote on legislation for $550 billion in new spending on infrastructure that is supposed to be the first component of President Joe Biden’s economic agenda. Meantime, Fitch Ratings said the U.S.’s AAA sovereign rating could be at risk if Congress fails to raise the federal debt limit.

“There’s a lot to sift through for investors, and I think that’s what you’re seeing with the increase in volatility,” said Ryan Nauman, market strategist at Zephyr.

Favoring stocks in some U.S. industries and avoiding others mattered less in the third quarter than it has in decades. A comparison of the S&P 500’s main groups shows as much.

The biggest gain was 2.3%, posted by financial stocks, and the largest drop was 4.6% for industrial shares. The gap of 6.9 percentage points between first and last place was the smallest in any quarter since the sector indexes were first calculated in 1989, according to data compiled by Bloomberg. The prior record was 8.1 points, set in 1989’s third quarter.

Some corporate highlights:

  • Cryptocurrency-exposed stocks like Riot Blockchain Inc. and Marathon Digital Holdings Inc. joined a rally in Bitcoin.

  • Zoom Video Communications Inc. and Five9 Inc. scrapped their $14.7 billion merger agreement.

  • Southwest Airlines Co. was upgraded to overweight from neutral at JPMorgan Chase & Co.

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

  • The S&P 500 rose 0.7% as of 1:33 p.m. New York time

  • The Nasdaq 100 rose 0.2%

  • The Dow Jones Industrial Average rose 1%

  • The MSCI World index rose 0.2%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.3%

  • The euro rose 0.2% to $1.1598

  • The British pound rose 0.7% to $1.3562

  • The Japanese yen rose 0.3% to 110.99 per dollar

Bonds

  • The yield on 10-year Treasuries declined two basis points to 1.47%

  • Germany’s 10-year yield declined three basis points to -0.22%

  • Britain’s 10-year yield declined two basis points to 1.00%

Commodities

  • West Texas Intermediate crude rose 0.7% to $75.59 a barrel

  • Gold futures rose 0.2% to $1,759.90 an ounce

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