Dow Rallies Nearly 500 Points After Merck’s Covid Pill ‘Injects Life’ Into Slumping Stocks

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Topline

Paring losses from earlier this week, the stock market kicked off October with strong gains after pharmaceutical giant Merck announced it would seek U.S. regulatory approval for its antiviral pill to treat Covid-19, fueling a surge in shares of the drug-maker while signaling to Wall Street that the economy—slowed down by the delta variant of Covid-19—could be due for strong growth as the pandemic wanes.

Key Facts

The Dow Jones Industrial Average soared 482 points, or 1.4%, to 34,326 on Friday, reversing losses after policy uncertainty triggered a stark sell-off on Tuesday to end the week down only 1.4%.

Heading up gains in the index, Merck soared 8%, while Walt Disney, American Express and Visa all jumped about 4% apiece.

Despite stark losses for vaccine-makers like Moderna and BioNTech, the S&P 500 and tech-Nasdaq also rallied, climbing 1.2% and 0.8%, respectively, to end the week about 4% below all-time highs set earlier this month.

Though stocks initially fell in pre-market trading, they started climbing as soon as Merck announced it would seek an emergency authorization from the Food and Drug Administration for Molnupiravir, which the firm said halved the risks of hospitalizations or death when given to patients at risk of severe illness. 

In an afternoon note, Oanda analyst Edward Moya called Merck’s announcement a “gamechanger in the fight against Covid” and noted its potential approval should “confirm confidence that next year will be strong.”

He pointed out the announcement “injected life” into the reopening trade, referring to investments in stocks expected to climb once the pandemic subsides, particularly those in the travel and leisure spaces.

Tangent

United Airlines, Delta Air Lines, Penn National Gaming and Caesars Entertainment all led gains in the S&P, climbing between 6% and 8% each on Friday despite falling as much as 20% over the past three months.

Crucial Quote 

“The nice start for stocks in October contained a breakthrough in the fight against Covid and a resilient consumer despite the delta variant,” Moya said, referring to Merck’s announcement and data from the Commerce Department, which showed consumer spending rebounded 0.8% in August but fell 0.1% in July, lower than initially forecast due to worse-than-expected demand for air travel and hotel accommodation.

Key Background

Friday’s rally immediately follows the end to the worst month for stocks since the pandemic first tanked markets in March 2020. Though major indexes hit record highs this summer, the market’s struggled in recent weeks as new data shows the pandemic’s resurgence has stifled the labor market recovery and threatened economic growth prospects. Adding to uncertainty, lawmakers this week struggled to reach a compromise on two large spending packages and measures to fund the government. One crucial item—raising or suspending the debt limit to help prevent the United States’ first default in history—is facing a tight deadline of October 18. Treasury Secretary Janet Yellen has repeatedly warned missing that deadline could result in “economic catastrophe.”

Further Reading

Dow Plunges 550 Points As DC Uncertainty Fuels Stock Market’s Worst Month Of 2021 (Forbes)

Merck Says Its Antiviral Pill Cuts Risk Of Covid Hospitalizations, Deaths By Half (Forbes)

Schumer Sets Time Line For Debt Ceiling Showdown As Lawmakers Scramble To Avert ‘Economic Catastrophe’ (Forbes)

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