Dow under pressure as early stock-market gains fizzle to start October, but Merck shares outperform

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U.S. stock benchmarks turned lower early Friday amid a batch of mixed data, reversing opening gains, and extending a trend of declines for equity benchmarks that was kicked off in September.

Sentiment soured after initial optimism was pegged partly to news on Merck & Co.’s experimental antiviral drug, developed as a treatment for COVID-19 with partner Ridgeback Biotherapeutics, which reduced the risk of hospitalization or death in at risk adult patients with mild-to-moderate COVID by about 50% in an interim analysis of data from a Phase 3 trial.

How are stock-market futures trading?

  • The Dow Jones Industrial Average was clinging to a gain of less than 0.1% at 33,849, but had touched an intraday peak at 34,116.66.
  • The S&P 500 index shed 14 points, or 0.3%, to 4,293.
  • The Nasdaq Composite Index fell 111 points to reach 14,339, a drop of 0.8%, after briefly touching an intraday high at 14,504, near Friday’s open.

On Thursday, the Dow fell 547 points, or 1.59%, to 33844, the S&P 500 declined 52 points, or 1.19%, to 4308, and the Nasdaq Composite dropped 64 points, or 0.44%, to 14449.

For September, the Dow lost 4.3%, the S&P 500 fell 4.8% and snapped a seven-month winning streak, and the Nasdaq Composite was off 5.3%, its worst September in a decade. For the quarter, the Dow fell 1.9%, the S&P 500 was up 0.2% and the Nasdaq Composite rose 0.4%.

What’s driving the markets?

Equity markets relinquished opening modest gains on Friday after a batch of mixed data on the U.S. economy.

“The US data we’ve had around the open has been a mixed bag. Inflation was broadly in line with expectations, with the monthly figures showing pressure is easing,” wrote Craig Erlam, senior market analyst at Oanda Corp., in Friday daily note.

U.S. personal spending and incomes provided further evidence that the cost of goods and services are rising, with the rate of U.S. inflation at a 30-year high, and all signs pointing to price pressures snaking into next year.

The personal consumption expenditure price index climbed 0.4% in August, the government said Friday, marking the sixth straight increase. The rate of inflation in the 12 months ended in August edged up to 4.3% from 4.2%—the highest rate since 1991, when George H.W. Bush was president.

Meanwhile, the Institute for Supply Management manufacturing index for September rose to 61.1 from 59.9 in the prior month. A reading of 50 or better indicates improving conditions. In other data, a final reading from IHS Markit showed that U.S. manufacturing PMI rose to 60.7 in September from an 60.5 initial estimate. However, a reading on construction spending was flat in August, the Commerce Department said.

Ahead of the data, a report on Merck’s experimental drug briefly helped bulls make a case, but the benchmarks succumbed to selling in healthcare and technology stocks, dousing Wall Street’s early enthusiasm.

Jittery investors dumped stocks Thursday, taking little comfort from news of a short-term spending bill to avert a government shutdown while debt-limit wrangling was set to continue. Speaker Nancy Pelosi late Thursday called off a planned vote in the U.S. House of Representatives on a $1 trillion bipartisan infrastructure bill, as Democratic lawmakers can’t agree on other linked spending proposals.

Apart from the rough quarter and month, the S&P 500 index was looking at a roughly 3% drop for the week as of Thursday, which would mark the worst weekly performance since January 2021, according to FactSet. A nearly 4% decline for the Nasdaq Composite for the week so far would mark its worst since February.

The S&P 500 is now 5% off its Sep. 2 high, but still up 14% year-to-date.

“As we head into the final quarter of 2021 the gains year to date are still pretty decent, which raises the question, how much more is left in the tank, and whether this October will live up to the reputation of Octobers past, and deliver a huge curveball, as well as giving investors an anxiety attack,” said Michael Hewson, chief market analyst at CMC Markets U.K.

“There’s certainly plenty to be concerned about from surging energy prices, supply-chain disruptions, and concerns about more persistent inflation,” he said in a note to clients.

Energy prices have been soaring, including in Europe, with shortages on the continent as well as in Asia, where China has been hit by power cuts and outages. Traders are betting on higher crude demand after a report Thursday said China has ordered state-owned energy companies to secure winter supplies at all costs. U.S. and Brent crude oil prices were down around 0.4% each on Friday.

The U.S. dollar has surged 1% this week so far, driven by expectations that the Federal Reserve could be ready to curtail its accommodative monetary stance put in place to fight the COVID-19 pandemic fallout. But the U.S. dollar was moving lower against rivals on Friday, as measured by the ICE Dollar Index, while the 10-year Treasury yield dipped 4 basis points to 1.487%.

Which companies are in focus?

  • Shares of Merck were up over 9%. after trials showed that 7.3% of patients who received molnupiravir were either hospitalized or died through Day 29 following randomization, compared with 14.1% of patients given a placebo. Through Day 29, no patients given molnupiravir died, compared with eight patients who died on placebo. The company is now planning to submit an application for an emergency use authorization for the treatment from the Food and Drug Administration and will also seek it from other regulatory bodies around the world. The interim analysis looked at data from 775 patients enrolled in the trial on or before Aug. 5. Merck is planning to produce 10 million courses of treatment by year-end with more to come in 2022.
  • Shares of Greenlane Holdings IncGNLN rose after Jefferies initiated coverage of the Boca Raton, Fla.-based maker of packaging, rolling papers, glass products and grinders for cannabis with a buy rating and a price target of $6.30.
  • Accounting firm PwC will allow all of its 40,000 U.S. client services employees work remotely and live anywhere they want forever, Reuters reported Friday. 
  • Raymond James analyst Aaron Kessler removed his “strong buy” rating on shares of Alibaba Group Holding LtdBABA though he’s becoming a bit more cautious on the name.
  • Dollar Tree Inc. DLTR was downgraded to sector weight from overweight at KeyBanc Capital Markets as analysts express concern over higher supply chain and labor costs. Retailers across the board have been impacted by bottlenecks at the ports, factory shutdowns overseas and other challenges across the supply chain. 

How are other assets trading?

  • In European markets, the Stoxx Europe 600 index fell 0.3%, while the Nikkei 225 index closed down 2.3%. China markets were closed for a the Golden Week holidays and won’t reopen until next Friday. Hong Kong markets were also closed Friday.
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