Stock benchmarks closed lower Friday as rising COVID-19 cases raised doubts about the economic recovery, offset partly by progress toward vaccines.
The Treasury Department’s decision to allow some emergency Federal Reserve programs to expire was seen as a modest negative for markets, analysts said.
What did major benchmarks do?
- The Dow Jones Industrial Average DJIA fell 219.75 points, or 0.8%, to close at 29,263.48.
- The S&P 500 SPX dropped 24.33 points, or 0.7%, to finish at 3,557.54.
- The Nasdaq Composite Index COMP reversed early gains to close at 11,854.97, down 49.74 points or 0.4%.
Stocks eked out gains in a choppy trading session on Thursday. For the week:
- The Dow booked a 0.7% loss.
- The S&P 500 fell 0.8%.
- The Nasdaq gained 0.2%.
- The small-cap Russell 2000 index RUT, +0.06% rose 2.4%.
What drove the market?
After a week in which stock investors reverted to old trends of buying large-capitalization, technology-related stocks on the back of fresh coronavirus restrictions, the market on Friday focused on an apparent rift between the Treasury Department and the Federal Reserve as another possible source of friction.
Late Thursday, Treasury Secretary Steven Mnuchin said he wouldn’t approve the extension of several emergency loan programs set up with the Fed during the worst days earlier this year of the financial turmoil created by the pandemic.
The Fed responded that it “would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”
On Friday, Mnuchin told CNBC that the intent in pulling the plug on funding was to re-appropriate the funds to stimulus efforts and played down the apparent rift.
“This is not a political issue. this is very simple, let’s go reappropriate $500 billion,” Mnuchin said. He added, “markets should be very comfortable that we have plenty of capacity left,” indicating that there are $750 billon of funds to help the markets should problems arise again.
Mnuchin said he is legally obliged to return the unused funds to Congress, which he urged to help fund small businesses and workers.
During a separate interview on CNBC Friday, Chicago Federal Reserve President Charles Evans described Treasury ending the Fed’s emergency lending funding as “disappointing.”
“Our facilities have been very helpful—they perform a backstop role for when markets find themselves in a more challenging situation,” Evans told CNBC.
Treasury’s step has made markets “jittery,” said Andrew Smith, chief investment strategist at Dallas-based Delos Capital Advisors.
A familiar trifecta of headwinds is still facing the market, Smith said in an interview: election uncertainty, questions about fiscal aid, and logistics for rolling out a vaccine.
“Markets are trading rangebound so the second that we get clarity on one of those, that will allow tailwinds to move the market upwards,” Smith said. As a result, Smith is looking for stronger growth, with a sharp cyclical rotation, and probably more inflation than many investors are expecting, early next year.
In a research note, Gregory Daco, chief U.S. economist at Oxford Economics, said the Fed’s emergency lending facilities “have been little-used, but their existence has been key in ensuring a credible safeguard against financial market stress.”
“With the Covid-19 crisis worsening and activity slowing in the absence of fiscal aid, the decision to curtail the Fed’s firepower could unsettle markets and exacerbate economic stress,” he said.
Meanwhile, trading over the week has been uneven as investors weighed optimism over progress toward COVID-19 vaccines against a continued surge in new infections.
“The strains from COVID are hitting medical systems in the Midwest and it is almost certain that mobility is down and will likely remain” that way through the holiday shopping season, said Boris Schlossberg, managing director at BK Asset Management, in a note.
“That will be positive for digital retailers but may be the death knell for many small to medium-size brick and mortar stores and will likely create further contractionary ripples in the economy in Q4,” he said.
Markets thus far have been buoyed, however, as drugmakers make rapid progress toward a vaccine, he said.
Pfizer Inc. PFE, +1.40% on Friday said it would file for approval from U.S. regulators for emergency use of the vaccine it’s developed with BioNTech SE BNTX, +9.62% that has proven 95% effective in a clinical trial. Moderna Inc. MRNA, +5.21% earlier this week said its vaccine candidate was more than 94% effective in a trial.
Which companies were in focus?
- Shares of Gilead Sciences Inc. GILD, -0.85% fell 0.9% after a World Health Organization panel recommended against doctors using the drug remdesivir to treat coronavirus patients.
- Shares of Workday Inc. WDAY, -9.27% lost 9.3% after the cloud-software company delivered strong revenue and continued earnings growth in its third-quarter results.
- Shares of software-security company McAfee Inc. MCFE, -3.35% lost 3.5% after it reported a break-even third quarter on sales of $728 million, delivering its first results since returning to public markets last month.
- Foot Locker Inc. FL, -4.96% shares closed nearly 5% lower after the athletic shoe and accessories seller reported a surprise increase in same-store sales and profit that rose well above expectations.
- Shares of Nike Inc. NKE, +0.81%, after the athletic apparel and accessories company said it was raising its quarterly dividend by 12%. Shares gained 0.8%.
- Butterfly Network Inc. said Friday it had agreed to merge with special purpose acquisition corporation Longview Acquisition Corp. LGVW, +26.77% in a deal with an enterprise value of $1.5 billion. Longview shares closed 26.8% higher.
- Shares of Sotera Health Co. SHC, +9.13% closed 9.1% higher, the day after its IPO.
How did other markets fare?
- The pan-European Stoxx 600 index SXXP, +0.51% closed up 0.5% and added 1.2% for the week; and the U.K.’s FTSE 100 index UKX, +0.27% rose 0.3% on the day and booked a 0.6% weekly rise.
- In China, the Shanghai Composite Index SHCOMP, +0.43% booked a 0.4% gain and advanced 2% for the week, while the CSI 300 000300, +0.31% finished the session 0.3% higher and climbed 1.8% on the week.
- Japan’s Nikkei 225 NIK, -0.41% ended with a 0.4% loss but marked a 0.6% weekly gain.
- The yield on the 10-year Treasury note TMUBMUSD10Y, 0.829% was virtually unchanged at 0.833% as investors shunned riskier assets. Yields and prices move in opposite directions.
- Crude-oil futures CL.1, +0.04% gained 1%, or 41 cents, to settled at $42.15 a barrel on the New York Mercantile Exchange as traders pinned hopes on an economic rebound.
- Gold futures GCZ20, -0.15% rose 0.6%, or $10.90, to settle at $1,872.40 an ounce, but were higher for the week.