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Oct. 1, 2021, 5:07 p.m. EDT

U.S. stocks finish sharply higher Friday, but S&P 500 still books biggest weekly drop since February

By Christine Idzelis and Mark DeCambre

U.S. stocks ended sharply higher Friday after a batch of mixed economic data, kicking off October with gains although major indexes posted losses for the week.

Initial optimism on Wall Street was pegged partly to news that Merck & Co . (NYS:MRK) and partner Ridgeback Biotherapeutics, said their oral antiviral treatment for COVID-19 reduced the risk of hospitalization or death by 50% for patients with mild or moderate cases.

How did stock-market indexes trade?

  • The Dow Jones Industrial Average (DOW:DJIA) rose 482.54 points, or 1.4%, to close at 34,326.46.

  • The S&P 500 index (S&P:SPX) climbed 49.50 points, or 1.2%, to finish at 4,357.04.

  • The Nasdaq Composite Index (NASDAQ:COMP) advanced 118.12 points, or 0.8%, to end at 14,566.70.

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

This week, the Dow fell 1.4%, its biggest weekly decline since the week ending September 10, according to Dow Jones Market Data. The S&P 500 lost 2.2% for the week, its largest percentage drop since the week ending February 26. The Nasdaq saw a 3.2% weekly drop, also its biggest decline since the week ended February 26.

What drove the market?

Equity markets were choppy Friday, moving higher in the afternoon after relinquishing modest opening gains, as investors assessed a batch of mixed data on the U.S. economy.

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.

“People will tell you that they’re gloomy, but they’re not acting like they’re gloomy,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab, in a phone interview Friday. “People are still spending.”

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.

The Institute for Supply Management manufacturing index for September also rose to 61.1 from 59.9 in the prior month. A reading of 50 or better indicates improving conditions.

“That’s a really good print,” said Megan Greene, global chief economist at Kroll Institute, in a phone interview Friday. “I think most of us were expecting it to slow down a bit.”

Ahead of the morning’s ISM data, a report on Merck’s expe rimental drug helped bulls make a case for higher stocks, but concerns over the U.S. debt-ceiling debate in Washington, D.C. may act as a damper as a deadline to lift it looms.

“Every day we go by where they don’t have a deal, that’s just one more reason for the market to get volatile and people to get nervous,” said Frederick. “I just hope they get this resolved sooner rather than later.”

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 failed to agree on other linked spending proposals.

Apart from a rough September and third quarter, the S&P 500 index remains up 16% this year, according to FactSet data.

“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.

Which companies were in focus?

  • Shares of Merck closed about 8.4% higher Friday, jumping after the company said it experimental pill cut the risk of serious illness or death from Covid-19 in a study. 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.

  • Shares of Greenlane Holdings IncGNLN rose 5.5% 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 to 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 . Shares of Alibaba fell 2.6%.

  • 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. Shares of Dollar Tree climbed about 2.4%.

How did other assets trade?

  • The yield on the 10-year Treasury note (XTUP:BX:TMUBMUSD10Y) fell about six basis points Friday to 1.464%, but still eked out a rise of less than one basis point for the week in a sixth straight weekly rise, according to Dow Jones Market Data.

  • The ICE U.S. Dollar Index  DXY , a measure of the currency against a basket of six major rivals, fell 0.2% Friday, but rose 0.8% for the week.

  • Oil futures CL00 finished higher, with the U.S. benchmark rising 1.1% to settle at $75.88 a barrel Friday. Gold futures also rose , up nearly 0.1% to settle at $1,758.40 an ounce for a small weekly gain.

  • In European markets, the Stoxx Europe 600 index (STOXX:XX:SXXP) closed 0.4% lower for a weekly decline of 2.2%. The FTSE 100 Index closed 0.8% lower, declining 0.35% for the week.

  • The Nikkei 225 index (NIKKEI:JP:NIK) closed down 2.3%, dropping 4.9% for the week. China markets were closed for a the Golden Week holidays and won’t reopen until next Friday. Hong Kong markets were also closed Friday.

—Barbara Kollmeyer contributed to this report.

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