Stock futures reversed early losses and shifted higher Friday, after a positive development on the coronavirus front. Merck soared in the S&P 500 and Dow Jones today after reporting positive preliminary results for an oral coronavirus treatment.
Dow Jones futures halved their early gains to trade 0.3% above fair value. S&P 500 futures pared back to a 0.2% gain on the stock market today. Nasdaq 100 futures defended a fractional gain, struggling to snap a five-day losing streak, while Moderna (MRNA), Regeneron Pharmaceuticals (REGN) and Gilead Sciences (GILD) dragged at the bottom of the list.
Nasdaq 100 component Tesla (TSLA) ticked up 0.3% as investors wait on the automaker’s third-quarter deliveries report. The IBD Leaderboard stock is in a buy range above a cup-with-handle buy point at 764.55.
On the S&P 500, Southwest Airlines (LUV) popped 3% higher. JPMorgan upgraded the stock to overweight, from neutral and boosted its price target from 64 to 70.
China-based stocks remained largely under pressure in early trade, but electric vehicle makers rose after reporting strong third-quarter deliveries. Nio (NIO) jumped 3.6% and Xpeng (XPEV) leapt 3.6% higher. Li Auto (LI) rallied 2.3%.
Among IBD 50 stocks, Jefferies (JEF) added 2%, rising in a buy range after reporting a big third-quarter earnings beat late Thursday. The stock entered a buy range as it rebounded from 10-week support on Sept. 20. It is also trading just below a 37.95 entry in a three-weeks-tight pattern.
Dow Jones Today: Merck’s Covid Breakthrough
Merck (MRK) bolted 7.8.3% higher, leading by a wide margin on the Dow Jones today. Interim data from a phase 3 clinical trial showed molnupiravir, an oral treatment developed jointly with Ridgeback Biotherapeutics, reduced by about 50% the risk of hospitalization or death in at-risk adult patients with mild-to-moderate COVID.
The companies plan to apply for emergency use authorization from the Food and Drug Administration, and from other regulators internationally. Merck aims to produce 10 million courses of treatment by the end of the year.
Merck shares had climbed about 6% through Thursday, after bottoming out at a mid-September low.
Vaccine producers and other related stocks reacted negatively to the news, with Moderna down 4.9%, Gilead Sciences falling 1.3%, while Regeneron Pharmaceuticals dumped 4.5%.
Bitcoin Surges More Than 10%
Bitcoin related stocks rallied as Bitcoin surged more than 8%. That lifted the cryptocurrency above $47,270, according to CoinDesk. Bitcoin fell about 8% in September, and is up about 55% since Dec. 31.
August Spending, Prices Outpace Expectations
Personal spending outpaced estimates while income rose less than expected in August, according to the Commerce Department. Spending jumped 0.8%, reversing July’s 0.1% decline and topping economist forecasts for a 0.6% increase. Income eked up 0.2%, down from a 1.1% surge in July and just below expectations for a 0.3% increase.
Prices inflation accelerated to 4.3%, aobve July’s 4.2% increase. Economists had projected another 4.2% gain. Core prices, minus energy and food, rose a more modest 0.3%, vs. expectations for a 0.2% gain.
Manufacturing purchasing managers indexes from Markit and the Institute for Supply Management are set for release after the market opens. Commerce Department construction spending numbers for August and the University of Michigan’s September consumer sentiment survey are set for 10 a.m. ET release.
Overseas Markets, Oil, Natural Gas, Bond Yields
Overseas, in Japan, Tokyo’s Nikkei 225 fell 2.3% as its fifth straight decline left the index down 4.9% in its worst week since April, 2020. Europe’s markets were down hard near mid-session, with London’s FTSE 100 off 0.9%, while Frankfurt’s DAX and the CAC-40 in Paris fell 0.8% apiece. Markets in Hong Kong and Shanghai were closed for the China’s National Day holiday.
Oil prices moved lower, with West Texas Intermediate futures down 0.7% to $74.53 a barrel. For the week, WTI is up about 1.5% and tracking toward a sixth straight weekly advance. WTI futures rose 9.7% in September.
Natural gas futures traded flat at $5.97 per million British thermal units, after rallying more than 36% in September. A sixth-month advance has lifted natural gas prices 135% so far this year.
Bonds traded flat, leaving the 10-year Treasury yield unchanged at 1.49% after snapping a seven-day advance on Thursday. Yields started September at 1.30%, and touched their high for the year above 1.76% in April.
Dow Jones Today: A Good Month For Chevron, JPMorgan
Thursday’s big drop left the Dow Jones today leaning toward a test of recent lows around 33,613. The index ended Thursday 1.5% above its 200-day moving average, so a drop to that technical backstop is quite possibly in the cards. The Dow’s previous test of 200-day support was in late October last year, amidst a two-month consolidation.
Caterpillar (CAT), 3M (MMM) and Walgreens Boots Alliance (WBA) all fell more than 3% on Thursday. CAT stock and 3M are both infrastructure sensitive, falling after the House delated its vote on a $1 trillion infrastructure spending plan.
Walgreens dropped following reports that the company was in talks to acquire Evolent Health (EVH). Evolent Health shares ended Thursday up 18.8% so far, for the week.
For more detailed analysis of the current stock market and its status, study the Big Picture.
Nike (NKE) posted the Dow’s largest loss for September, down 11.8% after reporting below-forecast revenue in its Sept. 24 earnings report. It was the stock’s worst month since May 2019.
3M fell 9.9% for the month. Caterpillar dropped 9%.
On the upside, Chevron (CVX) claimed a 4.8% advance in September as oil prices rallied. That left the oil giant with a year-to-date gain of 24.6%. JPMorgan (JPM) and Salesforec.com (CRM) each gained more than 2% for the month.
Nasdaq, S&P 500 Search For A Bottom
A five-day decline has the Nasdaq feeling for an uncertain bottom to its retreat. The S&P 500’s pullback has been less steep, but on Thursday broke below its Sept 20 low. That opened the door to deeper consolidation, with the next possible ledge of support around 4,233 — about 1.7% below where the index ended on Thursday.
The Nasdaq closed Thursday 3.6% above its 200-day moving average, a level of support it has not touched since April 2020. The S&P 500 closed 4.2% above its 200-day line, a level it has traded above since July last year.
The uncertainty of how deep the market’s consolidation might run suggests investors adopt a strong defensive stance. That means cutting losses quickly in weak-performing stocks. For stocks that have posted strong gains, lock in at least some profits, especially if they are dropping below their 10-week or 40-week lines.
This is a time to build watchlists, and to prepare for the market to fashion a bottom and launch a fresh uptrend. To keep tabs on this process, and on the market’s status, read the Big Picture.
Please follow Alan R. Elliott on Twitter @IBD_Aelliott
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