Signs of resurgent US economy push stocks to highs

Investors propelled US stocks to a record high last week, buoyed by declining unemployment and advancements in the treatment of Covid-19 giving hope to a resurgent economy.

The S&P 500 index of blue-chip US stocks, seen as a benchmark for the health of corporate America, rose 2 per cent for the week to Friday, its best weekly performance in four and half months and its third straight week notching a new all-time high.

The index was led higher by companies beaten down during the coronavirus pandemic such as airlines, cruise operators and casinos, following Pfizer’s announcement that its antiviral pill successfully reduced hospitalisation rates stemming from Covid-19 by 90 per cent.

Evidence that the US economy is pulling itself out of the pandemic-induced downturn further bolstered sentiment, with the latest jobs report showing a pick-up in job growth across nearly all sectors after several months of more lacklustre gains. More than 500,000 new positions were created in October, and the unemployment rate fell to 4.6 per cent in a move that exceeded economists’ expectations.

“We are on the train to normal,” said Kristina Hooper, chief global market strategist at Invesco. “We are not quite there yet but we are certainly moving in the right direction. Growth is re-accelerating and it’s helped by the new developments in Covid treatment.”

Scott Gottlieb, a former commissioner of the Food and Drug Administration and a member of Pfizer’s board, said on Friday that the pandemic could be over by January.

Pfizer’s announcement added to results on Thursday from Merck that its own pill reduced hospitalisation by 50 per cent.

Live Nation Entertainment, which puts on live concerts that have been curtailed by social restrictions during the pandemic, rose more than 20 per cent for the week, it’s biggest move higher since March 2020 when the Fed first stepped into financial markets to quell the downturn stemming from the pandemic. Cruise operator Royal Caribbean was also among the biggest risers for the week, up more than 14 per cent.

“We have moved into a new phase of the pandemic,” said Rebecca Patterson, director of investment research at Bridgewater, adding that the jolt higher in stock markets has been underpinned by cautious commentary from central banks this week.

The Federal Reserve took its first major step towards ending pandemic-era crisis support for financial markets on Wednesday.

The US central bank announced that it would begin scaling back its $120bn-a-month asset purchase programme with an aim to end the stimulus altogether by the second half of next year.

The decision came as little surprise to investors, who have awaited guidance for months as deliberations among Fed officials stretched on.

Fed chair Jay Powell’s reassurance that the central bank is pursuing a patient approach when it comes to raising interest rates also helped to ease investors’ angst that a substantive move towards higher borrowing costs are soon forthcoming.

“He is doing everything he can to avoid confusion,” said Hooper.

Additional reporting by Nicholas Megaw and Kate Duguid