5 Days after Monday's Plunge, Stocks Score Fresh Highs Friday

Stocks and index ETFs are surging higher to close out the week, with the S&P 500 notching a new record Friday.

Key stock benchmarks are pushing aside worries about economic growth. The Dow Jones Industrial Average climbed 0.7%, adding to three consecutive days of gains. The S&P 500 and Nasdaq Composite each rallied 1% as well. The S&P 500 is headed for a record close above the closing high set earlier this month.

Stock index ETFs are gaining momentum as well. The SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) are all showing decent gains on Friday. Meanwhile, the Vanguard Total Stock Market ETF (VTI)Vanguard S&P 500 ETF (VOO), and Vanguard Growth ETF (VUG) are making moves as well, with the latter up over 1.53% Friday.

The moves higher this week come after a dramatic selloff and spike in volatility that began last Friday, as investors exhibited concerns over the surge in coronavirus cases, as the delta variant has dominated headlines.

Despite the recovery, sentiment was also damaged after data Thursday revealed an unexpected pop in jobless claims, which just last week scored a new pandemic-era low. New unemployment filings climbed to 419,000 in the latest week, jumping above consensus estimates of 360,000.

In the pandemic era, jobless claims have functioned as a barometer of  the labor market’s health, and could become more meaningful given that climbing infections begin to spark new restrictions, which could result in another round of job losses.

“As with the recent resurgence in COVID cases stemming from the Delta variant, the jump in jobless claims is a disappointment. Recovery is never a perfect straight line,” noted Mark Hamrick, a senior economic Analyst at Bankrate.

Analysts have mixed feelings on the recovery from the drop, but seem to currently believe that there is reason to support higher prices for stocks.

“What I would say is looking both bottom up and top down, the way the market’s priced currently is very much in the early stages of recovery,” Deutsche Bank chief global strategist Binky Chadha told Yahoo! Finance Live on Friday.

“We expect markets to remain choppy, but a fundamental justification for more aggressive selling is missing,” wrote Barclays strategists in a note to clients. “In fact, the strong rebound since Tuesday shows animal spirits are intact.”

Strong earnings from tech stocks boosted investor sentiment ahead of reports next week from the biggest names in the sector. Twitter and Snap each increased Thursday following better-than-expected second quarter earnings reports. Twitter traded 3% higher, while Snap surged 24%. The moves help catalyze the Global X Social Media ETF (SOCL) as well.

Tech behemoths Facebook and Alphabet are also both set to report next week, along with Apple, Microsoft, and Amazon.

All three U.S. stock averages are targeting positive closes in the week, with the S&P 500 up 1.9% for the week and the Nasdaq Composite up 2.7%, after a tumultuous performance on Monday. The Dow fell over 700 points to start the week as yields fell, unnerving equity investors in the process.

“We saw during the depths of the pandemic that tech stocks and their earnings held up the best, so I think a lot of investors are going back to the well, given we have a Covid resurgence,” Yung-Yu Ma, chief investment strategist at BMO Wealth Management, said. “Long term interest rates coming down as much as they have also makes those stocks more attractive.”

The 10-year Treasury yield climbed on Friday to 1.29%, easing concerns about the economy that the bond market triggered on Monday, after hitting a 5-month low of 1.13% earlier this week.

“This move in the 10-year [Treasury yield] is significant,” Bank of America’s chief U.S. economist Michelle Meyer told Yahoo Finance Live on Thursday. “Market participants are saying that there potentially is a speed bump in this recovery, that the risks to the downside have grown.”

The stock market overall has been helped by a robust earnings reporting season. With a quarter of the S&P 500 having already reported, profit growth for the second quarter is projected to arrive at 76%, according to Refinitiv, representing the healthiest growth since 2009. Profit margins have also been strong, given climbing inflationary data. So far for the second quarter, companies are reporting average profit margins of 12.8%, according to S&P Global, above the historic range.

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