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By Sinéad Carew
NEW YORK, May 23 / PRNewswire / – Wall Street closed higher on Friday. Positive earnings reports helped fuel optimism about the economy and hoped for successful COVID-19 vaccines, although investors saw a surge in virus cases and restrictions across the country.
After a volatile week of trading as the market swayed between hopes and fears about the virus, Cisco Systems Inc gave the S&P 500 the biggest boost after its quarterly report showed an increase in home demand.
Walt Disney Co also rose as a fast-growing streaming video business, and a partial recovery at its theme parks mitigated the quarterly loss.
“For today, at least, it looks like sentiment about the potential for vaccines, coupled with very strong earnings reports from some companies, makes investors confident the economy can continue to recover,” said Michael Arone, chief investment strategist at State Street Global Advisors.
Unofficially, the Dow Jones Industrial Average rose 378.85 points, or 1.3%, to 29,459.02, the S&P 500 rose 46.99 points, or 1.33%, to 3,584, and the Nasdaq Composite rose 113.97 points, or 0 , 97% to 11,823.55.
The outperformance of more economically sensitive sectors like energy and industry versus growth sectors like technology on Friday was a clear indication that “optimism about the economy is rebounding,” said Tom Martin, senior portfolio manager at Globalt Investments in Atlanta .
The top three US stock indices had fallen on Thursday as more than a dozen US states reported a doubling in new COVID-19 cases in the past two weeks. The Mayor of Chicago issued a month-long stay at home recommendation.
However, a senior adviser to President-elect Joe Biden said there were no plans for statewide lockdowns for next year and instead spoke about restrictions on certain regions if the virus spreads poorly there.
State Street’s Arone said the reluctance to have a full lockdown likely cheered some investors. He feared, however, that investor optimism could be exaggerated, especially as Fed officials have warned of the potential damage that rising virus cases could inflict on the economy with no new stimulus package in sight.
“The market is underestimating some of the impact that rising cases and non-incentives will have on the economy and profits, and they are overestimating the potential timeline and breadth of vaccine distribution,” said Arone.
“In the spring, people were expecting the worst and the worst didn’t happen. Now they are expecting the best and may be a little too rosy.”
Positive data from Pfizer’s vaccine study earlier this week had resulted in a rotation in the cyclical sectors, boosting the S&P 500 and Dow.
However, tech-heavy Nasdaq underperformed as investors posted gains in technology stocks that benefited from a home-stay environment.
Globalt’s Martin also raised hopes for news of further advances in coronavirus vaccines after Moderna Inc announced earlier this week that it had enough data for an initial interim analysis of its late-stage study.
According to third-quarter reports released by roughly 90% of the S&P 500 companies, Refinitiv IBES estimates now show a 7.8% year-over-year earnings decline compared to October 1’s expectation for a slump of 21.4%.
Meanwhile, Biden’s victory in the battlefield state of Arizona increased his electoral margin, but the official transition remains pending as President Donald Trump refuses to admit.
Value stocks, which include mostly cyclical sectors like banking and energy, outperformed the growth index, which is composed mostly of technology companies. (Additional reporting by Stephen Culp in New York, Medha Singh and Shivani Kumaresan in Bengaluru; editing by Saumyadeb Chakrabarty, Shounak Dasgupta and Tom Brown)