Stimulus propels stocks to best week since 2009

U.S. stocks weathered a late-Friday plunge to post their best week in over 10 years, buoyed by an unprecedented stimulus package meant to blunt the economic impact of the coronavirus pandemic. Treasuries gained and oil slipped.

The S&P 500 Index climbed 10 per cent this week, its biggest gain since March 2009, on the strength of a record three-day rally. But that rally sputtered Friday, and the benchmark plunged just minutes before the close, illustrating how tenuous any gains can be, even with a US$2 trillion spending deal heading to the president’s desk for his signature. The S&P remains 25 per cent below its February record, and the Cboe Volatility Index is on track for a 10th straight close above 60. It averaged 18.7 in the past year. The Dow Jones Industrial Average had its best week since 1938, even as all but two of its 30 members declined Friday.

The S&P/TSX composite index closed down 683.43 points or 5.1 per cent at 12,687.74.

Treasuries gained after the Federal Reserve said it would reduce the pace of its purchases next week. That announcement may have contributed to the stock market’s late-day swoon.

“When some of the short-term traders saw that, they decided to take some chips off the table in front of the weekend,” said Matt Maley, strategist at Miller Tabak & Co. “They probably decided it was a good idea to pare back some of their long positions in front of the weekend.”

Investors had piled back into the battered U.S. equity market this week on speculation that the massive relief bill would offset some of the pandemic’s impact on businesses and households. A debate has ensued over whether that furious rally represented unwarranted optimism or the start of a long-term upswing.

What remains clear is that the virus has ground the American economy to a near total halt, with new jobless claims spiking above 3 million as large areas of the country remain virtually locked down to slow the spread of the infection. A measure of U.S. consumer confidence fell the most since 2008. West Texas crude declined, setting up a fifth straight week of losses. The dollar had its worst five-day skid since 2009.

The Stoxx Europe 600 Index was led lower by banks and real estate shares after the region’s leaders struggled to agree on a concrete strategy to contain the fallout of the pandemic. Asian equities mostly rose, though shares in Australia slumped. The pound gained even as U.K. Prime Minister Boris Johnson said he had tested positive for coronavirus.

The recent revival of risk appetite looks sure to be tested by the continuing spread of the infection and the crippling effect of business closures. Tokyo is now seeing a surge in cases, while global deaths from the pandemic surpassed 24,000. The Reserve Bank of India on Friday became the latest central bank to step up emergency action to cushion the economic impact.

“It is by no means a given that volatility has ceased to be a feature of global equity markets,” said Paul Markham, global equities portfolio manager at Newton Investment Management. “Markets will oscillate between the reassurance that governments and central banks will be standing by to support them and the uncertainty of both the duration and depth of what will undoubtedly be a significant economic impact.”

These are the main moves in markets:

Stocks

  • The S&P 500 Index decreased 3.4% as of 4 p.m. New York time.
  • The Stoxx Europe 600 Index dropped 3.3%.
  • The MSCI Asia Pacific Index rose 1.9%.

Currencies

  • The Bloomberg Dollar Spot Index fell 0.6%.
  • The euro gained 0.9% to $1.1127.
  • The British pound increased 2.1% to $1.2461.
  • The Japanese yen gained 1.6% to 107.87 per dollar.

Bonds

  • The yield on 10-year Treasuries declined 17 basis points to 0.67%.
  • Germany’s 10-year yield dipped 11 basis points to -0.474%.
  • Britain’s 10-year yield fell three basis points to 0.367%.

Commodities

  • Gold decreased 0.6% to $1,622.33 an ounce.
  • West Texas Intermediate crude decreased 4.4% to $21.59 a barrel.

Bloomberg.com

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