Stocks rose Friday to new highs on two key developments, bolstering investor confidence in the economy.
The Dow Jones Industrial Average rose 164.68 points, or 0.48%, to close at 34,200.67, and the S&P 500 added 15.05 points, or 0.36%, to end at 4,185.47; both indexes notched closing records. The Nasdaq Composite tacked on 13.58 points, or 0.10%, to close at 14,052.34. The biggest gainer in the S&P 500 was chemicals firm PPG Industries (ticker: PPG), which saw shares soar 8.9% on strong earnings.
Pfizer (PFE) CEO Albert Bourla said patients who have been fully vaccinated will probably need yearly booster shots to protect against new strains of Covid-19. He compared the virus and its required shots to influenza. This hint of confidence in Pfizer’s ability to protect people against the virus gives investors confidence that the virus can be kept at bay, reopenings can remain intact, and the economy’s trajectory will remain upward. Pfizer stock rose 2.5%.
Another positive: China’s gross domestic product growth for the first quarter of the year came in at 18.3%, the fastest pace ever, though it missed estimates of 19.2%. Still, the latest figure reflects an economy rebounding more than sharply. That bodes well for global economic growth in general, but it could also be interpreted as an encouraging signal about U.S. economic demand, as the U.S. imports in bulk from China.
The stock market’s internal movements confirmed the optimism; value stocks—representing mature companies in their earnings prime—were the brightest performers. The Vanguard S&P 500 Value ETF (VOOV) rose 0.6%, beating its growth counterpart (VOOG), which rose 0.2%. Growth companies, betting on a longer time frame for full profitability, are less sensitive the perceived condition in the present economy.
Value’s outperformance Friday was also aided by a rebounding 10-year Treasury yield. Higher long-dated yields, which erode the value of future cash flows, put outsize pressure on the current valuations of growth companies.
“Yesterday’s decline in the 10-year yield is not sustainable,” wrote Tom Essaye, founder of Sevens Report Research, in a Friday note.
The yield plunged to 1.55% Thursday after touching 1.74% in mid March, but it isn’t a surprise to see a Friday rebound to 1.58%; the yield is still below the long-term expected rate of inflation and often sits above inflation, historically.
We’ll see if the optimism carries through the weekend to Monday.
Write to Jacob Sonenshine at firstname.lastname@example.org