Stocks ride wave of optimism on data about possible virus treatment.
Experimental treatment propels optimistic momentum in markets
Stocks around the world whipped higher Wednesday, riding a wave of optimism on encouraging data about a possible treatment for COVID-19.
The upswell of hope was so strong that investors completely sidestepped a report showing the outbreak drove the U.S. economy to its worst quarterly performance since the
Great Recession. The S&P 500 vaulted 2.7% higher and extended a rally that’s brought the U.S. stock market to the brink of its best month in 45 years.
The spark for Wednesday’s rally was a report that an experimental drug proved effective against the new coronavirus in a study run by the National Institutes of Health. The nation’s top infectious diseases expert said the drug reduced the time it takes patients to recover, and it raised hopes that life around the world may eventually tiptoe toward “normal.”
The S&P 500 rose 76.12 points to 2,939.51. It has surged 13.7% in April, and it’s a day away from closing out its best month since late 1974.
The Dow Jones Industrial Average rose 532.31, or 2.2%, to 24,633.86, and the Nasdaq climbed 306.98, or 3.6%, to 8,914.71.
“What you’re finding now is you have this debate between optimism and realism,” said Adam Taback, chief investment officer for Wells Fargo Private Wealth Management.
The Federal Reserve said Wednesday that it expects back the health crisis to weigh on the economy “over the medium term,” as it promised to keep in place massive amounts of aid and interest rates at nearly zero. Oil prices, bonds and other markets besides stocks have also been dominated in recent weeks by worries about the economic impact of the virus outbreak.
“Everything except equities is telling you things are not great,” Taback said. “This market is overly optimistic.”
Gilead’s release about its remdesivir drug hit markets at the same moment as a government report showing the U.S. economy shrank at a 4.8% annual rate first three months year.
Job losses have exploded since early April, as layoffs sweep the nation following widespread stay-at-home orders, and economists expect to see even worse numbers for the second quarter of the year.
The first quarter figure was “merely the tip of the iceberg,” said Michael Reynolds, investment strategy officer at Glenmede.
But stocks have been rallying over the last month as investors look beyond the current economic devastation and focus instead on the prospect of economies in of the the gradually reopening. Some U.S. states and nations around the world have laid out plans to relax restrictions keeping people at home and businesses bereft of customers. Any new treatment for COVID-19 could also lower the dread so prevalent among households and businesses around the world.
“My concern is that the market is starting to get a little bit more focused on the rewards and less focused on the risks right now,” said Sal Bruno, chief investment officer at IndexIQ. “Maybe investors are getting a little too enthusiastic.”