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Dow falls 140 points, but Nasdaq edges up as worries about COVID recovery weigh

Stock benchmarks headed slightly lower, but the Nasdaq Composite was buoyant Friday afternoon as rising COVID-19 cases raised doubts about the prospects for the economic recovery, offset partly by progress toward vaccines.

The Treasury Department’s decision to allow emergency Federal Reserve programs to expire was seen as a modest negative for markets, analysts said.

What are major benchmarks doing?
  • The Dow Jones Industrial Average
    DJIA
    fell 144 points, or 0.5%, to 29,351.

  • The S&P 500 index
    SPX
    traded off 11 points, or 0.3%, at 3,571.

  • The Nasdaq Composite Index
    COMP
    rose 11 points, or 0.1%, to 11,916.

Stocks eked out gains in a choppy trading session on Thursday:

  • The Dow rose 44.81 points, or 0.2%, to close at 29,483.23.

  • The S&P 500 gained 14.08 points, or 0.4%, to finish at 3,581.87.

  • The Nasdaq Composite ended at 11,904.71, a rise of 103.11 points, or 0.9%.

For the week:

  • Dow was down 0.5%

  • S&P 500 was off 0.4%

  • Nasdaq Composite has risen 0.7%

  • The small-capitalization Russell 2000 index
    RUT
    was headed for a 2.3% gain

  • Dow Jones Transportation Average
    DJT
    has risen 1.5%

What’s driving the market?

After a week in which stock investors reverted to old trends of buying large-capitalization, technology-related stocks on the back of fresh coronavirus restrictions, the market, on Friday, cued in on an apparent rift between the Treasury Department and the Federal Reserve as another possible source of friction.

Late Thursday, Treasury Secretary Steven Mnuchin said he wouldn’t approve the extension of several emergency loan programs set up with the Fed during the worst days of the financial turmoil created by the pandemic earlier this year.

The Fed responded that it “would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”

On Friday, Mnuchin, during an interview on CNBC, said that the intent in pulling the plug on funding was to re-appropriate the funds to stimulus efforts and played down the apparent rift.

“This is not a political issue. this is very simple, let’s go reappropriate $500 billion,” Mnuchin said. He added, “markets should be very comfortable that we have plenty of capacity left,” indicating that there are $750 billon of funds to help the markets should problems arise again.

Mnuchin said that he is legally obliged to return the unused funds to Congress and urged it to be used as at least part of package to help small businesses and workers.

During a separate interview on CNBC Friday, Chicago Federal Reserve President Charles Evans described Treasury ending the Fed’s emergency lending funding as “disappointing.”

“Our facilities have been very helpful—they perform a backstop role for when markets find themselves in a more challenging situation,” Evans told CNBC.

“That backstop role might be important for quite some time, so it’s disappointing,” Evans said.

Need to Know: What’s next for markets after Treasury Secretary Steven Mnuchin pulls the $455 billion plug

“The emergency lending facilities have been little-used, but their existence has been key in ensuring a credible safeguard against financial market stress,” said Gregory Daco, chief U.S. economist at Oxford Economics, in a note.

Read: S&P 500 can reach 4,500 by the end of 2021, predicts JPMorgan analysts

“With the Covid-19 crisis worsening and activity slowing in the absence of fiscal aid, the decision to curtail the Fed’s firepower could unsettle markets and exacerbate economic stress,” he said.

Meanwhile, trading over the week has been uneven as investors weighed optimism over progress toward COVID-19 vaccines against a continued surge in new infections.

“The strains from COVID are hitting medical systems in the Midwest and it is almost certain that mobility is down and will likely remain that through the holiday shopping season,” said Boris Schlossberg, managing director at BK Asset Management, in a note.

“That will be positive for digital retailers but may be the death knell for many small to medium-size brick and mortar stores and will likely create further contractionary ripples in the economy in Q4,” he said.

Markets thus far have been buoyed, however, as drugmakers make rapid progress toward a vaccine, he said.

Pfizer Inc.
PFE
on Friday said it would file Friday for approval from U.S. regulators for emergency use of the vaccine it’s developed with BioNTech SE
BNTX
that has proven 95% effective in a clinical trial. Moderna Inc.
MRNA
earlier this week said its vaccine candidate was more than 94% effective.

“In light of the vaccine stories, it feels like stocks could be in limbo for a while until we find out about the vaccine situation – in either direction,” wrote David Madden, market analyst at CMC Markets UK, in a Friday afternoon not.

“Seeing as a lot of progress has been made with respect to coronavirus drugs, it seems like a floor has been put in place under equity benchmarks now, but that could all change should the drug story get derailed,” the analysts said.      

Which companies are in focus?
  • Shares of Gilead Sciences Inc.
    GILD
    fell 1.4% after a World Health Organization panel recommended against doctors using the drug remdesivir to treat coronavirus patients.

  • Shares of Workday Inc.
    WDAY
    were down 5.9% after the cloud-software company delivered strong revenue and continued earnings growth in its third-quarter results.

  • Shares of software-security company McAfee Inc.
    MCFE
    were down 1% after it reported a break-even third quarter on sales of $728 million, delivering its first results since returning to public markets last month. Shares were trading 4.5% lower.

  • Foot Locker Inc.
    FL
    shares were 1.6% lower after the athletic shoe and accessories seller reported a surprise increase in same-store sales and profit that rose well above expectations.

  • Shares of Nike Inc.
    NKE
     were in focus on Friday, after the athletic apparel and accessories company said it was raising its quarterly dividend by 12%. Shares were up 1.1%.

  • Butterfly Network Inc. said Friday it has agreed to merge with special purpose acquisition corporation Longview Acquisition Corp.
    LGVW
     in a deal with an enterprise value of $1.5 billion. Shares of Longview were up 14%.

How are other markets faring?

Europe markets

  • The pan-European Stoxx 600 index
    XX:SXXP
    closed up 0.5% on Friday and 1.2% for the week; and the U.K.’s FTSE 100 index
    UK:UKX
    rose 0.3% on the day and booked a 0.6% weekly rise.

Asian markets

  • In China, the Shanghai Composite Index
    CN:SHCOMP
    booked a 0.4% gain on Friday and advanced 2% for the week, while the CSI 300
    XX:000300
    finished the session 0.3% higher and climbed 1.8% on the week.

  • Japan’s Nikkei 225
    JP:NIK
    ended with a 0.4% loss but marked a 0.6% weekly gain.

Other assets:

  • The yield on the 10-year Treasury note
    BX:TMUBMUSD10Y
    fell 2.2 basis points to 0.83%. Yields and prices move in opposite directions.

  • Crude-oil futures
    CRUDE OIL – ELECTRONIC
    gained 0.6% to trade at $42.17 a barrel.

  • Gold futures
    GCZ0
    rose $5.50, or 0.3%, to reach $1,867 an ounce

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