By Jem Bartholomew and Alexander Osipovich
U.S. stocks climbed Friday, putting the Dow Jones Industrial Average on track for its second week of gains as investors look ahead to an economic recovery.
Optimism about a Covid-19 vaccine has in recent days drawn investors out of this year's highflying technology stocks, and made economically sensitive sectors like energy and banks some of the week's top performers.
The Dow industrials climbed 280 points, or 1%, in midday trading. The blue-chips index has rallied 3.7% this week.
The S&P 500 rose 0.9%, putting it on track for a weekly gain of about 1.7%. The broad-based index has lagged behind the Dow because of underperforming megacap tech stocks, which account for a significant portion of the gauge.
The tech-heavy Nasdaq Composite rose 0.6%, recovering some ground from recent days but still on track for a roughly 1% loss.
Investors this week began shifting their bets to companies that are particularly sensitive to the economic outlook, giving a boost to the financial, manufacturing and travel sectors. Those stocks had fared poorly for much of the year. The rotation into cheaper value stocks is being fueled by speculation that a coronavirus vaccine being developed by Pfizer and partner BioNTech would help end the pandemic and allow the economic recovery to pick up pace.
"This is an environment where the recovery trade, which is favorable to value, really still has legs," said Samy Chaar, chief economist at Lombard Odier. That is because many investors have adopted the view that the pandemic will come to an end next year, he said. "The market is starting to focus on 2021, and giving credit to the cyclical recovery."
Phillip Toews, chief executive of Toews Asset Management, said that after the Pfizer news his firm bought stocks and exited defensive positions in cash and bonds, as it appeared that the world could be turning the corner on the pandemic. "Now we're fully bullish across our equities and high-yield bonds platforms," Mr. Toews said.
Mr. Chaar said that investors have largely focused on growth prospects in the U.S. this year, and particularly on technology stocks. They are more likely now to rebalance their portfolios to a more neutral view between companies with high growth prospects and those that are considered a bargain, he said.
Amazon.com and Facebook have dropped around 6% this week, while videoconferencing firm Zoom Video Communications has slumped 18% as investors pared back on the so-called stay-at-home trade. Those businesses have been widely seen this year as likely to grow the most when people spend more of their work and leisure time at home because of lockdown measures.
All 11 sectors of the S&P were in positive territory on Friday, led by energy and industrial stocks.
Tech stocks regained some lost ground, led by Cisco Systems. Shares of the network-equipment firm climbed 6.8% after its earnings beat Wall Street projections, lifting the Dow and the S&P tech sector.
Palantir Technologies stock jumped 6.1% after the data-analysis company raised its revenue outlook late Thursday and posted better-than-expected sales in its first quarterly report since going public in September.
But many investors remain cautious about the coming winter because of elevated coronavirus infection levels. The U.S. on Thursday for the first time reported more than 150,000 new coronavirus cases in a single day, driven by record infection counts in more than a dozen states.
"Over the next few weeks, the likelihood is we're going to see greater volatility. You have a number of systemic risks that could occur," said Justin Onuekwusi, head of retail multiasset funds at Legal & General Investment Management. "You've got vaccine news, you've got economic growth being impacted by lockdowns, Brexit news, U.S. election news -- all of it's quite volatile."
Much of the optimism in markets at the moment is tied to prospects for a Covid-19 vaccine. Low interest rates, low inflation levels and the outlook for next year will also help power stocks higher, according to Patrick Spencer, managing director at U.S. investment firm Baird. He predicts that the U.S. won't impose nationwide lockdown measures, and foresees a "V-shaped" economic rebound.
"The key to the vaccine is to generate herd immunity, and the moment you get herd immunity, you get consumers spending," Mr. Spencer said. "If you get the vaccine out, economies will continue to recover, consumer spending will come back, and the cyclical side of the equation will continue to do well."
Bank stocks in particular are "ridiculously cheap," he added.
In bond markets, the yield on 10-year Treasury notes was little changed from 0.885% on Thursday.
Overseas, the Stoxx Europe 600 was roughly flat. Major Asian equity benchmarks were mostly lower, with Japan's Nikkei 225 falling 0.5% while the Shanghai Composite Index dropped 0.9%.
Some Chinese stocks fell sharply after President Trump signed an order barring Americans from investing in companies deemed to help China's military, intelligence and security services.
Shares in China's three main telecoms operators were among the hardest hit, with China Mobile, China Unicom and China Telecom retreating over 5% in Hong Kong trading. China Railway Construction Corp., another target of the order, fell 4.1%.
Write to Alexander Osipovich at email@example.com
(END) Dow Jones Newswires