Dow Heads for Second Week of Gains Amid Tech Retreat

 Dow Heads for Second Week of Gains Amid Tech Retreat

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U.S. stocks opened higher Friday, suggesting most major indexes are headed for a second week of gains despite a retreat from big tech.

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 Jones Industrial Average advanced 0.8% in early New York trading, 207 points higher. The blue-chips index has rallied almost 2.7% this week, despite a drop on Thursday.

The S&P 500 also gained 0.7%, suggesting the broad-market index will end the week with muted gains. Underperforming megacap tech stocks account for a significant portion of the gauge.

The tech-heavy Nasdaq Composite advanced 0.6%, signaling that gains Friday may not be sufficient to make up for losses through the week.

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.”

The S&P 500 and Dow industrials are poised to complete a second week of gains.

The S&P 500 and Dow industrials are poised to complete a second week of gains.

Photo: brendan mcdermid/Reuters

Investors have largely focused on growth prospects in the U.S. this year, and particularly on technology stocks, Mr. Chaar said. 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.

Technology firms and some media and entertainment companies have already drawn less interest this week 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.

On Friday, giant tech stocks led by
Microsoft,
Amazon.com,
Alphabet and
Facebook
edged higher. And one of the top performers was another big tech firm:
Cisco Systems.
The stock climbed over 6% after the network-equipment firm’s earnings and outlook beat Wall Street projections.

But many investors remain cautious about the coming winter because of elevated coronavirus infection levels. The U.S. 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.”

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Bank stocks in particular are “ridiculously cheap,” he added.

Still, the surge in infection levels in the U.S. and Europe, as well as disruptions to business activity from lockdowns this year, are likely to weigh on economic growth for a while, according to Seema Shah, chief strategist at Principal Global Investors.

“The vaccine certainly puts a bit of a backstop on the market,” she said. But “there’s a lot of economic scarring our economy is going to be dealing with, not just for the next couple of quarters, but probably for a year or two,” she cautioned.

In bond markets, the yield on 10-year Treasury notes ticked down to 0.877%, from 0.885% on Thursday.

Overseas, the Stoxx Europe 600 was largely flat. Major Asian equity benchmarks ended the day on a mixed note, with Japan’s Nikkei 225 posting a tepid decline while South Korea’s Kospi Composite advanced 0.7% to its highest close since May 2018.

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%.

Hong Kong’s benchmark Hang Seng Index edged down less than 0.1%. The Shanghai Composite Index dropped 0.9%.