S&P 500 set for record close in 4720s as FDA’s Merck pill approval gives Santa rally additional legs

• The S&P 500 is up another 0.6% and now more than 4.0% up from Monday lows.
• The index was given a further boost as the FDA approved Merck’s Covid-19 treatment pill.  

Just before the open of US equity market trade, the US Food and Drug Administration announced that it had approved a second Covid-19 treatment pill for at-home use. Early trials suggest that Merck’s molnupiravir could reduce mortality and hospitalisation rates in at-home patients by as much as 50%. The news comes after the FDA announced on Wednesday that they had approved Pfizer’s paxlovid pill, which early trails showed to have a superior up to 90% efficacy in preventing hospitalisation and death in at-risk patients.

Just as the news of the Pfizer approval helped stoke risk appetite on Wednesday, the announcement prior to the equity open was likely contributed to the S&P 500’s post-open surge. The index, which had moved a tad higher in pre-market trade (according to index futures) and managed to reclaim the 4700 level, opened at 4706 but has since surged into the 4720s. That means the index is up 0.6% on Wednesday’s close in the 4690s and trades just 0.4% below intraday highs printed back on 22 November in the 4740s.

The Nasdaq 100 index is up about 0.5% and the Dow is up about 0.6%, showing that the gains in equity markets are broad-based. The S&P 500 CBOE volatility index (or VIX) fell another half a point and trades at monthly lows close to 18.00. Alongside the news of the recent approval of two at-home Covid-19 treatment pills, risk appetite in US equities has been boosted in recent days by the release of three separate studies (from South Africa, Scotland and London) which all showed Omicron to be significantly milder than Delta.

The news has eased pressure on European authorities to lockdown their economies in order to curb transmission. The S&P 500 index is now more than 4.0% up versus Monday’s lows in the 4530s. If the S&P 500 closes at current levels, that would mark a record closing high just in time for Christmas – bear in mind that US equity markets are shut on Friday. After a bumpy, volatile December, where the S&P 500 index was at one point as much as 5.0% below recent record highs, the “Santa Rally” has finally arrived to save the day.