Tariff delay sparks broad-based advanced, Apple shares rise
13-Aug-19 16:20 ET
Dow +372.54 at 26268.98, Nasdaq +152.95 at 8016.37, S&P +43.23 at 2926.32
briefing.com
[BRIEFING.COM] U.S. stocks rallied on Tuesday after the White House announced that it will delay the 10% tariff rate for some items imported from China, including cell phones and laptops, until Dec. 15. Apple (AAPL 208.97, +8.49, +4.2%) led the broad-based advance and contributed to the solid gains in the S&P 500 (+1.5%), Dow Jones Industrial Average (+1.4%), and Nasdaq Composite (+2.0%). The Russell 2000 increased 1.1%.
Originally, the 10% tariff rate on $300 billion of mostly consumer goods was set to go into effect Sept. 1. Most products will still be taxed on that date, but the decision to delay some big-ticket items followed a "public comment and hearing process," according to the USTR. Other items will be also removed from the tariff list based on "health, safety, and national security" factors.
President Trump told reporters he wanted to delay the tariffs so consumers would not be hurt during the Christmas shopping season and said he had a very productive call with China. On a related note, China's Ministry of Commerce indicated that trade talks will resume over the phone within the next two weeks.
In turn, the upbeat news contributed to gains in all 11 S&P 500 sectors and a 4% rally in oil prices ($57.04/bbl, +$2.23, +4.1%). Nine sectors advanced at least 1.0%, led by the information technology (+2.5%), consumer discretionary (+1.7%), and communication services (+1.5%) sectors. The Philadelphia Semiconductor Index climbed 3.0%.
Although structural trade issues remain, the news did serve as a temporary relief to the market that had been grappling with geopolitical uncertainty, growth concerns, weakness in global equities, and declining U.S. Treasury yields.
For instance, prior to the tariff news, attention remained heavily centered on the Hong Kong protests that continued to escalate. Riot police confronted protesters at the city's airport after flights were canceled for the second consecutive day on Tuesday.
Shorter-dated U.S. Treasuries sold off, driving yields higher in another curve-flattening trade. The 2-yr yield increased nine basis points to 1.67%, and the 10-yr yield increased four basis points to 1.68%. The general risk-on mood helped the market overlook the continued compression in yields. The U.S. Dollar Index advanced 0.5% to 97.82.
Reviewing Tuesday's economic data, which included the Consumer Price Index for July and the NFIB Small Business Optimism Index for July:
- Total CPI increased 0.3% m/m in July, as expected, while core CPI, which excludes food and energy, also increased 0.3% (Briefing.com consensus 0.2%) for the second straight month. Those readings left total CPI up 1.8% yr/yr, versus 1.6% in June, and core CPI up 2.2% yr/yr, versus 2.1% in June.
- The key takeaway from the report is that it muddles the monetary policy outlook. The year-over-year readings are not exactly "rate-cutting" material, but with everything else going on, the market will be left to conclude that another rate cut is likely since the Fed will want to ensure that everything else going on doesn't lead to a caustic slide in inflation expectations.
- The NFIB Small Business Optimism Index for July increased to 104.7 from 103.3 in June.
Looking ahead, investors will receive the weekly MBA Mortgage Applications Index, and Export and Import Prices for July on Wednesday.
- Nasdaq Composite +20.8% YTD
- S&P 500 +16.7% YTD
- Dow Jones Industrial Average +12.7% YTD
- Russell 2000 +12.0% YTD
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