Stocks Climb but Trade Negotiations Unlikely to End Soon
11-Oct-19 16:20 ET
Dow +319.92 at 26816.59, Nasdaq +106.26 at 8057.04, S&P +32.14 at 2970.27
briefing.com
[BRIEFING.COM] The major averages ended a bumpy week on a higher note. The S&P 500 gained 1.1% to end the week higher by 0.6% while the Nasdaq (+1.3%) outperformed, rising 0.9% for the week. Small caps had an even better showing today as the Russell 2000 rose 1.8%, climbing 0.8% for the week.
The second day of trade talks between representatives from China and the U.S. started with considerable optimism, which President Trump made sure to highlight in a morning tweet. The first two hours of the session saw an aggressive rally that was paced by cyclical sectors, and briefly lifted the S&P 500 above its high from October 1. The benchmark index hit a session high shortly after the Federal Reserve confirmed what Fed Chairman, Jay Powell, signaled earlier this week.
Starting Tuesday, the Federal Reserve will begin purchasing Treasury bills at a pace of $60 bln per month. The purchases will continue into the second quarter of next year or longer. In addition to these purchases, the Fed will continue conducting regular overnight and term repurchase operations through at least January.
The Fed noted that it is looking to return bank reserves to a level that was seen in early September. The program, which is aimed at steepening the yield curve by pressuring Treasury bill yields, was foreshadowed by the September FOMC Statement and Fed Chairman Powell's remarks made on Monday and Tuesday.
The market backed off its session high in midday trade, but received a midday boost after Bloomberg reported that a partial trade deal was reached at today's meeting. The report, which made the rounds before President Trump's meeting with China's Vice Premier Liu He, said that the deal calls for increased agricultural concessions from China in exchange for some tariff relief. President Trump later said that a "very substantial phase 1 deal" has been reached that covers intellectual property, financial services, and agricultural purchases.
The major averages lurched toward their session highs after comments from President Trump began making the rounds, but the mention of a "phase 1" invited speculation that many phases could follow before a complete deal is achieved. The S&P 500 stopped short of hitting a fresh high, surrendering 20 points just before the close.
Even with the weak finish, eight sectors recorded gains. Cyclical sectors held the lead throughout the day with industrials (+2.0%), materials (+1.9%), technology (+1.5%), energy (+1.4%), and financials (+1.3%) ending ahead of the broader market. Conversely, rate-sensitive utilities (-0.4%), real estate (-0.3%), and consumer staples (-0.1%) underperformed as Treasury yields rose amid the improvement in risk tolerance.
On the earnings front, Fastenal (FAST 36.34, +5.32, +17.2%) surged to a new record high after beating Q3 EPS expectations on in-line revenue. Shares of German software company SAP (SAP 126.20, +10.95, +9.5%) jumped to their highest level since late July after the company reported better than expected preliminary results for Q3, reaffirmed its guidance, and announced the resignation of its CEO. On the downside, JELD-WEN (JELD 16.11, -2.46, -13.3%) fell to its lowest level since late January after issuing below-consensus guidance for Q3.
Treasuries ended in the red, sending the 10-yr yield higher by nine basis points to 1.75%.
Trading volume was close to the long-term average as more than 850 mln shares changed hands at the NYSE floor.
Reviewing today's economic data:
- Import prices were up 0.2% m/m in September, fuel import prices were up 2.1%, and nonfuel import prices were down 0.1%. Export prices were down 0.2%, agricultural export prices were down 1.8%, and non-agricultural export prices were down 0.1%
- The key takeaway from the report is that it shows a lack of inflation pressure for both import and export prices
- The preliminary University of Michigan Consumer Sentiment Index for October checked in at 96.0 (Briefing.com consensus 89.9), up from the final reading of 93.2 for September.
- The key takeaway from the report is the finding that consumers' real income expectations rose to their highest level in two decades. That's a good portent for consumer spending activity.
There is no economic data on Monday's schedule. The bond market will be closed for Columbus Day.
- Nasdaq +21.4% YTD
- S&P 500 +18.5% YTD
- Dow Jones Industrial Average +15.0% YTD
- Russell 2000 +12.1% YTD
Market Snapshot
| Dow | 26816.59 | +319.92 | (1.21%) | | Nasdaq | 8057.04 | +106.26 | (1.34%) | | SP 500 | 2970.27 | +32.14 | (1.09%) | | 10-yr Note | -21/32 | 1.752 |
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| | NYSE | Adv 2125 | Dec 679 | Vol 864.4 mln | | Nasdaq | Adv 2296 | Dec 761 | Vol 2.17 bln |
Industry Watch
| Strong: Industrials, Financials, Technology, Materials, Consumer Discretionary, Energy |
| | Weak: Consumer Staples, Utilities, Real Estate |
Moving the Market
Risk sentiment boosted by continued optimism surrounding U.S.-China trade talks
Reports of a partial deal calling for some tariff relief in exchange for agricultural concessions
Federal Reserve will begin purchasing Treasury bills on October 15
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