Stocks surged nearly 400 points Thursday on a double dose of positive news – plans for the U.S. and China to meet next month in a bid to resolve their trade war and a batch of generally solid economic data.
The market has swung wildly in recent months in response to both optimism and disappointment in the trade battle but investors seem to believe this time may be different. On Thursday, a Chinese state media outlet cited a possible “breakthrough” in the more than year-old standoff.
“The stock market is in rally mode,” says Jason Ware, chief investment officer of Albion Financial Group. “It’s getting the most out of positive news on the trade war.”
Also, an array of economic reports was encouraging.
The latest numbers on factory orders, service- sector activity, labor productivity and private-sector job gains all beat estimates. The private jobs total from payroll processor ADP sometimes foreshadows the Labor Department’s employment report, out Friday. And, initial jobless claims, a good gauge of layoffs, remained low last week.
Also bolstering investors outlook, Ware says, is that 10-year Treasury bond yields had been hovering below 2-year rates — an unusual yield curve inversion that typically signals a possible recession on the horizon – but in recent days the 10-year note edged marginally above the 2-year bond.
The Dow Jones industrial average closed up 373 points, or 1.4%, at 26.728. The Standard & Poor’s 500 index rose 38 points, or 1.3%, to 2,976. And the tech-heavy Nasdaq jumped 140 points, or 1.8%, to 8,117.
Ware, however, says the market will likely continue to be volatile until the trade fight is resolved. September has been the worst month for stocks over the past half-century as many financial managers rid their portfolios of poorly performing companies.
Technology stocks led the gains for a second day in a row as investors again fed a bigger appetite for riskier holdings. Chipmakers were the standouts in the early going. Intel rose 3.6%.
Banks moved broadly higher as bond yields rose, which gives them more leverage to charge higher interest rates on loans and garner more profit. JPMorgan Chase rose 2.3% and Bank of America rose 3%.
Consumer-focused companies also rose broadly. Nike, which stands to benefit if the trade war ends sooner rather than later, rose 2.4%. Amazon rose 2.2%.
Investors again shunned safe-play holdings, including utilities and bonds, as they gained more confidence that the economy will continue growing.
Payroll processor ADP reported that U.S. businesses added 195,000 jobs in August, well above economists' expectations. The private report frequently diverges from the government's own employment report, which is scheduled to be released Friday. Economists expect that report will show 160,000 jobs were added.
Meanwhile, the Labor Department reported that overall productivity rose 2.3% during the second quarter, also beating economists' growth forecasts.
The positive report gave already rising bond yields an additional push. The yield on the 10-year Treasury note rose to 1.58% from 1.46% late Wednesday, a big move.
Stocks in Europe moved broadly higher as political developments in Britain point to a less chaotic exit from the European Union. Britain's Parliament has been pushing back against Prime Minister Boris Johnson and hopes to make a deal with the EU before leaving on Oct. 31. Leaving the 28-member trading bloc without a deal could hurt Britain's economy. The British pound surged on the renewed hopes for a more orderly European Union exit.
Asian stocks were broadly higher, though Hong Kong's Hang Seng fell slightly. The index surged a day prior as the government moved to formally withdraw an extradition bill that set off three months of protests.
Trade war twists
U.S. and Chinese envoys have agreed to meet in early October in yet another attempt to end a trade war that has rattled global financial markets and threatened economic growth. Negotiations between the world's largest economies have been tenuous and the trade war has been escalating with expanded tariffs on each other's products.
The latest escalation kicked in Sunday, when the U.S. imposed 15% tariffs on $300 billion of Chinese imports, extending penalties to almost everything the United States buys from China. Beijing responded by imposing duties of 10% and 5% on a range of American imports.
U.S. tariffs of 25% imposed previously on $250 billion of Chinese goods are due to rise to 30% on Oct. 1.