Stocks rally on trade optimism, dovish expectations
18-Jun-19 16:20 ET
Dow +353.01 at 26465.54, Nasdaq +108.86 at 7953.87, S&P +28.08 at 2917.75
[BRIEFING.COM] The stock market rallied on Tuesday, boosted by U.S.-China trade optimism and dovish comments out of the European Central Bank (ECB). Each of the major indices advanced between 1.0% (S&P 500) and 1.4% (Nasdaq Composite).
The advance began overnight after ECB President Mario Draghi said the central bank is willing to provide additional stimulus if economic conditions don't improve and inflation remains low. Sovereign bond yields fell on the news, sending Germany's 10-yr bund yield to a fresh record low at -0.32%, while U.S. equity futures pushed higher.
U.S. stocks took a leg higher minutes after the opening bell after President Trump updated the market with U.S.-China trade news. Specifically, the president tweeted that the U.S. will resume trade talks with Beijing before the G-20 summit and that he will have an extended meeting at G-20 with President Xi.
Increased hopes for a trade deal contributed to an 4.6% gain in the price of oil ($54.16/bbl, +$2.40) and to the outperformance of the S&P 500 cyclical sectors. The industrials (+1.9%), information technology (+1.7%), energy (+1.4%), and financials (+1.3%) sectors finished with gains above 1.0%.
Apple (AAPL 198.45, +4.56, +2.4%) and the semiconductor space, both of which are highly sensitive to U.S.-China trade relations, also outperformed the broader market. The Philadelphia Semiconductor Index climbed 4.3%. Conversely, the defensive-oriented consumer staples (-0.6%), real estate (-0.3%), and utilities (-0.3%) sectors were the lone sectors that finished lower.
The Fed will presumably keep a watchful eye as to how trade talks unfold in front of its July meeting. In the meantime, its two-day policy meeting wraps up tomorrow with a rate decision due in the afternoon. While no rate cut is expected, the market has high expectations for the Fed to take a dovish-minded stance like its European counterpart in its policy directive.
U.S. Treasuries spent a bulk of intraday action pulling back from session highs, leaving yields slightly lower. The 2-yr yield declined one basis point to 1.84%, and the 10-yr yield declined three basis points to 2.06%. The U.S. Dollar Index increased 0.1% to 97.62.
Separately, Facebook (FB 188.47, -0.54, -0.3%) released the white paper for its cryptocurrency project. The stock popped to a 2.9% gain at the open, but quickly retreated and finished in negative territory, as the stock had already climbed over 15% since June 3 prior to the session.
Reviewing Tuesday's economic lone economic report, Housing Starts and Building Permits for May:
Looking ahead, investors will receive the FOMC's Rate Decision and the weekly MBA Mortgage Applications Index on Wednesday.
- Housing starts dipped 0.9% m/m in May to a seasonally adjusted annual rate of 1.269 million (Briefing.com consensus 1.240 million) from an upwardly revised 1.281 million (from 1.235 million) in April. Permits increased 0.3% m/m in May to a seasonally adjusted annual rate of 1.294 million (Briefing.com consensus 1.295 million) from an upwardly revised 1.290 million (from 1.269 million) in April.
- The key takeaway from the report was that the number of units under construction at the end of the period held at a seasonally adjusted annual rate of 1.131 million for the third straight month. That left the second quarter average 1.5% below the first quarter average, which will be a negative input for Q2 GDP forecasts.
- Nasdaq Composite +19.9% YTD
- S&P 500 +16.4% YTD
- Russell 2000 +15.0% YTD
- Dow Jones Industrial Average +13.5% YTD