Optimism over trade sends US stocks sharply higher

Wednesday, June 19, 2019

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Potentially encouraging news on trade and interest rates put Wall Street in a buying mood yesterday, driving the market to solid gains and sending the Dow Jones Industrial Average 350 points higher.

Technology stocks powered much of the rally as investors welcomed news that the leaders of the US and China will meet face-to-face next week to discuss their long-running trade dispute. Traders have been hoping for any positive sign in the trade war between the world's largest economies.

It's not the first time the market has rallied on seemingly encouraging developments on trade. Previous positive signs did not pan out, triggering market turbulence.

“You sort of have to ignore it a little bit,” said Tobias Carlisle, founder and portfolio manager at Acquirers Funds. “It's probably going to drag out to the end of the year, so what we're trying to do is buy something undervalued, and it's great when there's a day like today and it works.”

Markets also got a boost after the head of the European Central Bank (ECB) said it was ready to cut interest rates and provide additional economic stimulus if necessary. The remarks put the spotlight on the Federal Reserve, which is set to announce its own decision on interest rates today.

The S&P 500 index climbed 28.08 points, or 1per cent to 2,917.75. The Dow gained 353.01 points, or 1.4per cent, to 26,465.54. The Nasdaq, which is heavily weighted with technology companies, jumped 108.86 points, or 1.4per cent, to 7,953.88.

The Russell 2000 index of smaller companies added 17.48 points, or 1.1per cent, to 1,550.23.

It was the second straight gain for the market, extending a strong rebound for stocks in June after a steep sell-off last month.

The benchmark S&P 500 is now less than 1per cent below its all-time high set on April 30. The Dow is 1.4per cent below its record high set October 3. The Nasdaq is about 2.5per cent below its record close set on May 3.

The wave of buying got its start overseas early yesterday after the remarks from the head of the ECB. Major indexes in Europe closed sharply higher.

President Donald Trump stirred fresh optimism among investors when he said he will hold talks with Chinese President Xi Jinping at an international summit in Japan. US businesses have implored Trump to stop escalating the trade war and refrain from expanding his tariffs to US$300 billion on goods from China.

Investors were also looking ahead to the Federal Reserve's next interest rate policy announcement today, with many betting the central bank is headed for its first interest rate cut in over a decade.

Two weeks ago, Fed Chair Jerome Powell set off a rally on Wall Street after he signaled that the central bank is willing to cut interest rates to help stabilise the economy if the trade war between Washington and Beijing starts to crimp growth. Any continued escalations could put the brakes on what is poised to be the longest economic expansion in US history.

Most analysts say they think economic growth has slowed sharply in the April-June quarter to around a 1.5per cent per cent annual rate, only half the pace of the past year.

Investors collectively envision a Fed rate cut by July and possibly further cuts after that. Some are even betting on a rate cut this week. Many economists, though, think the Fed will wait until September at the earliest to announce its first drop in its benchmark short-term interest rate since 2008 and might not cut again in 2019. A few Fed watchers foresee no rate cut at all this year.

“I don't know that the Fed is going to deliver what investors want because the market looks fairly frothy at the moment,” Carlisle said.

Technology sector stocks powered much of the rally. Apple gained 2.4per cent and chipmakers Intel and Nvidia rose 2.7per cent and 5.4per cent, respectively. Google's parent company, Alphabet, added 1 per cent.

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