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Stocks Rally On Optimism About Avoiding Shutdown, Trade Talks - U.S. Commentary

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Following the lackluster performance seen in the previous session, stocks moved sharply higher over the course of the trading day on Tuesday. With the strong upward move, the major averages reached their best closing levels in over two months.

The major averages finished the day firmly in positive territory. The Dow soared 372.65 points or 1.5 percent to 25,425.76, the Nasdaq jumped 106.71 points or 1.5 percent to 7,414.62 and the S&P 500 surged up 34.93 points or 1.3 percent to 2,744.73.

The rally on Wall Street came amid optimism lawmakers will manage to avoid another government shutdown after negotiators reached a tentative agreement on border security.

Senate Appropriations Committee Chairman Richard Shelby, R-Ala., a lead Republican negotiator, said the two sides have reached an "agreement in principle."

The agreement reportedly includes $1.4 billion for physical barriers on the border, well short of the $5.7 billion President Donald Trump has demanded for construction of a border wall.

Democrats have also purportedly agreed to drop their demand to reduce the number of illegal immigrants who can be detained by Immigration and Customs Enforcement.

Shelby said the White House was consulted throughout the negotiations, although Trump later expressed displeasure with the terms of the agreement.

Trump told reporters during a Cabinet meeting at the White House on Tuesday that he is "not happy" with the deal struck by lawmakers but stopped short of saying he would reject the plan.

The president suggested he was "adding things" to the compromise agreement and claimed he would still build a "beautiful, big, strong wall" on the U.S. border with Mexico.

The comments from Trump come as lawmakers face a deadline of midnight on Friday to pass a spending bill and avoid another government shutdown.

Trump said he does not think there will be another shutdown but added, "If you did have it, it's the Democrats' fault."

Optimism about the next round of U.S.-China trade talks taking place this week also contributed to the strength on Wall Street.

A report from Bloomberg said some U.S. officials see the most likely scenario at this week's talks is for Trump to defer his deadline for raising tariffs.

Trump told reporters he could let the deadline "slide for a little while" if the U.S. and China are "close to a deal where we think we can make a real deal, and it's going to get done."

Sector News

Tobacco stocks showed a substantial move to the upside over the course of the trading session, with the NYSE Arca Tobacco Index skyrocketing by 6.2 percent to its best closing level in three months.

Considerable strength was also visible among housing stocks, as reflected by the 3 percent spike by the Philadelphia Housing Sector Index. The index spiked to a four-month closing high.

Chemical stocks also turned in a particularly strong performance on the day, driving the S&P Chemical Sector Index up by 2.5 percent.

Computer hardware, semiconductor, retail, and steel stocks also saw significant strength, reflecting broad based buying interest on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Tuesday. Japan's Nikkei 225 Index soared by 2.6 percent, while China's Shanghai Composite Index climbed by 0.7 percent.

European stocks also moved mostly higher on the day. While the U.K.'s FTSE 100 Index inched up by 0.1 percent, the French CAC 40 Index advanced by 0.8 percent and the German DAX Index jumped by 1 percent.

In the bond market, treasuries moved to the downside, extending the pullback seen in the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.3 basis points to 2.684 percent.

Looking Ahead

Following two quiet days on the U.S. economic front, trading on Wednesday may be impacted by reaction to a closely watched report on consumer price inflation.

In earnings news, Activision Blizzard (ATVI), Groupon (GRPN), and TripAdvisor (TRIP) are among the companies releasing their quarterly results after the close of today's trading.

DISH Network (DISH), Hilton (HLT), and Teva Pharmaceutical (TEVA) are also among the companies due to report their results before the start of trading on Wednesday.

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