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Stocks Close Modestly Higher Despite Late-Day Volatility - U.S. Commentary


Stocks saw considerable volatility late in the trading session on Wednesday but still managed to end the day modestly higher. The gains on the day once again lifted the major averages to their best closing levels in over two months.

The major averages finished the day in positive territory but well off their highs of the session. The Dow climbed 117.51 points or 0.5 percent to 25,543.27, the Nasdaq inched up 5.76 points or 0.1 percent to 7,420.38 and the S&P 500 rose 8.30 points or 0.3 percent to 2,753.03.

The higher close on Wall Street partly reflected optimism about avoiding another government shutdown, as President Donald Trump said he was "not happy" with a tentative deal reached by lawmakers but did not specifically reject the proposal.

The agreement includes far less money for physical barriers on the border than Trump has demanded, although political observers have suggested the president will likely want to avoid another damaging shutdown.

Trump has argued Democrats would be to blame for another shutdown, although the public may disagree as his controversial border wall remains the key sticking point in negotiations.

The markets also benefited from continued optimism about U.S.-China trade talks after Trump indicated he is willing to delay raising tariffs on Chinese goods if the two sides are close to a deal.

A report from the South China Morning Post said Chinese President Xi Jinping is scheduled to meet U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin during this week's talks in Beijing.

The meeting with Xi as well as a banquet for the U.S. delegation would be a sign of goodwill to cement a trade deal between the world's two biggest economies, the SCMP said.

Buying interest waned over the course of the session, however, as traders may want to see more concrete developments before making more significant moves.

On the U.S. economic front, the Labor Department released a report showing consumer prices were unchanged for the third straight month in January.

The Labor Department said its consumer price index was unchanged in January, matching the revised reading for December. Economists had expected consumer prices to inch up by 0.1 percent.

Excluding food and energy prices, core consumer prices rose by 0.2 percent for the fifth consecutive month. The uptick in core prices matched economist estimates.

The Labor Department said the annual rate of consume price growth slowed to 1.6 percent in January from 1.9 percent in December, showing the slowest rate of growth since June of 2017.

Meanwhile, the report said the annual rate of core consumer price growth was unchanged from the two previous months at 2.2 percent.

"Overall, these data support our baseline view of a well-behaved inflationary environment that provides the Fed room to pause before raising rates again," said Gregory Daco, Chief U.S. Economist at Oxford Economics.

He added, "We look for the Fed to pause throughout the first half of the year to assess the economic landscape before likely raising rates again in Q3."

Despite the continued advance by the broader markets, most of the major sectors ended the day showing only modest moves.

Energy stocks saw considerable strength, however, benefiting from a notable increase by the price of crude oil. Crude for March delivery advanced $0.80 to $53.90 a barrel as traders continued to react to the cut in production revealed by Saudi Arabia.

Reflecting the strength in the energy sector, the NYSE Arca Natural Gas Index surged up by 1.7 percent, the Philadelphia Oil Service Index advanced by 1.5 percent and the NYSE Arca Oil Index rose by 1 percent.

Networking and biotechnology stocks also saw some strength on the day, while gold stocks showed a notable move to the downside.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index shot up by 1.3 percent, while China's Shanghai Composite Index spiked by 1.8 percent.

The major European markets also moved to the upside on the day. While the U.K.'s FTSE 100 Index advanced by 0.8 percent, the French CAC 40 Index and the German DAX Index both rose by 0.4 percent.

In the bond market, treasuries extended the pullback seen over the two previous sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, increased by 2.4 basis points to 2.708 percent.

Looking Ahead

Trading on Thursday is likely to be impacted by reaction to closely watched reports on retail sales and producer price inflation.

Networking giant Cisco (CSCO) is also among the companies releasing their quarterly results after the close of today's trading, while beverage giant Coca-Cola (KO) is due to report its results before the start of trading on Thursday.

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