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U.S. Stocks Rally Amid Optimism About Rate Cut, Trade Deal

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Reflecting optimism about a potential U.S.-China trade deal on top of a near-term interest rate cut by the Federal Reserve, stocks moved sharply higher during trading on Tuesday. With the rally on the day, the major averages ended the session at their best closing levels in well over a month.

The major averages ended the session well off their highs of the day but still firmly in positive territory. The Dow surged up 353.01 points or 1.4 percent to 26,465.54, the Nasdaq soared 108.86 points or 1.4 percent to 7,953.88 and the S&P 500 jumped 28.08 points or 1 percent to 2,917.75.

Stocks extended an initial move to the upside after President Donald Trump said in a post on Twitter that he had a "very good" telephone conversation with Chinese President Xi Jinping and will have an "extended meeting" at the G20 summit next week.

"Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting," Trump tweeted.

The tweet from Trump has led to renewed optimism that the U.S. and China could finally reach an agreement to end their long-running trade dispute.

Trump had previously threatened to raise tariffs on another $300 billion worth of Chinese goods if Xi did not attend the G20 summit.

The president's tweet added to the positive sentiment surrounding Wall Street amid optimism that the Fed will strike a dovish tone in its statement announcing its latest monetary policy decision on Wednesday.

The Fed is widely expected to leave interest rates unchanged but could signal plans to cut rates as soon as its next meeting at the end of July.

Optimism about a potential rate cut has helped to prop up the markets ever since Fed Chairman Jerome Powell pledged to act "as appropriate" to support the U.S. economic expansion.

However, it is worth noting a U.S.-China deal that eliminates recently imposed tariffs could lead the Fed to rethink the need to cut rates.

Trump has been urging the Fed to lower rates and may ramp up pressure on the central bank after European Central Bank President Mario Draghi suggested he could provide additional stimulus.

Noting the subsequent drop in the value of the euro against the U.S. dollar, Trump called Draghi's comments "unfair" to the U.S., adding, "They have been getting away with this for years, along with China and others."

Sector News

Semiconductor stocks moved sharply higher on the day amid optimism about a potential U.S.-China trade deal. Reflecting the strength in the sector, the Philadelphia Semiconductor Index surged up by 4.3 percent.

Chipmakers have recently warned about the impact of the U.S.-China trade dispute and restrictions on Chinese tech giant Huawei.

Substantial strength was also visible among steel stocks, as reflected by the 3.7 percent jump by the NYSE Arca Steel Index. The index reached its best closing level in over a month.

Oil service also saw considerable strength, benefiting from a sharp increase by the price of crude oil. With crude for July delivery jumping $1.97 to $53.90 a barrel, the Philadelphia Oil Service Index shot up by 2.8 percent.

Telecom, computer hardware, networking, and financial stocks also moved notably higher, reflecting broad based buying interest on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Tuesday, although Japan's Nikkei 225 Index bucked the uptrend and slid by 0.7 percent. Hong Kong's Hang Seng Index jumped by 1 percent, while China's Shanghai Composite Index inched up by 0.1 percent.

The major European markets showed strong moves to the upside on the day. While the U.K.'s FTSE 100 Index surged up by 1.2 percent, the German DAX Index and the French CAC 40 Index soared by 2 percent and 2.2 percent, respectively.

In the bond market, treasuries pulled back off their best levels but remained positive. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.6 basis points 2.060 percent after hitting a two-year intraday low of 2.029 percent.

Looking Ahead

The Fed is likely to be in the spotlight on Wednesday, with traders keeping a close eye on the accompanying statement and Powell's subsequent press conference.

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