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Renewed Optimism About Trade Talks Sparks Rally On Wall Street

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Stocks moved mostly higher over the course of the trading day on Wednesday, as traders expressed renewed optimism about upcoming U.S.-China trade talks. With the advance, the major averages partly offset the steep losses posted in the previous session.

The major averages pulled back off their highs going into the close but remained firmly positive. The Dow climbed 181.97 points or 0.7 percent to 26,346.01, the Nasdaq surged up 79.96 points or 1 percent to 7,903.74 and the S&P 500 jumped 26.34 points or 0.9 percent to 2,919.40.

The strength on Wall Street came after a report from Bloomberg News said China is still open to reaching a partial trade deal with the U.S.

An official with direct knowledge of the talks told Bloomberg that negotiators aren't optimistic about securing a broad agreement to end the U.S.-China war but said China would accept a limited deal as long as President Donald Trump does not impose any more tariffs.

In return, the official told Bloomberg, Beijing would offer non-core concessions like purchases of agricultural products without giving in on major sticking points.

The positive reaction to the report reflects the intense focus on the next round of high-level trade talks set to begin on Thursday.

News the Trump administration imposed visa restrictions on Chinese officials over abuses of Muslim minorities contributed to a late-day sell-off on Tuesday amid concerns about the move's impact on the talks.

Meanwhile, traders largely shrugged off the minutes of the Federal Reserve's September monetary policy meeting, which revealed a few participants expressed concerns that the markets expect more interest rate cuts than are appropriate.

The minutes said those participants felt it might become necessary for the Fed to seek a better alignment of market expectations regarding the path of rates with policymakers' own expectations.

"Several participants suggested that the Committee's postmeeting statement should provide more clarity about when the recalibration of the level of the policy rate in response to trade uncertainty would likely come to an end," the Fed said.

CME Group's FedWatch Tool currently indicates markets widely expect a 25 basis point rate cut at the Fed's next meeting later this month and a 45.3 percent chance for yet another 25 basis point rate cut at the December meeting.

The Fed minutes noted that most participants believed that the 25 basis point rate cut announced after the September meeting was appropriate, although there was notable dissent.

Sector News

Semiconductor stocks showed a strong move back to the upside on the day, rebounding after turning in some of the market's worst performances in the previous session.

After tumbling by 3.1 percent to its lowest closing level in over a month on Tuesday, the Philadelphia Semiconductor Index advanced by 1.7 percent

Significant strength was also visible among software stocks, as reflected by the 1.6 percent gain posted by the Dow Jones U.S. Software Index.

Computer hardware, oil, and transportation stocks also saw notable strength, while gold stocks pulled back after moving sharply higher on Tuesday.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Wednesday. Japan's Nikkei 225 Index and Hong Kong's Hang Seng Index fell by 0.6 percent and 0.8 percent, respectively, although China's Shanghai Composite Index bucked the downtrend and rose by 0.4 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the German DAX Index jumped by 1 percent, the French CAC 40 Index advanced by 0.8 percent and the U.K.'s FTSE 100 Index rose by 0.3 percent.

In the bond market, treasuries moved notably lower amid the renewed optimism about the U.S.-China trade talks. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 5.2 basis points to 1.589 percent.

Looking Ahead

Any news out of the first day of U.S.-China trade talks is likely to claim the spotlight on Thursday, with reports about the negotiations likely to overshadow readings on consumer prices and weekly jobless claims.

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