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U.S. Stocks Pull Back Off Highs After U.S.-China Trade Deal Signed

wallstreet3 061318 15jan20 lt

Stocks climbed to new record intraday highs in morning trading on Wednesday but gave back some ground over the course of the session. The major averages pulled back well off their best levels, although the Dow and the S&P 500 still ended the session at new record closing highs.

The Dow climbed 90.55 points or 0.3 percent to 29,030.22 and the S&P 500 rose 6.14 points or 0.2 percent to 3,289.29, while the Nasdaq pulled back near the unchanged line before closing up 7.37 points or 0.1 percent at 9,258.70.

The early strength on Wall Street came as traders awaited the signing of the phase one trade deal between the U.S. and China.

However, stocks pulled back after President Donald Trump and Chinese Vice Premier Liu He, Beijing's chief trade negotiator, officially signed the agreement in a ceremony at the White House.

In lengthy and sometimes rambling remarks ahead of the signing, Trump said the U.S. and China are "righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers and families."

"It doesn't get any bigger than this," added Trump, who launched his trade war back in March of 2018 to address what he has described as the U.S. being taken advantage of by China.

Trump said the deal calls for China to purchase $200 billion worth of U.S. goods over the next two years, including up to $50 billion worth of agricultural products.

The deal also purportedly addresses issues such as intellectual property theft, forced technology transfers and currency manipulation by China.

In exchange, the U.S. will scrap a new round of tariffs and cut tariffs on approximately $120 billion worth of Chinese goods in half to 7.5 percent.

Trump noted a 25 percent tariff on $250 billion worth of Chinese imports will remain in place in order to give the U.S. leverage as the two countries enter into phase two negotiations.

On the U.S. economic front, a report released by the Labor Department showed a modest increase in U.S. producer prices in the month of December.

The Labor Department said its producer price index for final demand inched up by 0.1 percent in December after coming in unchanged in November. Economists had expected prices to rise by 0.2 percent.

Excluding food and energy prices, core producer prices still crept up by 0.1 percent in December after dipping by 0.2 percent in November. Core prices were also expected to increase by 0.2 percent.

Meanwhile, the Federal Reserve's Beige Book said U.S. economic activity generally continued to expand modestly in the final six weeks of 2019.

Sector News

Gold stocks moved sharply higher over the course of the trading session, driving the NYSE Arca Gold Bugs Index up by 2.2 percent.

The rally by gold stocks came amid a notable increase by the price of the precious metal, with gold for February delivery climbing $9.40 to $1,554 an ounce.

Interest rate-sensitive utilities stocks also turned in a strong performance, as reflected by the 1.6 percent advance by the Dow Jones Utility Average. The average ended the session at a new record closing high.

On the other hand, oil service stocks came under pressure on the day, dragging the Philadelphia Oil Service Index down by 1.8 percent.

A decrease by the price of crude oil weighed on oil service stocks, as crude for February delivery fell $0.42 to $57.81 a barrel.

Significant weakness was also visible among banking stocks, with the KBW Bank Index slumping by 1.7 percent to its lowest closing level in over a month.

Bank of America (BAC) posted a notable loss despite reporting fourth quarter results that beat analyst estimates on both the top and bottom lines.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Wednesday. Japan's Nikkei 225 Index slid by 0.5 percent, while Hong Kong's Hang Seng Index fell by 0.4 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the U.K.'s FTSE 100 Index rose by 0.3 percent, the French CAC 40 Index and the German DAX Index edged down by 0.1 percent and 0.2 percent, respectively.

In the bond market, treasuries extended the upward move seen in the previous session on tame inflation data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 3 basis points to 1.788 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to a slew of U.S. economic data, with traders likely to keep an eye on reports on retail sales, weekly jobless claims, import and export prices and homebuilder confidence.

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