Stocks post strong finish as optimism over trade talks grows
The Dow Jones Industrial Average surged more than 400 points Friday as renewed optimism over trade talks between the U.S. and China put investors in a buying mood.
The rally marked a turnaround from a day earlier, when disappointing holiday sales data led to a modest sell-off. Friday’s gains helped push the benchmark S&P 500 index to its third-consecutive weekly gain.
Financial, health care, technology and industrial stocks accounted for much of the broad wave of buying. U.S. markets will be closed Monday in observance of Presidents Day.
Two days of trade talks wrapped up Friday in Beijing. China’s government said negotiators will meet in Washington next week for more negotiations aimed at ending the trade war between the world’s largest economies.
A March 2 deadline hangs over both sides, after which the U.S. is set to impose additional tariffs on Chinese goods, escalating a trade dispute that has already raised costs for companies and consumers. President Donald Trump has said that there is a possibility he would extend that deadline if the two countries are close to a deal, however.
Wall Street has been encouraged by the signals that Chinese and U.S. officials have sent in the latest round of trade talks that began Monday.
That’s given investors “hopefulness and maybe optimism surrounding some sort of resolution between the U.S. and China,” said Willie Delwiche, investment strategist at Baird. “And maybe (both sides) keep talking and maybe delaying the implementation of the tariffs that are supposed to come into effect” on March 2, Delwiche said, “so, it’s evidence of progress.”
The S&P 500 index gained 29.87 points, or 1.1 percent, to 2,775.60. The Dow climbed 443.86 points, or 1.7 percent, to 25,883.25.
The Nasdaq composite rose 45.46 points, or 0.6 percent, to 7,472.41. The Russell 2000 index of smaller companies picked up 24.14 points, or 1.6 percent, to 1,569.25. Major European indexes also finished higher, as did gold and crude oil prices.
Markets moved higher for most of this week as investors grew more optimistic that the latest round of talks could move the U.S. and China closer to a resolution of their trade fight.
On Friday, U.S. Trade Representative Robert Lighthizer told Chinese President Xi Jinping negotiators “made headway” in talks this week in Beijing.
Economists said this week’s two days of talks were too brief to resolve the sprawling dispute that extends to cyber-spying and China’s trade surplus. They said Beijing is trying to persuade Trump enough progress is being made to postpone the penalties.
The Trump administration raised tariffs in July over complaints Beijing steals or pressures companies to hand over technology. The White House imposed 25 percent penalties on $50 billion of goods from China and 10 percent on $200 billion of other products. China retaliated by raising duties on American soybeans and other imports and ordering its companies to find other suppliers.
While the trade conflict remains a focus of the market, a resolution may not be enough to ease a growing sense among investors that the global economy is slowing, setting the stage for weaker corporate earnings growth this year, Delwiche said.
“I’m not one to think that getting this trade deal done is going to all of a sudden clear up a bunch of uncertainty around the economy, particularly the global economy,” he said. “We need to see some evidence that the global economy is stabilizing. That’s really where you’re getting the downward pressure on earnings expectations.”
So far, S&P 500 companies have reported 13.1 percent earnings growth for the October December quarter, better than the 12.1 percent gain projected by analysts. But the outlook for earnings growth in the first three months of 2019 has dimmed. Analysts forecast that corporate profits will fall in the current quarter, according to FactSet. That would represent the first decline in nearly three years.
Corporate earnings continued rolling out Friday as the fourth-quarter reporting period nears an end.
Chipmaker Nvidia rose 1.8 percent after reporting a strong fourth-quarter profit. Despite a downturn in revenue, the company expects demand to increase this year. Its forecast for the year topped Wall Street’s forecasts.
Nvidia has been hurt by a plunge in demand from the cryptocurrency sector and lower video game console sales.