Dow climbs 298 points as trade war fears with China ease
U.S. stocks powered higher Monday after President Trump’s top Treasury official said the trade war with China is “on hold,” a truce that removed a big risk from the market for now.
One of the biggest obstacles facing stocks in recent weeks has been fear that a full-blown trade war with China, the world’s second-biggest economy, would break out and cause global growth to slow and corporate earnings to shrink. But over the weekend, Steven Mnuchin, the Treasury Secretary, cited “progress” in trade talks and said the economic rivals were “putting the trade war on hold.”
Wall Street cheered signs that talks were moving closer to an agreement that would not do harm to markets or the global economy.
“It’s a signal that neither the U.S. nor China wants a trade war and are working hard to avoid such a fate,” said Joe Quinlan, chief market strategist at U. S. Trust in New York.
After finishing lower three of the past four weeks, the Dow Jones industrial average rose 1.2% Monday. The
blue-chip average gained more than
298 points and closed above 25,000, with 28 of 30 stocks in the index sporting gains. Aircraft maker Boeing and Caterpillar, which makes heavy earthmoving equipment, led the Dow with gains of 3.6% and 2.1%, respectively.
Both China and the U.S. agreed to suspend proposed tariffs — including the U.S.’s planned $150 billion of import levies on Chinese imports — as they continue to try to hammer out a deal and reduce tensions.
And while “it’s not even close to a done deal,” according to Don Luskin, chief investment officer at TrendMacro, “it’s now obvious that there is a way forward, and that’s a good thing.”
The temporary reprieve on the trade-war front, however, isn’t the only thing on the minds of investors. Here are some key things Wall Street will be watching this week:
❚ Dow turns positive for year: The Dow started the week fractionally lower for the year but turned positive for
2018 with Monday’s rally. The Dow also finished the day above 25,000 level for the first time since March 13. The three other major U.S. stock indexes, the large-company Standard & Poor’s 500, the tech-stock dominated Nasdaq and the small-company Russell 2000, are all solidly in positive territory for the year.
❚ Rising dollar’s impact: The U.S. dollar is at a five-month high. And while a strong buck signals economic strength, it’s a negative for big multinational companies that get a large chunk of their sales from overseas. That’s because a stronger dollar makes U.S. goods and services sold abroad more expensive, which could cause both sales and earnings growth to slow.
Small stocks, however, are shielded from the negative impact of a strong dollar because they get most, if not all, of their sales in the U.S. That insulation from currency challenges is a big reason why the Russell 2000 last week became the first of the U.S. stock indexes to break out to a record high following the
10% correction in February. The index closed at another peak Monday and is up 6.6% in 2018.
❚ Retail earnings in spotlight: Investors will be looking to see how U.S. shoppers are feeling and how store-focused retailers are faring as sales turn increasingly online when companies such as Kohl’s, Coach, Ralph Lauren, Target, Tiffany, Best Buy and Gap report quarterly results.