U.S. Stocks Jump as Fears of Trade War Ebb
May 21 2018 - 11:40AM
Dow Jones News
By Jon Sindreu and Gunjan Banerji
U.S. stocks surged Monday, powered higher by shares of
industrials companies, as concerns about a trade war between the
U.S. and China eased.
The Dow Jones Industrial Average jumped 363 points, or 1.5%, to
25077, topping 25000 for the first time since March 16. The S&P
500 and Nasdaq Composite both advanced 0.9%.
Money managers said discussions between the U.S. and China this
weekend have helped avoid a trade war. In an interview Monday,
Treasury Secretary Steven Mnuchin said the U.S. will suspend the
$150 billion that it had previously threatened to levy on Chinese
imports.
Shares of industrials companies were the biggest winners in the
S&P 500, adding 1.9%. These companies tend to be exposed to
foreign sales, making them a beneficiary of cooling rhetoric on
trade. Boeing, which has been sensitive to investor sentiment on
trade, was the biggest gainer in the Dow, rising 3.7%.
The U.S. is set to complete the procedural steps to apply
tariffs on $50 billion of Chinese imports this week and has
threatened to apply levies to a further $100 billion. While China
had pledged to retaliate, it has now agreed to purchase a larger
amount of American goods to help close the U.S. trade deficit.
Investors had never expected the announced tariffs to
significantly affect the world economy but were concerned that
further tensions could lead to more countries erecting larger gates
on trade. Stocks have gained several times on the belief that trade
tensions were easing, only to fall back down as investors took the
opposite view.
"It's not in anyone's interests to have severe escalation," said
Caroline Simmons, deputy head of U.K. investment at UBS Wealth
Management, who believes investors won't ultimately put too much
weight on geopolitical spats. "It's noise; in the midterm, it's
going to come down to what's being delivered growth-wise and
earnings-wise."
Shares of General Electric added 3.5% on Monday after it agreed
to merge its railroad business with Wabtec, an equipment maker for
transit systems and freight railroads, in an $11 billion deal.
Recent deal activity alongside receding geopolitical tensions
have propelled major U.S. stock indexes higher, said Eric Freedman,
chief investment officer of U.S. Bank Wealth Management.
Greater deal-making could give stocks another "lift higher," he
said.
Technology companies in the S&P 500 rose 1.2%.
While the global economy remains robust and first-quarter
earnings have been strong, stock markets have mostly traded
sideways this year because many investors have started to fear that
the pace of the expansion has already peaked.
"The muted market reaction to earnings is indicating that the
upside is priced in," said Witold Bahrke, senior macro strategist
at Nordea Asset Management, who favors U.S. stocks because he
believes equities overseas will be further dragged down by a
stronger dollar, higher Treasury yields and weakening economic
indicators in Europe.
"U.S. stocks are very liquid and they tend to be a good safety
bet, and in relative terms U.S. growth dynamics are still looking
kind of best-in-class," he said.
The WSJ Dollar Index, which measures the greenback against a
basket of currencies, was up 0.1% Monday.
In Europe, the Stoxx Europe 600 was up roughly 0.3% in morning
trade, with markets in Germany and some other countries in the
region closed for a holiday. Britain's FTSE 100 rose 0.9% marking
an all-time high.
Meanwhile, spreads between Italian and German government bonds
continued to widen and Italy's FTSE MIB stock-market index dropped
0.3% Monday, a sign that investors remain concerned about
antiestablishment parties' advances in forming a new government.
While bond markets initially brushed off such worries, they have
been slightly rattled by recent revelations that the new government
could seek to threaten some of the eurozone's fiscal and monetary
rules.
Later this week, money managers will pay close attention to the
release of the minutes of the Federal Reserve's May policy meeting,
which are expected to shed further light on how fast officials are
likely to raise rates to react to higher inflation.
Five-year market expectations of inflation have moved up over
the past month as oil prices rose to multiyear highs, but
longer-term measures of inflation expectations remain contained,
raising questions about how much the Fed will react to one-off
price increases. U.S. crude climbed 0.3% Monday to $71.58 a
barrel.
Asian stocks powered higher, with all of China's indexes
notching gains. Japan's Nikkei Stock Average closed up 0.3%.
Write to Jon Sindreu at jon.sindreu@wsj.com and Gunjan Banerji
at Gunjan.Banerji@wsj.com
(END) Dow Jones Newswires
May 21, 2018 11:25 ET (15:25 GMT)
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