U.S. Stocks Jump as Fears of Trade War Ebb
May 21 2018 - 04:39PM
Dow Jones News
By Jon Sindreu and Gunjan Banerji
U.S. stocks surged Monday, powered by shares of industrial
companies, as concerns about a trade war between the U.S. and China
eased.
The Dow Jones Industrial Average jumped 298 points, or 1.2%, to
25013, topping 25000 for the first time since March 16. The S&P
500 and Nasdaq Composite advanced 0.7% and 0.5%, respectively.
Money managers said discussions between the U.S. and China this
weekend have helped avert a trade war. Treasury Secretary Steven
Mnuchin said the U.S. will suspend its efforts to apply tariffs to
$150 billion in Chinese imports to the U.S., and that China would
hold its threat to retaliate with tariffs on $50 billion in U.S.
goods.
"When you potentially take $150 billion of tariffs off the
table, that's going to drive the market," said Jason Barsema,
president at Halo Investing.
Shares of industrial companies were the biggest winners in the
S&P 500, adding 1.5%. Such companies tend to have exposure 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 3.6%. Caterpillar shares
jumped 2.1%.
Meanwhile, shares of General Electric added 1.9% after it agreed
to merge its railroad business with Wabtec, an equipment maker for
transit systems and freight railroads, in an $11 billion deal.
To many investors, tariff threats stoked concerns that more
countries world-wide would erect larger gates on trade. Stocks have
rallied 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."
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.
Recent deal activity alongside the receding geopolitical
tensions 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, he said.
Still, analysts say they are closely watching potential risks to
stocks such as Treasury yields.
If government bond yields rise too high, as bond prices fall,
some investors may choose to hold government debt rather than
equities, threatening any stock rally.
Though tensions between the U.S. and China abated Monday, the
two countries haven't reached a final resolution yet. Investors
will be closely tracking those discussions.
"It's going to go back and forth," said Mr. Barsema.
Later this week, the Federal Reserve will release the minutes of
its May policy meeting, which will shed further light on how fast
officials are likely to raise rates in reaction to inflation
risks.
U.S. crude climbed 1.3% Monday to $72.24 a barrel.
In Europe, the Stoxx Europe 600 gained 0.3%, with markets in
Germany and some other countries in the region were closed for a
holiday. Britain's FTSE 100 rose 1.0%, 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
1.5% 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.
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 16:24 ET (20:24 GMT)
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