Closing Stock Market SummaryThe S&P 500 gained 0.9% on Wednesday after a report indicating China's willingness to reach a partial trade deal seemingly improved investor sentiment. The broad-based rally, led by large-cap technology stocks, lifted the Dow Jones Industrial Average (+0.7%) and Nasdaq Composite (+1.0%) to decent gains. The small-cap Russell 2000 (+0.5%) rose modestly.
The reported terms included China agreeing to buy more agricultural products from the U.S. in exchange for no further tariff increases on goods imported from China. Bloomberg received this information from an unnamed official with "direct knowledge of the talks," and the Financial Times followed up with news that Beijing could increase its soybean purchases by 10 million tons annually.
Despite the caveat that structural trade issues were reportedly not in China's interest to resolve this week, all 11 S&P 500 sectors were undeterred for most of the day. The information technology sector (+1.5%) led all sectors in gains, with the other ten groups rising between 0.3% (real estate) and 1.1% (energy).
This was a quick rebound from Tuesday when the market began to doubt that progress would be made after the U.S. blacklisted 28 Chinese firms and imposed visa bans on Chinese officials tied to human rights abuses. A late-session report from Reuters indicated that Beijing has indeed lowered its expectations due to the blacklisting damaging goodwill, causing stocks to lose steam into the close.
Understandably, many investors were hesitant to trade on the pre-meeting news and the lack of surprising details in the minutes from the Sept. 17-18 FOMC meeting. Trading volume was noticeably low at the NYSE and Nasdaq.
At the very least, there was some relief that China may not retaliate against the U.S. and that there could be a chance that there will be no tariff rate increases on Oct. 15 and Dec. 15 as is currently planned. The outperformance of the trade-sensitive Philadelphia Semiconductor Index (+1.7%) reflected this view.
Some story stocks included Johnson & Johnson (JNJ 129.23, -2.61, -2.0%) and American Airlines (AAL 27.07, +0.81, +3.1%). JNJ was ordered to pay $8 billion in a case involving its Risperdal drug. American Airlines pre-announced in-line third quarter results and delayed the return date for its Boeing (BA 374.96, +0.86, +0.2%) 737 MAX to Jan. 16.
U.S. Treasuries finished the session on a lower note. The 2-yr yield increased four basis points to 1.46%, and the 10-yr yield increased five basis points to 1.59%. The U.S. Dollar Index finished little changed at 99.13. WTI crude declined 0.1% (-$0.03) to $52.63/bbl.
Reviewing Wednesday's economic data:
- Wholesale inventories increased 0.2% m/m in August (consensus +0.4%), on top of an unrevised 0.2% increase in July. Wholesale sales were flat in August after increasing 0.2% in July.
- The key takeaway from the report is that it could prove difficult for wholesalers to gain pricing power given that inventory growth remains well ahead of sales growth on a yr/yr basis.
- August Job Openings and Labor Turnover Survey showed that job openings declined to 7.051 million from a revised 7.174 million in July (from 7.217 million).
- The weekly MBA Mortgage Applications Index increased 5.4% following an 8.1% increase in the prior week.
Looking ahead, investors will receive the Consumer Price Index for September and the weekly Initial and Continuing Claims report on Thursday.
- Nasdaq Composite +19.1% YTD
- S&P 500 +16.5% YTD
- Dow Jones Industrial Average +12.9% YTD
- Russell 2000 +9.7% YTD