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Stock market rallies on hopeful China trade comments
29-Aug-19 16:20 ET
Dow +326.15 at 26362.23, Nasdaq +116.51 at 7973.42, S&P +36.64 at 2924.58

https://www.briefing.com/stock-market-update

[BRIEFING.COM] Each of the major U.S. indices rose more than 1.0% on Thursday, lifted by China indicating it wants to prevent trade tensions from further escalating. The S&P 500 (+1.3%) and Dow Jones Industrial Average (+1.3%) both increased 1.3%. The Nasdaq Composite (+1.5%) and Russell 2000 (+1.6%) pulled out ahead.

China's Commerce Minister Gao repeated his country's willingness to proceed with negotiations in a "calm" manner, adding Beijing wasn't planning on immediately retaliating on the latest U.S. tariff increases. Mr. Gao hoped discussions could help remove the new tariffs imposed by the U.S., although he refrained from answering if retaliatory measures were entirely off the table.

In either case, the market liked the underlying conciliatory tone ahead of trade talks planned for September. The futures market jumped on the comments, and the cash market maintained the bullish composure throughout the day. Leadership came from the S&P 500 cyclical sectors.

Ten of the 11 S&P 500 sectors finished in positive territory. The industrials (+1.8%) and information technology (+1.7%) sectors outperformed amid solid gains in the trade-sensitive transportation and semiconductor spaces. The Dow Jones Transportation Average increased 2.0%, and the Philadelphia Semiconductor Index increased 2.3%. The consumer staples sector (unch) was unchanged.

The energy (+1.5%) and financials (+1.5%) sectors received an added boost from higher oil prices ($56.67/bbl, +0.91, +1.6%) and some yield-curve steepening, respectively. Some end-of-the-month rebalancing might have also contributed to their outperformance given their poor performances in August.

Improved sentiment pertaining to economic growth, supported by an upward revision to second-quarter consumer spending growth, helped contribute to the curve-steeping activity. The 2-yr yield increased one basis point to 1.52%, and the 10-yr yield increased five basis points to 1.52%. The U.S. Dollar Index advanced 0.3% to 98.45.

Corporate news revolved around a host of earnings reports from retail companies. Dollar General (DG 156.09, +15.06, +10.7%), Burlington Stores (BURL 205.42, +32.15, +18.9%), and PVH (PVH 76.00, +4.47, +6.3%) posted strong gains following their results, while Best Buy (BBY 63.49, -5.51, -8.0%) and Williams-Sonoma (WSM 64.16, -4.62, -6.7%) fell noticeably following their results.

Reviewing Thursday's economic data:

The second estimate for Q2 GDP showed a downward revision to 2.0% annualized growth (Briefing.com consensus 2.0%) from 2.1% annualized growth reported in the advance estimate. The GDP Deflator was unrevised at 2.4%, as expected.
The key takeaway from the report is that consumer spending growth was revised up to 4.7% from 4.3%, which was the strongest growth since the fourth quarter of 2014. Granted it's a backward-looking data point, yet it offers a nice reminder that the U.S. consumer, supported by a tight labor market, has remained in good shape.
Initial claims for the week ending August 24 increased by 4,000 to 215,000, as expected. Continuing claims for the week ending August 17 increased by 22,000 to 1.698 million.
The key takeaway from the report is that initial claims, which are an important leading indicator, remain low. That will perpetuate the belief that there remains a good underpinning in a tight labor market for continued consumer spending growth.
The Advance report for International Trade in Goods for July showed a deficit of $72.3 billion following an unrevised deficit of $74.2 billion. Meanwhile, the Advance report for Wholesale Inventories for July increased 0.2%, and the Advance report for Retail Inventories for July increased 0.8%.
Pending Home Sales declined 2.5% in July (Briefing.com consensus +0.1%). Today's reading follows an unrevised increase of 2.8% in June.

Looking ahead, investors will receive Personal Income and Spending for July, the PCE Price Index for July, the Chicago PMI for August, and the final University of Michigan Consumer Sentiment report for August on Friday.

Nasdaq Composite +20.2% YTD
S&P 500 +16.7% YTD
Dow Jones Industrial Average +13.0% YTD
Russell 2000 +11.0% YTD