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Stocks snap back amid Hong Kong reprieve, weaker dollar
04-Sep-19 16:20 ET
Dow +237.45 at 26355.45, Nasdaq +102.72 at 7976.91, S&P +31.51 at 2937.78

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

[BRIEFING.COM] The stock market snapped back on Wednesday, catalyzed by news that Hong Kong agreed to withdraw its extradition bill while a weaker dollar supported the positive bias in the wake of the latest Brexit news. The S&P 500 (+1.1%) and Nasdaq Composite (+1.3%) increased over 1.0%, while the Dow Jones Industrial Average (+0.9%) and Russell 2000 (+0.9%) advanced 0.9%.

The reaction to the Hong Kong news was made most pronounced in the region's Hang Seng Index (+3.9%), but the positive sentiment did carry over into global markets as well. In terms of its implications for U.S. companies, some viewed the reprieve as one less obstacle in U.S.-China trade talks.

Weakness in the U.S. Dollar Index (98.44, -0.56, -0.6%) was attributed to strength in both the euro and British pound. The latter rose 1.1% against the dollar, as UK lawmakers voted in favor of blocking a no-deal Brexit on Oct. 31. A weaker dollar, should it persist, bodes well for the earnings prospects of U.S. multinational companies.

Today's advance was steady and broad-based with all 11 S&P 500 sectors finishing higher. Leadership came from the information technology (+1.7%), communication services (+1.6%), energy (+1.4%), industrials (+1.3%), and financials (+1.1%) sectors -- all of which rose over 1.0%. A big gain in oil prices ($56.21/bbl, +2.30, +4.3%) benefited many of the oil-sensitive energy stocks.

The market was also undeterred by downside guidance from Starbucks (SBUX 96.11, -0.66, -0.7%), Tyson Foods (TSN 86.06, -7.23, -7.8%), JetBlue (JBLU 16.39, -0.78, -4.5%), and American Eagle Outfitters (AEO 14.38, -1.89, -11.6%).

Today was clearly a positive day for stocks, but market participants weren't in any hurry to jump into the action, evidenced by the relatively light trading volume observed in recent sessions. This might have been due to an understanding that the market has been range-bound amid uncertainty surrounding politics, trade, growth, and monetary policy.

Several Fed officials had the opportunity to speak on monetary policy since yesterday's close. Although the market remained firm on its belief that the Fed will cut rates later this month, comments from the Fed officials weren't as resolute as the market's thinking. On a related note, the Fed's September Beige Book described overall economic activity as expanding at a modest pace.

U.S. Treasuries continued to see increased demand despite the rally in equities, putting some pressure on yields. The 2-yr yield declined three basis points to 1.44%, and the 10-yr yield declined one basis point to 1.46%.

Reviewing Wednesday's economic data, which included the Trade Balance report for July, the Fed's Beige Book for September, and the weekly MBA Mortgage Applications Index:

The trade deficit narrowed in July to -$54.1 billion (Briefing.com consensus -$53.2 billion) from a downwardly revised $55.5 billion (from -$55.2 billion) in June.
The key takeaway from the report is that the goods and services deficit on a year-to-date basis still increased by $28.2 billion, or 8.2%, from the same period in 2018, indicating that the tariff actions have yet to have their intended effect of reducing the overall trade deficit.
The Federal Reserve's September Beige Book described overall economic activity as expanding at a modest pace. The majority of surveyed businesses remained optimistic about the near-term outlook, though concerns about tariffs and trade policy remained in place. There was little overall change in tourism trends while transportation activity softened. Agricultural conditions remained weak due to unfavorable weather. Employment and prices grew at a modest pace.
The weekly MBA Mortgage Applications Index decreased 3.1% following a 6.2% decline in the prior week.

Looking ahead, investors will receive the following reports on Thursday: the ISM Non-Manufacturing Index for August, the ADP Employment Change report for August, Factor Orders for July, the weekly Initial and Continuing Claims report, and revised second-quarter readings for Productivity and Unit Labor Costs.

Nasdaq Composite +20.2% YTD
S&P 500 +17.2% YTD
Dow Jones Industrial Average +13.0% YTD
Russell 2000 +10.1% YTD