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Stocks rally on trade meeting news, solid economic data
05-Sep-19 16:20 ET
Dow +372.68 at 26728.13, Nasdaq +139.95 at 8116.86, S&P +38.22 at 2976.00

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

[BRIEFING.COM] U.S. stocks rallied for the second straight day on Thursday, buoyed by news that the U.S. and China will hold trade talks next month and by encouraging economic data that eased recessionary concerns. The S&P 500 (+1.3%), Dow Jones Industrial Average (+1.4%), and Nasdaq Composite (+1.8%) each closed above their 50-day moving averages. The Russell 2000 advanced 1.8%.

The trade meeting, which was announced by China, is expected to take place in Washington in early October. Chinese state media expressed optimism that progress will be made, while press reports back in the states struck a more cautious tone. In either case, the news helped lift equities across the globe and extend the prior day's rally in the U.S. futures market.

The positive bias was reinforced heading into the open as the ADP Employment Change Report for August and the weekly initial claims report provided a healthy insight into the U.S. labor market. Better-than-expected factory orders and non-manufacturing activity for August solidified the risk-on sentiment that was upheld throughout the rest of the session.

The trade-sensitive S&P 500 information technology (+2.1%), consumer discretionary (+1.9%), and industrials (+1.8%) sectors were among today's leaders. The financials sector (+1.9%) also outperformed amid a sell-off in the U.S. Treasury market that sent yields noticeably higher. The defensive-oriented, and rate-sensitive, utilities (-1.2%), real estate (-0.9%), and consumer staples (-0.7%) sectors finished lower.

The 2-yr yield increased ten basis points to 1.54%, and the 10-yr yield increased 11 basis points to 1.57%. The U.S. Dollar Index was unchanged at 98.41. WTI crude inched up 0.2%, or $0.10, to $56.31/bbl.

Treasury yields took a leg higher soon after the release of the ISM Non-Manufacturing Index for August, which increased to 56.4% (Briefing.com consensus 54.0%) from 53.7% in July. Today's data, in aggregate, erased the small possibility in the market's mind for a 50-basis points rate cut at the September FOMC meeting, according to the CME FedWatch Tool. The stock market was undeterred, as it still expects a 25-bps cut amid decent data.

Trading volume picked up into the close, with approximately 2.1 billion shares exchanging hands at the Nasdaq trading floor in total. This was its highest participation in nearly two weeks, but it wasn't too notable given the macro-driven catalysts today. This might have been due to some investors preferring to wait for tomorrow's release of the Employment Situation Report for August.

Reviewing Thursday's batch of economic data:

The ISM Non-Manufacturing Index for August registered 56.4% (Briefing.com consensus 54.0%), up from 53.7% in July. A number above 50.0% reflects expansion, so the August number indicates non-manufacturing activity expanded and accelerated versus the pace of activity in July.
The key takeaway from the report is that there was a healthy increase in the New Orders Index (60.3% from 54.1%), which is a good sign and a nice offset to help temper some of the recession worries that have been festering with the flattening/inverted yield curve.
Initial claims for the week ending August 31 increased by 1,000 to 217,000 (Briefing.com consensus 214,000). Continuing claims for the week ending August 24 decreased by 39,000 to 1.662 million.
The key takeaway from the report is that initial claims continue to plumb fairly close to historic lows, which is an encouraging leading indicator.
Q2 Productivity was unchanged at 2.3% (Briefing.com consensus 2.2%) with the revised estimate while unit labor costs were revised up to 2.6% (Briefing.com consensus 2.4%) from 2.4%.
The key takeaway from the report is the uptick in unit labor costs. That has led to some profit margin pressures, as seen in the second quarter earnings reports.
Factory orders increased 1.4% in July (Briefing.com consensus +1.0%) after increasing a downwardly revised 0.5% (from 0.6%) in June.
The key takeaway from the report is that there was a slight upward revision to shipments of nondefense capital goods orders, excluding aircraft, which is a component that factors into Q3 GDP forecasts.
The ADP Employment Report showed an increase of 195,000 in August (Briefing.com consensus 150,000) while the July reading was revised to 142,000 from 156,000.

Looking ahead, investors will receive the Employment Situation report for August on Friday.

Nasdaq Composite +22.3% YTD
S&P 500 +18.7% YTD
Dow Jones Industrial Average +14.6% YTD
Russell 2000 +12.0% YTD