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S&P 500, Nasdaq close at record highs on trade deal optimism
12-Dec-19 16:20 ET
Dow +220.75 at 28131.96, Nasdaq +63.27 at 8717.33, S&P +26.94 at 3168.57

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

[BRIEFING.COM] The S&P 500 (+0.9%) and Nasdaq Composite (+0.7%) closed at record highs on Thursday, as investors reacted positively to news that the U.S. and China are on the verge of signing a Phase One trade deal. The Dow Jones Industrial Average (+0.8%) and Russell 2000 (+0.8%) both rose 0.8%.

The day started with President Trump tweeting that a trade deal was close and The Wall Street Journal reporting that the U.S. offered to reduce existing tariffs and cancel the Dec. 15 tariffs. The news propelled all 11 S&P 500 sectors higher, and the large-cap indices to all-time highs, before skepticism and caution reined in some gains.

Then, as the broader market drifted modestly higher during the afternoon, Bloomberg reported that a deal in principle was reached and was awaiting President Trump's signature. A deal would include rolling back some tariffs and delaying the Dec. 15 tariffs in exchange for China to purchase more U.S. farm goods. Stocks rallied back toward session highs while Treasuries continued to sell-off in a risk-on trade.

The S&P 500 cyclical sectors led the advance, with the energy sector (+2.0%) finding additional support in higher oil prices ($59.18, +0.44, +0.8%) and the financials sector (+2.0%) benefiting from some curve-steepening activity. Trade-sensitive stocks like Wynn Resorts (WYNN 132.27, +11.44, +9.5%) and those in the Philadelphia Semiconductor Index (+2.7%) also outperformed.

The 2-yr yield rose six basis points to 1.67%, and the 10-yr yield rose 11 basis points to 1.90%. The U.S. Dollar Index increased 0.1% to 97.29.

This sharp increase in yields, however, did undercut the real estate (-1.5%) and utilities (-0.5%) sectors. The communication services sector (unch) was pressured by shares of Facebook (FB 196.75, -5.51, -2.7%) on news that the FTC is considering a preliminary injunction on the company over antitrust concerns.

In other corporate news, Delta Air Lines (DAL 56.69, +1.61, +2.9%) pleased investors with a reassuring FY20 forecast. General Electric (GE 11.44, +0.47, +4.3%) and FedEx (FDX 164.89, +5.81, +3.7%) benefited from analyst upgrades.

Overseas, it was election day in the UK, but polls remained opened by the close of U.S. markets. The European Central Bank left rates unchanged on Thursday, as was expected, while ECB President Lagarde said she was seeing initial signs of recovery.

Reviewing Thursday's economic data, which included the Producer Price Index for November and the weekly Initial and Continuing Claims report:

The Producer Price Index for final demand (PPI) was unchanged month-over-month in November (Briefing.com consensus 0.2%) while core PPI, which excludes food and energy, surprisingly declined 0.2% (Briefing.com consensus 0.2%). That left the year-over-year increases at 1.1% and 1.3%, respectively, versus 1.1% and 1.6% in October.
The key takeaway from this report is that it speaks to why the Fed is choosing to remain patient in raising the fed funds rate, as it reflects the disinflation (and low inflation expectations) trend Fed Chair Powell does not want to see growing deeper roots.
Initial claims for the week ending December 7 rose by 49,000 to 252,000 (Briefing.com consensus 212,000). That is the highest level of initial claims since September 30, 2017. Continuing claims for the week ending November 30 decreased by 31,000 to 1.667 million.
The key takeaway from the report is that the latest figure is outside the range of what has become typical reporting for this series, so it may be discounted as aberrant; however, the slowly rising uptick in the four-week moving average for initial claims implies that we may have seen the bottom for this cycle.

Looking ahead, investors will receive the Retail Sales report for November, Export and Import Prices for November, and Business Inventories for October on Friday.

Nasdaq Composite +31.4% YTD
S&P 500 +26.4% YTD
Russell 2000 +22.0% YTD
Dow Jones Industrial Average +20.6% YTD

Market Snapshot
Dow 28131.96 +220.75 (0.79%)
Nasdaq 8717.33 +63.27 (0.73%)
SP 500 3168.57 +26.94 (0.86%)
10-yr Note -30/32 1.891
NYSE Adv 1772 Dec 1086 Vol 892.6 mln
Nasdaq Adv 1993 Dec 1175 Vol 2.1 bln

Industry Watch
Strong: Energy, Financials, Materials, Information Technology
Weak: Utilities, Real Estate, Consumer Staples, Communication Services

Moving the Market

-- S&P 500, Nasdaq close at record highs on trade deal optimism

-- Report that a trade deal has been reached in principle and is awaiting President Trump's signature

-- Cyclical sectors outperformed and Treasuries sold off

-- Strength in trade-sensitive areas of the market