U.S. Stocks Jump on Hopes of Easing Trade Tensions -- Update

By Jessica Menton 

U.S. stocks rose for a third straight session on optimism the U.S. would ratchet back tariffs on Chinese imports, a conflict that has rattled financial markets in recent months.

The Dow Jones Industrial Average climbed 162.94 points, or 0.7%, to 24370.10, after falling more than 100 points in early trading. The S&P 500 added 19.86 points, or 0.8%, to 2635.96. The Nasdaq Composite rose 49.77 points, or 0.7%, to 7084.46.

All 11 sectors in the S&P 500 finished higher, led by gains in trade-oriented sectors such as industrials and materials, with both adding 1.7%.

Major indexes got a boost after The Wall Street Journal reported U.S. trade officials are debating scaling back tariffs on Chinese imports as way to calm markets and to give Beijing an incentive to make deeper concessions in resolving the trade battle.

The news was welcomed by investors, as concerns about global trade and political uncertainties have helped depress sentiment in recent months, given the potential implications for economic growth and corporate supply chains.

"The geopolitical tensions with China were either going to be what held the market back all year if we didn't come to some sort of conclusion, or what would ultimately help the stock market perform well in 2019 if there was a resolution," said Timothy Chubb, chief investment officer at Girard. "I worry that this is one of those typical announcements that is attempting to boost sentiment within the market, but it's encouraging."

Trade-sensitive shares jumped, with Caterpillar and Boeing adding 2.2% and 2%, respectively.

Concerns about trade had been building among investors following news that federal prosecutors are pursuing a criminal investigation of China's Huawei Technologies for allegedly stealing trade secrets from U.S. business partners. Germany, meanwhile, is exploring ways to ban the use of Huawei products in the country's telecommunications infrastructure.

Jay Jacobs, head of research and strategy at Global X, which manages about $9 billion in assets under management, said market participants are of the mind that free trade is the best path for corporate-profit growth.

"What's interesting is that Chinese equities are being priced in more positively than the U.S.," Mr. Jacobs said, referring to two funds that the firm has exposure to in China's consumer sectors, including the Global X MSCI China Consumer Discretionary ETF and the Global X MSCI Consumer Staples ETF. They are up 7.2% and 6.3%, respectively, this year, outpacing the S&P 500, which has climbed 5.2%.

"That reflects the narrative that people believe that China is in a weaker position than the U.S. and that a deal being achieved would be a bigger benefit to them than domestically here."

Elsewhere, investors continued to focus on corporate-earnings reports. Shares of Morgan Stanley fell $1.96, or 4.4%, to $42.53, after the bank's fourth-quarter profit missed expectations. Investors have broadly taken the bank earnings season as positive, with lenders supported by recent U.S. interest-rate increases.

Mr. Chubb of Girard, which has $3.6 billion in assets under management, said he didn't read too much into Morgan Stanley's earnings miss, adding that investors were likely taking profits following back-to-back days of gains in the stock market.

"We've had relatively good earnings from the banks," Mr. Chubb said. "Overall, investors are coming around to the probability that we're not going to have a recession this year."

Following the turbulent fourth quarter, Mr. Chubb said his firm went bargain hunting and added exposure to some of the major banks.

Meanwhile, Alcoa rose 61 cents, or 2.1%, to 29.59, despite the aluminum company announcing that it expects the supply of one of its key products to outpace demand this year.

Elsewhere, the Stoxx Europe 600 rose less than 0.1%. In Asia, Hong Kong's Hang Seng Index fell 0.5%, while Japan's Nikkei Stock Average lost 0.2%.

-- Riva Gold contributed to this article.

Write to Jessica Menton at [e-mail]

(END) Dow Jones Newswires

January 17, 2019 19:49 ET (00:49 GMT)

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