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Each of the three major indices each hit fresh record intraday and closing highs Monday as ongoing optimism over trade deals helped push risk assets higher.
The energy sectors led gains in the S&P 500, with U.S. crude oil prices holding above $60 per barrel. Pfizer (PFE) and Cisco (CSCO) were leaders in the Dow after the pharmaceutical company raised its dividend and the networking giant announced a new acquisition. These offset declines in Boeing (BA) following reports the plane-maker could suspend or pull back 737 MAX production.
Here’s where the markets settled at the end of regular equity trading.
S&P 500 (^GSPC): +0.75%, or 23.73 points
Dow (^DJI): +0.41%, or 114.69 points
Nasdaq (^IXIC): +0.93%, or 81.65 points
10-year Treasury yield (^TNX): +5.4 bps to 1.875%
Gold (GC=F): -0.03% to $1,480.80 per ounce
Officials from the U.S. and China on Friday each confirmed that they had agreed on terms of a phase one trade agreement. The agreement will include the U.S. reducing the tariff rate on $120 billion worth of Chinese imports to 7.5% from 15% previously, while maintaining an existing 25% tariff on another about $250 billion in Chinese imports.
Trade negotiators from the U.S. and China intend to sign the phase one trade agreement the first week of January, U.S. Trade Representative Robert Lighthizer told reporters Friday.
Certain deal terms – including the dollar amount of agricultural purchases the Chinese had committed to make – remain unclear. But the dual Chinese and U.S. announcements of the agreement still helped send the S&P 500 to close at a record high at the end of last week.
Those equity gains carried over into Monday’s session. Gold prices were little changed and Treasuries declined in a shift away from haven assets. The VIX (^VIX), or so-called “fear gauge,” fell 14% to below 12 shortly after market open, representing the lowest level in about three weeks.
Combined with the surprise deal reached last week between Republicans and Democrats on the U.S.-Mexico-Canada Agreement, the tangible signs of progress in a U.S.-China trade deal help pave the way for further equity gains heading into next year, John Stoltzfus, chief investment strategist for Oppenheimer Asset Management, wrote in a note Monday.
“We’d expect the combination of both agreements announced last week (once their respective i’s and t’s are dotted and crossed) to provide stateside and foreign equity markets a platform for further gains in the New Year as a negative overhang of impediments to global economic growth and trade are lifted,” he said.
But as Stoltzfus pointed out in his note, some key issues remain unresolved between the U.S. and China, based on the apparent terms of the initial agreement. These include China’s subsidies to state-owned enterprises, digital trade, data localization, cross-border data and cybersecurity.
“The complexity of what remains for the unwinding of the trade war will require investors to exercise patience and to right-size expectations,” Stoltzfus said.
Meanwhile, China’s economy showed signs of improvement as trade tensions abated. Growth in the retail and industrial sectors for the world’s second largest economy each topped expectations last month, supported both by easing trade concerns and ongoing government stimulus efforts.
China’s industrial production increased 6.2% over last year in November, the National Bureau of Statistics said, beating the 5.0% growth anticipated, according to Bloomberg data. And retail sales increased 8.0%, or the most since June, topping the 7.2% growth in October and 7.6% consensus.
ECONOMY: U.S. business activity rises by the most since July
U.S. business activity surged to a five-month high in December in another sign of rebounding growth for the domestic economy heading into year-end, according to IHS Markit’s flash purchasing managers’ index (PMI) Monday. The headline index rose to 52.2 for the month from 52.0 in November, with gains driven primarily by service sector employment and expansion in new businesses.
Within the broad index, U.S. service sector activity also rose to a five-month high of 52.2, above the 51.6 reading from November. However, the manufacturing PMI rose to 52.5, missing expectations for 52.6 and slipping to a two-month low.
“The surveys bring welcome signs of the economy continuing to regain growth momentum as 2019 draws to a close, with the outlook also brightening to fuel hopes of a strong start to 2020,” Chris Williamson, chief business economist for IHS Markit, said in a statement. “Business activity, order book and jobs growth all accelerated to five-month highs in December, buoyed by rising domestic sales and further signs of renewed life in export orders.”
Homebuilder confidence surged to a 20-year high in December, hitting a reading of 76 from an upwardly revised print of 71 in November, the National Association of Homebuilders said Monday. This topped consensus economist expectations for a reading of 70.
December’s reading, the highest since June 1999, was driven by a low supply of existing homes, low mortgage rate and strong labor market, according to the NAHB.
New York state manufacturing sector activity edged up modestly in December as shipments rose and employment expanded, the New York Federal Reserve said Monday.
The headline Empire State Manufacturing Index rose to 3.5 in December from 2.9 in November. However, this was slightly short of the 4.0 reading expected by consensus economists, according to Bloomberg data.
While growth overall remained “sluggish” for the month, indices tracking the six-month outlook suggested optimism for the future outlook improved for a second straight month, the New York Fed said.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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