Trader Jonathan Muller works in his booth on the floor of the New York Stock Exchange on Monday. Stocks are rallied after the U.S. and China agreed to resume trade talks. Richard Drew/Associated Press
Global stock markets popped Monday after the U.S. and China reached a cease-fire on trade over the weekend, launching the second half of the year on a happy note.
The Dow Jones industrial average closed up 117 points, or 0.44 percent, to close at 26,717. The Dow’s increase comes after the blue chip measure finished its best June since 1938. Apple led the Dow’s burst, as the smartphone giant has much to gain on U.S.-China economic peace. Nike, Dow, JPMorgan Chase and Disney followed.
The Standard & Poor’s 500 index shot to a record high, posting a closing up 22 points at 2,964, an increase of 0.77 percent and a record high for the broad market. The S&P is coming off its best June advance since 1955.
The Nasdaq Composite also surged 1 percent, or 85 points, on the day after President Trump and Chinese President Xi Jinping cooled the trade rhetoric and pledged to have further talks following the Group of 20 meeting in Japan. Technology shares, and semi-conductor stocks in particular, profited from the trade truce and Trump’s decision to allow U.S. corporations to resume sales to Huawei Technologies Co.
The markets are hoping that a defrost between the world’s two biggest economies will spur demand for goods and commodities, reversing a slowdown in global growth. The Nasdaq closed at 8,091.
“Investors are clearly encouraged by a temporary truce,” said Sam Stovall of CFRA Research. “If it’s not permanent, all bets are off, and we probably give a lot of this back.”
The give-back didn’t take long after a punchy start that looked like markets were going to have a breakout day. All three indexes retreated as the session wore on. Stocks descended into a lull in the afternoon before bouncing back at the end of the day.
European stock markets were up across the board Monday, with the German Dax pushing up 1 percent and the British FTSE 100 close behind at 0.97 percent
The Shanghai Composite soared 2.2 percent Monday and the Japanese Nikkei 225 jumped 2.13 percent.
Oil stocks bounced around throughout the day but were up by late afternoon after Saudi Arabia and Russia said that they and the Organization of the Petroleum Exporting Countries would extend production cuts into next year.
That kicked oil prices skyward, with benchmark West Texas Intermediate gaining 1.28 percent and Brent crude 1.30 percent. WTI futures were selling at $59 per barrel Monday and Brent was selling at $65.
Bill Selesky of Argus Research said the OPEC extension of its production cuts into 2020 “is a big deal.”
“OPEC has never done a nine-month production cut before,” Selesky said. “It signals to the world that they would like to see oil prices for West Texas Intermediate in the $55 to $60 range. It provides stability to their revenue and keeps a lot of interested parties happier.”
Stocks on Friday finished their best June in decades, capping a strong first half of 2019 and a big rebound from May’s market downer.
All three indexes are way up on the year, with the S&P 500 climbing 17 percent in the first six months, the Dow registering a 14-percent gain and the technology-heavy Nasdaq Composite index climbing 20 percent.
Reports from manufacturing and the construction industry tempered Monday’s gains, as the readings showed some slippage in the economy.
The Commerce Department reported that construction spending dropped the most in May since last November, declining 0.8 percent
The closely followed ISM manufacturing index showed that manufacturing grew last month, but at a slower rate than earlier in the current economic boom. The June report was 51.7, down from May’s 52.1 but above the 51.3 predicted. Anything above 50 represents growth.
“We had an explosive opening on the fact that Trump pulled back on the additional tariffs and trade negotiations are resuming,” said Ivan Feinseth, chief investment officer at Tigress Financial partners. “But the ISM and construction data are causing a pullback.”
Employment and production showed increases, while new orders and inventories, both crucial to economic growth, declined.
“The rate of expansion was only moderate and the second-slowest since June 2016 as firms continued to report difficult demand conditions,” said Timothy Fiore, chairman of the ISM’s manufacturing business survey committee, in a statement.
Chris Rupkey of MUFG said the trade uncertainty has hit manufacturing hard.
“China and the U.S. are talking again, but it may be too late with companies throwing in the towel and trying to move their supply chains further away from China,” Rupkey said.
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