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THE GIST (“THE WHAT”)
Primarily driven by trade optimism, the S&P 500 index recouped some of Friday’s brutal losses from unexpected worsening of trade tensions. Both disputing sides signaled their willingness to restart talks at the weekend G7 meeting, sparking hopes of a potential trade deal.
Opening higher, the index struggled to maintain early gains on the back of relatively thin trading volume. A sharp leg higher during the last few minutes of trading lifted the index to close near session highs at 2878.38, up 31.27 points and gaining 1.10% over previous session’s close. Technology and Communication Services sector led today’s relief bounce after facing the brunt of Friday’s intensifying trade tensions. Defensive stocks also posted strong gains with yields hovering near multi-year lows.
THE DETAILS (The “How & Why”):
After market close on Friday and ahead of the weekend’s G7 meeting, President Trump had intensified his rhetoric, announcing an increase of tariffs on $250 billion worth of Chinese goods from 25% to 30% in October and raising the tariffs due this week from 10% to 15%.
In an attempt to ease jittery markets that were rattled after China’s retaliatory move of slapping tariffs on U.S. imports ignited a series of threatening tweets by President Trump, both the disputing sides signaled their willingness to renew talks and reach a trade deal to avoid recessionary conditions.
Hopes of a potential trade deal lifted sentiment, helping the index to recoup some of Friday’s steep losses. Gains, however, remained capped amid a relatively low trading volume. Communication Services and Technology were the strongest performing sectors, regaining 1.53% and 1.39% of previous session’s meltdown. All of the FAANG components traded higher by more than 1% apiece, led by a 1.90% jump in Apple Inc. Semiconductor stocks were higher across the board after slumping on intensifying trade tensions.
Treasury yields edged higher following positive commentary by U.S. and China. The closely-watched spread between the 2-year and 10-year Treasury yields, however, closed into a negative territory once again. With yields hovering slightly above their historic lows, investors piled up on dividend-paying defensive stocks. Utilities, Real Estate and Consumer Staples sectors gained more than 1% each.
TechnipFMC PLC led the broader Energy space higher, jumping 3.94% after the global Oil and Gas Company announced its plan to split into two publicly traded companies by spinning off its onshore and offshore businesses. DISH Network Corp. was the next best performer of the session, gaining 3.93% following a double upgrade by Raymond James analysts, citing low valuations as a buying opportunity.