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THE GIST (“THE WHAT”)
Extending the strong bullish rally to notch a yet another record high, the S&P500 surged amid expectations of a breakthrough in U.S. – China trade talks. Surging at the open to hit new record highs and maintaining gains throughout the session, the index closed off of day’s highs at 3078.27, up 11.36 points and gaining 0.37% over previous session’s close. Energy stocks led the gains with oil prices jumping to a 6-week high, while defensive stocks were sold off in favor of cyclicals alongside rising risk appetite.
THE DETAILS (The “How & Why”):
Positive comments by U.S. Commerce Secretary Wilbur Ross signaling that the U.S. and China are making good progress in trade talks and that the Trump administration could issue licenses to domestic companies to do business with Huawei Technologies Inc. sparked hopes of possible breakthrough in trade talks. Reports that China is reviewing various locations in the U.S. to arrange a meeting between President Trump and Chinese President Xi Jinping to sign the much-touted ‘phase one’ of the partial trade deal, further boosted sentiment.
Long-term Treasury yields jumped the most in three weeks amid easing trade tensions. The 10-year Treasury yield settled 6 basis points higher at 1.787%. The yield curve between 2-year and 10-year notes steepened, benefiting global and regional banks across the board. Defensive stocks were sold off in favor of cyclicals and growth stocks amid rising risk appetite.
Oil prices received a strong boost from trade optimism, sending them to a six-week high and sparking a strong rally in Energy stocks by 3.15%. Energy stocks were among the top gainer of the session led by a 7.03% jump in Cimarex Energy Co. Pioneer Natural Resources Co., Devon Energy Corp. and Noble Energy Inc. jumped more than 6% apiece.
Meanwhile, FedEx Corp and General Electric Co surged more than 5% each, boosting the broader Industrials sector. Materials, Technology and Financials were all modestly higher for the day. On the flip side, defensive sectors capped the day’s strong gains. Real Estate and Utilities were the biggest drag on the index, closing lower by 1.28% and 1.05%, respectively. Consumer Staples and Health Care stocks fell amid rotation out of defensives and into cyclicals.
Among strong individual movers, Under Armour Inc. tanked 18.92%, extending its pre-market plunge despite posting better-than-expected quarterly results after the sportswear giant confirmed reports that it is under federal investigation over accounting malpractices. Several homebuilder stocks were also sharply lower for the day following industry downgrades citing mounting cost pressures. NVR Inc., PulteGroup Inc. and D.R. Horton Inc. all fell more than 4% apiece.