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THE GIST (“THE WHAT”)
Soothing comments out of China boosted risk-appetite and halted slide in Treasury yields. China-exposed stocks rallied strongly after China assured nervous investors that it will not retaliate immediately to the new tariffs on Chinese goods that are set to go into effect with an increased rate on September 1.
Gapping higher at the open, the index held on to strong early gains for the second straight session to close near day’s highs at 2924.58, up 36.64 points and gaining 1.27% over previous session’s close. China-exposed sectors posted the best gains, with Industrials and Technology leading the advances. Earnings beat by retail stocks further fueled the relief rally.
THE DETAILS (The “How & Why”):
With new tariffs on Chinese goods set to take effect on September 1 at an increased rate, China calmed investor nerves by hinting that it will not immediately retaliate with new tariffs on U.S. imports and is willing to resolve trade dispute with a ‘calm attitude’. Investors rotated out of safe-haven assets, buying back into the beaten-down cyclical stocks, lifting the broader index sharply higher.
Industrials was the best performing sector, closing broadly higher by 1.77%, led by a 4.70% jump in United Rentals. Caterpillar Inc. and Deere & Co. gained 2.53% and 2.46%, respectively amid easing trade war jitters. Transportation and airline stocks traded higher across the board. J B Hunt Transport, Southwest Airlines Company, American Airlines Group and Delta Air Lines Inc. all gained more than 2% apiece.
China exposed big tech and semiconductor stocks jumped solidly higher, lifting the broader Technology space higher by 1.73%. IPG Photonics Corp led the sector gains by 4%. Apple Inc. and Microsoft Corp added 1.69% and 1.89%, respectively. Applied Materials, Micron Technology, Western Digital Corp, NVIDIA Corp and Seagate Technologies, all climbed more than 3% apiece.
Taking a breather from recent slide that took yields closer to their near record lows, yields edged higher following soothing comments out of China. A lackluster performance of a 7-year bond auction further lifted yields higher. The 10-year Treasury yield settled 5 basis points higher at 1.520%. Yield curve between the 2-year and 10-year Treasury yields, however, remains inverted. Banks and financial stocks extended their gains for the second session in a row.
Oil prices also extended their climb on easing of oversupply concerns ahead of Hurricane Dorian that is expected to hit Florida as a Category 4 storm. Communication Services, Consumer Discretionary and Materials all added more than 1% each in gains.
Dollar General Corp. was the top gainer of the session, surging 10.68% on posting a solid second-quarterly results. The discount-chain retailer beat top and bottom line estimates, despite higher tariffs and negative impact from substantial legal expenses that resulted out of several class-action lawsuits. Best Buy Inc., however, capped gains within the retail space, tumbling 7.99% on missing earnings expectations.